PRIDE INTERNATIONAL INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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, 2003

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. [ ]

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

The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant at June 30, 2003, based on the closing price on
the New York Stock Exchange on such date, was approximately $2.1 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
8, 2004 was 135,769,487.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for the Annual
Meeting of Stockholders to be held in May 2004 are incorporated by reference
into Part III of this report.

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. Pride International, Inc. is a Delaware corporation
with its principal executive offices located at 5847 San Felipe, Suite 3300,
Houston, Texas 77057. Pride's telephone number at such address is (713)
789-1400.

OVERVIEW

Pride is a leading international provider of contract drilling and related
services, operating both offshore and on land. As of March 1, 2004, we operated
a global fleet of 327 rigs, including two ultra-deepwater drillships, 11
semisubmersible rigs, 35 jackup rigs, 30 tender-assisted, barge and platform
rigs and 249 land-based drilling and workover rigs. Our operations are conducted
in more than 30 countries and marine provinces 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.

During 2003, we continued our strategy begun in 2002 to redeploy our assets
to stronger markets internationally and to enter into long-term contracts where
available at attractive rates. In the Gulf of Mexico, we moved five jackup rigs,
one platform rig and one semisubmersible rig from the United States to Mexico.
These 2003 moves were in addition to the 11 jackups, one semisubmersible and one
platform rig mobilized to Mexico and other international markets in 2002,
principally from the U.S. Gulf of Mexico. The rigs are receiving higher day
rates for longer terms, and providing substantially higher cash margins, than
they would currently be realizing in the U.S. Gulf of Mexico market for the same
classes of rigs. At the same time, we believe our remaining available jackup and
platform rig fleets in the U.S. Gulf of Mexico leave us well-positioned to
benefit from any improvement in that market in 2004.

We may redeploy additional assets to more active regions in 2004 if we have
the opportunity to do so on attractive terms; however, we expect fewer
opportunities for redeployments than in 2002 and 2003.

During the fourth quarter of 2003, we also entered into a ten-year
aggregate contract extension with Total E&P Angola for the ultra-deepwater
drillships Pride Africa and Pride Angola, to commence upon completion of their
existing contracts in 2005. The ten-year aggregate is the total usage for both
drillships, with a minimum of three years and a maximum of seven years for any
one drillship. In addition, in November 2003, the Kizomba A deepwater platform
drilling rig constructed by Pride for a unit of Exxon Mobil Corporation began
operations offshore Angola under a five-year management contract.

Our technical services segment has had major projects ongoing to design,
engineer, manage construction of and commission four deepwater platform drilling
rigs, one of which, the Kizomba A, has been completed and commenced operations.
The rigs are being constructed under lump-sum contracts on behalf of two major
oil company customers for installation on spar and tension-leg production
platforms. We also are to provide drilling operations management of the rigs
once they have been installed on the platforms. We have experienced significant
cost overruns on these projects, and we estimate that total costs on all four
projects will substantially exceed revenues. Accordingly, during 2003, we
recorded substantial loss provisions relating to the construction of these
deepwater platform rigs. We do not currently intend to enter into any additional
construction contracts on a lump-sum basis for rigs to be owned by others. See
"-- Risk Factors -- Costs overruns on our lump-sum construction contracts have
resulted in losses on those contracts and may continue to do so in the future"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Business Environment and Outlook -- Segment Review -- Technical
Services."

1

OPERATIONS

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 land and offshore 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.

Our land-based fleet also includes a class of rigs known as workover rigs
designed to perform maintenance and repair or modification to existing wells.
Maintenance and repair services are required on producing oil and gas wells to
ensure efficient, continuous operation. These services consist of mechanical
repairs necessary to maintain or improve 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. Also, producing oil and gas
wells occasionally require major modifications, called "workovers." Workover
services include the opening of new producing zones in an 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.

GULF OF MEXICO

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

In the U.S. sector of the Gulf of Mexico, we operate 11 jackup rigs and 18
platform rigs. Six of the jackups and six of the platform rigs are currently
working under contracts ranging in duration from well-to-well to one year. The
remaining rigs are stacked.

In the Mexican sector, two semisubmersible rigs, 14 jackup rigs and three
platform rigs are working for a unit of Petroleos Mexicanos S.A. ("Pemex") under
contracts with initial durations of one to four years each. We mobilized nine
jackup rigs and one platform rig from the U.S. sector to the Mexican sector in
2002, and five additional jackups, one semisubmersible and one platform rig in
2003. Of our two semisubmersibles in this market, the Pride South Seas, which
was mobilized in 2002 from South Africa, is contracted through June 2005, and
the Pride Mexico, which began operations in October 2003, is contracted through
April 2007.

INTERNATIONAL OFFSHORE

West Africa. Our market-leading position in Angola includes two
ultra-deepwater drillships, three deepwater semisubmersibles, one jackup rig,
two tender-assisted rigs and one deepwater platform 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 for Total E&P Angola under
contracts initially expiring in May 2005 and June 2005, respectively. During the
fourth quarter of 2003, we entered into a ten-year aggregate contract extension
for these rigs, to commence upon completion of their existing contracts. The
ten-year aggregate is the total usage for both drillships, with a minimum of
three years and a maximum of seven years for any one drillship.

Two of our semisubmersible rigs, the Pride South Pacific and the Pride
North America, are working offshore Angola under contracts expiring in April
2004 and August 2004, respectively. We are actively marketing these rigs in the
region with the objective of securing work directly following completion of the
current contracts. In addition, we operate the dynamically positioned
semisubmersible rig Leiv Eiriksson in Angola under a long-term management
contract. The current work program expires in April 2004, and we are presently
marketing the rig in the region. The jackup rig Pride Cabinda is working
offshore Angola under a long-term contract expiring in August 2005.

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Following completion of its special periodic survey, the tender-assisted
rig Alligator is expected to begin working in July 2004 under a contract that
expires in January 2006. The tender-assisted rig Barracuda is operating in
Angola under a contract that expires in July 2004. In addition, in November
2003, the Kizomba A deepwater platform drilling rig began operations for a unit
of ExxonMobil Corporation offshore Angola under a management contract expiring
in December 2008.

Elsewhere in West Africa, we mobilized the jackup rig Pride North Dakota
from the U.S. Gulf of Mexico to Nigeria for work commencing in October 2002
under a contract that expires in October 2004. The swamp barge rig Bintang
Kalimantan is working in Nigeria under a contract expiring in March 2004, after
which we expect the rig to be stacked, and the tender-assisted rig Al Baraka I
is stacked following completion of its management contract in September 2003.

South America. In Brazil, the Pride Carlos Walter and the Pride Brazil,
which are deepwater, dynamically positioned semisubmersible rigs, are working
under five-year contracts for Petrobras that expire in June and July 2006,
respectively. The Pride South America, a dynamically positioned semisubmersible
rig, is currently working offshore Brazil for Petrobras under a contract that
expires in January 2005. The semisubmersible Pride South Atlantic began working
on a series of one-well contracts for three independent operators offshore
Brazil in January 2004, with possible additional option wells. The firm portion
of the program is expected to be completed in July 2004.

Our offshore fleet in Venezuela includes two jackup rigs and two barge rigs
operating on Lake Maracaibo. We manage the two jackup rigs on behalf of
Petroleos de Venezuela, S.A. ("PDVSA") under contracts that expire in March and
April 2004 at the end of work in progress. Pride has the right to extend each of
these contracts for an additional six months. The two barge rigs are working
under ten-year contracts with PDVSA expiring in January 2005. Our
semisubmersible rig Pride Venezuela has been stacked in Trinidad since
completing its contract with PDVSA offshore Venezuela in July 2003.

Other International. We operate two jackup rigs in India. In November
2002, we mobilized the Pride West Virginia from the Gulf of Mexico to India, and
it is currently working under a contract that expires in November 2004. The
Pride Pennsylvania is working offshore India under a contract that expires in
2006. The semisubmersible rig Pride North Sea operates in the Mediterranean Sea
under a contract that expires in August 2004. The jackup rig Pride Ohio is
operating in the Middle East under a contract that expires in April 2004. The
jackup rig Pride Montana is currently in Saudi Arabia working under a contract
expiring in June 2004. The Pride Hawaii, a jackup rig working offshore Malaysia,
is under contract until May 2005. The Pride Rotterdam, an accommodation unit, is
working in the Dutch sector of the North Sea under a contract that expires in
March 2005. 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.

INTERNATIONAL LAND

We operate 249 land-based rigs internationally, including 227 rigs in South
America. In Argentina, we operate a market-leading 154 rigs. Of these rigs, 52
are drilling rigs and 102 are workover rigs. Argentine rig operations are
generally conducted in remote regions of the country and require substantial
infrastructure and support costs. We believe that our established infrastructure
and scale of operations provide us with a competitive advantage in this market.

Our land-based fleet in Venezuela consists of 36 rigs, of which nine are
drilling rigs and 27 are workover rigs. In Colombia, we operate 12 drilling rigs
and eight workover rigs under contracts with major integrated and independent
international oil companies and with the national oil company. We operate four
drilling rigs and two workover rigs for operators in Bolivia. We operate two
drilling rigs in Ecuador. In Brazil, we operate one land-based drilling rig and
eight land-based workover rigs.

Elsewhere, our land-based operations include five rigs in Chad, one in
Mexico, one in France, one in Russia, two in Kazakhstan, four in North Africa
and four in the Middle East.

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E&P SERVICES

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

During 2002 and 2003, our land-based rig 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 -- Worldwide
political and economic developments may hurt our operations" in Item 1 of this
annual report, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 of this annual report.

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 numerous rigs in our fleet.

Our technical services segment has had major projects ongoing to design,
engineer, manage construction of and commission four deepwater platform drilling
rigs, one of which has been completed and commenced operations. The rigs are
being constructed under lump-sum contracts on behalf of two major oil company
customers for installation on spar and tension-leg production platforms. We also
are to provide drilling operations management of the rigs once they have been
installed on the platforms. We have experienced significant cost overruns on
these projects, and we estimate that total costs on all four projects will
substantially exceed revenues. Accordingly, during 2003, we recorded substantial
loss provisions relating to the construction of these deepwater platform rigs.
We do not currently intend to enter into any additional construction contracts
on a lump-sum basis for rigs to be owned by others. See "Risk Factors -- Cost
overruns on our lump-sum construction contracts have resulted in losses on those
contracts and may continue to do so in the future" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Business
Environment and Outlook -- Segment Review -- Technical Services."

RIG FLEET

OFFSHORE RIGS

The table below presents information about our offshore rig fleet as of
March 1, 2004:

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

(1) Owned by joint ventures in which we have a 51% interest.

(2) Managed by us, but owned by others.

(3) Owned by a joint venture in which we have a 30% interest; formerly known as
the Amethyst 4 and Amethyst 5.

(4) We have entered into a memorandum of agreement to sell the unit subject to
various conditions, some of which may be difficult to satisfy. Accordingly,
the sale may not be completed.

(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.

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

6

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 rig 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 generally 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 modular platform rigs are
capable of drilling to well depths of up to 25,000 feet. The Kizomba A rig,
which we built and manage for the customer, can drill wells at depths of up to
30,000 feet. It is permanently installed on a deepwater floating structure known
as a tension-leg platform. Our platform rigs can be used to provide drilling,
workover and horizontal reentry services using top drives, enhanced pumps and
solids control equipment for drilling fluids.

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LAND RIGS

The table below presents information about our land-based rig fleet as of
March 1, 2004:

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

(1) One drilling rig and three workover 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.

COMPETITION

Our competition ranges from large multinational companies offering a wide
range of drilling and other oilfield services to smaller, locally owned
companies. We believe 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 highly mobile and may be moved,
at a cost that is sometimes substantial, 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, which may enable
them to better withstand periods of low utilization, compete more effectively on
the basis of price, build new rigs or acquire existing rigs.

CUSTOMERS

We work for large multinational oil and gas companies, government-owned oil
and gas companies and independent oil and gas producers. During 2003, we had two
customers, Pemex and Petrobras, that each accounted for approximately 13% of our
consolidated revenues. The loss of either of these significant customers could,
in the near term, have a material adverse effect on our results of operations.
No other customer accounted for 10% or more of our 2003 consolidated revenues.

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DRILLING 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). Substantially all of our contracts
with major customers 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 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.

Contracts for work in international offshore markets 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 attempt to 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 local
currencies by matching our acceptance thereof to our expense requirements in
such 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 "-- Risk Factors -- Worldwide
political and economic developments may hurt our operations" in Item 1 of this
annual report, "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.

In addition, a customer may seek to cancel or renegotiate its contract
during periods of depressed market conditions or if we experience downtime or
operational problems above the contractual limit. See "-- Risk Factors -- 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."

SEASONALITY

Our land rigs in Kazakhstan are operating on artificial islands in the
Caspian Sea. Because winter ice conditions hinder access and resupply, the rigs
are placed in a non-operating standby mode during winter months at a reduced
dayrate. Otherwise, our business activities are not significantly affected by
seasonal fluctuations. Most of our other 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 1, 2004, we employed approximately 12,200 employees.
Approximately 1,200 of our employees were located in the United States and
11,000 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.

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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 15 of our
Notes to Consolidated Financial Statements included in Item 8 of this annual
report.

WEBSITE ACCESS TO SEC REPORTS

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. These filings, and any amendments to 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. These filing
also are available at the SEC's internet website at www.sec.gov. Information
contained on our website is not part of this annual report.

RISK FACTORS

COST OVERRUNS ON OUR LUMP-SUM CONSTRUCTION CONTRACTS HAVE RESULTED IN LOSSES
ON THOSE CONTRACTS AND MAY CONTINUE TO DO SO IN THE FUTURE.

Our technical services segment is performing four deepwater platform rig
construction projects under lump-sum contracts with our customers. One of these
rigs has been delivered to the customer and is now in operation. We recorded
loss provisions totaling $98.4 million, or $64.0 million net of taxes at the
U.S. statutory rate, during 2003 as a result of cost overruns on these projects.
The loss provisions include costs incurred to date plus our estimate of costs we
expect to incur to complete these projects. Currently unforeseen events may
result in further cost overruns to complete these projects, which could be
material and which would require us to record additional loss provisions in
future periods. Such events could include variations in labor and equipment
productivity over the remaining term of the contract, unanticipated cost
increases, engineering changes, shipyard or systems problems, project management
issues, shortages of equipment, materials or skilled labor, unscheduled delays
in the delivery of ordered materials and equipment, work stoppages, shipyard
unavailability or delays. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Business Environment and
Outlook -- Technical Services" in Item 7 of this annual report.

WE RECOGNIZE REVENUES AND RELATED COSTS UNDER OUR CONTRACTS IN THE TECHNICAL
SERVICES SEGMENT ON A PERCENTAGE-OF-COMPLETION BASIS. ADJUSTMENTS IN ESTIMATES
COULD RESULT IN A CHARGE AGAINST EARNINGS, WHICH COULD BE MATERIAL.

We recognize revenues and related costs under contracts in our 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 income 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.
Our current estimates may be revised in future periods, and those revisions may
be material. Currently, all four of our lump-sum construction projects are in a
loss position.

A MATERIAL OR EXTENDED DECLINE IN EXPENDITURES BY OIL AND GAS COMPANIES, DUE
TO A DECLINE OR VOLATILITY IN OIL AND GAS PRICES, A DECREASE IN DEMAND FOR OIL
AND GAS OR OTHER FACTORS, MAY REDUCE DEMAND FOR OUR SERVICES AND MATERIALLY
REDUCE OUR PROFITABILITY.

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;

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- 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;

- the level of production by non-OPEC countries; and

- 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. Any significant decrease in daily rates or utilization
of our rigs, particularly our high-specification semisubmersible rigs or jack-up
rigs, could materially reduce our revenues and profitability.

AN OVERSUPPLY OF COMPARABLE RIGS IN THE GEOGRAPHIC MARKETS IN WHICH WE COMPETE
COULD DEPRESS THE UTILIZATION RATES AND DAYRATES FOR OUR RIGS AND MATERIALLY
REDUCE OUR REVENUES AND PROFITABILITY.

Utilization rates, which are the number of days a rig actually works
divided by the number of days the rig is available for work, and dayrates, which
are the contract prices customers pay for rigs per day, are affected by the
total supply of comparable rigs available for service in the geographic markets
in which we compete. 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 rates 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 lead to construction of new
rigs. These increases in the supply of rigs could depress the utilization rates
and dayrates for our rigs and materially reduce our revenues and profitability.

WORLDWIDE POLITICAL AND ECONOMIC DEVELOPMENTS MAY HURT OUR OPERATIONS
MATERIALLY.

In 2003, we derived approximately 39% of our revenues from operations in
countries within South America and an additional approximately 48% of our
revenues from operations in all other countries outside the United States. 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;

- uncertainty or instability resulting from armed hostilities or other
crises in the Middle East or other geographic areas in which we operate;
and

- acts of terrorism.

Continued hostilities in the Middle East and the occurrence or threat of
future terrorist attacks such as those against the U.S. on September 11, 2001
could cause a downturn in 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 cause our revenues and margins to decline 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

11

for our drilling services. In addition, these risks could increase instability
in the financial and insurance markets and make it more difficult for us to
access capital and to obtain insurance coverages that we consider adequate or
are otherwise required by our contracts.

We attempt to limit the risks of currency fluctuation and restrictions on
currency repatriation where possible 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 local 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
cause our results of operations and financial condition to deteriorate
materially.

During 2003, approximately 25% of our consolidated revenues were derived
from our operations in Argentina and Venezuela. Over the past two years, these
two countries experienced political and economic instability that resulted in
significant changes in their general economic policies and regulations.

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, further devaluations may cause our
results to suffer materially.

Since the second quarter of 2002, Venezuela has experienced political,
economic and social instability, including prolonged labor strikes,
demonstrations and an attempt to overthrow the government. Much of the
instability negatively impacted PDVSA, which is our principal customer in
Venezuela, and led to the dismissal of more than 18,000 employees by the
government. The instability in Venezuela has had an adverse effect on our
business. Exchange controls, together with employee dismissals and
reorganization within PDVSA, led to a slower rate of collection of our trade
receivables in early 2003.

Although foreign exchange in the other countries where we operate is
currently carried out on a free-market basis, local monetary authorities in
these countries may, in the future, implement exchange controls or other
economic measures that would limit or restrict our rights 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 negatively 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 limited 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.

For further information about our international operations, including our
results of operations by geographic area, please refer to "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Business Environment and Outlook" in Item 7 of this annual report
and to Note 15 of our Notes to Consolidated Financial Statements included in
Item 8 of this annual report.

12

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.

Substantially all our contracts with major customers are dayrate contracts,
where we charge a fixed charge per day regardless of the number of days needed
to drill the well. 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 have the right
to terminate existing contracts if we experience operational problems. The
likelihood that a customer may seek to terminate a contract for operational
difficulties is increased during periods of market weakness. The cancellation of
a number of our drilling contracts could materially reduce our revenues and
profitability.

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

As of December 31, 2003, we had approximately $2.0 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; and

- 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.

As of March 10, 2004, our liquidity position totaled approximately $108
million, consisting of approximately $53 million of unrestricted cash, $31
million of available undrawn capacity under our senior secured revolving credit
facilities and $24 million of available undrawn unsecured credit facilities. The
total undrawn portion of our senior secured revolving credit facilities at that
date was approximately $107 million. Indentures governing our outstanding 9 3/8%
senior notes due 2007 and 10% senior notes due 2009 limit our ability to draw
under these facilities to a percentage of consolidated net tangible assets,
which effectively restricts our ability at present to borrow additional amounts
under these facilities. Accordingly, approximately $76 million of the $107
million of undrawn capacity under these facilities was not available as of March
10, 2004 to meet our short-term liquidity needs, leaving only $31 million
available.

WE ARE SUBJECT TO A NUMBER OF OPERATING HAZARDS INCLUDING THOSE 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 other 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

13

operations, either while on site or during mobilization, such as capsizing,
sinking and damage from severe weather conditions. We customarily provide
contract indemnity to our customers for:

- claims which could be asserted by us relating to damage to or loss of our
equipment, including rigs;

- claims which could be asserted by us or our employees relating to
personal injury or loss of life; and

- legal and financial consequences of spills of industrial waste and other
liquids, but only to the extent (1) the waste or other liquids were in
our control at the time of the spill or (2) our level of culpability is
greater than mere negligence.

We maintain insurance for injuries to our employees, damage to or loss of
our equipment and other insurance coverage for normal business risks, including
general liability insurance. Any insurance protection may not be sufficient or
effective under all circumstances or against all hazards to which we may be
subject. In addition, some of our primary insurance policies have substantial
per occurrence or annual deductibles and/or self-insured aggregate amounts. 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 increase our costs and impair our
profitability and financial condition. Moreover, the September 11, 2001
terrorist attacks in the United States 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.

WE ARE SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS, INCLUDING THOSE THAT MAY
IMPOSE SIGNIFICANT LIABILITY ON US FOR ENVIRONMENTAL DAMAGE.

Many aspects of our operations are subject to governmental regulations that
may relate directly or indirectly to the contract drilling and well servicing
industries, including those requiring us to control the discharge of oil and
other contaminants from our rigs or otherwise relating to protection of the
environment. We are subject to the U.S. Oil Pollution Act of 1990, the U.S.
Outer Continental Shelf Lands Act, and the Comprehensive Environmental Response,
Compensation and Liability Act, or CERCLA. Additionally, other countries where
we operate frequently have regulations covering the discharge of oil and other
contaminants in connection with drilling operations. 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, 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 materially limit future contract drilling opportunities or
materially increase our costs or both.

WE MAY HAVE DIFFICULTY IMPLEMENTING IN A TIMELY MANNER INTERNAL CONTROL
PROCEDURES NECESSARY TO ALLOW OUR MANAGEMENT TO REPORT ON THE EFFECTIVENESS OF
OUR INTERNAL CONTROLS. IN ADDITION, OUR INDEPENDENT AUDITORS MAY NOT BE ABLE
TO ISSUE AN ATTESTATION REPORT ON MANAGEMENT'S ASSESSMENT.

Beginning with our report for 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, which is to
include management's assessment of the effectiveness of our internal control
over financial reporting as of the end of the fiscal year. That report will also
be required to include a statement that our independent auditors have issued an
attestation report on management's assessment of our internal control over
financial reporting. 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 they considered to be a material
weakness in internal control.

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

14

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. We may not, however, be able to
complete the work necessary for our management to issue its management report in
a timely manner, or any work that will be required for our management to be able
to report that our internal control over financial reporting is effective. In
addition, our independent auditors may not be able to issue an attestation
report on management's assessment.

ITEM 2. PROPERTIES

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 Algeria,
Angola, Argentina, Brazil, Colombia, France, Peru and Venezuela. Additionally,
we lease 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 3
and 6 of our Notes to Consolidated Financial Statements included in Item 8 of
this annual report.

ITEM 3. LEGAL PROCEEDINGS

We are routinely involved in other litigation, claims and disputes
incidental to our business, which at times involve 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 flows.
However, a substantial settlement payment or judgment in excess of our accruals
could have a material adverse effect on our consolidated results of operations
or cash flows.

15

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 2003.

EXECUTIVE OFFICERS OF THE REGISTRANT

We have presented below information about our executive officers as of
March 1, 2004. 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. From
February 1997 to January 2004, he also served as President of Pride. From
February 1997 to April 1999, he served as Chief Operating Officer of Pride. 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.) from 1983 through 1987.

John C.G. O'Leary was named President in January 2004. From March 1997 to
January 2004, he served as Vice President -- International Marketing, a position
he obtained 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. He
joined Forasol in August 1985.

Louis A. Raspino joined Pride in December 2003 as Executive Vice President
and Chief Financial Officer. From July 2001 until December 2003, he served as
Senior Vice President-Finance and Chief Financial Officer of Grant Prideco, Inc.
From December 2000 until March 2001, he was employed as Executive Vice
President, Chief Financial Officer and Chief Operating Officer of JRL
Enterprises, Inc. From February 1999 until December 2000, he served as Vice
President of Finance for Halliburton Company. From October 1997 until July 1998,
he was a Senior Vice President at Burlington Resources, Inc. From 1978 until its
merger with Burlington Resources, Inc. in 1997, he held a variety of
increasingly responsible positions at Louisiana Land and Exploration Company,
most recently as Senior Vice President, Finance and Administration and Chief
Financial Officer.

John R. Blocker, Jr. was named Senior Vice President -- Operations in
January 2004. From March 2000 to January 2004, he served as Vice
President -- Latin American Operations. He joined Pride in 1993 as President of
our Argentine subsidiary, Pride International, S.R.L. He has more than 33 years
of oilfield experience with several companies.

Bobby E. Benton was named Vice President -- Western Hemisphere Operations
in February 2004. He was previously Vice President -- Brazil/Asia Pacific/Middle
East since May 2002. Mr. Benton joined Pride in September 2001 in the merger
with Marine Drilling Companies, Inc., where he held various senior

16

management positions, including Senior Vice President -- Worldwide Operations
and Vice President -- Worldwide Marketing since June 1999. Prior to joining
Marine, he served as Vice President -- International Operations with Diamond
Offshore Drilling, Inc., following Diamond's acquisition of Arethusa Offshore
Company in April 1996.

David A. Bourgeois was named Vice President -- U.S. Gulf of Mexico
Operations in February 2004. He previously served as Vice President -- North
American Operations since 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 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.

Edward G. Brantley joined Pride as Treasurer in January 2000. In September
2001, he was named Vice President and Chief Accounting Officer. Prior to joining
Pride, Mr. Brantley was employed by Baker Hughes Incorporated for 11 years in
various capacities, including Controller of its Baker Hughes INTEQ division.

Gary W. Casswell was named Vice President -- Eastern Hemisphere Operations
in May 1999. He joined Pride in August 1998 from Santa Fe International
Corporation (now part of GlobalSantaFe Corporation). From 1974 through 1998, Mr.
Casswell served Santa Fe in positions of increasing responsibility, including
Operation Manager and Technical Development Manager.

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. From August 1992 to February 1997, Mr.
Evanoff practiced corporate and securities law with Baker Botts L.L.P. in
Houston, Texas.

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.

W. Gregory Looser was named Vice President, General Counsel and Secretary
in December 2003. He joined Pride in May 1999 as Assistant General Counsel.
Prior to that time, Mr. Looser was with the law firm of Bracewell & Patterson,
L.L.P. in Houston, Texas.

Jonathan R.A.S. Talbot was named Vice President -- Marketing in March 2004.
Prior to that, he served as Director of Business Development for Pride and
previously Forasol since September 1995. Mr. Talbot joined Forasol in 1990.

17

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 8, 2004, there were 1,507 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 for debt repayment. We 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.

18

ITEM 6. SELECTED FINANCIAL DATA

We have derived the following selected consolidated financial information
as of December 31, 2003 and 2002, and for each of the years in the three-year
period ended December 31, 2003, 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, 2001 and 2000 and for each of the years in the two-year
period ended December 31, 2000, 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 from the audited
consolidated financial statements of Pride and Marine Drilling Companies, Inc.,
which we acquired in September 2001 in a transaction accounted for under the
pooling-of-interests method of accounting, 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) The consolidated financial information as of and for the years ended
December 31, 2002, 2001, 2000 and 1999 has been restated to reflect the
retroactive adoption of Financial Accounting Standards Board Interpretation
("FIN") No. 46R, "Consolidation of Variable Interest Entities."

(2) 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.

(3) 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 4 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" below 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 1, 2004, we operated
a global fleet of 327 rigs, including two ultra-deepwater drillships, 11
semisubmersible rigs, 35 jackup rigs, 30 tender-assisted, barge and platform
rigs and 249 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.

The markets for our drilling, workover and related E&P services are highly
cyclical. Variations in market conditions during the cycle impact us in
different ways depending primarily on the length of drilling contracts in
different regions. Contracts in the U.S. Gulf of Mexico, for example, tend to be
short-term, so a deterioration or improvement in market conditions tends to
impact our operations quickly. Contracts in our international offshore segment,
as well as in Mexico, tend to be longer term. Accordingly, short-term changes in
market conditions may have little or no impact on our revenues and cash flows
from those operations unless the market changes occur during a period when we
are attempting to renew a number of those contracts.

In late 2001, we commenced the first of four major deepwater platform rig
construction projects. The rigs are being constructed on behalf of two major oil
company customers under lump-sum contracts. We have experienced significant cost
overruns on these projects, and we estimate that total costs on all four
projects will substantially exceed contract revenues. Accordingly, in 2003, we
recorded provisions for losses on these projects totaling $98.4 million, or
$64.0 million net of taxes at the U.S. statutory rate. The provisions reflect
our current estimates of the costs to complete the projects and of additional
contract revenues from the projects, following a review by our operating and
senior management. There are, however, uncertainties regarding many of the
estimates and, particularly, the range of possible outcomes of certain
commercial

20

disputes related to the projects, which could result in settlements
significantly above or below our current estimates. Our current estimates may be
revised in future periods, and those revisions may be material.

Weakness in the deepwater semisubmersible and drillship markets offshore
West Africa and Brazil did not have a significant impact on our results for
2003, as our deepwater rigs in those markets were operating under long-term
contracts entered into when market conditions were more favorable. The impact of
the continued weakness in these markets on our results for 2004 is likely to be
more significant, however, as the contracts for two of our deepwater assets in
the West African market are due to be renewed during the year. We believe,
however, that conditions in those markets will improve later in 2004 as
development drilling commences on a number of major oil discoveries.

We experienced improved utilization of our jackup rig fleet in 2003,
principally due to our success in marketing rigs into Mexico and other
international markets from the U.S. Gulf of Mexico, which has experienced weak
market conditions since late 2001. The contracts in Mexico have an average
remaining term of approximately two years and, together with recently obtained
extensions to the contracts for our two drillships working offshore Angola for
an aggregate of ten years, resulted in an increase in the contract backlog for
our offshore rig fleet to approximately 74 years and $1.7 billion as of March 1,
2004, from 66 years and $1.4 billion as of March 1, 2003. In calculating our
contract backlog, we include the remaining firm period of outstanding contracts,
excluding any option periods, and the contract operating day rate less a 5%
allowance for any downtime or reduced rate billing, excluding any mobilization
fees, performance bonuses and anticipated charges for ancillary services. The
above figures are the aggregate for all offshore rigs operated by us, including
rigs owned by others that we manage, and excluding the deepwater platform rigs
under construction.

Conditions in our South American land and related E&P services markets
improved during 2003, and our activity in these markets has recovered from the
political and economic crises in Argentina and Venezuela in 2002 to levels
exceeding those before the crises. Assuming there are no new major disruptions
in these markets in 2004, we expect our 2004 results from operations in these
markets to be comparable to 2003 results.

We ended 2003 with approximately $28 million more debt and $79 million less
total cash (cash and cash equivalents plus restricted cash) than at the end of
2002. Total debt and liquidity in 2003 were negatively impacted by the high
level of capital expenditures required to prepare rigs in our U.S. fleet for
work in Mexico, higher than normal operating costs during the start-up of
operations for those rigs, net cash outflows on the rig construction projects
discussed above and an increase in trade receivables. We expect that debt levels
and liquidity in 2004 will continue to be negatively impacted by increased net
cash outflows relating to the construction projects. Debt levels and liquidity
in 2004 will also be negatively impacted by our 30% share of stacking and debt
service costs if we are unable to secure work during 2004 for the Pride Portland
and Pride Rio de Janeiro, two Amethyst-class semisubmersible rigs that are
concluding construction and are expected to be available for work in the second
quarter and third quarter of 2004, respectively. In addition, the day rate under
which either or both of our two West African deepwater semisubmersible rigs,
whose existing contracts expire in 2004, are recontracted could have a
significant impact on our future debt and liquidity. However, we expect debt and
liquidity in 2004 to benefit from a full year of operations for our rigs in
Mexico and from a reduced level of capital expenditures, as our program to
upgrade rigs from our U.S. Gulf of Mexico fleet for international markets winds
down.

Debt reduction and liquidity in 2004 also will be positively impacted if we
succeed in our announced focused efforts to reduce operating, general and
administrative costs, improve our working capital management and sell certain
assets. Although we intend to aggressively pursue these strategies to reduce our
debt and improve our liquidity, it is not practicable at the present time to
quantify the possible impact, if any, of any of these measures.

As of March 10, 2004, our liquidity position totaled approximately $108
million, consisting of approximately $53 million of unrestricted cash, $31
million of available undrawn capacity under our senior secured revolving credit
facilities and $24 million of available undrawn unsecured credit facilities. The
total undrawn portion of our senior secured revolving credit facilities at that
date was approximately $107 million. Indentures governing our outstanding 9 3/8%
senior notes due 2007 and our 10% senior notes due 2009 limit our ability to
21

draw under these facilities to a percentage of consolidated net tangible assets,
which effectively restricts our ability at present to borrow additional amounts
under these facilities. Accordingly, approximately $76 million of the $107
million of undrawn capacity under these facilities was not available as of March
10, 2004 to meet our short-term liquidity needs, leaving only $31 million
available. Furthermore, in connection with the announced extension of the
drilling contracts for our two drillships, we are in the process of finalizing
an approximate $128 million expansion of the drillship loans. We currently
expect that approximately $103 million of the proceeds and approximately $15
million of currently restricted cash will be used by the joint venture to repay
indebtedness due from the joint venture company to Pride early in the second
quarter of 2004. If the transaction is completed, the funds paid to us will be
available to reduce our other outstanding debt and improve liquidity. In
addition, as of December 31, 2003, $38.8 million of our cash balances, which
amount is included in restricted cash, consisted of funds held in trust in
connection with our drillship and semisubmersible loans and our limited-recourse
collateralized term loans and is therefore not available for our use. The amount
as of March 10, 2004 was approximately $27 million.

In September 2001, we acquired Marine Drilling Companies, Inc. in a
stock-for-stock transaction. 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 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.

Since November 2003, we have reorganized our senior management team. John
O'Leary has been appointed to the position of President, Louis Raspino joined
Pride as Executive Vice President and Chief Financial Officer, John Blocker has
been appointed Senior Vice President -- Operations and Gregory Looser has been
appointed Vice President, General Counsel and Secretary.

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 or the subject of periodic
surveys or routine maintenance 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 by our customers
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
22

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 general and administrative
expenses are principally related to our corporate headquarters and our regional
offices.

Environmental Regulation. We are subject to the U.S. Oil Pollution Act of
1990, the U.S. Outer Continental Shelf Lands Act, and the Comprehensive
Environmental Response, Compensation and Liability Act, or CERCLA. Additionally,
other countries where we operate have similar regulations covering the discharge
of oil and other contaminants in connection with drilling operations.

SEGMENT REVIEW

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

Gulf of Mexico

Demand for drilling services in the U.S. Gulf of Mexico showed only a
marginal improvement in 2003. Demand has continued to lag the recovery in
natural gas prices that commenced in mid-2002 when natural gas inventory storage
levels started to decline. Market conditions have, however, somewhat improved
due to the reduction in the supply of rigs resulting from a number of rigs
leaving the U.S. sector of the Gulf of Mexico for other markets. As a result,
jackups in the U.S. Gulf of Mexico are currently being contracted at rates of
approximately $4,000 per day higher than at the start of 2003.

In response to the weak market conditions that have existed in the U.S.
Gulf of Mexico since the fourth quarter of 2001, 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 a unit of Petroleos Mexicanos S.A. 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 Pride Mexico, a newly acquired
semisubmersible rig. The first nine jackup rigs, one of the platform rigs and
the Pride South Seas were contracted and completed redeployment in 2002 and
worked throughout 2003. Three of the jackups and the second platform rig
commenced operations in July 2003, and the Pride Mexico and the remaining two
jackup rigs commenced operations in the fourth quarter of 2003.

23

As of March 1, 2004, our 14 jackups working for Pemex had contracts with an
average remaining term of 2.1 years and an average contract day rate of $32,900.
Six of our jackups were working in the U.S. Gulf of Mexico with an average
contract day rate of $26,800, of which four were on short-term contracts. There
were five rigs available. Additionally, three of our platform rigs were working
offshore Mexico on contracts with an average contract day rate of $20,200 and
five were working in the U.S. Gulf of Mexico at an average contract day rate of
$21,000.

Two of our available jackup rigs could be put back into service in the U.S.
Gulf of Mexico at a relatively low cost. The remaining three rigs have not
worked since late 2001, and we would require longer-term contracts to justify
the cost of reactivating these rigs. All of our available rigs would require
additional expenditures to work in Mexico or other international markets.

We expect that revenues and gross margins derived from our Gulf of Mexico
operations in 2004 will exceed those for 2003 due to higher revenues from a full
year of operations, and the absence of start-up costs, for those rigs working in
Mexico. Results for 2004 are also expected to benefit from improved day rates
and a modest increase in activity in the U.S. sector of the Gulf.

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 in 2003. The seventh rig, the Pride
South America semisubmersible rig, received its five-year periodic survey and
related maintenance in the first quarter of 2003 and was out of service for
approximately 70 days. In addition, the rig had approximately 45 days of
downtime in the third and fourth quarters of 2003 due to repairs to its thruster
systems.

The Pride Carlos Walter and Pride Brazil semisubmersible rigs working
offshore Brazil both experienced unscheduled downtime in the fourth quarter of
2003 relating to the replacement of certain bearings on their riser tensioner
systems. The downtime resulted in approximately $3.0 million of lost revenues
and approximately $1.5 million of increased operating costs. Each rig has eight
sets of riser tensioners, and we plan to replace the bearings on the remaining
unchanged sets during 2004, which is expected to result in an aggregate of
approximately 25 days of downtime for the two rigs in 2004.

Two of our deepwater semisubmersible rigs working in West Africa are
expected to complete their current contracts in April 2004 and August 2004,
respectively. Demand and day rates for deepwater rigs in the West African market
are lower than when the rigs were last contracted. We currently expect that the
rigs will be recontracted at rates significantly less than their current rates
and that one or both could have some period without contract revenues. Our
remaining three deepwater semisubmersibles are on long-term contracts, and our
two deepwater drillships, the Pride Africa and Pride Angola, are working under
contracts that were extended in December 2003 by an aggregate of ten years,
commencing at the end of the contracts' current terms in June 2005 and May 2005,
respectively. The Pride Africa is scheduled to undergo its five-year special
periodic survey in the fourth quarter of 2004 and is expected to be out of
service for approximately 45 days.

The market for intermediate water-depth semisubmersible rigs remained weak
during 2003. Idle time for our three rigs working in the international offshore
segment was due primarily to one of the rigs undergoing its five-year periodic
survey during the period and to the Pride Venezuela being stacked for the last
five months of 2003 after it completed its contract with PDVSA in July. The
Pride Venezuela has been demobilized to Trinidad and is being marketed
internationally. Additionally, the contract for the Pride South Atlantic,
offshore Brazil, expired in October 2003, and the rig commenced a new contract
to drill three wells, with possibly additional optional wells, offshore Brazil,
in January 2004. Both the Pride Venezuela and the Pride South Atlantic were warm
stacked after their respective contracts expired. Therefore, operating costs
while they were stacked were similar to when they had been working.

Since the transfer of two independent-leg jackup rigs to Nigeria and India
under two-year contracts in 2002, we have had eight jackup rigs working in
international waters outside of the Gulf of Mexico. All of these rigs are
currently working under long-term contracts, of which four are due to expire in
2004. These jackup

24

rigs experienced 94% utilization in 2003. The idle time was primarily due to two
of these rigs undergoing shipyard repairs in 2003. Additionally, we manage two
jackup rigs on behalf of PDVSA in Venezuela under contracts that expire in the
second quarter of 2004. Four of our jackup rigs are expected to undergo their
planned special periodic surveys during 2004 and will be out of service for a
combined total of approximately eight months. We currently expect that the four
rigs whose contracts are due to expire in 2004 will be recontracted at modestly
lower day rates.

We expect revenues and gross margin for our international offshore segment
to be lower in 2004 than in 2003 primarily due to the weaker market conditions
in the West African deepwater semisubmersible market and to the Pride Africa
undergoing its special periodic survey.

International Land

During 2003, our international land segment benefited from improved
economic and political stability in Argentina, where approximately 62% (154 out
of 249) of our worldwide land drilling and workover rigs are located. Operations
in 2002 had been adversely affected by the economic and political instability in
that country. The Argentine peso declined in value against the U.S. dollar
following the Argentine government's decision to abandon the country's fixed
one-to-one dollar-to-peso exchange rate at the end of 2001. Prior to that
decision, commercial transactions were freely entered into in either pesos or
dollars because the two currencies operated in parity and both could move out of
the country freely. In December 2001, the Argentine government imposed
restrictions that severely limited dollar withdrawals and exchanges, with the
result that as of December 31, 2001, no Argentine commercial transactions could
be conducted in dollars and there was no exchangeability between the peso and
the dollar. In January 2002, the Argentine government announced the creation of
a dual exchange rate system in which limited transactions would be settled at an
official/preferential rate. When this system proved to be non-operational in
practice, the government abandoned it in early February 2002 and adopted a
free-market rate system for all new transactions. The government also mandated
that all existing U.S. dollar commercial transactions be redenominated into
pesos at the rate of one peso to one dollar. As a result of this conversion,
which followed the earlier devaluation of the peso, we recorded a charge in the
fourth quarter of 2001 of $10.7 million before estimated income taxes, and $6.9
million net of estimated income taxes, to reduce the carrying values of our net
monetary assets in Argentina, which included our bank accounts, receivables,
prepaid expenses, deposits, payables and accrued liabilities. This amount is
reflected as other income (expense).

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 available rig fleet in Argentina was 83.5% in
2003 as compared with 68% in 2002. As of March 1, 2004, 132 rigs, or 86% of our
total fleet of 154 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 March 1, 2004, we had 31 rigs, or 86%, of our total
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. Exchange controls,
together with employee dismissals and reorganization within PDVSA, initially led
to a slower rate of collection of our trade receivables, but the rate of
collection has improved since early 2003.

In Kazakhstan, the first of two of our large land rigs, 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

25

with the customer's specifications. We received up-front fees that we recognized
over the rigs' respective contract periods, of which $6.0 million was recognized
in 2002 and $42.9 million in 2003. Both of the rigs were stacked at the onset of
the winter period in November 2003 and are currently being reactivated. One of
the rigs is expected to work throughout the 2004 drilling season. Activity for
the second rig depends upon the results of testing of the well it drilled in
2003.

In Africa, activity increased due to a full year of operation for five
newly constructed mobile land rigs that started work in Chad between December
2001 and April 2002 under contracts with a unit of ExxonMobil with initial terms
ranging from five to seven years.

E&P Services

Our E&P services activity is generated predominately in South America and
has benefited from the improved political and economic environment in 2003.
Revenues and gross margins have improved during 2003 in Argentina due to the
commencement of additional integrated services contracts. Activity in this
sector has also improved due to the commencement of directional,
measurement-while-drilling and other services onshore Brazil and the provision
of cementing services offshore Mexico, where the services are complementary to
our existing drilling operations.

Technical Services

Our technical services group has major projects ongoing to design,
engineer, manage construction of and commission four 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 rigs once they have been installed on the
platforms. The first platform drilling rig has been mated with the customer's
platform and towed to Angola, where it commenced drilling operations in November
2003. Two of the other deepwater platform rigs are expected to enter into
service in the second half of 2004 and the remaining rig is expected to enter
into service in early 2005.

During 2003, we recorded loss provisions, included in operating costs,
totaling $98.4 million, or $64.0 million net of taxes at the U.S. statutory
rate, relating to the construction of these deepwater platform rigs. On all four
of these projects, costs are now expected to substantially exceed revenues. We
do not currently intend to enter into any additional lump-sum construction
contracts for rigs to be owned by others.

Much of the increased costs are related to difficulties experienced with
two different shipyards. We terminated our contract with the initial 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. We
have engaged another shipyard to complete construction of the second rig, and
the aggregate costs paid to the initial shipyard and committed and paid to the
second shipyard have greatly exceeded budgeted expenditures for the rigs. 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. A U.S.
shipyard building one of the primary components for the third rig encountered
significant financial difficulties, and we have paid costs in excess of amounts
initially agreed to provide financial capacity for it to complete a reduced
scope of work. The aggregate costs paid to that shipyard, in addition to the
costs associated with the completion of the remaining tasks by newly contracted
third parties, as well as transportation and other costs necessitated by the
revisions to the project completion plan, have significantly exceeded the
budgeted expenditures for the third deepwater rig. Furthermore, based on our
experience from the start-up of the first rig and on revisions of estimates, we
have included increased costs for construction, transportation, commissioning,
training and warranties in our estimates of costs to complete the three
remaining rigs.

We have commenced arbitration proceedings against the initial shipyard
claiming damages of approximately $5.8 million, and the shipyard has asserted
counterclaims against us for damages of approximately $13.8 million. We also are
in commercial disputes and negotiations with certain equipment vendors and major
sub-contractors. We intend to vigorously pursue equitable resolutions with these
other parties.

26

Our technical services segment is performing these deepwater platform rig
construction projects under lump sum contracts with our customers. In pricing
these contracts, we attempted to accurately estimate our cost to perform the
work, including the cost of labor, material and services. Despite these efforts,
however, the revenue, cost and gross profit or loss we now expect to realize on
these lump-sum contracts vary from the originally estimated amounts. We have
experienced cost overruns on these contracts that have adversely impacted our
financial results. Currently unforeseen events may result in further cost
overruns to complete these projects, which could be material and which would
require us to record additional loss provisions in future periods. Such events
could include variations in labor and equipment productivity over the remaining
term of the contract, unanticipated cost increases, engineering changes,
shipyard or systems problems, project management issues, shortages of equipment,
materials or skilled labor, unscheduled delays in the delivery of ordered
materials and equipment, work stoppages, shipyard unavailability or delays.

We recognize revenues and related costs from our rig construction contracts
under the percentage-of-completion method of accounting using measurements of
progress toward completion appropriate for the work performed, such as
man-hours, costs incurred or physical progress. Accordingly, we review contract
price and cost estimates periodically as the work progresses and reflect
adjustments in income (1) to recognize income 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.
Currently, all four of our lump-sum construction projects are in a loss
position.

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

27

RESULTS OF OPERATIONS

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

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

(1) The consolidated financial information by operating segment for 2002 and
2001 has been restated to reflect the retroactive adoption of FIN No. 46R,
"Consolidation of Variable Interest Entities."

2003 Compared with 2002

Revenues. Revenues for 2003 were $419.9 million, or 33.1%, higher than in
2002, due primarily to increased activity for our offshore rigs in Mexico, an
increase in land drilling and E&P services activity due to the recovery in
Argentina and Venezuela, increased activity in Kazakhstan, and an increase in
revenues recognized related to the design, engineering and construction of
deepwater platform rigs by our technical services group. Additionally, one of
our international deepwater rigs, the Pride South Pacific, worked throughout
2003, but was idle from April 2002 to November 2002. These increases in revenues
were partially offset by a decrease in activity in the U.S. sector of the Gulf
of Mexico.

28

Operating Costs. Operating costs for 2003 were $403.1 million, or 50.7%,
higher than in 2002 due to increased costs, including loss provisions of $98.4
million, incurred on contracts related to the construction of deepwater platform
rigs and costs associated with rigs that operated during 2003 that were stacked
or being upgraded during 2002. Additionally, certain 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 in Venezuela on expenses denominated in its local currency.
Operating costs for 2002 were reduced by $1.5 million as a result of changes in
estimates of costs accrued in prior periods primarily for contractually required
maintenance costs that were not expected to be incurred on two rigs managed by
us.

Depreciation and Amortization. Depreciation expense increased by $19.0
million, or 8.3%, to $249.2 million in 2003, from $230.2 million in 2002, due to
incremental depreciation on newly acquired and constructed rigs and other rig
refurbishments and upgrades.

General and Administrative. General and administrative expenses increased
by $27.1 million, or 28.7%, to $121.3 million for 2003, from $94.2 million for
2002, due primarily to executive retirement costs of $5.3 million, increased
overhead related to higher activity in Argentina, Mexico and Venezuela, the
impact of the decline in the value of the dollar relative to the euro on certain
expenses denominated in euros and higher professional fees, insurance and
staffing costs.

Other Income (Expense). Other expense for 2003 decreased by $13.3 million,
or 9.5%, as compared to 2002. Interest expense decreased by $7.6 million due
principally 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. Additionally, the effective interest rate
applicable to our Pride Angola drillship loan declined after January 2003 from
the swapped rate of 6.52% to a rate based on LIBOR plus a margin of 1.25%.

Other income in 2003 was comprised of mostly net foreign exchange gains,
primarily in Venezuela, partly offset by expenses related to the redemption of
$150 million principal amount of our 93/8% senior notes due 2007, including a
redemption premium of $4.7 million and the recognition of $1.5 million of
unamortized deferred financing costs. Other expense in 2002 principally
comprised a loss of $1.2 million 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.

Income Tax Provision. Our consolidated effective income tax rate for 2003
was 26.3% as compared to 27.7% for 2002. The lower rate for the current period
was principally a result of increased income in foreign jurisdictions with low
or zero effective tax rates, partly offset by a true-up of the provision
relating to tax returns for prior periods.

Minority Interest. Minority interest in 2003 increased $4.7 million, or
29.0%, as compared to 2002, primarily due to an increase in income from a
reduction in interest expense on the Pride Angola drillship loan.

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, was idle from April 2002 to November 2002. These
decreases were partially offset by a full year of operations for two of our
semisubmersible rigs, 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 commencement of land drilling operations in Chad
and in Kazakhstan and the start-up of operations for our technical services
division.

Operating Costs. Operating costs in 2002 decreased $94.8 million, or
10.7%, 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

29

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 13.6%, 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.

General and Administrative. 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 $12.3 million, or
9.6%, as compared to 2001. Interest expense increased by $15.5 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 2002 principally comprised a loss of $1.2 million 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. 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 and a gain of $2.0 million related to the early extinguishment of
approximately $59.5 million accreted value, net of offering costs, of our zero
coupon convertible subordinated debentures due 2018. 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 27.7% 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.

LIQUIDITY AND CAPITAL RESOURCES

We had net working capital of $83.1 million and $152.4 million as of
December 31, 2003 and December 31, 2002, respectively. The decrease in net
working capital was attributable primarily to the use of cash to upgrade rigs
being contracted to Mexico and other international markets from our U.S. Gulf of
Mexico fleet and other capital expenditures in excess of cash generated from
operating activities, 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 December 2004 from long-term to current
liabilities and net cash outlays on deepwater platform rig construction
projects.

30

Rig Construction Projects

In 2003, we recorded a provision for expected losses on deepwater platform
rig construction projects of $98.4 million. Of this amount, approximately $80.0
million corresponds to the excess of expected cash outlays after December 31,
2003 to complete the projects over estimated future cash receipts from the
projects, which will negatively impact liquidity in 2004 and the first six
months of 2005.

Capital Expenditures

Additions to property and equipment during 2003 totaled $217.0 million,
including $23.4 million for the upgrade of one large land rig to work in
Kazakhstan, $12.2 million for the acquisition of a conventionally moored
semisubmersible rig, now the Pride Mexico, $85.1 million for the upgrading of
five jackup rigs, one platform rig and the Pride Mexico for contracts in Mexico,
$10.0 million for other rig upgrades, refurbishments and reactivations, and
approximately $86.3 million for sustaining capital projects. 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. Although we currently expect our
capital expenditures in 2004 to decrease as our program to upgrade rigs in our
U.S. Gulf of Mexico fleet for international markets winds down, we may be
required to upgrade a number of rigs whose contracts expire in 2004 in
connection with their working under new contracts. These upgrades could require
significant investments of our working capital.

Rig Mobilization Fees

Mobilization fees received from customers and the costs incurred to
mobilize a rig from one geographic area to another, as well as up-front fees to
modify a rig to meet a customer's specifications, are deferred and amortized
over the term of the related drilling contracts. Additionally, we defer costs
associated with obtaining special periodic survey certificates from various
regulatory bodies in order to operate our offshore rigs. We amortize these costs
over the period of validity of the related certificate. These up-front fees and
costs impact liquidity in the period in which the fees are received or the costs
incurred, whereas they will impact our statement of operations in the periods
during which the deferred revenues and costs are amortized. Deferred revenues
and costs that are expected to be amortized in the twelve-month period following
each balance sheet date are included in other accrued liabilities and current
assets, respectively, and deferred revenues and costs that are expected to be
amortized after more than twelve months from each balance sheet date are
included in other long-term liabilities and other assets, respectively.

The amount of up-front fees received and the related costs vary from period
to period depending upon the nature of new contracts entered into and market
conditions then prevailing. Generally, contracts for drilling services in remote
locations or contracts that require specialized equipment will provide for
higher up-front fees than contracts for readily available equipment in major
markets. In 2003, up-front fees received included $13.5 million related to the
mobilization of rigs to Mexico. In 2002, up-front fees received included $48.9
million in respect of engineering, logistics and construction work to modify,
enhance and deploy two large land rigs for Kazakhstan, in accordance with the
customer's specifications, and $18.8 million related to the mobilization of rigs
to Mexico.

Credit Facilities

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. In December 2003, we replaced the term loan
with a new $197.0 million term loan expiring in January 2009 and extended the
period of the revolving credit agreement until January 2007. Borrowings under
the revolving credit facility are available for general corporate purposes. We
may issue up to $50.0 million of letters of credit under the facility. As of
December 31, 2003, $189.0 million of borrowings and an additional $27.8 million
of letters of credit were outstanding under the revolving credit

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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 December 31, 2003, the interest rates on the term
loan and revolving credit facility were 3.66% and 3.20%, respectively. 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, an interest coverage ratio, a ratio of net debt to total
capitalization and a minimum net worth.

In 2003, in order to reduce the potential impact of fluctuations in LIBOR,
we entered into interest rate agreements that effectively cap the interest rate
on $194.0 million of borrowings under our senior secured term loan at rates from
3.58% to 5.0%, plus the applicable spread, and provide a lower limit on rates
from 0.72% to 0.91%, plus the applicable spread, to March 2007. If interest
rates fall below the lower limits, interest rates payable increase to rates from
2.0% to 3.94%, plus the applicable spread. The interest rate agreements are
marked-to-market quarterly with the change in fair value recorded as a component
of interest expense. At December 31, 2003, the net value of the instruments was
a liability of $0.6 million. Marking these instruments to market each quarter
may increase short-term earnings volatility as market perceptions of future
interest rate movements change.

We amended our $95.0 million senior secured revolving credit facility with
non-U.S. banks in October 2003. The amended facility provides aggregate
availability of up to $180.0 million, including up to $10.0 million of letters
of credit, and is collateralized by three semisubmersible rigs, two jackup rigs
and a tender-assisted rig. Borrowings under the amended credit facility bear
interest at variable rates based on LIBOR plus a spread ranging from 1.2% to
2.1%. As of December 31, 2003, $99.0 million of borrowings and an additional
$10.0 million of letters of credit were outstanding under this credit facility.

As of March 10, 2004, the undrawn portion of our senior secured revolving
credit facilities was approximately $107 million. Indentures governing our
outstanding 9 3/8% senior notes due 2007 and our 10% senior notes due 2009 limit
our ability to draw under these facilities to a percentage of consolidated net
tangible assets, which, as of March 10, 2004, effectively restricted our ability
to borrow approximately $76 million of undrawn capacity under these facilities.
Accordingly, only $31 million of these facilities were available to meet our
short-term liquidity needs.

Outstanding Debt Securities

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
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, described below. 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.
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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). Interest on the notes is payable semiannually. 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.

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 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. The call premium in
respect of any additional redemptions reduces to 101.563% of the principal
amount redeemed on or after May 1, 2004.

In January 2003, we repurchased substantially all of our outstanding zero
coupon convertible senior debentures due 2021 for $98.2 million, which was equal
to their accreted value on the date of purchase. In April 2003, we repurchased
$226.5 million face amount of our zero coupon convertible subordinated
debentures due 2018 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. Convertible
subordinated debentures with a face amount of $2.1 million, and an accreted
value of $1.1 million as of December 31, 2003, remain outstanding.

Drillship Loans

We have a 51% ownership interest in and operate the ultra-deepwater
drillships Pride Africa and Pride Angola, which are contracted to work for Total
Exploration & Production Angola SA under contracts which were extended, in
December 2003, by an aggregate of ten years, commencing at the end of the
contracts' current terms 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 collateralized 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, 2003, a total of $182.7 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. After January 2003, the effective interest rate applicable to our
Pride Angola drillship loan declined from the swapped rate of 6.52% to a rate
based on six-month LIBOR plus a margin of 1.25%. Interest expense was
approximately $4.8 million lower, and minority interest was approximately $2.4
million higher, in 2003 than it would have been if we had continued to pay
interest on this debt at the swapped rate.

Following the extension of the contracts for our two drillships, we are in
the process of finalizing an approximate $128 million expansion of the drillship
loans. We expect to complete the increase of the facility early in the second
quarter of 2004. We expect that approximately $103 million of the proceeds and
approximately $15 million of currently restricted cash will be used by the joint
venture to repay indebtedness due from the joint venture company to Pride and
that the balance of the proceeds will be used by the joint venture to repay
indebtedness to our joint venture partner and to increase future working capital
in the joint venture. If the transaction is completed, the funds paid to us will
be available to reduce our other outstanding debt, including the $86 million of
senior convertible notes described below, and for other working capital
purposes.
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Semisubmersible Rig Financings

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 charter and service rendering contracts expiring in June and
July 2006, respectively, 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
December 2004, bear interest at 9% per annum and are convertible into
approximately 4.0 million shares of our common stock. The holder of the notes
has the right to require us to prepay the notes at any time (1) after July 1,
2004 or (2) before July 1, 2004 to the extent of the amount of any required
capital contributions by such holder with respect to the joint venture for the
Pride Portland and the Pride Rio de Janeiro described below under
"-- Investments." We have the option to prepay the notes any time after June 1,
2004.

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 loans 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. 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 under the facility, we 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% from March 2002 through September
2006. As of December 31, 2003, there were borrowings of $178.2 million
outstanding under this facility.

In February 1999, we completed the sale and leaseback of the Pride South
America semisubmersible drilling rig with an unaffiliated leasing trust pursuant
to which we received $97.0 million. Since that time we have been recording
activity associated with this transaction as an operating lease in accordance
with the provisions of Statement of Financial Accounting Standards No. 13
"Accounting for Leases". Upon evaluation of the provisions of the recently
issued Financial Accounting Standards Board ("FASB") Interpretation No. 46R
"Consolidation of Variable Interest Entities" ("FIN No. 46R"), issued in
December 2003, it was determined that the leasing trust would qualify for
consolidation as a variable interest entity and that we were the primary
beneficiary, as defined. Pursuant to the recommendation of the FASB, in the
fourth quarter of 2003 we adopted the consolidation provisions of FIN No. 46R
retroactively by restating previously issued financial statements for
comparability purposes to consolidate the leasing trust's assets and
liabilities, which comprise the Pride South America rig and the associated note
payable, from inception of the lease. As of December 31, 2003, the carrying
amount of the note payable was approximately $82.3 million.

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Contractual Obligations

As of December 31, 2003, we had approximately $4.4 billion in total assets
and $2.0 billion of long-term debt and capital lease obligations. 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 obligations
at December 31, 2003.

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

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

Investments in Joint Ventures

We own a 30.0% equity interest in a joint venture company that is currently
completing construction of two dynamically-positioned, deepwater semisubmersible
drilling rigs, the Pride Portland and the Pride Rio de Janeiro (formerly
referred to as Amethyst 4 and Amethyst 5). The Pride Rio de Janeiro is
undergoing sea trials in the Caribbean Sea and the Pride Portland is expected to
exit the shipyard in Maine in May 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,
which totaled approximately $342 million as of March 1, 2004, are being provided
without recourse to any of the joint venture owners at a weighted average fixed
interest rate of 4.31%. 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 estimated $5.2
million of incremental costs associated with upgrading both rigs to a water
depth capability of 1,700 meters from the original design of approximately 1,500
meters, of which our 30% share would be approximately $1.6 million. We expect
that the joint venture partners will have to make additional capital
contributions to fund the project through the sea trial stage for each rig or,
alternatively, will have to provide acceptable guarantees to MARAD to permit the
required further draws to become available under the MARAD-guaranteed credit
facilities. If the funding is made by additional capital contributions, we
expect that our proportionate share would be approximately $8.0 million. The
capital contributions are likely to be required during the second quarter of
2004. Through December 31, 2003, our equity contributions to the joint venture
totaled $33.7 million, including capitalized interest of $7.3 million and
contributions of $0.8 million in connection with the water depth upgrades. If
either joint venture partner failed to make its capital contribution and the
other joint venture partner failed to cover the obligations, a default would
occur under the fixed rate obligations guaranteed by MARAD. MARAD would be
entitled to foreclose on the mortgages related to the Pride Portland and the
Pride Rio de Janeiro and take possession of the two rigs.

35

The Pride Portland and Pride Rio de Janeiro are being built to operate
under long-term contracts with Petrobras; however, Petrobras has given notice of
cancellation of those contracts for late delivery. Based on current demand for
deepwater drilling rigs, we believe that Petrobras or another customer will
employ the Pride Portland and Pride Rio de Janeiro under new or amended
contracts. There can be no assurance, however, that either the Pride Portland or
the Pride Rio de Janeiro will be contracted to Petrobras or to any other
customer. If no contract is obtained before the rigs complete their sea trials,
the rigs will be stacked. In this case, the joint venture partners would need to
advance further funds to the joint venture company to allow it to pay stacking
costs as well as principal and interest payments on the debt as they become due
since the joint venture company would have no alternative source of funds to
allow it to make such payments. Initial interest and debt service payments in
respect of construction debt for the two rigs are expected to total
approximately $22.0 million during 2004, of which our 30% share would be $6.6
million.

We have a 12.5% interest in Basafojagu (HS) Inc., a company incorporated in
Liberia that has capital lease obligations in respect of the Al Baraka 1
tender-assisted drilling rig. The majority shareholder is a subsidiary of a
major Saudi Arabian banking and industrial group, and the two lessor banks are
members of that same group. We entered into a long-term management agreement
with Basafojagu to manage and operate the rig. We also provided guarantees for
our 12.5% share, or approximately $5.0 million at December 31, 2003, of
Basafojagu's lease obligations. Basafojagu is in arrears in payment of its lease
obligations. In January 2004, we entered into a purchase option that expires on
May 15, 2004 to acquire the tender barge and associated derrick set for
aggregate consideration of $15.3 million. If we exercise our option, we will be
released of all obligations under the guarantees and under the lease and
management agreements. We currently expect that we will exercise our purchase
option.

Other Sources and Uses of Cash

We have a Direct Stock Purchase Plan, which provides a means for investors
to purchase shares of our common stock without paying brokerage commissions or
service charges. During 2001 and 2003, we sold approximately 2.6 million and
830,000 shares, respectively, of common stock under this plan for net proceeds
of $62.0 million and $15.0 million, respectively. No shares were sold under the
plan in 2002.

As of December 31, 2003, $38.8 million of our cash balances, which amount
is included in restricted cash, consisted of funds held in trust in connection
with our drillship and semisubmersible loans and our limited-recourse
collateralized term loans and, accordingly, was not available for our use. The
amount as of March 10, 2004 was approximately $27 million.

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 may redeploy additional assets to more active regions in 2004 if we have
the opportunity to do so on attractive terms; however, we expect fewer
opportunities for redeployments than in 2002 and 2003. 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 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 certain assets
when we believe the capital could be more effectively deployed to reduce debt or
for other purposes, and we continue to discuss with potential buyers the
possible sale of certain assets.

In addition to the matters described in this "-- Liquidity and Capital
Resources" section, please read "-- Business Environment and Outlook" for
additional matters that may have a material impact on our liquidity.

TAX MATTERS

We have a U.S. deferred tax asset of $244.7 million relating to U.S. net
operating loss ("NOL") carryforwards. Due to the acquisition of Marine in
September 2001, certain NOL carryforwards are subject to

36

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 $699.3 million and expire in 2019 through 2023. We estimate that we will
generate sufficient U.S. taxable income of approximately $699.3 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, 2003, 2002, and
2001 was $66.4 million, $89.5 million, and $78.5 million, respectively.

The Argentine NOL carryforwards were utilized in the current year due to a
merger between the entity with the losses and our profitable Argentine entity.
The profitable entity had sufficient income to utilize the entire amount of the
deferred tax asset.

We provide an allowance for the deferred tax assets in certain taxing
jurisdictions because the benefits of the net operating losses will be realized
only if we enter into additional profitable contracts in those jurisdictions. In
2003 we had an increase of 14.8% in the U.S. statutory rate for foreign taxes
due to the following: (34.9)% for an adjustment to prior year deferred tax
assets for foreign losses, and 49.7% for current year foreign taxes in excess of
U.S. statutory rate. In 2003 we had an increase of 34.9% in the U.S. statutory
rate for the change in valuation allowance due to an adjustment to prior year
allowances on the deferred tax asset for foreign losses as explained above that
will not be utilized in future years. We also had a decrease in the U.S.
statutory rate for the following: 55.2% tax increase due to estimated U.S. tax
at December 31, 2002 below the actual tax expense on the U.S. tax return as
filed and a 3.1% increase to U.S. tax for other permanent items.

In 2002 we had a decrease of (126.1)% in the U.S. statutory rate for
foreign taxes due to the following: (112.0)% for previously omitted deferred tax
assets for foreign losses, (51.7)% for current year deferred tax assets created
by Mexico losses, and 37.6% for current year foreign taxes in excess of U.S.
statutory rate. In 2002 we had an increase of 115.2% in the U.S. statutory rate
for the change in valuation allowance due to the following: 112.0% for
previously omitted allowances on the deferred tax asset for foreign losses as
explained above that will not be utilized in future years, 51.7% for the current
year allowance on Mexico tax losses described above that will not be utilized in
future years, and (48.5)% decrease for the partial reversal of the allowance on
French tax losses from rig rental income in France from Russia and Kazakhstan
contracts that extend into 2003.

Management's assumptions regarding these tax provisions, as described
herein, were consistent with those of prior periods.

CRITICAL ACCOUNTING POLICIES

We consider policies concerning property and equipment and rig construction
contracts to have the most significant impact on our consolidated financial
statements.

Property and equipment are carried at original cost or adjusted net
realizable value, as applicable. 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.

37

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 judgments 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 and could materially affect our results
of operations.

We account for rig construction contracts using the
percentage-of-completion method. In applying this method we estimate
periodically for each project the profit or loss at completion. This involves
estimating future costs and revenues as well as determining the amount of costs
incurred and revenues earned to date. Although estimating future revenues may
require the exercise of a high degree of judgment, for example where there have
been changes to the scope of work that have not been approved by the customer,
the most judgmental areas often involve estimates of future costs. This judgment
is most critical in construction projects that are expected to show a loss at
completion since any change in estimate will immediately effect the amount of
the recorded loss provision. In projects that are expected to show a profit, the
judgment would only impact the results in proportion to the estimate of
percentage complete. With our current construction projects, we have had to make
particularly difficult judgments and estimates concerning the likely outcome, or
range of outcomes, of a number of commercial disputes with shipyards, equipment
vendors, major sub-contractors and others. Certain of these disputes involve
claims and counterclaims and may involve either binding arbitration or legal
proceedings.

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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 7 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 our drillship and semisubmersible loan agreements
that effectively fixed or capped the interest rate on such debt. Additionally,
during 2003, we entered into interest rate agreements that effectively capped
the interest rate on $194 million of borrowings under our senior secured term
loan. These latter interest rate agreements are marked-to-market quarterly with
the change in fair value recorded as a component of interest expense. As of
December 31, 2003, the net value of these instruments was a liability of $0.6
million. As of December 31, 2003, we held interest rate swap and cap agreements
covering $557.9 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, 2003 and 2002 was
approximately $2,095 million and $2,065 million, respectively, which is more
than its carrying value as of December 31, 2003 and 2002 of $1,994 million and
$1,973 million, respectively. A hypothetical 10% decrease in interest rates
relative to market interest rates at December 31, 2003 would increase the fair
market value of our long-term debt at December 31, 2003 by approximately $34
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. We had no unrealized
losses as of December 31, 2003 on forward exchange contracts and option
contracts based on quoted market prices of comparable instruments. The estimated
unrealized loss on our forward exchange and option contracts as of December 31,
2002 was approximately $1.0 million. We do not hold or issue forward exchange
contracts, option contracts or other derivative financial instruments for
speculative purposes.

39

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)

- estimates of profit or loss from performance of lump-sum rig construction
contracts

- future asset sales

- 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

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

- future operating results and financial condition and

- the effectiveness of our disclosure controls and procedures and internal
control over financial reporting

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

- cost overruns in our lump-sum construction and other turnkey contracts

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

- 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

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

- our ability to implement in a timely manner internal control procedures
necessary to allow our management to report on the effectiveness of our
internal control over financial reporting

40

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.

41

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

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, 2003 and 2002, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2003, 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 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
in 2003, the Company changed its policies for consolidation of variable interest
entities and for presentation of gains and losses on debt retirement and in
2002, changed the manner in which it accounts for goodwill.

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
March 11, 2004

42

PRIDE INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEET

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

43

PRIDE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

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

44

PRIDE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

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

45

PRIDE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

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

46

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. Effective January 1, 2003, the
Company adopted Statement of Financial Accounting Standards ("SFAS") No. 145,
which eliminates the requirements that gains and losses from the extinguishment
of debt be aggregated and classified as extraordinary items. Accordingly, the
consolidated statement of operations for the years ended December 31, 2002 and
2001 reflect reclassifications of the gross effect of $798,000 and $1.3 million,
respectively, from extraordinary item into other income (expense), net and
income tax provision.

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):

In December 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation ("FIN") No. 46R, "Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51 (revised December 2003)". FIN No. 46R
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. 46R also requires certain disclosures relating to
consolidated variable interest entities and unconsolidated variable interest
entities in which a company has a significant variable interest. With respect to
variable interest entities in which a company holds a variable interest that was
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
ending after December 15, 2003. Upon evaluation of the provisions of FIN No.
46R, it was determined that the unaffiliated trust with which the Company
completed the sale and leaseback of the Pride South America semisubmersible
drilling rig in February 1999 would qualify for consolidation as a variable
interest entity in which the Company is the primary beneficiary, as defined.
Pursuant to the recommendation of FIN No. 46R, the Company has elected to
retroactively adopt the provisions and restate previously issued financial
statements for the applicable years

47

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for comparability purposes. The effect on the Company's consolidated statement
of operations for the years ended December 31, 2002 and 2001 was as follows:

Management Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company bases its estimates and
adjustments on historical experience and on other information and assumptions
that are believed to be reasonable under the circumstances. Estimates and
judgments about future events and their effects cannot be perceived with
certainty; accordingly, these estimates may change as additional information is
obtained, as more experience is acquired, as the Company's operating environment
changes and as new events occur. While it is believed that such estimates are
reasonable, actual results could differ from those estimates. Estimates are used
for, but not limited to, determining the realization of customer and insurance
receivables, recoverability of long-lived assets, useful lives for depreciation
and amortization, determination of income taxes, contingent liabilities,
insurance and legal accruals and costs to complete construction projects.

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 weighted average cost.

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.

48

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 results
of operations.

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 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 impairment tests of goodwill in the fourth
quarters of 2003 and 2002 and determined that the fair value exceeded the
recorded cost as of December 31, 2003 and 2002, respectively; accordingly, no
impairment was recorded.

The change in the carrying value of goodwill for the years ended December
31, 2003 and 2002 was as follows (in thousands):

In March 2003, the Company reduced by $3.0 million the carrying amount of
goodwill recorded in its April 2000 acquisition of Services Especiales San
Antonio S.A. ("San Antonio"). The seller of San Antonio was entitled to four
"earn out" payments of up to $3 million each on the first four anniversary dates
of the closing if San Antonio's revenues from services provided to the seller
and its affiliates exceeded specified levels during the 12 calendar months
ending immediately prior to the relevant anniversary date. The specified revenue
level was not achieved for the third anniversary earn-out payment.

The Company recorded goodwill of $16.7 million in the year ended December
31, 2001, in connection with certain acquisitions during those periods.

49

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's net earnings and net earnings per share, adjusted to exclude
goodwill amortization expense, for the year ended December 31, 2001, were as
follows (in thousands, except per share amounts):

Net earnings -- as reported................................. $91,521
Goodwill amortization, net of tax........................... 2,737
-------
Net earnings -- as adjusted................................. $94,258
=======
NET EARNINGS PER SHARE:
Basic -- as reported........................................ $ 0.70
Goodwill amortization, net of tax........................... 0.02
-------
Basic -- as adjusted........................................ $ 0.72
=======
NET EARNINGS PER SHARE:
Diluted -- as reported...................................... $ 0.68
Goodwill amortization, net of tax........................... 0.02
-------
Diluted -- as adjusted...................................... $ 0.70
=======

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
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 2003 and determined that the
undiscounted future cash flows based on expected day rates and utilization rates
exceeded the recorded cost of the specific rigs and group of rigs as of December
31, 2003; 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 recognized upon completion. 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 on a straight-line
basis over the term of such contract, excluding any option periods. Costs
incurred to mobilize a rig without a contract are expensed as incurred. Fees
received for capital improvements to rigs are deferred and recognized on a
straight-line basis 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 constructed drilling rigs only for its own
use. However, at the request of some of its significant customers, the Company
has entered into lump sum contracts to design, construct and mobilize
specialized drilling rigs through the Company's technical services group. The
Company also has

50

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

entered into contracts to operate the rigs on behalf of the customers.
Construction contract revenues and related costs are recognized under the
percentage-of-completion method of accounting using measurements of progress
toward completion appropriate for the work performed, such as man-hours, costs
incurred or physical progress. Accordingly, the Company reviews contract price
and cost estimates periodically as the work progresses and reflects adjustments
in income (i) to recognize income 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. See Note 2.

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.

The Company expended $20.2 million, $13.6 million and $5.5 million during
2003, 2002 and 2001, respectively, in obtaining and maintaining such
certifications. As of December 31, 2003 and 2002, the deferred and unamortized
portion of such costs on the Company's balance sheet were $31.6 million and
$19.1 million, respectively. The portion of the costs that are expected to be
amortized in the 12-month periods following each balance sheet date are included
in other current assets on the balance sheet and the costs expected to be
amortized after more than 12 months from each balance sheet date are included in
other assets. The costs are amortized on a straight-line basis over the period
of validity of the certifications obtained. These certifications are typically
for five years, but in some cases are for shorter periods. Accordingly, the
remaining useful lives for these deferred costs are up to five years.

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.

Foreign Currency Translation

The Company accounts for translation of foreign currency in accordance with
SFAS No. 52, "Foreign Currency Translation". In those countries where the U.S.
dollar is the functional currency, 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 and 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

51

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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 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 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, 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, 2003, 2002 and 2001 were $8.53, $7.94 and $9.31,
respectively.

52

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

New Accounting Pronouncements

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. The adoption of SFAS Nos. 149 and 150
did not have a material impact on the Company's consolidated financial position,
results of operations or cash flows.

2. CONSTRUCTION PROJECTS

At the request of two major international oil company customers, the
Company entered into lump-sum contracts to design, engineer, manage construction
of and commission four deepwater platform drilling rigs for installation on
spars and tension-leg platforms. The Company also entered into contracts to
provide drilling operations management of the rigs once they have been installed
on platforms. The first rig has been mated to the customers' platform and towed
to Angola, where it commenced operations in November 2003. The other rigs are
expected to enter into service in late 2004 and early 2005. In 2003, the Company
recorded loss provisions, included in operating costs, totaling $98.4 million
relating to the construction of these deepwater platform rigs as the costs are
expected to substantially exceed revenues on all four projects.

Much of the increased costs are related to difficulties experienced with
two different shipyards. The Company terminated its contract with the initial
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. The Company engaged another shipyard to complete construction of the
second rig, and the aggregate costs paid to the initial shipyard and committed
and paid to the second shipyard have greatly exceeded budgeted expenditures for
the rig. 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

53

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

projects are higher than were originally budgeted. A U.S. shipyard building one
of the primary components for the third rig project encountered significant
financial difficulties, and the Company has paid costs in excess of amounts
initially agreed to provide financial capacity for it to complete a reduced
scope of work. The aggregate costs paid to that shipyard, in addition to the
costs associated with the completion of the remaining tasks by newly contracted
third parties, as well as transportation and other costs necessitated by
revisions to the project completion plan, have significantly exceeded the
budgeted expenditures for the third deepwater platform rig. Based on the
experience from the start-up of the first rig and on revisions of estimates,
increased costs for construction, transportation, commissioning, training and
warranties have been included in the Company's estimates of costs to complete
the remaining three rigs.

The Company has commenced arbitration proceedings against the initial
shipyard claiming damages of approximately $5.8 million, and the shipyard has
asserted counterclaims against the Company for damages of approximately $13.8
million. The Company is also in commercial disputes and negotiations with
certain equipment vendors and major sub-contractors. While the Company intends
to vigorously pursue equitable resolutions with the other parties, the Company
has provided for additional cost estimates to resolve some of these disputes.

The Company's technical services segment is performing these deepwater
platform rig construction projects under lump-sum contracts with its customers.
Revenues and costs realized on these lump sum contracts vary from the originally
estimated amounts. Unforeseen events may result in further cost overruns to
complete these projects, which could be material and which would require the
Company to record additional loss provisions in future periods. Such events
could include variations in labor and equipment productivity over the remaining
term of the contract, unanticipated cost increases, engineering changes,
shipyard or systems problems, project management issues, shortages of equipment,
materials or skilled labor, unscheduled delays in the delivery of ordered
materials and equipment, work stoppages, shipyard unavailability or delays.

3. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

The Company capitalizes interest applicable to the construction of
significant additions to property and equipment. For the years ended December
31, 2003, 2002 and 2001, total interest incurred was $134.4 million, $142.8
million and $144.4 million, respectively, of which $1.2 million, $1.9 million
and $19.0 million, respectively, was capitalized.

54

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the years ended December 31, 2003, 2002 and 2001, maintenance and
repair costs included in operating costs on the accompanying consolidated
statement of operations were $97.6 million, $81.6 million and $85.2 million,
respectively.

4. ACQUISITIONS

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
($178 million of which was outstanding as of December 31, 2003) and
approximately $86 million of convertible senior notes issued to the Brazilian
participant. See Note 5.

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.
During 2003, the Company reversed the remaining pooling and merger cost accrual.

5. DEBT

Short-Term Borrowings

The Company has agreements with several banks for unsecured 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 rate on such borrowings as of December 31, 2003 was
2.8%. As of December 31, 2003, $27.6 million was outstanding under these
facilities and $25.2 million was available.

55

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-Term Debt

Long-term debt consisted of the following:

Senior Secured Term Loan and Senior Secured Revolving Credit Facilities

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 $197.0 million term loan maturing in January 2009 and a $250.0 million
revolving credit facility maturing in January 2007. 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, 2003, $189.0 million of borrowings and an additional $27.8
million of letters of credit were outstanding under the revolving credit
facility.

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. The interest rate was 3.66% for the term loan and 3.20% for
the revolving credit facility as of December 31, 2003. In 2003, in order to
reduce the potential impact of fluctuations in LIBOR, the Company entered into
interest rate agreements that effectively cap the interest rate on total
outstanding borrowings under the term loan at rates from 3.58% to 5.0% and
provide a lower limit on rates from 0.72% to 0.91%, plus the applicable spread,
to March 2007. The Company accounts for these interest rate agreements at market
value, with changes reflected in current earnings.

The facilities are collateralized by two deepwater semisubmersible rigs,
the Pride North America and the Pride South Pacific, and 28 jackup rigs. The
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 certain capital
expenditures and incur long-term operating leases. The credit facilities also

56

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

require the Company to comply with specified financial tests, including a ratio
of net debt to EBITDA, an interest coverage ratio, a ratio of net debt to total
capitalization and a minimum net worth.

As of December 31, 2003, the Company had a senior secured revolving credit
facility with non-U.S. banks that provides aggregate availability of up to
$180.0 million, including $10.0 million of letters of credit, and is
collateralized by three semisubmersible rigs, two jackup rigs and a
tender-assisted rig. Borrowings under the credit facility bear interest at
variable rates based on LIBOR plus a spread ranging from 1.2% to 2.1%. As of
December 31, 2003, $99.0 million of borrowings and an additional $10.0 million
of letters of credit were outstanding under this credit facility.

As of December 31, 2003, the Company had $104.2 million in aggregate
availability under its senior secured revolving credit facilities.

Indentures governing our outstanding 9 3/8% and 10% senior notes limit the
Company's ability to borrow under these facilities to a percentage of
consolidated net tangible assets.

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 declining in annual increments from 103.125% at May
1, 2003 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.

In July 2003, the Company redeemed $150 million principal amount of the
9 3/8% Senior Notes 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. In addition,
the Company expensed $1.5 million, before income taxes, of deferred financing
costs, which amount is included in other income (expense), net in the
consolidated statement of operations.

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

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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
and are collateralized by the drillships. As of December 31, 2003, $67.6 million
was outstanding under the loans for the Pride Africa and $115.1 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 6.8% as of December 31, 2003. 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 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. As
of December 31, 2003 and 2002, $26.7 million and $34.3 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 $250.0 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 loans 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 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. As of December 31,
2003 and 2002, $11.4 million and $16.0 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.

In February 1999, the Company completed the sale and leaseback of the Pride
South America semisubmersible drilling rig with an unaffiliated trust pursuant
to which it received $97.0 million. The lease was classified as an operating
lease for financial statement purposes. With the adoption of FIN No. 46R in
December 2003, it was determined that the Company was the primary beneficiary,
as defined, of the unaffiliated trust, and accordingly, the Company should
consolidate said trust as a variable interest entity. The Company elected to
adopt the provisions of FIN No. 46R retroactively and restate previously issued
financial

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statements. Debt in the amount of $82.3 million and $86.0 million and property
and equipment, net of $74.1 million and $77.9 million were recorded as of
December 31, 2003 and 2002, respectively, in connection with the retroactive
adoption of FIN No. 46R. See Note 1.

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.

3 1/4% Convertible Senior Notes Due 2033

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 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 discussed
below. 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.

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 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.

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During 2002, the Company purchased on the open market and then extinguished
$277.9 million face amount of the debentures for $172.8 million. In January
2003, the Company repurchased substantially all of the remaining 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.

During 2001, the Company purchased on the open market and then extinguished
$129.1 million face amount of the debentures for $56.2 million. During 2002, the
Company purchased on the open market and then extinguished $153.3 million face
amount of the debentures for $72.7 million. In April 2003, 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 December 31, 2003,
remain outstanding.

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. See Note 4. The notes, which mature in December 2004,
bear interest at 9% per annum and are convertible into approximately 4.0 million
shares of the Company's common stock. The holder of the notes has the right to
require the Company to prepay the notes at any time (1) after July 1, 2004 or
(2) before July 1, 2004 to the extent of the amount of any required capital
contributions by such holder with respect to the joint venture for the Pride
Portland and the Pride Rio de Janeiro described in Note 13. The Company has the
option to prepay the notes any time after June 1, 2004.

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 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. As of December 31, 2003 and 2002, $0.7 million and $2.4
million, respectively, of such contract proceeds, which amount is included in
restricted cash, was being held in trust as collateral for the lenders and is
not available for use by the Company.

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PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future Maturities

Future maturities of long-term debt as of December 31, 2003 are as follows:

As of December 31, 2003, the fair value of long-term debt was approximately
$2.1 billion.

6. LEASES

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

Future maturities of capital lease obligations as of December 31, 2003 are
as follows:

Rental expense for operating leases for equipment, vehicles and various
facilities of the Company for the years ended December 31, 2003, 2002 and 2001
were $49.4, $28.4 million and $36.1 million, respectively.

7. 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 attempts to limit the risks of adverse currency fluctuations
and restrictions on currency repatriation by obtaining contracts providing for
payment in U.S. dollars or freely convertible foreign currency. To the extent
possible, the Company seeks to limit its exposure to local currencies by
matching its acceptance

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PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

thereof to its expense requirements in such currencies. Moreover, the Company
enters into forward exchange contracts and option contracts to manage foreign
currency exchange risk principally associated with its Euro-and 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 as of December 31, 2003 consist of U.S.
dollar calls/Euro puts with a notional amount of $2.6 million sold by the
Company, U.S. dollar puts/Euro calls with a notional amount of $1.1 million
purchased by the Company and South African Rand calls/U.S. dollar puts with a
notional amount of 5 million Rand, equivalent to $0.8 million at the year end
exchange rate, purchased by the Company. The counterparties to these contracts
are all major European banks.

The Company had no unrealized losses as of December 31, 2003 on forward
exchange contracts and option contracts based on quoted market prices of
comparable instruments. The unrealized loss as of December 31, 2002 was
approximately $1.0 million. The net realized and unrealized gains (losses) on
all forward and option contracts, included in other income (expense), net for
the years ended December 31, 2003, 2002 and 2001, were approximately $1.2
million, $4.8 million and $(0.1) million, respectively.

The Company is subject to the risk of variability in interest payments on
its floating rate debt. In 2003, in order to reduce the potential impact of
fluctuations in LIBOR, the Company entered into interest rate agreements that
effectively cap the interest rate on $194.0 million of borrowings under its
senior secured term loan at rates from 3.58% to 5.0%, plus the applicable
spread, and provide a lower limit on rates from 0.72% to 0.91%, plus the
applicable spread, to March 2007. If interest rates fall below the lower limits,
interest rates payable increase to rates from 2.0% to 3.94%, plus the applicable
spread. The interest rate agreements are marked-to-market quarterly with the
change in fair value recorded as a component of interest expense. As of December
31, 2003, the net value of the instruments was a liability of $0.6 million.

8. INCOME TAXES

The components of the income tax provision (benefit) were as follows:

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PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

In 2003, the Company had an increase of 14.8% in the U.S. statutory rate
for foreign taxes due to the following: (34.8)% for an adjustment to prior year
deferred tax assets for foreign losses, and 49.6% for current year foreign taxes
in excess of U.S. statutory rate. In 2003, the Company had an increase of 34.8%
in the U.S. statutory rate for the change in valuation allowance due to an
adjustment to prior year allowances on the deferred tax asset for foreign losses
as explained above that will not be utilized in future years. The change in
estimate for 2003 relates primarily to the difference between the Company's
estimate of U.S. income tax on approximately $153 million of 2002 foreign
earnings and the actual amount on the 2002 U.S. tax return as filed.

In 2002, the Company had a decrease of (126.1)% in the U.S. statutory rate
for foreign taxes due to the following: (112.0)% for previously omitted deferred
tax assets for foreign losses, (51.7)% for current year deferred tax assets
created by Mexico losses, and 37.6% for current year foreign taxes in excess of
U.S. statutory rate. In 2002, the Company had an increase of 115.2% in the U.S.
statutory rate for the change in valuation allowance due to the following:
112.0% for previously omitted allowances on the deferred tax asset for foreign
losses as explained above that will not be utilized in future years, 51.7% for
the current year allowance on Mexico tax losses described above that will not be
utilized in future years, and (48.5)% decrease for the partial reversal of the
allowance on French tax losses from rig rental income in France from Russia and
Kazakhstan contracts that extend into 2003.

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

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PRIDE INTERNATIONAL, INC.

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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 $507.8 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.

As of December 31, 2003, the Company had deferred tax assets of $272.7
million relating to $783.2 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 $699.2 million and expire in
2019 through 2023. Foreign NOL carryforwards include $41.6 million that do not
expire and $42.3 million that expire in 2003 through 2013. The Company has
recognized a partial 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.

9. NET EARNINGS (LOSS) PER SHARE

Basic net earnings (loss) per share has been computed based on the weighted
average number of shares of common stock outstanding during the applicable
period. Diluted net earnings (loss) per share has been computed based on the
weighted average number of shares of common stock and common stock equivalents
outstanding during the applicable period, as if stock options, convertible
debentures and other convertible debt

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PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

were converted into common stock, after giving retroactive effect to the
elimination of interest expense, net of income tax effect.

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

The calculation of diluted weighted average shares outstanding excludes
35.9 million, 34.3 million and 13.2 million common shares issuable pursuant to
convertible debt and outstanding options for the years ended December 31, 2003,
2002 and 2001, respectively, because their effect was antidilutive or the
exercise price of stock options exceeded the average price of the Company's
common stock for the applicable period.

10. EMPLOYEE BENEFITS

The Company has a 401(k) defined contribution plan for its employees, which
allows 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, 2003, 2002 and 2001 were $2.5 million,
$1.6 million and $3.5 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.

11. 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 connection with the Company's
stockholders' rights plan. As of December 31, 2003, no shares of preferred stock
are outstanding.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Common Stock

The Company has 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, 2003 and 2001, the Company sold 0.8 million shares
for $15.0 million and 2.6 million shares for $62.0 million, respectively. There
were no shares sold under the plan in 2002.

In January 2000, Marine completed a public offering of 1.0 million shares
of its common stock, for net proceeds of $18.5 million. The proceeds were used
to fund the acquisition, upgrade and mobilization of the Pride South Carolina,
formerly the Marine 202, a jackup drilling rig.

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 4.

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.

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

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PRIDE INTERNATIONAL, INC.

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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 through 2003 were vested 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.

67

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, 2003 pursuant to the employee stock option plans:

The following table summarizes information on stock options outstanding and
exercisable at December 31, 2003 pursuant to the directors' stock option plan:

During 2003, the Company recognized $3.4 million of stock option
compensation in connection with the modification of the terms of certain key
employees' stock option grants.

12. COMMITMENTS AND CONTINGENCIES

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

68

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. However, a substantial settlement payment or judgment
in excess of the Company's accruals could have a material adverse effect on its
consolidated results of operations or cash flows.

13. INVESTMENTS IN JOINT VENTURES

As of December 31, 2003, the Company had a 30.0% equity interest in a joint
venture company that is currently completing construction of two
dynamically-positioned, deepwater semisubmersible drilling rigs, the Pride
Portland and Pride Rio de Janeiro. The Pride Rio de Janeiro is undergoing sea
trials in the Caribbean Sea and the Pride Portland is expected to leave the
shipyard in Maine in May 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 estimated $5.2 million of incremental
costs associated with upgrading both rigs to a water depth capability of 1,700
meters from the original design of approximately 1,500 meters, of which the
Company's 30% share would be approximately $1.6 million. The Company expects
that the joint venture partners will have to make additional capital
contributions to fund the project through the sea trial stage for each rig or,
alternatively, will have to provide acceptable guarantees to MARAD to permit the
required further draws to become available under the MARAD-guaranteed credit
facilities. If the funding is made by additional capital contributions, the
Company expects that its proportionate share would be approximately $8.0
million. The capital contributions are likely to be required during the second
quarter of 2004. Through December 31, 2003, the Company's equity contributions
to the joint venture totaled $33.7 million, including capitalized interest of
$7.3 million and contributions of $0.8 million in connection with the water
depth upgrades. Initial interest and debt service payments in respect of
construction debt for the two rigs are expected to total approximately $22.0
million during 2004, of which the Company's 30% share would be $6.6 million.

The Company has a 12.5% interest in Basafojagu (HS) Inc. ("Basafojagu"), a
company incorporated in Liberia that has capital lease obligations in respect of
the Al Baraka 1 tender-assisted drilling rig. The majority shareholder is a
subsidiary of a major Saudi Arabian banking and industrial group, and the two
lessor banks are also members of that same group. The Company entered into a
long-term management agreement with Basafojagu to manage and operate the rig.
The Company also provided guarantees for its 12.5% share, or approximately $5.0
million as of December 31, 2003, of Basafojagu's lease obligations. Basafojagu
is in arrears in payment of its lease obligations. In January 2004, the Company
entered into a purchase option that expires on May 15, 2004 to acquire the
tender barge and associated derrick set for aggregate consideration of $15.3
million. If the Company exercises its option, it will be released of all
obligations under the guarantees and under the lease and management agreements.
The Company considers it likely that the purchase option will be exercised and,
therefore, has not provided for any amounts contingently payable under its
guarantee.

The Company has a 30.0% ownership in United Gulf Energy Resource Co.
SAOC-Sultanate of Oman, which owns 99.9% of National Drilling and Services Co.
LLC ("NDSC"), an Omani company. NDSC owns and operates four land drilling rigs.
The Company accounts for this investment under the equity method, which as of
December 31, 2003 was $300,000.

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PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. SUPPLEMENTAL FINANCIAL INFORMATION

Other Current Assets

Other current assets consisted of the following:

Other Assets

Other assets consisted of the following:

70

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accrued Expenses

Accrued expenses consisted of the following:

Other Long-Term Liabilities

Other long-term liabilities consisted of the following:

71

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other Income (Expense), Net

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

Cash Flow Information

Supplemental cash flows and non-cash transactions were as follows:

72

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. FINANCIAL DATA OF DOMESTIC AND INTERNATIONAL OPERATIONS

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

73

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 each accounted for approximately 13% of consolidated revenues
for the year ended December 31, 2003, which amounts are included in South
America and Other International geographic segments, respectively. Two customers
accounted for approximately 16% and 12%, respectively, of consolidated revenues
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 revenues for the year ended
December 31, 2001, which amount is included in the South America geographic
segment.

74

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Summarized quarterly financial data for the years ended December 31, 2003
and 2002 were as follows:

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

(1) Results previously reported for interim periods have been restated to
reflect the retroactive adoption of FIN No. 46R, "Consolidation of Variable
Interest Entities". See Note 1.

75

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

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

ITEM 9A. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and our
Executive 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
annual 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 Chief Executive Officer and our Executive 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.

During the most recently completed fiscal quarter and through the date of
this annual report, we have made the following significant changes in our
internal control over financial reporting:

- senior management realignment, including separation of the Chief
Executive Officer and President positions and appointment of a new
President, Chief Financial Officer, Senior Vice President -- Operations
and General Counsel;

- appointment of a new internal audit director;

- implementation of improved policies and procedures in our technical
services division;

- broadening of the scope and number of internal certifications sent to our
Chief Executive Officer and our Chief Financial Officer;

- revision and adoption of a strengthened audit committee charter;

- adoption of a corporate governance and nominating committee charter,
compensation committee charter, Code of Business Conduct and Ethical
Practices, corporate governance guidelines and executive committee
charter; and

- adoption of an audit committee policy on handling of accounting and audit
related complaints, including a related ethics hotline program.

76

There were no other changes in our internal control over financial reporting
that occurred during the most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

As disclosed in our quarterly report on Form 10-Q for the quarterly period
ended June 30, 2003, in connection with the completion of their review of our
financial statements for the three-month and six-month periods ended June 30,
2003 included in that report 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
considered to be a material weakness in internal control. The matters listed in
the letter were 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. We have made 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 and believe these
improvements and enhancements have appropriately addressed the matters referred
to in the letter. These changes include the following:

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

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

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

- 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.

77

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, 2003. 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.

CODE OF BUSINESS CONDUCT AND ETHICAL PRACTICES

We have adopted a Code of Business Conduct and Ethical Practices, which
applies to, among others, our principal executive officer, principal financial
officer, principal accounting officer and persons performing similar functions.
We have posted a copy of the code under "Corporate Governance" in the "Investor
Relations" section of our internet website at www.prideinternational.com. Copies
of the code may be obtained free of charge on our website or by requesting a
copy in writing from our Corporate Secretary at 5847 San Felipe, Suite 3300,
Houston, Texas 77057. Any waivers of the code must be approved by our board of
directors or a designated board committee. Any amendments to, or waivers from,
the code that apply to our executive officers and directors will be posted under
"Corporate Governance" in the "Investor Relations" section of our internet
website at www.prideinternational.com.

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, 2003.

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, 2003.

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, 2003.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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, 2003.

78

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

In a current report on Form 8-K dated December 3, 2003, we reported
pursuant to Item 5 of Form 8-K that we had announced certain organizational
changes. We also filed as an exhibit pursuant to Item 7 of Form 8-K the news
release dated December 3, 2003 issued with respect to the organizational
changes.

82

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 15, 2004.

PRIDE INTERNATIONAL, INC.

By: /s/ PAUL A. BRAGG
------------------------------------
Paul A. Bragg
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 15, 2004.

83

EXHIBIT INDEX

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

* Filed herewith.

+ Compensatory plan, contract or arrangement.