PRIDE INTERNATIONAL INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

COMMISSION FILE NUMBER: 1-13289
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PRIDE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

PART I

ITEM 1. BUSINESS

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

OVERVIEW

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

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

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

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

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

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

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

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

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

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

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

OPERATIONS

SOUTH AMERICA

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

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

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

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

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

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

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

GULF OF MEXICO

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

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

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

OTHER INTERNATIONAL

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

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

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

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RIG FLEET

OFFSHORE RIGS

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

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

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

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

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

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

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

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

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

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

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

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

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LAND RIGS

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

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

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

SERVICES PROVIDED

DRILLING SERVICES

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

MAINTENANCE AND WORKOVER SERVICES

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

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

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

ENGINEERING AND TECHNICAL SERVICES

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

OTHER SERVICES

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

COMPETITION

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

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

CUSTOMERS

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

CONTRACTS

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

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

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

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

SEASONALITY

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

EMPLOYEES

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

SEGMENT INFORMATION

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

RISK FACTORS

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

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

- oil and gas prices and expectations about future prices

- the demand for oil and gas

- the cost of producing and delivering oil and gas

- advances in exploration, development and production technology

- government regulations

- local and international political and economic conditions

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

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- the level of production by non-OPEC countries

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

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

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

INTERNATIONAL EVENTS MAY HURT OUR OPERATIONS.

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

- foreign currency fluctuations and devaluation

- new economic policies

- restrictions on currency repatriation

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

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

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

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

10

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

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

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

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

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

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

During depressed market conditions, a customer may no longer need a rig
that is currently under contract or may be able to obtain a comparable rig at a
lower daily rate. As a result, customers may seek to renegotiate the terms of
their existing drilling contracts or avoid their obligations under those
contracts. In addition, our customers may seek to terminate existing contracts
if we experience operational problems. The deepwater markets in which we operate
require the use of floating rigs with sophisticated positioning, subsea and
related systems designed for drilling in deep water. If this equipment fails to
function properly, the rig cannot engage in drilling operations, and customers
may have the right to terminate the drilling contracts. The likelihood that a
customer may seek to terminate a contract for operational difficulties is
increased during periods of market

11

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

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

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

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

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

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

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

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

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

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

FAILURE TO RETAIN KEY PERSONNEL COULD HURT OUR OPERATIONS.

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

GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL LIABILITIES MAY ADVERSELY AFFECT
OUR OPERATIONS.

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

12

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

ITEM 2. PROPERTY

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

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

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

ITEM 3. LEGAL PROCEEDINGS

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

13

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

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

EXECUTIVE OFFICERS OF THE REGISTRANT

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

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

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

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

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

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

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

14

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

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

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

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

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

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

PART II

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

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

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

15

ITEM 6. SELECTED FINANCIAL DATA

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

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

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

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

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

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

OVERVIEW

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

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

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

17

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

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

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

BUSINESS ENVIRONMENT AND OUTLOOK

General

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

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

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

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

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

Gulf of Mexico

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

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

18

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

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

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

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

International Offshore

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

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

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

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

19

International Land

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

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

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

E&P Services

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

Technical Services

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

20

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

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

RESULTS OF OPERATIONS

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

2002 COMPARED WITH 2001

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

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

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

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

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

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

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

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

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

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

22

2001 COMPARED WITH 2000

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

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

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

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

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

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

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

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

23

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

24

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

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

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

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

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

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

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

25

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

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

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