Edgar Filing: TRANSOCEAN SEDCO FOREX INC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001
OR

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

For the transition period from _____ to ______.

Commission file number 333-75899
_________________
TRANSOCEAN SEDCO FOREX INC.
(Exact name of registrant as specified in its charter)
_________________
Cayman Islands 66-0582307
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

4 Greenway Plaza 77046
Houston, Texas (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (713) 232-7500

Securities registered pursuant to Section 12(b) of the Act:

Title of class Exchange on which registered
--------------- ----------------------------
Ordinary Shares, par value $0.01 per share New York Stock Exchange, Inc.

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. [_]

As of February 28, 2002, 319,131,115 ordinary shares were outstanding and
the aggregate market value of such shares held by non-affiliates was
approximately $8.9 billion (based on the reported closing market price of the
ordinary shares on such date of $28.01 and assuming that all directors and
executive officers of the Company are "affiliates," although the Company does
not acknowledge that any such person is actually an "affiliate" within the
meaning of the federal securities laws).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement to be filed with
the Securities and Exchange Commission within 120 days of December 31, 2001, for
its 2002 annual general meeting of shareholders, are incorporated by reference
into Part III of this Form 10-K.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001

Item Page
------ ------

For the fisacal year ended December 31,2001 . . . . . . . . . . . . . . . . . 1

PART I

ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Recent Developments. . . . . . . . . . . . . . . . . . . . . . . . . 3
Merger of Transocean Sedco Forex Inc. and R&B Falcon Corporation. . . 3
Merger of Transocean Offshore Inc. and Sedco Forex . . . . . . 3
Background of Transocean Offshore Inc.. . . . . . . . . . . . . . 4
Background of Sedco Forex. . . . . . . . . . . . . . . . . . . . . 4
Background of R&B Falcon Corporation. . . . . . . . . . . . . . . 4
Drilling Rig Types. . . . . . . . . . . . . . . . . . . . . . . . . 4
Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management Services. . . . . . . . . . . . . . . . . . . . . . . . . 11
Drilling Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 11
Significant Clients. . . . . . . . . . . . . . . . . . . . . . . . . 11
Industry Conditions and Competition. . . . . . . . . . . . . . . . 12
Operating Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
International Operations . . . . . . . . . . . . . . . . . . . . . . 13
Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 4 Submission of Matters to a Vote of Security Holders . . . . . 18
Executive Officers of the Registrant. . . . . . . . . . . . . . . 18

PART II

ITEM 5. Market for Registrant's Common Equity and Related Shareholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 6. Selected Consolidated Financial Data. . . . . . . . . . . . . . . 20
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . 21
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . 42
ITEM 8. Financial Statements and Supplementary Data. . . . . . . . . . . 44
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . 83

PART III

ITEM 10. Directors and Executive Officers of the Registrant. . . . . . 83
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 83
ITEM 12. Security Ownership of Certain Beneficial Owners and Management. . . 83
ITEM 13. Certain Relationships and Related Transactions. . . . . . . . . 83

PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . 83

PART I

ITEM 1. Business

Transocean Sedco Forex Inc. (together with its subsidiaries and
predecessors, unless the context requires otherwise, the "Company," "we," "us"
or "our") is a leading international provider of offshore and inland marine
contract drilling services for oil and gas wells. As of March 1, 2002, we
owned, had partial ownership interests in or operated more than 160 mobile
offshore and barge drilling units. As of this date, our active fleet consisted
of 31 high-specification floaters, 30 other floaters, 54 jackup rigs, 35
drilling barges, four tenders and three submersible drilling rigs. In addition,
the fleet includes a platform drilling rig, as well as 10 land drilling rigs in
Venezuela. We contract our drilling rigs, related equipment and work crews
primarily on a dayrate basis to drill oil and gas wells.

Our mobile offshore drilling fleet is considered one of the most modern and
versatile fleets in the world. Our core business is to contract these drilling
rigs, related equipment and work crews primarily on a dayrate basis to drill oil
and gas wells. We specialize in technically demanding segments of the offshore
drilling business with a particular focus on deepwater and harsh environment
drilling services. We also provide additional services, including management of
third-party well service activities. Our ordinary shares are listed on the New
York Stock Exchange under the symbol "RIG".

Transocean Sedco Forex Inc. is a Cayman Islands exempted company with
principal executive offices in the U.S. located at 4 Greenway Plaza, Houston,
Texas 77046. Our telephone number at that address is (713) 232-7500.

Recent Developments

In March 2002, we completed an exchange offer pursuant to which the 6.50%
Notes due April 15, 2003, 6.75% Notes due April 15, 2005, 6.95% Notes due April
15, 2008, 7.375% Notes due April 15, 2018, 9.125% Notes due December 15, 2003
and 9.50% Notes due December 15, 2008 of R&B Falcon Corporation (together with
its subsidiaries, unless the context requires otherwise, "R&B Falcon") whose
holders accepted the offer were exchanged for newly issued notes of the Company.
The new notes were issued in six series corresponding to the six series of R&B
Falcon notes and have the same principal amount, interest rate, redemption terms
and payment and maturity dates as the corresponding series of R&B Falcon notes.
The aggregate principal amount of the new notes issued was approximately $1.4
billion.

On February 14, 2002, the Board of Directors approved a proposal to adopt a
special resolution of ordinary shareholders to change our name to "Transocean
Inc." The proposal will be voted upon at our upcoming Annual General Meeting of
Shareholders on May 9, 2002.

On December 14, 2001, we announced that our Board of Directors had
appointed Robert L. Long as President, effective immediately. In June 2002, Mr.
Long will also assume the role of Chief Operating Officer upon the retirement of
W. Dennis Heagney, the current Executive Vice President and Chief Operating
Officer. The Board of Directors has also appointed Gregory L. Cauthen as the
Company's new Vice President, Chief Financial Officer and Treasurer.

Merger of Transocean Sedco Forex Inc. and R&B Falcon Corporation

On January 31, 2001, we completed a merger transaction with R&B Falcon in
which an indirect wholly owned subsidiary of the Company, TSF Delaware Inc.,
merged with and into R&B Falcon. As a result of the merger, R&B Falcon common
shareholders received 0.5 newly issued ordinary shares of the Company for each
R&B Falcon share. We issued 106,061,595 ordinary shares in exchange for the
issued and outstanding shares of R&B Falcon and assumed warrants and options
exercisable for approximately 13.2 million ordinary shares. The ordinary shares
issued in exchange for the issued and outstanding shares of R&B Falcon
constituted approximately 33 percent of the outstanding ordinary shares of the
Company after the merger. We accounted for the merger using the purchase method
of accounting with the Company treated as the acquiror.

Merger of Transocean Offshore Inc. and Sedco Forex

On December 31, 1999, we completed our merger with Sedco Forex Holdings
Limited ("Sedco Forex"), the former offshore contract drilling business of
Schlumberger Limited ("Schlumberger"). Effective upon the merger, we changed
our name from "Transocean Offshore Inc." to "Transocean Sedco Forex Inc." The
merger followed the spin-off of Sedco Forex to Schlumberger shareholders on
December 30, 1999. As a result of the merger, Schlumberger shareholders
exchanged all of the Sedco Forex shares distributed to them by Schlumberger in
the Sedco Forex spin-off for ordinary shares of the Company, and Sedco Forex
became a wholly owned subsidiary of the Company.

In the merger, Schlumberger shareholders received 0.1936 ordinary shares of
the Company for each share of capital stock of Sedco Forex distributed in the
spin-off of Sedco Forex. We issued 109,419,166 ordinary shares to Schlumberger
shareholders in the merger, and issued an additional 145,102 ordinary shares
that were sold on the market for cash paid in lieu of fractional shares. These
aggregate issuances of 109,564,268 shares constituted approximately 52 percent
of outstanding Company shares immediately following the merger. We accounted
for the merger using the purchase method of accounting with Sedco Forex treated
as the accounting acquiror.

Background of Transocean Offshore Inc.

The Company was founded in 1953 by predecessors of Sonat Inc. and J. Ray
McDermott & Co., Inc. to design and construct the first jackup rig in the U.S.
Gulf of Mexico. The Company, then known as "The Offshore Company," began
international drilling operations in the late 1950s and was one of the first
contractors to offer drilling services in the North Sea. The Company was
publicly traded from 1967 until 1978, when it became a wholly owned subsidiary
of Sonat Inc. In June 1993, the Company, then known as "Sonat Offshore Drilling
Inc.," completed an initial public offering of approximately 60 percent of the
outstanding shares of its common stock. In July 1995, Sonat Inc. sold its
remaining 40 percent interest in the Company through a secondary public
offering. In September 1996, the Company acquired substantially all of the
outstanding capital shares of Transocean ASA, a Norwegian offshore drilling
company, for an aggregate purchase price of approximately $1.5 billion in common
stock and cash, including direct transaction costs and costs of purchasing
minority shares completed in 1997, and changed its name to "Transocean Offshore
Inc." On May 14, 1999, the Company completed a corporate reorganization by
which it changed its place of incorporation from Delaware to the Cayman Islands.

Background of Sedco Forex

The offshore contract drilling business of Sedco Forex resulted from the
integration over time by Schlumberger of several drilling companies, principally
Forex (Forages et Exploitations Petrolieres) and Sedco Inc., and other asset
acquisitions. Forex was founded in France in 1942 and began as a land drilling
company in France, North Africa and the Middle East. Forex later moved into the
offshore drilling market largely through its Neptune joint venture formed in the
early 1960s with Languedocienne-Forenco. By the early 1970s, Schlumberger had
acquired all of the shares of Forex and Neptune and had integrated their
activities. Schlumberger acquired Sedco Inc. in 1984. Founded in 1947 and
originally known as Southeastern Drilling Company, Sedco Inc. began drilling in
shallow water marsh environments in the U.S. in the early 1950s and then
expanded into international operations and deeper water market segments.

Background of R&B Falcon Corporation

R&B Falcon was the result of the 1997 combination of Reading & Bates
Corporation and Falcon Drilling Company, Inc. and the subsequent acquisition of
Cliffs Drilling Company ("Cliffs Drilling") in late 1998. Reading & Bates
Corporation was founded in 1955 as an offshore drilling company to construct and
operate an offshore drilling tender in the U.S. Gulf of Mexico. Falcon Drilling
Company, Inc. was formed in 1991 initially to operate in the shallow water and
transition zone areas of the U.S. Gulf of Mexico and moved into deepwater
operations in 1996. Cliffs Drilling was spun-off from Cleveland-Cliffs Inc. in
1988 and continues to operate land and offshore rigs in various countries,
including the U.S. and Venezuela. At the time of the merger with the Company,
R&B Falcon owned, had partial ownership interests in, operated or had under
construction more than 100 mobile offshore drilling units, inland barges and
other assets utilized in support of offshore drilling activities, including 10
semisubmersible drilling rigs, 10 drillships and 42 jackup drilling rigs.

Drilling Rig Types

We principally use 4 types of drilling rigs:

- drillships

- semisubmersibles

- jackups

- barge drilling rigs

Also included in our fleet are tenders, submersible rigs, platform drilling
rigs and land drilling rigs.

Most of our drilling equipment is suitable for both exploration and
development drilling, and we are normally engaged in both types of drilling
activity. Likewise, most of our drilling rigs are mobile and can be moved to
new locations in response to client demand, particularly the drillships,
semisubmersibles, jackups and tenders. All of our mobile offshore drilling
units are designed for operations away from port for extended periods of time
and most have living quarters for the crews, a helicopter landing deck and
storage space for pipe and drilling supplies.

As of March 1, 2002, our marine fleet was located in the U.S. Gulf of
Mexico (77 units), Canada (1 unit), Brazil (12 units), Trinidad (3 units), the
North Sea (20 units), the Mediterranean and Middle East (5 units), the Caspian
Sea (1 unit), Africa (21 units), India (6 units) and Asia and Australia (15
units). Additionally, the drillship Joides Resolution is contracted for a
worldwide research program and as of such date was in Peru.

Drillships (13)

Drillships are generally self-propelled and designed to drill in the
deepest water in which offshore drilling rigs currently operate. Shaped like
conventional ships, they are the most mobile of the major rig types. Our
drillships are either dynamically positioned, which allows them to maintain
position without anchors through the use of their onboard propulsion and
station-keeping systems, or are operated in a moored configuration. Drillships
typically have greater load capacity than semisubmersible rigs. This enables
them to carry more supplies on board, which often makes them better suited for
drilling in remote locations where resupply is more difficult. However,
drillships are typically limited to calmer water conditions than those in which
semisubmersibles can operate. High-specification drillships are those that are
dynamically positioned and rated for drilling in water depths of at least 7,000
feet and are designed for ultra-deepwater exploration and development drilling
programs. Our three Discoverer Enterprise-class drillships are equipped for
dual-activity drilling, which is a well-construction technology we developed
that allows for drilling tasks associated with a single well to be accomplished
in a parallel rather than sequential manner by utilizing two complete drilling
systems under a single derrick. The dual-activity well-construction process is
designed to reduce critical path activity and improve efficiency in both
exploration and development drilling. Our Deepwater-class drillships are also
high-specification drillships and are designed with a high-pressure mud system.

The following table provides certain information regarding our drillship
fleet as of March 1, 2002:

YEAR WATER DRILLING
ENTERED DEPTH DEPTH
SERVICE/ CAPACITY CAPACITY ESTIMATED
TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION CUSTOMER EXPIRATION (E)
---------------------------------- ----------- --------- --------- ---------------- ------------- ---------------

HIGH-SPECIFICATION DRILLSHIPS (12)
Deepwater Discovery (b) . . . . . . 2000 10,000 30,000 Angola ChevronTexaco December 2003
Deepwater Expedition (b). . . . . . 1999 10,000 30,000 Brazil Petrobras September 2005
Deepwater Frontier (b)(d) . . . . . 1999 10,000 30,000 Brazil Petrobras November 2003
Deepwater Millennium (b). . . . . . 1999 10,000 30,000 U.S. Gulf Marathon October 2002
Deepwater Pathfinder (b)(c) . . . . 1998 10,000 30,000 U.S. Gulf Conoco January 2004
Discoverer Deep Seas (b). . . . . . 2001 10,000 35,000 U.S. Gulf ChevronTexaco January 2006
Discoverer Enterprise (b) . . . . . 1999 10,000 35,000 U.S. Gulf BP December 2004
Discoverer Spirit (b) . . . . . . . 2000 10,000 35,000 U.S. Gulf Unocal September 2005
Deepwater Navigator (b) . . . . . . 2000 7,800 25,000 Brazil Petrobras July 2003
Peregrine I (b) . . . . . . . . . . 1982/1996 7,200 25,000 Brazil Petrobras June 2003
Discoverer 534 (b). . . . . . . . . 1975/1991 7,000 25,000 Enroute to India Reliance June 2002
Discoverer Seven Seas (b) . . . . . 1976/1997 7,000 25,000 Brazil Petrobras September 2004

OTHER DRILLSHIPS (1)
Joides Resolution (b)(f). . . . . . 1978 27,000 30,000 Peru Texas A&M September 2003

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(a) Dates shown are the original service date and the date of the most recent
upgrade, if any.
(b) Dynamically positioned.

(c) The Deepwater Pathfinder is leased and operated by a limited liability
company in which we own a 50 percent interest. See Note 16 to our
consolidated financial statements.
(d) The Deepwater Frontier is leased and operated by a limited liability
company in which we own a 60 percent interest. See Note 16 to our
consolidated financial statements.
(e) Expiration dates represent our current estimate of the earliest date the
contract for each rig is likely to expire. Some contracts may permit the
client to extend the contract.
(f) The Joides Resolution is currently engaged in scientific geological coring
activities and is owned by a joint venture in which we have a 50 percent
interest. See Note 16 to our consolidated financial statements.

Semisubmersibles (48)

Semisubmersibles are floating vessels that can be submerged by means of a
water ballast system such that a substantial portion of the lower hull is below
the water surface during drilling operations. These rigs maintain their
position over the well through the use of an anchoring system or computer
controlled dynamic positioning thruster system. Some semisubmersible rigs are
self-propelled and move between locations under their own power when afloat on
the pontoons although most are relocated with the assistance of tugs.
Typically, semisubmersibles are better suited for operations in rough water
conditions than drillships. High-specification semisubmersibles are those that
were built or extensively upgraded since 1984 and have one or more of the
following characteristics: larger physical size than other semisubmersibles;
rated for drilling in water depths of over 4,000 feet; year-round harsh
environment capability; variable deck load capability of greater than 4,000
metric tons; dynamic positioning; and superior motion characteristics.

The following table provides certain information regarding our
semisubmersible fleet as of March 1, 2002:

YEAR WATER DRILLING
ENTERED DEPTH DEPTH
SERVICE/ CAPACITY CAPACITY ESTIMATED
TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION CUSTOMER EXPIRATION (C)
------------------------- ----------- --------- --------- ----------------- ------------- --------------

HIGH-SPECIFICATION
SEMISUBMERSIBLES (19)
Deepwater Horizon . . . . 2001 10,000 30,000 U.S. Gulf BP September 2004
Cajun Express (b) . . . . 2001 8,500 35,000 U.S. Gulf - Idle
Deepwater Nautilus (d). . 2000 8,000 30,000 U.S. Gulf Shell June 2005
Sedco Energy (b). . . . . 2001 7,500 25,000 Ivory Coast ChevronTexaco October 2004
Sedco Express (b) . . . . 2001 7,500 25,000 Egypt BP May 2002
Transocean Marianas . . . 1979/1998 7,000 25,000 U.S. Gulf Shell August 2003
Sedco 707 (b) . . . . . . 1976/1997 6,500 25,000 Brazil Petrobras January 2004
Jack Bates. . . . . . . . 1986/1997 6,000 30,000 U.K. North Sea BP April 2002
Sedco 709 (b) . . . . . . 1977/1999 5,000 25,000 Nigeria Shell May 2002
M. G. Hulme, Jr. (e). . . 1983/1996 5,000 25,000 Nigeria ExxonMobil June 2002
Transocean Richardson . . 1988 5,000 25,000 U.S. Gulf Anadarko September 2002
Jim Cunningham . . . . . 1982/1995 5,000 25,000 Angola ExxonMobil August 2002
Transocean Leader . . . . 1987/1997 4,500 25,000 U.K. North Sea BP March 2003
Transocean Rather . . . . 1988 4,500 25,000 U.S. Gulf BP January 2003
Sovereign Explorer. . . . 1984 4,000 25,000 Enroute to Amerada Hess March 2003
Equatorial Guinea
Henry Goodrich. . . . . . 1985 2,000 30,000 Canada Terra Nova February 2003
Paul B. Loyd, Jr. . . . . 1990 2,000 25,000 U.K. North Sea BP March 2003
Transocean Arctic . . . . 1986 1,650 25,000 Norwegian N. Sea - Idle
Polar Pioneer. . . . . . 1985 1,500 25,000 Norwegian N. Sea Norsk Hydro February 2003

YEAR WATER DRILLING
ENTERED DEPTH DEPTH
SERVICE/ CAPACITY CAPACITY ESTIMATED
TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION CUSTOMER EXPIRATION (C)
--------------------------- ----------- --------- --------- ----------------- ------------- --------------

OTHER SEMISUBMERSIBLES (29)
Sedco 710 (b) . . . . . . . 1983 4,000 25,000 Brazil Petrobras October 2006
Sedco 700 . . . . . . . . . 1973/1997 3,600 25,000 Equatorial Guinea Amerada Hess October 2002
Transocean Amirante . . . . 1978/1997 3,500 25,000 U.S. Gulf - Idle
Transocean Legend . . . . . 1983 3,500 25,000 Brazil Petrobras March 2002
C. Kirk Rhein, Jr. . . . . 1976/1997 3,300 25,000 Trinidad - Idle
Transocean Driller. . . . . 1991 3,000 25,000 Brazil Petrobras January 2003
Falcon 100. . . . . . . . . 1974/1999 2,400 25,000 U.S. Gulf Agip May 2002
Transocean 96 . . . . . . . 1975/1997 2,300 25,000 U.S. Gulf Anadarko March 2002
Sedco 711 . . . . . . . . . 1982 1,800 25,000 U.K. North Sea ExxonMobil May 2002
U.K. North Sea Conoco November 2002
Transocean John Shaw . . . 1982 1,800 25,000 U.K. North Sea TotalFinaElf December 2002
Sedco 714 . . . . . . . . . 1983/1997 1,600 25,000 U.K. North Sea BP October 2002
Sedco 712 . . . . . . . . . 1983 1,600 25,000 U.K. North Sea Shell December 2002
Actinia . . . . . . . . . . 1982 1,500 25,000 Spain Repsol March 2002
Mediterranean I.E.O.C. September 2002
J. W. McLean. . . . . . . . 1974/1996 1,500 25,000 U.K. North Sea Phillips April 2002
Sedco 600 . . . . . . . . . 1983/1994 1,500 25,000 Indonesia Conoco April 2002
Sedco 601 . . . . . . . . . 1983 1,500 25,000 Indonesia Unocal December 2002
Sedco 602 . . . . . . . . . 1983 1,500 25,000 Indonesia - Idle
Sedco 702 . . . . . . . . . 1973/1992 1,500 25,000 Australia Apache March 2002
Australia Santos April 2002
Australia Agip July 2002
Sedco 703 . . . . . . . . . 1973/1995 1,500 25,000 Australia Woodside May 2002
Australia El Paso June 2002
Sedco 708 . . . . . . . . . 1976 1,500 25,000 Congo - Idle
Sedneth 701 . . . . . . . . 1972/1993 1,500 25,000 Angola ChevronTexaco March 2002
Gabon Vaalco June 2002
Transocean Prospect . . . . 1983/1992 1,500 25,000 Norwegian N. Sea Statoil August 2002
Transocean Searcher . . . . 1983/1988 1,500 25,000 Norwegian N. Sea Statoil August 2002
Norwegian N. Sea Statoil February 2003
Transocean Winner . . . . . 1983 1,500 25,000 Norwegian N. Sea Shell July 2002
Transocean Wildcat. . . . . 1977/1985 1,300 25,000 U.K. North Sea - Idle
Transocean Explorer . . . . 1976 1,250 25,000 U.K. North Sea - Idle
Sedco 704 . . . . . . . . . 1974/1993 1,000 25,000 U.K. North Sea ChevronTexaco October 2002
Sedco 706 . . . . . . . . . 1976/1994 1,000 25,000 U.K. North Sea TotalFinaElf June 2002
Sedco I - Orca (f). . . . . 1970/1987 900 25,000 South Africa Schlumberger March 2003

---------------------------
(a) Dates shown are the original service date and the date of the most recent
upgrade, if any.
(b) Dynamically positioned.
(c) Expiration dates represent our current estimate of the earliest date the
contract for each rig is likely to expire. Some rigs have two contracts in
continuation, so the second line shows the estimated earliest availability.
Some contracts may permit the client to extend the contract.
(d) The Deepwater Nautilus is leased from its owner, an unrelated third party,
pursuant to a fully defeased lease arrangement.
(e) The M. G. Hulme, Jr. is accounted for as an operating lease as a result of
a sale/leaseback transaction in November 1995.
(f) Operated under a management contract with the rig's owner.

Jackup Rigs (54)

Jackup rigs are mobile self-elevating drilling platforms equipped with legs
that can be lowered to the ocean floor until a foundation is established to
support the drilling platform. Once a foundation is established, the drilling
platform is then jacked further up the legs so that the platform is above the
highest expected waves. These rigs are generally suited for water depths of 300
feet or less.

The following table provides certain information regarding our jackup rig
fleet as of March 1, 2002:

YEAR ENTERED WATER DEPTH DRILLING DEPTH
SERVICE/ CAPACITY CAPACITY
TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION STATUS
------------------- ------------- ------------ --------------- ----------------- ---------

Trident IX (b). . . 1982 400 21,000 Vietnam Operating
Trident 17. . . . . 1983 355 25,000 Indonesia Operating
Harvey H. Ward. . . 1981 300 25,000 Singapore Idle
J. T. Angel . . . . 1982 300 25,000 India Operating
Roger W. Mowell . . 1982 300 25,000 Malaysia Operating
Ron Tappmeyer . . . 1978 300 25,000 Indonesia Operating
D. R. Stewart . . . 1980 300 25,000 Italy Operating
Randolph Yost . . . 1979 300 25,000 Equatorial Guinea Operating
C. E. Thornton. . . 1974 300 25,000 India Operating
F. G. McClintock. . 1975 300 25,000 India Operating
Shelf Explorer. . . 1982 300 25,000 Denmark Operating
Transocean III. . . 1978/1993 300 20,000 United Arab Operating
Emirates
Transocean Nordic . 1984 300 25,000 U.K. North Sea Idle
Trident II. . . . . 1977/1985 300 25,000 India Operating
Trident IV. . . . . 1980/1999 300 25,000 Angola Operating
Trident VI. . . . . 1981 300 21,000 Nigeria Operating
Trident VIII. . . . 1981 300 21,000 Nigeria Operating
Trident XII . . . . 1982/1992 300 25,000 India Operating
Trident XIV . . . . 1982/1994 300 20,000 Angola Operating
Trident 15. . . . . 1982 300 25,000 Thailand Operating
Trident 16. . . . . 1982 300 25,000 Malaysia Operating
Trident 20 (c). . . 2000 300 25,000 Caspian Sea Operating
George H. Galloway. 1985 300 25,000 U.S. Gulf Idle
Transocean Comet. . 1980 250 20,000 Egypt Operating
Transocean Mercury. 1969/1998 250 20,000 Egypt Operating
RBF 208 . . . . . . 1980 200 20,000 Brazil Idle
RBF 209 . . . . . . 1980 200 25,000 Brazil Operating
RBF 192 . . . . . . 1981 250 25,000 U.S. Gulf Idle
RBF 250 . . . . . . 1974 250 25,000 U.S. Gulf Idle
RBF 251 . . . . . . 1978 250 25,000 U.S. Gulf Idle
RBF 252 . . . . . . 1978 250 25,000 U.S. Gulf Idle
RBF 253 . . . . . . 1982 250 25,000 U.S. Gulf Idle
RBF 254 . . . . . . 1976 250 25,000 U.S. Gulf Idle
RBF 255 . . . . . . 1976 250 25,000 U.S. Gulf Idle
RBF 256 . . . . . . 1975 250 25,000 U.S. Gulf Idle
RBF 190 . . . . . . 1978 200 25,000 U.S. Gulf Idle
RBF 200 . . . . . . 1979 200 25,000 U.S. Gulf Operating
RBF 201 . . . . . . 1981 200 25,000 U.S. Gulf Idle
RBF 202 . . . . . . 1982 200 25,000 U.S. Gulf Operating
RBF 203 . . . . . . 1981 200 25,000 U.S. Gulf Idle
RBF 204 . . . . . . 1981 200 25,000 U.S. Gulf Operating
RBF 205 . . . . . . 1979 200 25,000 U.S. Gulf Operating
RBF 206 . . . . . . 1980 200 25,000 U.S. Gulf Idle
RBF 207 . . . . . . 1981 200 25,000 U.S. Gulf Idle
RBF 185 . . . . . . 1982 190 25,000 U.S. Gulf Idle

RBF 191 . . . . . . 1978 184 25,000 U.S. Gulf Idle
RBF 150 . . . . . . 1979 150 20,000 U.S. Gulf Operating
RBF 151 . . . . . . 1981 150 25,000 U.S. Gulf Idle
RBF 152 . . . . . . 1980 150 25,000 U.S. Gulf Idle
RBF 153 . . . . . . 1980 150 25,000 U.S. Gulf Idle
RBF 154 . . . . . . 1979 150 20,000 U.S. Gulf Idle
RBF 155 . . . . . . 1980 150 20,000 U.S. Gulf Idle
RBF 156 . . . . . . 1983 150 25,000 U.S. Gulf Idle
RBF 110 . . . . . . 1982 110 25,000 Trinidad Operating

----------------------------
(a) Dates shown are the original service date and the date of the most recent
upgrade, if any.
(b) As of March 1, 2002, the Trident IX was owned by an unrelated third party
and leased by us as part of a secured rig financing. See Note 23 to our
consolidated financial statements.
(c) Owned by a joint venture in which we have a 75 percent interest.

Barge Drilling Rigs (35)

Our barge drilling fleet consists of conventional and posted barge rigs and
swamp barges. Our conventional and posted barge drilling rigs are mobile
drilling platforms that are submersible and are built to work in eight to 20
feet of water. A posted barge is identical to a conventional barge except that
the hull and superstructure are separated by 10 to 14 foot columns, which
increases the water depth capabilities of the rig. Swamp barges are usually not
self-propelled, but can be moored alongside a platform, and contain crew
quarters, mud pits, mud pumps, power generation and other equipment. Swamp
barges are generally suited for water depths of 25 feet or less.

The following table provides certain information regarding our barge
drilling rig fleet as of March 1, 2002:

YEAR ENTERED
SERVICE/ DRILLING CAPACITY
RIG UPGRADED(A) (IN FEET) LOCATION STATUS
------------------------ ------------- ------------------ --------- ---------

CONVENTIONAL BARGES (14)
1. . . . . . . . . . . . 1980 20,000 U.S. Gulf Operating
11 . . . . . . . . . . . 1982 30,000 U.S. Gulf Operating
15 . . . . . . . . . . . 1981 25,000 U.S. Gulf Idle
19 . . . . . . . . . . . 1996 14,000 U.S. Gulf Operating
20 . . . . . . . . . . . 1998 14,000 U.S. Gulf Idle
21 . . . . . . . . . . . 1982 15,000 U.S. Gulf Idle
23 . . . . . . . . . . . 1995 14,000 U.S. Gulf Idle
28 . . . . . . . . . . . 1979 30,000 U.S. Gulf Operating
29 . . . . . . . . . . . 1980 30,000 U.S. Gulf Idle
30 . . . . . . . . . . . 1981 30,000 U.S. Gulf Idle
31 . . . . . . . . . . . 1981 30,000 U.S. Gulf Operating
32 . . . . . . . . . . . 1982 30,000 U.S. Gulf Operating
74 (b) . . . . . . . . . 1981 25,000 U.S. Gulf Idle
75 (b) . . . . . . . . . 1979 30,000 U.S. Gulf Idle

YEAR ENTERED
SERVICE/ DRILLING CAPACITY
UPGRADED(A) (IN FEET) LOCATION STATUS
------------- ------------------ --------- ---------

POSTED BARGES (17)
7 . . . . . . . . 1978 25,000 U.S. Gulf Idle
9 . . . . . . . . 1981 25,000 U.S. Gulf Idle
10 . . . . . . . . 1981 25,000 U.S. Gulf Idle
17 . . . . . . . . 1981 30,000 U.S. Gulf Idle
27 . . . . . . . . 1978 30,000 U.S. Gulf Idle
41 . . . . . . . . 1981 30,000 U.S. Gulf Operating
46 . . . . . . . . 1981 30,000 U.S. Gulf Idle
47 . . . . . . . . 1982 30,000 U.S. Gulf Idle
48 . . . . . . . . 1982 30,000 U.S. Gulf Idle
49 . . . . . . . . 1980 30,000 U.S. Gulf Idle
52 . . . . . . . . 1981 25,000 U.S. Gulf Operating
55 . . . . . . . . 1981 30,000 U.S. Gulf Idle
56 . . . . . . . . 1973 25,000 U.S. Gulf Idle
57 . . . . . . . . 1975 25,000 U.S. Gulf Idle
61 . . . . . . . . 1978 30,000 U.S. Gulf Idle
62 . . . . . . . . 1978 30,000 U.S. Gulf Operating
64 . . . . . . . . 1979 30,000 U.S. Gulf Idle

YEAR ENTERED
SERVICE/ DRILLING CAPACITY
UPGRADED(A) (IN FEET) LOCATION STATUS
------------- ------------------ --------- ---------

SWAMP BARGES (4)
Searex 4 . . . . 1981/1989 25,000 Nigeria Idle
Searex 6 . . . . 1981/1991 25,000 Nigeria Operating
Searex 12. . . . 1982/1992 25,000 Nigeria Operating
Hibiscus (c) . . 1979/1993 16,000 Indonesia Operating

--------------------
(a) Dates shown are the original service date and the date of the most recent
upgrade, if any.

(b) These rigs are leased to us.

Other Rigs

In addition to the drillships, semisubmersibles, jackups and barge drilling
rigs, we also own or operate several other types of rigs. These rigs include
four tenders, three submersible rigs and a platform drilling rig. We also have
10 land drilling rigs in Venezuela.

Markets

Rigs can be moved from one region to another, but the cost of moving a rig
and the availability of rig-moving vessels may cause the supply and demand
balance to vary somewhat between regions. However, significant variations
between regions do not tend to exist long-term because of rig mobility.

In recent years, there has been increased emphasis by oil companies on
exploring for hydrocarbons in deeper waters. This is, in part, because of
technological developments that have made such exploration more feasible and
cost-effective. The deepwater and mid-depth market segments are serviced by our
semisubmersibles and drillships. The deepwater market segment begins in water
depths of about 2,000 feet and extends to the maximum water depths in which rigs
are currently capable of drilling, being approximately 10,000 feet. The
mid-depth market segment begins in water depths of about 300 feet and extends to
water depths of about 2,000 feet.

The shallow water market segment is serviced by our jackups, submersibles
and drilling tenders. This market segment begins at the outer limit of the
transition zone and extends to water depths of about 300 feet. It has been
developed to a significantly greater degree than the deepwater market segment,
as technology required to explore for and produce hydrocarbons in these water
depths is not as demanding as in the deepwater market segment, and accordingly
the costs are lower.

Our barge rig fleet operates in marshes, rivers, lakes and shallow bay and
coastal water areas that are referred to as the "transition zone." Our principal
barge market segment is the shallow water areas of the U.S. Gulf of Mexico.
This area historically has been the world's largest market segment for barge
rigs. International market segments for our barge rigs include West Africa and
Southeast Asia.

We conduct land rig operations in Venezuela. Although in early 2001 we
announced our intent to sell this business, weakened market conditions led us to
decide to continue to operate the Venezuelan business and reassess our plan at
some point in the future.

Management Services

We use our engineering and operating expertise to provide management of
third party drilling service activities. These services are provided through
service teams generally consisting of Company personnel and third-party
subcontractors, with the Company frequently serving as lead contractor. The work
generally consists of individual contractual agreements to meet specific client
needs and may be provided on either a dayrate or fixed price basis. As of March
1, 2002, we performed such services only in the North Sea.

Drilling Contracts

Our contracts to provide offshore drilling services are individually
negotiated and vary in their terms and provisions. We obtain most of our
contracts through competitive bidding against other contractors. Drilling
contracts generally provide for payment on a dayrate basis, with higher rates
while the drilling unit is operating and lower rates for periods of mobilization
or when drilling operations are interrupted or restricted by equipment
breakdowns, adverse environmental conditions or other conditions beyond our
control.

A dayrate drilling contract generally extends over a period of time
covering either the drilling of a single well or group of wells or covering a
stated term. These contracts typically can be terminated by the client under
various circumstances such as the loss or destruction of the drilling unit or
the suspension of drilling operations for a specified period of time as a result
of a breakdown of major equipment. The contract term in some instances may be
extended by the client exercising options for the drilling of additional wells
or for an additional term, or by exercising a right of first refusal. In
reaction to depressed market conditions, our clients may seek renegotiation of
firm drilling contracts to reduce their obligations or may seek to suspend or
terminate their contracts. Some drilling contracts permit the customer to
terminate the contract at the customer's option without paying a termination
fee. Suspension of drilling contracts results in loss of the dayrate for the
period of the suspension. If our customers cancel some of our significant
contracts and we are unable to secure new contracts on substantially similar
terms, or if contracts are suspended for an extended period of time, it could
adversely affect our results of operations.

The Company and Statoil are parties to a cooperation agreement extending
through 2005. However, only two semisubmersibles, the Transocean Prospect and
Transocean Searcher, remain subject to the agreement.

Significant Clients

During the past five years, we have engaged in offshore drilling for most
of the leading international oil companies (or their affiliates) in the world,
as well as for many government-controlled and independent oil companies.
Principal clients included BP, Petrobras, the Royal Dutch Shell Group, Statoil,
ChevronTexaco, TotalFinaElf, Woodside, Unocal and Norsk Hydro. Our largest
unaffiliated clients in 2001 were BP and Petrobras accounting for 12.3 percent
and 10.9 percent, respectively, of our 2001 operating revenues. No other
unaffiliated client accounted for 10 percent or more of our 2001 operating
revenues (see Note 17 to our consolidated financial statements). The loss of
any of these significant clients could, at least in the short term, have a
material adverse effect on our results of operations.

Industry Conditions and Competition

Our business depends on the level of activity in oil and gas exploration,
development and production in market segments worldwide, with the U.S. and
international offshore and U.S. inland marine areas being our primary market
segments. Oil and gas prices and market expectations of potential changes in
these prices significantly affect this level of activity. Worldwide military,
political and economic events have contributed to oil and gas price volatility
and are likely to do so in the future. Oil and gas prices are extremely
volatile and are affected by numerous factors, including worldwide demand for
oil and gas, the ability of the Organization of Petroleum Exporting Countries
(commonly called "OPEC") to set and maintain production levels and pricing, the
level of production in non-OPEC countries, the policies of the various
governments regarding exploration and development of their oil and gas reserves,
advances in exploration and development technology and the worldwide military
and political environment, including uncertainty or instability resulting from
an escalation or additional outbreak of armed hostilities or other crisis in the
Middle East or other geographic areas in which we operate or further acts of
terrorism in the United States, or elsewhere.

The offshore and inland marine contract drilling industry is highly
competitive with numerous industry participants, none of which has a dominant
market share. Drilling contracts are traditionally awarded on a competitive bid
basis. Intense price competition is often the primary factor in determining
which qualified contractor is awarded a job, although rig availability and the
quality and technical capability of service and equipment may also be
considered. Recent mergers among oil and natural gas exploration and production
companies have reduced the number of available customers.

Our industry has historically been cyclical and may be impacted by oil and
gas price levels and volatility. There have been periods of high demand, short
rig supply and high dayrates, followed by periods of low demand, excess rig
supply and low dayrates. Changes in commodity prices can have a dramatic effect
on rig demand, and periods of excess rig supply intensify the competition in the
industry and often result in rigs being idle for long periods of time. We may
be required to idle rigs or enter into lower rate contracts in response to
market conditions in the future. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Outlook."

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

Operating Risks

Our operations are subject to the usual hazards inherent in the drilling of
offshore oil and gas wells, such as blowouts, reservoir damage, loss of
production, loss of well control, punchthroughs, cratering or fires. The
occurrence of these events could result in the suspension of drilling
operations, damage to or destruction of the equipment involved and injury to or
death of rig personnel. We are also subject to personal injury and other claims
of rig personnel as a result of its drilling operations. Operations also may be
suspended because of machinery breakdowns, abnormal drilling conditions, failure
of subcontractors to perform or supply goods or services or personnel shortages.
In addition, offshore drilling operations are subject to perils peculiar to
marine operations, including capsizing, grounding, collision and loss or damage
from severe weather. Damage to the environment could also result from our
operations, particularly through oil spillage or extensive uncontrolled fires.
We are also subject to property, environmental and other damage claims.

We maintain broad insurance coverage, including insurance against general
and marine third-party liabilities. Our offshore drilling equipment is covered
by physical damage insurance policies, which cover against marine and other
perils, including losses due to capsizing, grounding, collision, fire,
lightning, hurricanes, wind, storms, action of waves, punchthroughs, cratering,
blowouts, explosions and war risks. We also carry employer's liability and other
insurance customary in the offshore contract drilling business. We do not
normally carry loss of hire or business interruption insurance.

Consistent with standard industry practice, our clients generally assume,
and indemnify us against, well control and subsurface risks under dayrate
contracts. These risks are those associated with the loss of control of a well,
such as blowout or cratering, the cost to regain control or redrill the well and
associated pollution. However, there can be no assurance that these clients will
necessarily be financially able to indemnify us against all these risks.

We believe we are adequately insured in accordance with industry standards
against normal risks in our operations; however, such insurance coverage may not
in all situations provide sufficient funds to protect us from all liabilities
that could result from our drilling operations. Although our current practice is
to insure the majority of our drilling units for their approximate net book
value, our insurance would not completely cover the costs that would be required
to replace certain of our

units, including certain high-specification semisubmersibles and drillships.
Moreover, our insurance coverage in most cases does not protect against loss of
revenues. Accordingly, the occurrence of a casualty or loss against which we are
not fully insured could have a material adverse effect on our consolidated
financial position or results of operations. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations-Other
Factors Affecting Operating Results" regarding the effects of the September 11th
attacks.

We are subject to liability under various environmental laws and
regulations. See "-Regulation." We have generally been able to obtain some
degree of contractual indemnification pursuant to which our clients agree to
protect and indemnify us against liability for pollution, well and environmental
damages; however, there is no assurance that we can obtain such indemnities in
all of our contracts or that, in the event of extensive pollution and
environmental damages, the clients will have the financial capability to fulfill
their contractual obligations to us. Also, these indemnities may not be
enforceable in all instances. For some contracts where the risk allocation or
counterparty risk exposure is considered high, we can purchase additional
insurance such as "operators extra expense insurance" against well control
risks.

We completed our newbuild program in 2001 with the delivery of one
high-specification drillship and four high-specification semisubmersibles. We
have experienced some start-up difficulties with most of our newbuild rigs,
which can affect downtime and operating revenues. While we expect our newbuild
rig fleet to operate with average downtime comparable to industry norms, there
can be no assurance that future operational problems will not arise. Should
problems occur which cause significant downtime or significantly affect a
newbuild rig's performance or safety, our clients may attempt to terminate or
suspend the drilling contract, particularly any of the long-term contracts
associated with most of the newbuild rigs. In the event of termination of a
drilling contract for one of these rigs, it is unlikely that we would be able to
secure a replacement contract on as favorable terms.

International Operations

Our operations are geographically dispersed in oil and gas exploration and
development areas throughout the world. Because our drilling rigs are mobile
assets and are able to be moved according to prevailing market conditions, we
cannot predict the percentage of our revenues that will be derived from
particular geographic or political areas in future periods.

Our operations are subject to certain political and other uncertainties,
including risks of war and civil disturbances or other events that disrupt
markets, expropriation of equipment, inability to repatriate income or capital,
changing taxation policies and the general hazards associated with governmental
sovereignty over certain areas in which operations are conducted. We are
protected to a substantial extent against capital loss, but generally not loss
of revenue, from most of such risks through insurance, indemnity provisions in
our drilling contracts, or both. The necessity of insurance coverage for risks
associated with political unrest, expropriation and environmental remediation
for operating areas not covered under our existing insurance policies is
evaluated on an individual contract basis. As of March 1, 2002, all areas in
which we were operating were covered by existing insurance policies. Although
we maintain insurance in the areas in which we operate, pollution and
environmental risks generally are not fully insurable. If a significant
accident or other event occurs and is not fully covered by insurance or a
recoverable indemnity from a client, it could adversely affect our consolidated
results of operations.

Our operations are also subject to significant government regulation. Some
governments favor or effectively require the awarding of drilling contracts to
local contractors or require foreign contractors to employ citizens of, or
purchase supplies from, a particular jurisdiction. These practices may
adversely affect our ability to compete in these jurisdictions. We expect to
continue to structure our operations in order to remain competitive in the
international markets.

Another risk inherent in our operations is the possibility of currency
exchange losses where revenues are received and expenses are paid in
nonconvertible currencies. We may also incur losses as a result of an inability
to collect revenues because of a shortage of convertible currency available to
the country of operations. We seek to limit these risks by structuring contracts
such that compensation is made in freely convertible currencies and, to the
extent possible, by limiting acceptance of blocked currencies to amounts that
match its expense requirements in local currency. See "Item 7A. Quantitative
and Qualitative Disclosures About Market Risk-Foreign Exchange Risk."

Regulation

Our operations are affected from time to time in varying degrees by
governmental laws and regulations. The drilling industry is dependent on demand
for services from the oil and gas exploration industry and, accordingly, is
affected by changing tax and other laws relating to the energy business
generally.

International contract drilling operations are subject to various laws and
regulations in countries in which we operate, including laws and regulations
relating to the equipping and operation of drilling units, currency conversions
and repatriation, oil and gas exploration and development, taxation of offshore
earnings and earnings of expatriate personnel and use of local employees and
suppliers by foreign contractors. Governments in some foreign countries have
become increasingly active in regulating and controlling the ownership of
concessions and companies holding concessions, the exportation of oil and gas
and other aspects of the oil and gas industries in their countries. In addition,
government action, including initiatives by OPEC, may continue to cause oil
price volatility. In some areas of the world, this governmental activity has
adversely affected the amount of exploration and development work done by major
oil companies and may continue to do so.

In the U.S., regulations applicable to our operations include certain
regulations controlling the discharge of materials into the environment,
requiring removal and cleanup of materials that may harm the environment or
otherwise relating to the protection of the environment. For example, we, as an
operator of mobile offshore drilling units in navigable United States waters and
certain offshore areas, may be liable for damages and costs incurred in
connection with oil spills for which we are held responsible, subject to certain
limitations. Laws and regulations protecting the environment have become more
stringent, and may in certain circumstances impose "strict liability," rendering
a person liable for environmental damage without regard to negligence or fault
on the part of such person. Some of these laws and regulations may expose us to
liability for the conduct of or conditions caused by others, or for our acts
which were in compliance with all applicable laws at the time such acts were
performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on our consolidated financial
position and results of operations.

The U.S. Oil Pollution Act of 1990 ("OPA") and related regulations impose a
variety of requirements on "responsible parties" related to the prevention of
oil spills and liability for damages resulting from such spills. Few defenses
exist to the liability imposed by OPA, and such liability could be substantial.
Failure to comply with ongoing requirements or inadequate cooperation in a spill
event could subject a responsible party to civil or criminal enforcement action.

The U.S. Outer Continental Shelf Lands Act authorizes regulations relating
to safety and environmental protection applicable to lessees and permittees
operating on the Outer Continental Shelf. Specific design and operational
standards may apply to Outer Continental Shelf vessels, rigs, platforms,
vehicles and structures. Violations of environmental related lease conditions or
regulations issued pursuant to the Outer Continental Shelf Lands Act can result
in substantial civil and criminal penalties, as well as potential court
injunctions curtailing operations and canceling leases. Such enforcement
liabilities can result from either governmental or citizen prosecution.

The Comprehensive Environmental Response Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability without regard
to fault or the legality of the original conduct on some classes of persons that
are considered to have contributed to the release of a "hazardous substance"
into the environment. These persons include the owner or operator of a facility
where a release occurred and companies that disposed or arranged for the
disposal of the hazardous substances found at a particular site. Persons who
are or were responsible for releases of hazardous substances under CERCLA may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources. It is not uncommon for third parties to file
claims for personal injury and property damage allegedly caused by the hazardous
substances released into the environment. We could be subject to liability
under CERCLA principally in connection with our onshore activities.

Certain of the other countries in whose waters we are presently operating
or may operate in the future have regulations covering the discharge of oil and
other contaminants in connection with drilling operations.

Although significant capital expenditures may be required to comply with
these governmental laws and regulations, such compliance has not materially
adversely affected the earnings or competitive position.

Employees

As of March 1, 2002, we had approximately 14,260 employees, including
approximately 2,160 persons contracted through contract labor providers. We
require highly skilled personnel to operate our drilling units. As a result, we
conduct extensive personnel recruiting, training and safety programs.

On March 1, 2002, we had approximately 13 percent of our employees
worldwide working under collective bargaining agreements, most of whom were
working in Norway, Nigeria, Brazil and Venezuela. Of these represented
employees, a majority are working under agreements that are subject to salary
negotiation in 2002. In addition, we have signed a recognition agreement
requiring negotiation with a labor union representing employees in the U.K.
These negotiations, which are expected to commence in the second quarter of
2002, could lead to collective bargaining agreements covering these employees,
which could result in higher personnel expenses, other increased costs or
increased operating restrictions.

ITEM 2. Properties

The description of our property included under "Item 1. Business" is
incorporated by reference herein.

We maintain offices, land bases and other facilities worldwide, including
our principal executive offices in Houston, Texas and regional operational
offices in the U.S., Brazil, U.K., Norway, France, Dubai and Indonesia. Our
remaining offices and bases are located in various countries in North America,
South America, Europe, Africa, the Middle East and Asia. We lease most of these
facilities.

The Company acquired R&B Falcon's oil and gas business in the merger
described under "Item 1. Business." The business is operated primarily through
R&B Falcon's majority-owned subsidiary Reading & Bates Development Co.
("Devco"). Devco owns an 11 percent working interest in production sharing
contracts covering approximately 3.1 million acres in deepwater offshore Gabon,
West Africa. A subsidiary of TotalFinaElf is the operator. A 4,400 square
kilometer 3-D seismic program was shot in 1999. Processing of the seismic data
commenced in late 1999, and interpretation continued through 2000. A four well
exploration drilling program, in which the Company was fully carried, was
completed in December 2001. To date, the operator has not released substantive
drilling results. In January 2001, R&B Falcon purchased for $34.7 million the
approximately 13.6 percent minority interest in Devco which was owned by former
directors and employees of R&B Falcon and directors and employees of Devco
(including current director of the Company Paul B. Loyd, Jr. and former director
Charles A. Donabedian). In connection with the purchase, a $0.3 million bonus
was paid to Richard A. Pattarozzi, a current director of the Company. The
purchase price was based on a valuation by a third-party advisor.

ITEM 3. Legal Proceedings

In 1990 and 1991, two of the Company's subsidiaries were served with
various assessments collectively valued at approximately $7 million from the
municipality of Rio de Janeiro, Brazil to collect a municipal tax on services.
The Company believes that neither subsidiary is liable for the taxes and has
contested the assessments in the Brazilian administrative and court systems. In
October 2001, the Brazil Supreme Court rejected the Company's appeal of an
adverse lower court's ruling with respect to a June 1991 assessment, which was
valued at approximately $6 million. The Company is challenging the assessment in
a separate proceeding, which is currently at the trial court level. We have
received adverse rulings at various levels in connection with a disputed August
1990 assessment which is still pending before the Brazil Superior Court of
Justice. The Company also received an adverse ruling from the Taxpayer's Council
in connection with an October 1990 assessment and is appealing the ruling. If
the Company's defenses are ultimately unsuccessful, the Company believes that
the Brazilian government-controlled oil company, Petrobras, has a contractual
obligation to reimburse the Company for municipal tax payments required to be
paid by them. The Company does not expect the liability, if any, resulting from
these assessments to have a material adverse effect on its business or
consolidated financial position.

have the confiscation of the rig stayed pending the outcome of the appeal. In
March 2000, the CEGAT ruled on the stay application, directing that the
confiscation be stayed pending the appeal. The CEGAT issued its opinion on the
Company's appeal on February 2, 2001, and while it found that the rig was
imported in 1988 without proper documentation or payment of duties, the
redemption fee and penalties were reduced to less than $0.1 million in view of
the ambiguity surrounding the import practice at the time and the lack of
intentional concealment by the Company. The CEGAT further sustained the
Company's position regarding the value of the rig at the time of import as $13
million and ruled that subsequent movements of the rig were not liable to import
documentation or duties in view of the prevailing practice of the Customs
Department, thus limiting the Company's exposure as to custom duties to
approximately $6 million. Following the CEGAT order, the Company tendered
payment of redemption, penalty and duty in the amount specified by the order by
offset against a $0.6 million deposit and $10.7 million guarantee previously
made by the Company. The Customs Department attempted to draw the entire
guarantee, alleging the actual duty payable is approximately $22 million based
on an interpretation of the CEGAT order that the Company believes is incorrect.
This action was stopped by an interim ruling of the High Court, Mumbai on writ
petition filed by the Company. Both the Customs Department and the Company filed
appeals with the Supreme Court of India against the order of the CEGAT, and both
appeals have been admitted. The Company applied for an expedited hearing, which
was denied. The Company and its customer agreed to pursue and obtained the
issuance of documentation from the Ministry of Petroleum that, if accepted by
the Customs Department, would reduce the duty to nil. The agreement with the
customer further provides that if this reduction was not obtained by December
31, 2001, the customer would pay the duty up to a limit of $7.7 million. The
Customs Department has not accepted the documentation or agreed to refund the
duties already paid. The Company has requested the refund from the customer and
also intends to pursue the action with the Customs Department. The Company does
not expect, in any event, that the ultimate liability, if any, resulting from
the matter will have a material adverse effect on its business or consolidated
financial position.

In January 2000, a pipeline in the U.S. Gulf of Mexico was damaged by an
anchor from one of the Company's drilling rigs while the rig was under tow. The
incident resulted in damage to offshore facilities, including a crude oil
pipeline, the release of hydrocarbons from the damaged section of the pipeline
and the shutdown of the pipeline and allegedly affected production platforms.
All appropriate governmental authorities were notified, and the Company
cooperated fully with the operator and relevant authorities in support of the
remediation efforts. Certain owners and operators of the pipeline (Poseidon Oil
Pipeline Company LLC, Equilon Enterprises LLC, Poseidon Pipeline Company, LLC
and Marathon Oil Company) filed suit in March 2000 in federal court, Eastern
District of Louisiana, alleging various damages in excess of $30 million. A
second suit was filed by Walter Oil & Gas Corporation and certain other
plaintiffs in Harris County, Texas alleging various damages in excess of $1.8
million, and the Company obtained a summary judgement against Walter Oil & Gas
Corporation and Amerada Hess. The Company has filed a limitation of liability
proceeding in federal court, Eastern District of Louisiana, claiming benefit of
various statutes providing limitation of liability for vessel owners, the result
of which has been to stay the first two suits and to cause potential claimants
(including the plaintiffs in the existing suits) to file claims in this
proceeding. El Paso Energy Corporation, the owner/operator of the platform from
which a riser was allegedly damaged, and Texaco Exploration and Production Inc.
have filed claims in the limitation of liability proceeding as well. The
Company expects that existing insurance will substantially cover any potential
liability associated with this matter and that the outcome of this matter will
not have a material adverse effect on its business or consolidated financial
position.

The Company is a defendant in Bryant, et al. v. R&B Falcon Drilling USA,
Inc., et al. in the United States District Court for the Southern District of
Texas, Houston Division. R&B Falcon Drilling USA is a wholly owned indirect
subsidiary of R&B Falcon. In this suit, the plaintiffs allege that R&B Falcon
Drilling USA, the Company and a number of other offshore drilling contractors
with operations in the U.S. Gulf of Mexico have engaged in a conspiracy to
depress wages and benefits paid to certain of their offshore employees. The
plaintiffs contend that this alleged conduct violates federal antitrust law and
constitutes unfair trade practices and wrongful employment acts under state law.
The plaintiffs sought treble damages, attorneys' fees and costs on behalf of
themselves and an alleged class of offshore workers, along with an injunction
against exchanging certain wage and benefit information with other offshore
drilling contractors named as defendants. In May 2001, the Company reached an
agreement in principle with the plaintiffs' counsel to settle all claims,
pending Court approval of the settlement. In July 2001, before the Court had
considered the proposed settlement, the case, along with a number of unrelated
cases also pending in the federal court in Galveston, was transferred to a
federal judge sitting in Houston as a docket equalization measure. The judge has
granted preliminary approval of the proposed settlement, and the parties are in
the process of notifying class members. The terms of the settlement have been
reflected in the Company's results of operations for the first quarter of 2001.
The settlement did not have a material adverse effect on its business or
consolidated financial position.

operations, the purchasing joint venture indemnified Reading & Bates Coal Co.
and R&B Falcon against any liability Reading & Bates Coal Co. might incur as a
result of this litigation. A judgment for the plaintiff of $32,000 entered in
February 1991 was satisfied and Reading & Bates Coal Co. was indemnified by the
purchasing joint venture. On October 31, 1990, SCW Associates, Inc., the
plaintiff in the above-referenced action, filed a separate ancillary action in
the Circuit Court, Kanawha County, West Virginia against R&B Falcon, Caymen
Coal, Inc. (the former owner of R&B Falcon's West Virginia coal properties), as
well as the joint venture, Mr. William B. Sturgill (the former President of
Reading & Bates Coal Co.) personally, three other companies in which the Company
believes Mr. Sturgill holds an equity interest, two employees of the joint
venture, First National Bank of Chicago and First Capital Corporation. The
lawsuit seeks to recover compensatory damages of $50 million and punitive
damages of $50 million for alleged tortuous interference with the contractual
rights of the plaintiff and to impose a constructive trust on the proceeds of
the use and/or sale of the assets of Caymen Coal, Inc. as they existed on
October 15, 1988. Currently, the case is pending review by the West Virginia
Supreme Court of Appeals on a certification of a question of law as to whether
denial of the Company's motion for summary judgement was appropriate, and
discovery is proceeding. The Company intends to defend its interests vigorously
and believes that the damages alleged by the plaintiff in this action are highly
exaggerated. In any event, the Company believes that it has valid defenses and
does not expect that the ultimate outcome of this case will have a material
adverse effect on its business or consolidated financial position.

In December 1998, Mobil North Sea Limited ("Mobil") purportedly terminated
its contract for use of the Jack Bates based on failure of two mooring lines
while anchor recovery operations at a Mobil well location had been suspended
during heavy weather. The Company did not believe that Mobil had the right to
terminate this contract. The Company later recontracted the Jack Bates to Mobil
at a lower dayrate. The Company filed a request for arbitration with the London
Court of International Arbitration seeking damages for the termination, and
Mobil in turn counterclaimed against the Company seeking damages for the
Company's alleged breaches of the original contract. The arbitrators ruled that
Mobil did have the right to terminate the contract, and the counterclaim against
the Company is proceeding. The Company does not expect that the ultimate outcome
of this case will have a material adverse effect on its business or consolidated
financial position.

In March 1997, an action was filed by Mobil Exploration and Producing U.S.
Inc. and affiliates, St. Mary Land & Exploration Company and affiliates and
Samuel Geary and Associates, Inc. against Cliffs Drilling, its underwriters and
insurance broker in the 16th Judicial District Court of St. Mary Parish,
Louisiana. The plaintiffs alleged damages amounting to in excess of $50 million
in connection with the drilling of a turnkey well in 1995 and 1996. The case was
tried before a jury in January and February 2000, and the jury returned a
verdict of approximately $30 million in favor of the plaintiffs for excess
drilling costs, loss of insurance proceeds, loss of hydrocarbons and interest.
The Company is in the process of preparing its appeal of such judgment. The
Company believes that all but potentially the portion of the verdict
representing excess drilling costs of approximately $4.7 million is covered by
relevant primary and excess liability insurance policies of Cliffs Drilling;
however, the insurers and underwriters have denied coverage. Cliffs Drilling has
instituted litigation against those insurers and underwriters to enforce its
rights under the relevant policies. The Company does not expect that the
ultimate outcome of this case will have a material adverse effect on its
business or consolidated financial position.

In October 2001, the Company was notified by the U.S. Environmental
Protection Agency ("EPA") that the EPA had identified a subsidiary of the
Company as a potentially responsible party in connection with the Palmer Barge
Line superfund site located in Port Arthur, Jefferson County, Texas. Based upon
the information provided by the EPA and the Company's review of its internal
records to date, the Company disputes its designation as a potentially
responsible party and does not expect that the ultimate outcome of this case
will have a material adverse effect on its business or consolidated financial
position.

The Company and its subsidiaries are involved in a number of other
lawsuits, all of which have arisen in the ordinary course of the Company's
business. The Company does not believe that ultimate liability, if any,
resulting from any such other pending litigation will have a material adverse
effect on its business or consolidated financial position.

The Company cannot predict with certainty the outcome or effect of any of
the litigation matters specifically described above or of any such other pending
litigation. There can be no assurance that the Company's belief or expectations
as to the outcome or effect of any lawsuit or other litigation matter will prove
correct and the eventual outcome of these matters could materially differ from
management's current estimates.

ITEM 4. Submission of Matters to a Vote of Security Holders

The Company did not submit any matter to a vote of its security holders
during the fourth quarter of 2001.

Executive Officers of the Registrant

AGE AS OF
OFFICER OFFICE MARCH 1, 2002
-------------------------- -------------------------------------------------------------- -------------

J. Michael Talbert . . . . Chief Executive Officer and Director 55
Robert L. Long . . . . . . President 56
W. Dennis Heagney. . . . . Executive Vice President and Chief Operating Officer 54
Jean P. Cahuzac. . . . . . Executive Vice President, Operations 48
Jon C. Cole. . . . . . . . Executive Vice President, Shallow Water and
Inland Water Operations 49
Donald R. Ray. . . . . . . Executive Vice President, Technical Services 55
Eric B. Brown. . . . . . . Senior Vice President, General Counsel and Corporate Secretary 50
Gregory L. Cauthen . . . . Vice President, Chief Financial Officer and Treasurer 44
Barbara S. Koucouthakis. . Vice President and Chief Information Officer 43
Ricardo H. Rosa. . . . . . Vice President and Controller 45
Jurgen Sager . . . . . . . Vice President, Human Resources 43
Brian C. Voegele . . . . . Vice President, Tax 42
Michael I. Unsworth. . . . Vice President, Marketing 43

The officers of the Company are elected annually by the Board of Directors.
There is no family relationship between any of the above-named executive
officers.

J. Michael Talbert has served as the Chief Executive Officer and a member
of the Board of Directors of the Company since August 1994. Mr. Talbert also
served as Chairman of the Board of the Company from August 1994 until the time
of the Sedco Forex merger and as President of the Company from the time of such
merger until December 2001. Mr. Talbert is also a director of Equitable
Resources, Inc. Prior to assuming his duties with the Company, Mr. Talbert was
President and Chief Executive Officer of Lone Star Gas Company, a natural gas
distribution company and a division of Ensearch Corporation.

Robert L. Long is President of the Company. Mr. Long served as Chief
Financial Officer of the Company from August 1996 until December 2001. Mr. Long
served as Senior Vice President of the Company from May 1990 until the time of
the Sedco Forex merger, at which time he assumed the position of Executive Vice
President. Mr. Long also served as Treasurer of the Company from September 1997
until March 2001. Mr. Long has been employed by the Company since 1976 and was
elected Vice President in 1987.

W. Dennis Heagney is Executive Vice President and Chief Operating Officer
of the Company. Mr. Heagney served as a director of the Company from June 1997
and President and Chief Operating Officer of the Company from April 1986 until
the time of the Sedco Forex merger, at which time he assumed the positions of
Executive Vice President and President, Asia and the Americas. He assumed his
current position in February 2001. He has been employed by the Company since
1969 and was elected Vice President in 1983 and Senior Vice President in 1984.

Jean P. Cahuzac is Executive Vice President, Operations of the Company.
Mr. Cahuzac served as President of Sedco Forex from January 1999 until the time
of the Sedco Forex merger, at which time he assumed the positions of Executive
Vice President and President, Europe, Middle East and Africa with the Company.
He assumed his current position in February 2001. Mr. Cahuzac served as Vice
President-Operations Manager of Sedco Forex from May 1998 to January 1999,
Region Manager-Europe, Africa and CIS of Sedco Forex from September 1994 to May
1998 and Vice President/General Manager-North Sea Region of Sedco Forex from
February 1994 to September 1994. He had been employed by Schlumberger since
1979.

Jon C. Cole is Executive Vice President, Shallow Water and Inland Water
Operations of the Company. Mr. Cole served as Senior Vice President of the
Company from April 1993 until the time of the Sedco Forex merger, at which time
he assumed the position of Executive Vice President, Marketing. He assumed his
current position in February 2001. Mr. Cole joined the Company in 1977 and was
elected Vice President in 1990.

Donald R. Ray is Executive Vice President, Technical Services of the
Company. Mr. Ray served as Senior Vice President of the Company, with
responsibility for technical services, from December 1996 until the time of the
Sedco Forex merger, at

which time he assumed the position of Senior Vice President, Technical Services.
He assumed his current position in February 2001. Mr. Ray has been employed by
the Company since 1972 and has served as a Vice President of the Company since
1986.

Eric B. Brown is Senior Vice President, General Counsel and Corporate
Secretary of the Company. He served as Vice President and General Counsel of
the Company since February 1995 and Corporate Secretary of the Company since
September 1995. He assumed his current position in February 2001. Prior to
assuming his duties with the Company, Mr. Brown served as General Counsel of
Coastal Gas Marketing Company.

Gregory L. Cauthen is Vice President, Chief Financial Officer and Treasurer
of the Company. Mr. Cauthen assumed his current position in December 2001.
Prior to joining the Company, he served as President and Chief Executive Officer
of WebCaskets.com, Inc. from June 2000 until February 2001. Previously he served
as Senior Vice President, Financial Services at Service Corporation
International where he had been employed in various positions since February
1991.

Barbara S. Koucouthakis is Vice President and Chief Information Officer of
the Company. Ms. Koucouthakis served as Controller of the Company from January
1990 and Vice President from April 1993 until the time of the Sedco Forex
merger, at which time she assumed her current position. She has been employed
by the Company since 1982.

Ricardo H. Rosa is Vice President and Controller of the Company. Mr. Rosa
served as Controller of Sedco Forex from September 1995 until the time of the
Sedco Forex merger, at which time he assumed his current position with the
Company. Mr. Rosa had been employed in various positions by Schlumberger since
1983. Prior to joining Schlumberger in 1983, he served as an Audit Manager for
the accounting firm, Price Waterhouse.

Jurgen Sager is Vice President, Human Resources of the Company. Mr. Sager
previously served as Director, Corporate Planning for the Company from February
2000 until February 2001, and President of Transocean Petroleum Technology, the
Company's coiled tubing business, from February 1998 to February 2000, prior to
which he served as Manager, Worldwide Drilling Services. He assumed his current
position in May 2001. Mr. Sager has been employed by the Company since 1985.

Brian C. Voegele is Vice President, Tax of the Company. Mr. Voegele served
as Vice President, Finance from March 1998 until March 2001 at which time he
assumed his current position with the Company. Previously, he served as
Director of Tax for the Company from June 1993. Prior to joining the Company in
1993, he served as Tax Manager for Sonat Inc. and as a Tax Manager for the
accounting firm, Ernst & Young LLP.

Michael I. Unsworth is Vice President, Marketing of the Company. Mr.
Unsworth served as Region Manager, Asia for the Company from the time of the
Sedco Forex merger until February 2001, at which time he assumed his present
position with the Company. Previously, he served as Region Manager, Asia for
Sedco Forex from 1998 through 1999 and had been employed in various marketing
and management positions by Schlumberger since 1981.

PART II

ITEM 5. Market for Registrant's Common Equity and Related Shareholder
Matters

Our ordinary shares are listed on the New York Stock Exchange (the "NYSE")
under the symbol "RIG." The following table sets forth the high and low sales
prices of our ordinary shares for the periods indicated as reported on the NYSE
Composite Tape.

PRICE
----------------
HIGH LOW
------- -------

2000
First Quarter . . . . . . . . . . . . . . . . . . . . . . $53.125 $29.250
Second Quarter. . . . . . . . . . . . . . . . . . . . . . 56.188 41.250
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 64.625 45.625
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . 65.500 34.375

2001
First Quarter . . . . . . . . . . . . . . . . . . . . . . $54.500 $40.600
Second Quarter. . . . . . . . . . . . . . . . . . . . . . 57.690 40.350
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 37.680 23.050
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . 34.220 24.200

2002
First Quarter (through February 28) . . . . . . . . . . . $33.460 $26.510

On February 28, 2002, the last reported sales price of our ordinary shares
on the NYSE Composite Tape was $28.01 per share. On such date, there were
approximately 25,911 holders of record of the Company's ordinary shares and
319,131,115 ordinary shares outstanding.

We have paid quarterly cash dividends of $0.03 per ordinary share since the
fourth quarter of 1993. Any future declaration and payment of dividends will be
(i) dependent upon our results of operations, financial condition, cash
requirements and other relevant factors, (ii) subject to the discretion of the
Board of Directors, (iii) subject to restrictions contained in our bank credit
agreements and note purchase agreement and (iv) payable only out of our profits
or share premium account in accordance with Cayman Islands law.

There is currently no reciprocal tax treaty between the Cayman Islands and
the United States regarding withholding.

ITEM 6. Selected Consolidated Financial Data

The selected consolidated financial data as of December 31, 2001 and 2000,
and for each of the three years in the period ended December 31, 2001 has been
derived from the audited consolidated financial statements included elsewhere
herein. The selected consolidated financial data as of December 31, 1999, 1998
and 1997, and for the years ended December 31, 1998 and 1997 has been derived
from audited consolidated financial statements not included herein. The
following data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and the notes thereto included
under "Item 8. Financial Statements and Supplementary Data."

On January 31, 2001, we completed a merger transaction with R&B Falcon. As
a result of the merger, R&B Falcon became an indirect wholly owned subsidiary of
us. The merger was accounted for as a purchase and we were treated as the
accounting acquiror. The balance sheet data as of December 31, 2001 represents
the consolidated financial position of the combined company. The statement of
operations and other financial data for the year ended December 31, 2001 include
eleven months of operating results and cash flows for R&B Falcon.

On December 31, 1999, the merger of Transocean Offshore Inc. and Sedco
Forex was completed. Sedco Forex was the offshore contract drilling service
business of Schlumberger and was spun-off immediately prior to the merger
transaction. As a result of the merger, Sedco Forex became a wholly owned
subsidiary of Transocean Offshore Inc., which changed its name to

Transocean Sedco Forex Inc. The merger was accounted for as a purchase with
Sedco Forex treated as the accounting acquiror. The balance sheet data as of
December 31, 2000 and 1999 and the statement of operations and other financial
data for the year ended December 31, 2000 represent the consolidated financial
position, cash flows and results of operations of the merged company. The
balance sheet data, statement of operations and other financial data for the
periods prior to the merger, represent the financial position, cash flows and
results of operations of Sedco Forex and not those of historical Transocean
Offshore Inc.

YEARS ENDED DECEMBER 31,
------------------------------------------------------
2001 2000 1999 1998 1997
------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS
Operating revenues. . . . . . . . . . $ 2,820 $1,230 $ 648 $1,091 $ 891
Operating income. . . . . . . . . . . 550 133 49 377 299
Income before extraordinary items . . 272 107 58 342 260
Earnings per share
Basic . . . . . . . . . . . . . . $ 0.88 $ 0.51 $ 0.53 (a) $ 3.12 (a) $ 2.38 (a)
Diluted . . . . . . . . . . . . . $ 0.86 $ 0.50 $ 0.53 (a) $ 3.12 (a) $ 2.38 (a)

OTHER FINANCIAL DATA
Cash flows from operating activities. $ 567 $ 196 $ 241 $ 473 $ 318
Capital expenditures. . . . . . . . . 506 575 537 425 187
EBITDA (b). . . . . . . . . . . . . . 1,191 401 186 508 420

BALANCE SHEET DATA (AT END OF PERIOD)
Total assets. . . . . . . . . . . . . $17,020 $6,359 $6,140 $1,473 $1,051
Total debt. . . . . . . . . . . . . . 5,024 1,453 1,266 100 160
Total equity. . . . . . . . . . . . . 10,910 4,004 3,910 564 363
Dividends per share . . . . . . . . . $ 0.12 $ 0.12 - - -

--------------------
(a) Unaudited pro forma earnings per share was calculated using the Transocean
Sedco Forex Inc. ordinary shares issued pursuant to the Sedco Forex merger
agreement and the dilutive effect of Transocean Sedco Forex Inc. stock
options granted to former Sedco Forex employees at the time of the Sedco
Forex merger, as applicable.

(b) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is presented here because it is a widely accepted financial indication of
a company's ability to incur and service debt. EBITDA measures presented
may not be comparable to similarly titled measures used by other
companies. EBITDA is not a measurement presented in accordance with
accounting principles generally accepted in the United States ("GAAP") and
is not intended to be used in lieu of GAAP presentations of results of
consolidated operations and cash provided by operating activities.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following information should be read in conjunction with the
information contained in the audited consolidated financial statements and the
notes thereto included under "Item 8. Financial Statements and Supplementary
Data" elsewhere in this annual report.

Overview

Transocean Sedco Forex Inc. (together with its subsidiaries and
predecessors, unless the context requires otherwise, the "Company," "we," "us"
or "our") is a leading international provider of offshore and inland marine
contract drilling services for oil and gas wells. As of March 1, 2002, we
owned, had partial ownership interests in or operated more than 160 mobile
offshore and barge drilling units. As of this date, our active fleet consisted
of 31 high-specification drillships and semisubmersibles ("floaters"), 30 other
floaters, 54 jackup rigs, 35 drilling barges, four tenders and three submersible
drilling rigs. In addition, the fleet includes a platform drilling rig, as well
as 10 land drilling rigs in Venezuela. We contract our drilling rigs, related
equipment and work crews primarily on a dayrate basis to drill oil and gas
wells. We also provide additional services, including management of third-party
well service activities.

On January 31, 2001, we completed a merger transaction with R&B Falcon
Corporation ("R&B Falcon"). At the time of the merger, R&B Falcon owned, had
partial ownership interests in, operated or had under construction more than 100
mobile offshore drilling units and other units utilized in the support of
offshore drilling activities. As a result of the merger, R&B Falcon became our
indirect wholly owned subsidiary. The merger was accounted for as a purchase
and we were the accounting acquiror. The consolidated balance sheet as of
December 31, 2001 represents the consolidated financial position of the combined
company. The consolidated statements of operations and cash flows for the year
ended December 31, 2001 include eleven months of operating results and cash
flows for R&B Falcon.

On December 31, 1999, the merger of Transocean Offshore Inc. and Sedco
Forex Holdings Limited ("Sedco Forex") was completed. Sedco Forex was the
offshore contract drilling service business of Schlumberger Limited
("Schlumberger") and was spun-off immediately prior to the merger transaction.
At the time of the merger, Sedco Forex owned, had partial ownership interests
in, operated or had under construction 44 mobile offshore drilling units. As a
result of the merger, Sedco Forex became a wholly owned subsidiary of Transocean
Offshore Inc., which changed its name to Transocean Sedco Forex Inc. The merger
was accounted for as a purchase with Sedco Forex as the accounting acquiror.
The consolidated balance sheet as of December 31, 2000 and 1999 and the
consolidated statements of cash flows and operations for the year ended December
31, 2000 represent the financial position, cash flows and results of operations
of the merged company. The consolidated statements of cash flows and operations
for the year ended December 31, 1999 represent the cash flows and results of
operations of Sedco Forex and not those of historical Transocean Offshore Inc.

Prior to the R&B Falcon merger, we operated in one industry segment. As a
result of acquiring shallow and inland water drilling units in the R&B Falcon
merger, our operations have been aggregated into two reportable segments: (i)
International and U.S. Floater Contract Drilling Services and (ii) Gulf of
Mexico Shallow and Inland Water. The International and U.S. Floater Contract
Drilling Services segment consists of high-specification floaters, other
floaters, non-U.S. jackups, other mobile offshore and land drilling units, other
assets used in support of offshore drilling activities and other offshore
support services. The Gulf of Mexico Shallow and Inland Water segment consists
of the Gulf of Mexico jackups and submersible drilling rigs and the U.S. inland
drilling barges. Effective January 1, 2002, our operations in Venezuela became
a part of our Gulf of Mexico Shallow and Inland Water segment.

Critical Accounting Policies And Estimates

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to bad debts, materials and supplies obsolescence, investments,
intangible assets and goodwill, income taxes, financing operations, workers'
insurance, pensions and other post-retirement and employment benefits and
contingent liabilities. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following are our most critical accounting policies. These
policies require significant judgments and estimates used in the preparation of
our consolidated financial statements.

Allowance for doubtful accounts - We establish reserves for doubtful
accounts on a case-by-case basis when we believe the required payment of
specific amounts owed to us is unlikely to occur. We derive a majority of our
revenue from services to international oil companies and government-owned or
government-controlled oil companies. Our receivables are concentrated in various
countries. We generally do not require collateral or other security to support
customer receivables. If the financial condition of our customers was to
deteriorate or their access to freely convertible currency was restricted,
resulting in impairment of their ability to make the required payments,
additional allowances may be required.

Valuation allowance for deferred tax assets - We record a valuation
allowance to reduce our deferred tax assets to the amount that is more likely
than not to be realized. While we have considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need for
the valuation allowance, should we determine that we would be able to realize
our deferred tax assets in the future in excess of our net recorded amount, an
adjustment to the valuation allowance would increase income in the period such
determination was made. Likewise, should we determine that we would not be able
to realize all or part of our net deferred tax asset in the future, an
adjustment to the valuation allowance would reduce income in the period such
determination was made.

Goodwill impairment - We review the carrying value of goodwill when facts
and circumstances, such as a decline in quoted market value of our ordinary
shares, suggest an other than temporary decline in the recorded value.
Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards ("SFAS") 142, Goodwill and Other Intangibles. As a result of this
statement, we will no longer amortize goodwill but will perform an initial test
of impairment and then assess goodwill for impairment at least annually
thereafter. Because our business is cyclical in nature, goodwill could be
significantly impaired depending on when in the business cycle the assessment is
performed.

Contingent liabilities - We establish reserves for estimated loss
contingencies when we believe a loss is probable and the amount of the loss can
be reasonably estimated. Revisions to contingent liabilities are reflected in
income in the period in which different facts or information become known or
circumstances change that affect our previous assumptions with respect to the
likelihood or amount of loss. Reserves for contingent liabilities are based upon
our assumptions and estimates regarding the probable outcome of the matter.
Should the outcome differ from our assumptions and estimates, revisions to the
estimated reserves for contingent liabilities would be required.

Contract preparation and mobilization revenues and expenses - Costs
incurred in preparing and mobilizing drilling units for new drilling contracts
are deferred from the date we have a firm commitment from the customer and
recognized as operating and maintenance expense over the estimated primary term
of the drilling contract. Revenues earned during or as a result of the contract
preparation and mobilization periods are also deferred and recognized over the
estimated primary term of the drilling contract. If a customer was to
prematurely terminate the contract, any unamortized deferred costs and revenues
would be recognized in the period the contract was terminated.

Historical 2001 compared to 2000

YEARS ENDED
DECEMBER 31,
------------------
%
2001 2000 CHANGE CHANGE
-------- -------- -------- -------

(IN MILLIONS, EXCEPT % CHANGE)
OPERATING REVENUES
International and U.S. Floater Contract Drilling
Services . . . . . . . . . . . . . . . . . . . $2,424.1 $1,229.5 $1,194.6 97%
Gulf of Mexico Shallow and Inland Water. . . . . 396.0 - 396.0 100%
-------- -------- -------- -------
$2,820.1 $1,229.5 $1,590.6 129%
======== ======== ======== =======

The increase in International and U.S. Floater Contract Drilling Services
operating revenues related to R&B Falcon operations of $806.7 million since the
R&B Falcon merger, $210.7 million in revenues from four newbuild drilling units
placed into service subsequent to September 30, 2000 and one newbuild drilling
unit placed into service during September 2000, recognition of $10.7 million
related to a recovery from a loss-of-hire claim for an incident that occurred in
November 2000 and an increase in activity. Operating revenues relating to
historical Transocean Sedco Forex core assets totaled $1,359.7 million for the
year ended December 31, 2001, representing a $213.9 million, or 19 percent,
increase over the comparable 2000 period. Average dayrates for these core assets
increased from $68,300 for the year ended December 31, 2000 to $75,600 for the
year ended December 31, 2001 and utilization of these core assets increased from
66 percent for the year ended December 31, 2000 to 79 percent for the year ended
December 31, 2001. These increases were partly offset by decreases in comparable
revenues attributed to less activity for non-core assets and lower revenue
earned from managed rigs no longer operated in 2001. Revenues for the year ended
December 31, 2000 included a cash settlement of $25.1 million relating to an
agreement with a unit of BP to cancel the remaining 14 months of firm contract
time on the semisubmersible Transocean Amirante. The Gulf of Mexico Shallow and
Inland Water operating revenues were attributable to operations acquired in the
R&B Falcon merger.

YEARS ENDED
DECEMBER 31,
----------------
%
2001 2000 CHANGE CHANGE
-------- ------ ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

OPERATING AND MAINTENANCE
International and U.S. Floater Contract Drilling
Services . . . . . . . . . . . . . . . . . . . $1,358.6 $812.6 $ 546.0 67%
Gulf of Mexico Shallow and Inland Water. . . . . 244.7 - 244.7 100%
-------- ------ ------- -------
$1,603.3 $812.6 $ 790.7 97%
======== ====== ======= =======

The increase in International and U.S. Floater Contract Drilling Services
operating expenses was primarily a result of the R&B Falcon merger, the
activation of five newbuild drilling units since the third quarter of 2000 and
one newbuild drilling unit that was placed into service during September 2000,
offset by $36.3 million related to accelerated amortization of the deferred gain
on the Pride North Atlantic (formerly the Drill Star) during the year ended
December 31, 2001. See "-Liquidity and Capital Resources-Acquisitions and
Dispositions." The Gulf of Mexico Shallow and Inland Water operating expenses
resulted from operations acquired in the R&B Falcon merger. A large portion of
our operating and maintenance expense consists of employee-related costs and is
fixed or only semi-variable. Accordingly, operating and maintenance expense does
not vary in direct proportion to activity or dayrates.

YEARS ENDED
DECEMBER 31,
--------------
%
2001 2000 CHANGE CHANGE
------ ------ ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

DEPRECIATION
International and U.S. Floater Contract Drilling
Services . . . . . . . . . . . . . . . . . . . $379.2 $232.8 $ 146.4 63%
Gulf of Mexico Shallow and Inland Water. . . . . 90.9 - 90.9 100%
------ ------ ------- -------
$470.1 $232.8 $ 237.3 102%
====== ====== ======= =======

International and U.S. Floater Contract Drilling Services depreciation
expense increased primarily due to depreciation expense for the rigs acquired in
the R&B Falcon merger and depreciation expense in 2001 for six newbuild drilling
units placed into service since the second quarter of 2000. This increase was
partially offset by a reduction of approximately $23 million (net $0.07 per
diluted share) for the year ended December 31, 2001 as a result of conforming
our policies for estimated rig lives in conjunction with the R&B Falcon merger.
The Gulf of Mexico Shallow and Inland Water depreciation expense resulted from
rigs acquired in the R&B Falcon merger.

YEARS ENDED
DECEMBER 31,
-------------
%
2001 2000 CHANGE CHANGE
------ ----- ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

GOODWILL AMORTIZATION
International and U.S. Floater Contract Drilling
Services . . . . . . . . . . . . . . . . . . . $114.2 $26.7 $ 87.5 328%
Gulf of Mexico Shallow and Inland Water. . . . . 40.7 - 40.7 100%
------ ----- ------- -------
$154.9 $26.7 $ 128.2 480%
====== ===== ======= =======

The International and U.S. Floater Contract Drilling Services goodwill
amortization expense increase and the Gulf of Mexico Shallow and Inland Water
goodwill amortization expense resulted from the R&B Falcon merger. See "New
Accounting Pronouncements."

YEARS ENDED
DECEMBER 31,
------------
%
2001 2000 CHANGE CHANGE
----- ----- ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

GENERAL AND ADMINISTRATIVE. . . . . $57.9 $42.1 $ 15.8 38%
===== ===== ======= =======

The increase in general and administrative expense was primarily
attributable to the R&B Falcon merger and reflects the costs to manage a larger
and more complex organization.

YEARS ENDED
DECEMBER 31,
-------------
%
2001 2000 CHANGE CHANGE
------- ---- -------- -------
(IN MILLIONS, EXCEPT % CHANGE)

IMPAIRMENT LOSS ON LONG-LIVED ASSETS
International and U.S. Floater Contract Drilling
Services . . . . . . . . . . . . . . . . . . . $(36.3) - $ (36.3) 100%
Gulf of Mexico Shallow and Inland Water. . . . . (4.1) - (4.1) 100%
------- ---- -------- -------
$(40.4) - $ (40.4) 100%
======= ==== ======== =======

Asset impairment charges were recorded in the fourth quarter 2001 and
related to certain assets held for sale and certain non-core assets held and
used. The impairment resulted from deterioration in current market conditions
with the fair value of these assets determined based on projected cash flows,
industry knowledge and third-party appraisals.

YEARS ENDED
DECEMBER 31,
------------
%
2001 2000 CHANGE CHANGE
----- ----- ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

GAIN FROM SALE OF ASSETS, NET . . . $56.5 $17.8 $ 38.7 217%
===== ===== ======= =======

During the year ended December 31, 2001, we recognized a pre-tax gain of
$26.3 million related to the sale of RBF FPSO L.P., which owned the Seillean,
and $18.5 million related to accelerated amortization of the deferred gain on
the sale of the Sedco Explorer. In addition, we recognized a pre-tax gain of
$11.7 million during the year ended December 31, 2001 related to sales of
certain non-strategic assets acquired in the R&B Falcon merger and certain other
assets held for sale. See "-Liquidity and Capital Resources-Acquisitions and
Dispositions." During the year ended December 31, 2000, we recognized a pre-tax
gain of $12.9 million on the sale of three units, the semisubmersible Transocean
Discoverer, the multi-purpose service vessel Mr. John and the tender Searex V.

YEARS ENDED
DECEMBER 31,
----------------
%
2001 2000 CHANGE CHANGE
-------- ------ -------- -------
(IN MILLIONS, EXCEPT % CHANGE)

OTHER INCOME (EXPENSE), NET
Equity in earnings of joint ventures . . . . $ 16.5 $ 9.4 $ 7.1 76%
Interest income. . . . . . . . . . . . . . . 18.7 6.2 12.5 202%
Interest expense, net of amounts capitalized (223.9) (3.0) (220.9) 7,363%
Other, net . . . . . . . . . . . . . . . . . (0.8) (1.3) 0.5 38%
-------- ------ -------- -------
$(189.5) $11.3 $(200.8) 1,777%
======== ====== ======== =======

The increase in equity in earnings of joint ventures was due primarily to
equity in earnings of joint ventures acquired in the R&B Falcon merger. The
increase in interest income was primarily due to interest earned on secured
contingent notes from a related party acquired as part of the R&B Falcon merger
(see "Related Party Transactions") and higher average cash balances for the year
ended December 31, 2001 compared to the same period in 2000. The increase in
interest expense during 2001 was due to higher debt levels arising from the
additional debt assumed in the R&B Falcon merger and additional borrowings to
complete newbuild construction projects. Total interest capitalized relating to
construction projects was $34.9 million for the year ended December 31, 2001
compared to $86.6 million for the same period in 2000, a decrease of $51.7
million, or 60 percent, resulting from the completion of six newbuild drilling
units since the second quarter of 2000.

YEARS ENDED
DECEMBER 31,
------------
%
2001 2000 CHANGE CHANGE
----- ----- ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

INCOME TAX EXPENSE $85.7 $36.7 $ 49.0 134%
===== ===== ======= =======

We operate internationally and provide for income taxes based on the tax
laws and rates in the countries in which we operate and earn income. There is no
expected relationship between the provision for income taxes and income before
income taxes as more fully described in Note 12 to our consolidated financial
statements.

YEARS ENDED
DECEMBER 31,
--------------
%
2001 2000 CHANGE CHANGE
------- ----- -------- -------
(IN MILLIONS, EXCEPT % CHANGE)

GAIN (LOSS) ON EXTRAORDINARY ITEMS, NET OF TAX $(19.3) $ 1.4 $ (20.7) 1,479%
======= ===== ======== =======

During the year ended December 31, 2001, we recognized a $19.3 million
extraordinary loss, net of tax, related to the early extinguishment of certain
debt as more fully described in Note 8 to our consolidated financial statements.
During the year ended December 31, 2000, we recognized a $1.4 million
extraordinary gain, net of tax, related to the early extinguishment of certain
debt.

HISTORICAL 2000 COMPARED TO 1999

YEARS ENDED
DECEMBER 31,
----------------
%
2000 1999 CHANGE CHANGE
-------- ------ ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

OPERATING REVENUES $1,229.5 $648.2 $ 581.3 90%
======== ====== ======= =======

The increase in operating revenues was primarily a result of the Sedco
Forex merger. Operating revenues for the year ended December 31, 2000 included a
$25.1 million cash settlement relating to an agreement with a unit of BP to
cancel the remaining 14 months of firm contract time on the semisubmersible
Transocean Amirante, $21.8 million relating to the Discoverer Spirit, which
began operations late in the third quarter of 2000, and $9.3 million relating to
the Trident 20, which began operations in the fourth quarter of 2000. Operating
revenues relating to former Sedco Forex operations totaled $544.5 million for
the year ended December 31, 2000, representing a $103.7 million or 16 percent
decrease over the comparable 1999 period. Of the decrease in revenues, $58.0
million related to core assets, which experienced lower average dayrates,
declining from $65,500 for the year ended December 31, 1999 to $55,500 for the
same period in 2000. Operating revenues for the year ended December 31, 1999
also included $16.0 million of cash settlements related to the cancellation of
contracts on the Sovereign Explorer and Trident 17. This was partially offset by
an increase in activity, as utilization of core assets increased from 68 percent
for the year ended December 31, 1999 to 74 percent for the same period in 2000.
The remaining decrease in

comparable revenues was attributed to less activity for non-core assets and
lower revenue earned from managed rigs no longer operated in 2000.

YEARS ENDED
DECEMBER 31,
--------------
%
2000 1999 CHANGE CHANGE
------ ------ ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

OPERATING AND MAINTENANCE $812.6 $448.9 $ 363.7 81%
====== ====== ======= =======

The increase in operating and maintenance expense was primarily a result of
the Sedco Forex merger. Operating and maintenance expense for the year ended
December 31, 2000 included $6.8 million relating to the Discoverer Spirit, which
began operations late in the third quarter of 2000, $41.1 million relating to
the settlement of an arbitration proceeding with Global Marine Drilling Company
("Global Marine") and a $6.7 million increase in provisions for legal claims.
Operating and maintenance expense for the 1999 period included charges totaling
$42.0 million relating to severance liabilities, the write-down of obsolete
fixed assets and provisions for potential legal claims, $13.4 million relating
to provisions for doubtful accounts receivable in West Africa and dayrate
contract penalties in Brazil and $56.2 million relating to the allocation of
costs by Schlumberger. A large portion of operating and maintenance expense
consisted of employee-related costs and is fixed or only semi-variable.
Accordingly, operating and maintenance expense does not vary in direct
proportion to activity or dayrates.

YEARS ENDED
DECEMBER 31,
--------------
%
2000 1999 CHANGE CHANGE
------ ------ ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

DEPRECIATION . . . . . . . . . $232.8 $131.9 $ 100.9 76%
====== ====== ======= =======

Depreciation expense increased primarily due to the addition of the former
Transocean Offshore Inc. rigs and equipment at fair value. Depreciation expense
was reduced by approximately $71.9 million (net $0.34 per diluted share) for the
year ended December 31, 2000 as a result of conforming our policies relating to
estimated rig lives and salvage values after the Sedco Forex merger.

YEARS ENDED
DECEMBER 31,
------------
%
2000 1999 CHANGE CHANGE
----- ----- ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

GOODWILL AMORTIZATION . . . . . . . . . $26.7 $ - $ 26.7 100%
===== ===== ======= =======

Amortization expense increased due to amortization of goodwill recorded for
the year ended December 31, 2000 resulting from the Sedco Forex merger.

YEARS ENDED
DECEMBER 31,
------------
%
2000 1999 CHANGE CHANGE
----- ----- ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

GENERAL AND ADMINISTRATIVE . . . . . . . . . $42.1 $16.8 $ 25.3 151%
===== ===== ======= =======

General and administrative expense increased primarily as a result of the
Sedco Forex merger and reflects the costs to manage a larger, more complex and
geographically diverse organization. General and administrative expense for the
year ended December 31, 1999 included $8.0 million relating to an allocation of
corporate overhead by Schlumberger.

YEARS ENDED
DECEMBER 31,
--------------
%
2000 1999 CHANGE CHANGE
----- ------ ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

GAIN (LOSS) FROM SALE OF ASSETS, NET . . . . . . . . . $17.8 $(1.3) $ 19.1 1,469%
===== ====== ======= =======

During the year ended December 31, 2000, we recognized a pre-tax gain of
$12.9 million on the sale of three units, the semisubmersible Transocean
Discoverer, the multi-purpose service vessel Mr. John and the tender Searex V.
There were no such sales in 1999.

YEARS ENDED
DECEMBER 31,
--------------
%
2000 1999 CHANGE CHANGE
------ ------- -------- -------
(IN MILLIONS, EXCEPT % CHANGE)

OTHER INCOME (EXPENSE), NET
Equity in earnings of joint ventures . . . . $ 9.4 $ 5.6 $ 3.8 68%
Interest income. . . . . . . . . . . . . . . 6.2 5.4 0.8 15%
Interest expense, net of amounts capitalized (3.0) (10.3) 7.3 71%
Other, net . . . . . . . . . . . . . . . . . (1.3) (0.7) (0.6) 86%
------ ------- -------- -------
$11.3 $ - $ 11.3 100%
====== ======= ======== =======

The increase in equity in earnings of joint ventures was primarily related
to the addition of joint ventures owned by Transocean Offshore Inc. prior to the
Sedco Forex merger. Total interest expense was $89.6 million for the year ended
December 31, 2000 compared to $37.5 million for 1999, an increase of $52.1
million or 139 percent. The increase during 2000 was due to higher debt levels
primarily associated with our newbuild construction projects. Total interest
capitalized relating to construction projects was $86.6 million for the year
ended December 31, 2000 compared to $27.2 million for 1999, an increase of $59.4
million or 218 percent. Overall, there was a net decrease in interest expense as
a greater proportion was capitalized compared to 1999.

YEARS ENDED
DECEMBER 31,
-------------
%
2000 1999 CHANGE CHANGE
----- ------ ------- -------
(IN MILLIONS, EXCEPT % CHANGE)

INCOME TAX EXPENSE (BENEFIT) . . . . . . . . . . .$36.7 $(9.3) $ 46.0 495%
===== ====== ======= =======

The income tax benefit for 1999 included a $9.5 million deferred tax
benefit relating to charges for potential legal claims and additional U.K. tax
loss carryforwards for which no valuation allowance was provided as well as the
adjustment of U.K. tax loss carryforwards for prior years. We operate
internationally and provide for income taxes based on the tax laws and rates in
the countries in which we operate and earn income. There is no expected
relationship between the provision for or benefit from income taxes and income
before income taxes, as more fully described in Note 12 to our consolidated
financial statements.

Financial Condition

December 31, 2001 compared to December 31, 2000

Total assets at December 31, 2001 were $17.0 billion compared to $6.4
billion at December 31, 2000. International and U.S. Floater Contract Drilling
Services assets were $14.3 billion at December 31, 2001 compared to $6.4 billion
at December 31, 2000, an increase of $7.9 billion, or 123 percent. The increase
was primarily due to the addition of R&B Falcon's assets at fair value on
January 31, 2001 and goodwill related to the R&B Falcon merger. Gulf of Mexico
Shallow and Inland Water assets of $2.7 billion were due to the addition of R&B
Falcon's assets at fair value on January 31, 2001 and goodwill related to the
R&B Falcon merger.

Restructuring Charges

In conjunction with the R&B Falcon merger, we established a liability of
$16.5 million for the estimated severance-related costs associated with the
involuntary termination of 569 R&B Falcon employees pursuant to management's
plan to consolidate operations and administrative functions post-merger.
Included in the 569 planned involuntary terminations were 387 employees engaged
in our land and barge drilling business in Venezuela. We have suspended active
marketing efforts to divest this business and, as a result, the estimated
liability was reduced by $4.3 million in the third quarter of 2001 with an
offset to goodwill. Through December 31, 2001, approximately $11.6 million in
severance-related costs have been paid to 173 employees whose positions were
eliminated as a result of the consolidation of operations and administrative
functions post-merger. We anticipate that substantially all of the remaining
amounts will be paid by the end of the first quarter of 2002.

1999 Charges

Operating and maintenance expense for the year ended December 31, 1999
included charges totaling $42.0 million. Reduced exploration and development
activity by customers, resulting from a period of low oil prices from late 1997
through early 1999 and industry consolidation over the same time period,
resulted in a slowdown in the offshore drilling industry during 1999. As a
result of this slowdown, approximately 1,000 operating personnel were determined
to be redundant, and charges associated with termination and severance benefits
of $13.2 million were recognized during 1999. Substantially all of these
employees had been terminated and severance and termination costs had been paid
as of December 31, 1999. Provisions for potential legal claims of $28.8 million
were recognized during 1999.

2001 R&B Falcon Pro Forma Operating Results

Our unaudited pro forma consolidated results for the year ended December
31, 2001, giving effect to the R&B Falcon merger, reflected net income of $257.6
million or $0.80 per diluted share on pro forma operating revenues of $2,946.0
million. The pro forma operating results assume the merger was completed as of
January 1, 2001 (see Note 4 to our consolidated financial statements). These
pro forma results do not reflect the effects of reduced depreciation expense
related to conforming the estimated lives of our drilling rigs. The pro forma
financial data should not be relied on as an indication of operating results
that we would have achieved had the merger taken place earlier or of the future
results that we may achieve.

1999 Sedco Forex Pro Forma Operating Results

Our unaudited pro forma consolidated results for the year ended December
31, 1999, giving effect to the Sedco Forex merger, reflected net income of
$237.9 million or $1.13 per diluted share on pro forma operating revenues of
$1,579.1 million. The pro forma operating results assume the spin-off and
merger was completed as of January 1, 1999 (see Note 4 to our consolidated
financial statements). These pro forma results do not reflect the effects of
reduced depreciation expense related to conforming the estimated lives of Sedco
Forex rigs and the elimination of certain allocated costs from Schlumberger. The
pro forma financial data should not be relied on as an indication of operating
results that we would have achieved had the spin-off and merger taken place
earlier or of the future results that we may achieve.

Outlook

Fleet utilization and average dayrates within our International and U.S.
Floater Contract Drilling Services business segment improved during the fourth
quarter of 2001 compared with the third quarter of 2001. However, both fleet
utilization and average dayrates within our Gulf of Mexico Shallow and Inland
Water business segment decreased significantly compared to the immediately
preceding quarter. Continued weakness in U.S. natural gas prices led to the
decline, which was most pronounced in the segment's jackup and submersible
fleet.

THREE MONTHS ENDED
-----------------------------------------------
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
2001 2001 2000 (A)
-------------- --------------- --------------

AVERAGE DAYRATES

INTERNATIONAL AND U.S. FLOATER CONTRACT
DRILLING SERVICES SEGMENT:
High-Specification Floaters. . . . . . . . . . $ 145,000 $ 144,500 $ 124,300
Other Floaters . . . . . . . . . . . . . . . . 71,100 66,600 56,000
Jackups - Non-U.S. . . . . . . . . . . . . . . 52,800 49,200 37,100
Other. . . . . . . . . . . . . . . . . . . . . 41,300 42,500 41,400
-------------- --------------- --------------
Segment Total. . . . . . . . . . . . . . . . . . . 88,200 86,600 72,000
-------------- --------------- --------------

GULF OF MEXICO SHALLOW AND INLAND WATER SEGMENT:
Jackups and Submersibles . . . . . . . . . . . 30,600 37,700 32,000
Inland Barges. . . . . . . . . . . . . . . . . 22,800 24,400 20,000
-------------- --------------- --------------
Segment Total. . . . . . . . . . . . . . . . . . . 25,600 30,000 26,300
-------------- --------------- --------------

Total Mobile Offshore Drilling Fleet . . . . . . . $ 74,000 $ 66,900 $ 54,200
============== =============== ==============

UTILIZATION

INTERNATIONAL AND U.S. FLOATER CONTRACT
DRILLING SERVICES SEGMENT:
High-Specification Floaters. . . . . . . . . . 90% 87% 92%
Other Floaters . . . . . . . . . . . . . . . . 89% 82% 70%
Jackups - Non-U.S. . . . . . . . . . . . . . . 89% 84% 86%
Other. . . . . . . . . . . . . . . . . . . . . 54% 48% 47%
-------------- --------------- --------------
Segment Total. . . . . . . . . . . . . . . . . . . 86% 81% 78%
-------------- --------------- --------------

GULF OF MEXICO SHALLOW AND INLAND WATER
SEGMENT:
Jackups and Submersibles . . . . . . . . . . . 27% 52% 70%
Inland Barges. . . . . . . . . . . . . . . . . 49% 75% 65%
-------------- --------------- --------------
Segment Total. . . . . . . . . . . . . . . . . . . 38% 63% 67%
-------------- --------------- --------------

Total Mobile Offshore Drilling Fleet . . . . . . . 67% 73% 74%
============== =============== ==============

--------------------
(a) Pro forma based on the combined fleet of Transocean Sedco Forex and R&B Falcon.

We believe we will experience continued weakening demand in most drilling
market segments during 2002 as our clients reassess their exploration and
production spending plans. Demand for our drilling rigs is driven largely by
our clients' perception of future commodity prices.

Low natural gas prices in the U.S. have had a significant influence on
client drilling programs, which have been sharply curtailed. Slack demand for
U.S. natural gas has also resulted in a considerable increase in storage
supplies. Current lower demand, increased volume in storage and the uncertainty
over the U.S. economy all lead us to believe that we will not see a meaningful
recovery in the U.S. gas drilling market in the near term.

World crude oil prices remain at levels generally lower than those
experienced in the past two years due to concern over the global economy. While
OPEC has recently been able to maintain production discipline and has cooperated
with some of the major non-OPEC producers to further control oil production, it
is unclear to us whether either factor will persist. Increased oil production
would put further downward pressure on prices. We do not foresee a significant
increase in demand within our International and U.S. Floater Drilling Services
segment in the near term. In particular, we believe the mid-depth floater
market segments in most regions will be weak during at least the first half of
2002 and that the deepwater floater market segments in the Norway and UK North
Sea sectors and the U.S. will also face an oversupply of available units in the
near term. The international jackup market is relatively stable at present, but
we expect continued pressure from jackup rigs which are being mobilized out of
the U.S.

The contract drilling market historically has been highly competitive and
cyclical, and we are unable to predict the extent to which current market
conditions will continue. A further decline in oil or gas prices could likewise
further reduce demand for our contract drilling services and adversely affect
both utilization and dayrates.

We continue with our plans to sell a number of assets (see "-Liquidity and
Capital Resources-Acquisitions and Dispositions"), although the downturn in the
U.S. natural gas market and the broader market uncertainty has adversely
affected our efforts. We expect the pace of our divestiture program to slow
considerably due to the effect that the drilling market slowdown has had on the
prices buyers are willing to pay. These asset sales will be dependent upon
obtaining an acceptable sale price, and we do not believe we will conclude all
sales in 2002. Our active marketing efforts to divest our land and barge
drilling business in Venezuela remain suspended until such time as we believe an
acceptable price may be obtained. We currently expect the total proceeds of
these sales, including the Venezuela business, to be between $400 million and
$500 million (including $202 million of proceeds received through December 31,
2001). Most of these assets identified for sale were marked to fair value on our
books in connection with the R&B Falcon merger pursuant to purchase accounting
rules and we do not expect sales of those assets to have a material effect on
our results of operations. However, the actual proceeds may differ substantially
from our expectations, which may have a material effect on our results of
operations. We may also decide to discontinue our sales efforts, in whole or in
part.

As of March 1, 2002, approximately 62 percent of our International and U.S.
Floater Contract Drilling Services segment fleet days were committed for the
remainder of 2002 and approximately 23 percent for the year 2003. For our Gulf
of Mexico Shallow and Inland Water segment, which has traditionally operated
under short-term contracts, committed fleet days were approximately four percent
for the remainder of 2002 and none are currently committed for the year 2003.

Other Factors Affecting Operating Results

- worldwide demand for oil and gas,

- the ability of the Organization of Petroleum Exporting Countries, commonly
called "OPEC," to set and maintain production levels and pricing,

- the level of production in non-OPEC countries,

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

- advances in exploration and development technology, and

- the worldwide military and political environment, including uncertainty or
instability resulting from an escalation or additional outbreak of armed
hostilities or other crises in the Middle East or other geographic areas in
which we operate or further acts of terrorism in the United States, or
elsewhere.

The Company completed its newbuild program in 2001 with the delivery of one
high-specification drillship and four high-specification semisubmersibles. The
Company has experienced some start-up difficulties with most of its newbuild
rigs, which can affect downtime and operating revenues. While the Company
expects its newbuild rig fleet to operate with average downtime comparable to
industry norms, there can be no assurance that future operational problems will
not arise. Should problems occur which cause significant downtime or
significantly affect a newbuild rig's performance or safety, the Company's
clients may attempt to terminate or suspend the drilling contract, particularly
any of the long-term contracts associated with most of the newbuild rigs. In the
event of termination of a drilling contract for one of these rigs, it is
unlikely that the Company would be able to secure a replacement contract on as
favorable terms.

Our customers may terminate or suspend some of our term drilling contracts
under various circumstances such as the loss or destruction of the drilling unit
or as the result of equipment problems. Some drilling contracts permit the
customer to terminate the contract at the customer's option without paying a
termination fee. Suspension of drilling contracts results in loss of the
dayrate for the period of the suspension. If our customers cancel some of our
significant contracts and we are unable to secure new contracts on substantially
similar terms, it could adversely affect our results of operations. In reaction
to depressed market conditions, our customers may also seek renegotiation of
firm drilling contracts to reduce their obligations.

We have been involved in two merger transactions in the last three years.
We may not be able to finalize the integration of the operations of the merged
or acquired companies without a loss of employees, customers or suppliers, a
loss of revenues, an increase in operating or other costs or other difficulties.
In addition, we may not be able to realize the operating efficiencies,
synergies, cost savings or other benefits expected from these transactions. Any
unexpected costs or delays incurred in connection with the integration could
have an adverse effect on our business, results of operations or consolidated
financial position.

We plan to continue our restructuring of the ownership of a portion of the
assets held by R&B Falcon and its subsidiaries at the time of our merger. This
restructuring is intended to achieve operational efficiencies, including
improved worldwide cash management and increased flexibility for operating rigs
in various jurisdictions, and allow for potential tax and other savings. Any
transfers of assets by R&B Falcon or one of its subsidiaries to Transocean Sedco
Forex or one of its other subsidiaries in this restructuring could, in some
cases, result in the imposition of additional taxes.

Our operations are subject to the usual hazards inherent in the drilling of
oil and gas wells, such as blowouts, reservoir damage, loss of production, loss
of well control, punchthroughs, craterings and fires. The occurrence of these
events could result in the suspension of drilling operations, damage to or
destruction of the equipment involved and injury or death to rig personnel. We
may also be subject to personal injury and other claims of rig personnel as a
result of our drilling operations. Operations also may be suspended because of
machinery breakdowns, abnormal drilling conditions, and failure of
subcontractors to perform or supply goods or services or personnel shortages. In
addition, offshore drilling operators are subject to perils peculiar to marine
operations, including capsizing, grounding, collision and loss or damage from
severe weather. Damage to the environment could also result from our operations,
particularly through oil spillage or extensive uncontrolled fires. We may also
be subject to property, environmental and other damage claims by oil and gas
companies. Our insurance policies and contractual rights to indemnity may not
adequately cover losses, and we may not have insurance coverage or rights to
indemnity for all risks.

If a significant accident or other event, including terrorist acts, war,
civil disturbances, pollution or environmental damage, occurs and is not fully
covered by insurance or a recoverable indemnity from a client, it could
adversely affect our consolidated financial position or results of operations.
Moreover, no assurance can be made that we will be able to maintain adequate
insurance in the future at rates we consider reasonable or be able to obtain
insurance against certain risks, particularly in light of the instability and
developments in the insurance markets following the recent terrorist attacks.

We operate in various regions throughout the world that may expose us to
political and other uncertainties, including risks of:

- terrorist acts, war and civil disturbances;

- expropriation or nationalization of equipment; and

- the inability to repatriate income or capital.

We are protected to a substantial extent against loss of capital assets,
but generally not loss of revenue, from most of these risks through insurance,
indemnity provisions in our drilling contracts, or both. Although we maintain
insurance in the areas in

which we operate, pollution and environmental risks generally are not totally
insurable. If a significant accident or other event occurs and is not fully
covered by insurance or a recoverable indemnity from a client, it could
adversely affect our consolidated financial position or results of operations.
As of March 1, 2002, all areas in which we were operating were covered by
existing insurance policies.

Many governments favor or effectively require the awarding of drilling
contracts to local contractors or require foreign contractors to employ citizens
of, or purchase supplies from, a particular jurisdiction. These practices may
adversely affect our ability to compete.

Our non-U.S. contract drilling operations are subject to various laws and
regulations in countries in which we operate, including laws and regulations
relating to the equipment and operation of drilling units, currency conversions
and repatriation, oil and gas exploration and development and taxation of
offshore earnings and earnings of expatriate personnel. Governments in some
foreign countries have become increasingly active in regulating and controlling
the ownership of concessions and companies holding concessions, the exploration
of oil and gas and other aspects of the oil and gas industries in their
countries. In addition, government action, including initiatives by OPEC, may
continue to cause oil or gas price volatility. In some areas of the world, this
governmental activity has adversely affected the amount of exploration and
development work done by major oil companies and may continue to do so.

Transocean Sedco Forex is a Cayman Islands company as a result of our
reorganization from a Delaware corporation in May 1999. We operate worldwide
through our various subsidiaries. Consequently, we are subject to changing
taxation policies in the jurisdictions in which we operate, which could include
policies directed toward companies organized in jurisdictions with low tax
rates. A material change in the tax laws of any country in which we have
significant operations, including the United States, could result in a higher
effective tax rate on our worldwide earnings

Another risk inherent in our operations is the possibility of currency
exchange losses where revenues are received and expenses are paid in
nonconvertible currencies. We may also incur losses as a result of an inability
to collect revenues because of a shortage of convertible currency available to
the country of operation. We seek to limit these risks by structuring contracts
such that compensation is made in freely convertible currencies and, to the
extent possible, by limiting acceptance of non-convertible currencies to amounts
that match our expense requirements in local currency (see "Item 7A.
Quantitative and Qualitative Disclosures About Market Risk -Foreign Exchange
Risk").

On March 1, 2002, we had approximately 13 percent of our employees
worldwide working under collective bargaining agreements, most of whom were
working in Norway, Nigeria, Brazil and Venezuela. Of these represented
employees, a majority are working under agreements that are subject to salary
negotiation in 2002. In addition, the Company has signed a recognition agreement
requiring negotiation with a labor union representing employees in the U.K.
These negotiations are expected to begin in the second quarter of 2002 and could
result in collective bargaining agreements covering these employees, which could
result in higher personnel expenses, other increased costs or increased
operating restrictions.

Our operations are subject to regulations controlling the discharge of
materials into the environment, requiring removal and cleanup of materials that
may harm the environment or otherwise relating to the protection of the
environment. For example, as an operator of mobile offshore drilling units in
navigable United States waters and some offshore areas, we may be liable for
damages and costs incurred in connection with oil spills related to those
operations. Laws and regulations protecting the environment have become more
stringent in recent years, and may in some cases impose strict liability,
rendering a person liable for environmental damage without regard to negligence.
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 they were performed. The application of these
requirements or the adoption of new requirements could have a material adverse
effect on our consolidated financial position and results of our operations.

On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. On October 7, 2001, the United States commenced
military action in Afghanistan in response to these attacks. Military action by
the United States may continue indefinitely and may escalate and armed
hostilities may begin or escalate in other countries. Further acts of terrorism
in the United States or elsewhere may occur, and such acts of terrorism could be
directed against companies such as ours. These developments have caused
instability in the world's financial and insurance markets and will likely
significantly

increase political and economic instability in the geographic areas in which we
currently operate. In addition, these developments could lead to increased
volatility in prices for crude oil and natural gas and could affect the markets
for drilling services.

Following the terrorist attacks on September 11, 2001, insurance
underwriters increased insurance premiums charged for many of the coverages
historically maintained and issued general notices of cancellations to their
customers for war risk, terrorism and political risk insurance in respect of a
wide variety of insurance coverages, including but not limited to, liability and
aviation coverages. Our insurance underwriters renegotiated substantially
higher premium rates for war risk coverage, which can be canceled by the
underwriters on short notice. Insurance premiums could be increased further or
coverages may be unavailable in the future.

United States government regulations effectively preclude us from actively
engaging in business activities in certain countries. These regulations could
be amended to cover countries where we currently operate or where we may wish to
operate in the future. These developments could subject the worldwide
operations of our company to increased risks and, depending on their magnitude,
could have a material adverse effect on our business.

The general rate of inflation in the majority of the countries in which we
operate has been moderate over the past several years and has not had a material
impact on our results of operations. An increase in the demand for offshore
drilling rigs usually leads to higher labor, transportation and other operating
expenses as a result of an increased need for qualified personnel and services.

Merger Purchase Price Allocation

The purchase price allocation for the merger of Transocean Sedco Forex Inc.
and R&B Falcon included, at estimated fair value, total assets of $4.8 billion
and the assumption of total liabilities of $3.8 billion. The excess of the
purchase price over the estimated fair value of net assets acquired of
approximately $5.6 billion was accounted for as goodwill. At December 31, 2001,
this goodwill represented approximately 32 percent of total assets and 50
percent of total shareholders' equity. The goodwill has been amortized using a
40-year life based on the nature of the offshore drilling industry, long-lived
drilling equipment and the long-standing relationships with core customers.
Goodwill amortization expense related to the R&B Falcon merger was approximately
$128 million for the year ended December 31, 2001 in addition to the $27 million
related to the Sedco Forex merger mentioned below. See "New Accounting
Pronouncements".

The purchase price allocation for the merger of Transocean Offshore Inc.
and Sedco Forex included, at estimated fair value, total assets of $3.8 billion
and the assumption of total liabilities of $1.9 billion. The excess of the
purchase price over the estimated fair value of net assets acquired of
approximately $1.1 billion was accounted for as goodwill. At December 31, 2001,
this goodwill represented approximately 5.9 percent of total assets and 9.3
percent of total shareholders' equity. The goodwill has been amortized using a
40-year life based on the nature of the offshore drilling industry, long-lived
drilling equipment and the long-standing relationships with core customers.
Goodwill amortization expense related to the Sedco Forex merger was
approximately $27 million per year. See "New Accounting Pronouncements".

Liquidity and Capital Resources

Sources and Uses of Cash

YEARS ENDED DECEMBER 31,
------------------------
2001 2000 CHANGE
-------- -------------- --------
(In millions)

NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . $ 252.6 $ 108.5 $ 144.1
Depreciation and amortization . . . . . 625.0 259.5 365.5
Non-cash items. . . . . . . . . . . . . (202.6) (90.9) (111.7)
Working capital . . . . . . . . . . . . (108.2) (81.2) (27.0)
-------- -------------- --------
$ 566.8 $ 195.9 $ 370.9
======== ============== ========

Cash generated from net income items adjusted for non-cash activity was
$397.9 million higher and cash used for working capital items was $27.0 million
higher for the year ended December 31, 2001 compared to the same period in 2000,
primarily as a result of the R&B Falcon merger.

YEARS ENDED DECEMBER 31,
------------------------
2001 2000 CHANGE
-------- -------------- --------
(In millions)

NET CASH USED IN INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . $(506.2) $ (574.7) $ 68.5
Proceeds from sale of coiled tubing drilling
services business. . . . . . . . . . . . . - 24.9 (24.9)
Proceeds from sale of securities . . . . . . 17.2 - 17.2
Proceeds from disposal of assets . . . . . . 201.7 56.3 145.4
Merger costs paid. . . . . . . . . . . . . . (24.4) (4.5) (19.9)
R&B Falcon cash at acquisition . . . . . . . 264.7 - 264.7
Other, net . . . . . . . . . . . . . . . . . 20.6 5.1 15.5
-------- -------------- --------
$ (26.4) $ (492.9) $ 466.5
======== ============== ========

Net cash used in investing activities decreased for the year ended December
31, 2001 as compared to the previous year as a result of cash received in
connection with the R&B Falcon merger, higher proceeds from asset sales and
lower capital expenditures.

YEARS ENDED DECEMBER 31,
--------------------------
2001 2000 CHANGE
---------- -------------- ----------
(In millions)

NET CASH PROVIDED BY FINANCING ACTIVITIES
Net borrowings under commercial paper program $ 326.4 $ - $ 326.4
Net proceeds from issuance of debt. . . . . . 1,693.5 489.1 1,204.4
Early repayments of debt instruments. . . . . (1,495.0) (233.8) (1,261.2)
Net repayments on revolving credit agreements (180.1) (56.3) (123.8)
Other, net. . . . . . . . . . . . . . . . . . (66.3) (33.2) (33.1)
---------- -------------- ----------
$ 278.5 $ 165.8 $ 112.7
========== ============== ==========

During 2001, we had net repayments under our revolving credit agreements of
$180.1 million, early repayments of debt instruments of $1,495.0 million and net
proceeds from borrowings under our commercial paper program of $326.4 million.
We also had net proceeds from other debt of $1,693.5 million primarily due to
the issuance of the 6.625% Notes, 7.5% Notes and 1.5% Convertible Debentures in
the second quarter of 2001. During 2000, we had net proceeds from other debt of
$489.1 million from the issuance of the Zero Coupon Convertible Debentures
partially offset by the $56.3 million net repayment of our revolving credit
agreement and by the $233.8 million early repayment on our secured loan
agreement.

Capital Expenditures

Capital expenditures, including capitalized interest, totaled $506 million
during the year ended December 31, 2001. See Note 5 to our consolidated
financial statements. During 2002, we expect to spend between $200 million and
$220 million on our existing fleet, corporate infrastructure and major upgrades
on the Discoverer Seven Seas and Deepwater Expedition. A substantial majority
of our capital expenditures relates to the International and U.S. Floater
Contract Drilling Services segment.

We intend to fund the cash requirements relating to our capital
expenditures through available cash balances, cash generated from operations and
asset sales. We also have available borrowings under our revolving credit
agreements and commercial paper program (see "-Sources of Liquidity") and may
engage in other commercial bank or capital market financings.

We completed our rig expansion program in 2001. The Sedco Express was
placed into service in April 2001. In February 2001, a unit of TotalFinaElf
terminated the contract for the Sedco Express due to delayed delivery. The rig
began a four-month contract with a unit of BP in Egypt in the first quarter of
2002. The Sedco Energy arrived in Brazil in April 2001 and began a 42-month
contract with ChevronTexaco in May 2001. In October 2001, the Sedco Energy moved
to West Africa where it is expected to complete the remainder of the contract.
The Cajun Express was delivered in April 2001, when it began an 18-month
contract with Marathon in the U.S. Gulf of Mexico. In July 2001, Marathon
terminated the 18-month contract for the Cajun Express allegedly because of
downtime relating to equipment performance. The Cajun Express operated under a
six-month contract with Ocean Energy in the U.S. Gulf of Mexico beginning in
August 2001. We are currently in discussions with various operators for work for
the Cajun Express. The Discoverer Deep Seas was delivered early in the first
quarter of 2001, when it

began a five-year contract with ChevronTexaco in the U.S. Gulf of Mexico. The
Deepwater Horizon was placed into service in September 2001 when it began a
three-year contract with a unit of BP in the U.S. Gulf of Mexico.

Acquisitions and Dispositions

From time to time, we review possible acquisitions of businesses and
drilling units and may in the future make significant capital commitments for
such purposes. Any such acquisition could involve the payment by us of a
substantial amount of cash or the issuance of a substantial number of additional
ordinary shares or other securities. We would likely fund the cash portion of
any such acquisition through cash balances on hand, the incurrence of additional
debt, sales of assets, ordinary shares or other securities or a combination
thereof. In addition, from time to time, we review possible dispositions of
drilling units. See "- Outlook."

On January 31, 2001, we completed a merger transaction with R&B Falcon in
which one of our indirect wholly owned subsidiaries merged with and into R&B
Falcon. As a result of the merger, R&B Falcon common shareholders received 0.5
of our newly issued ordinary shares for each R&B Falcon share. We issued
approximately 106 million ordinary shares in exchange for the issued and
outstanding shares of R&B Falcon and assumed warrants and options exercisable
for approximately 13 million ordinary shares. The ordinary shares issued in
exchange for the issued and outstanding shares of R&B Falcon constituted
approximately 33 percent of our outstanding ordinary shares after the merger.

In February 2001, Sea Wolf Drilling Limited ("Sea Wolf"), a joint venture
in which we hold a 25 percent interest, sold two semisubmersible rigs, the Drill
Star and Sedco Explorer, to Pride International, Inc. In the first quarter of
2001, we recognized accelerated amortization of the deferred gain related to the
Sedco Explorer of $18.5 million, which is included in gain from sale of assets.
Our bareboat charter with Sea Wolf on the Sedco Explorer was terminated
effective June 2000. We continued to operate the Drill Star, which has been
renamed the Pride North Atlantic, under a bareboat charter agreement until
October 2001 at which time the rig was returned to its owner. The amortization
of the Drill Star's deferred gain was accelerated and produced incremental gains
totaling $36.3 million, which is included as a reduction in operating and
maintenance expense.

In December 2001, we sold RBF FPSO L.P., which owns the Seillean, a
multi-purpose service vessel. We received net proceeds of $85.6 million. The
sale resulted in a net after-tax gain of $17.1 million ($0.05 per diluted share)
for the year ended December 31, 2001. In addition, during the year ended
December 31, 2001, we sold certain other non-strategic assets acquired in the
R&B Falcon merger and certain other assets held for sale. We received net
proceeds of approximately $116.1 million. These sales resulted in a net
after-tax gain of $7.5 million ($0.02 per diluted share) for the year ended
December 31, 2001.

In March 2002, we entered into definitive agreements to sell two
semisubmersible rigs, the Transocean 96 and Transocean 97, for an aggregate
sales price of $31 million. We expect the sales, which are subject to closing
conditions customary for this type of transaction, to close in the coming weeks.
We do not expect the results of the sales to have a material effect on our
consolidated results of operations.

Sources of Liquidity

Our primary sources of liquidity in 2001 were our cash flows from
operations and asset sales and issuances of debt securities and commercial
paper. Primary uses of cash were capital expenditures and debt repayment. At
December 31, 2001, we had $853 million in cash and cash equivalents.

We anticipate that we will rely primarily upon existing cash balances and
internally generated cash flows to maintain liquidity in 2002, as cash flows
from operations are expected to be positive and adequate to fulfill currently
planned obligations. From time to time, we may also use bank lines of credit
and commercial paper to maintain liquidity for short-term cash needs.

We intend to use cash from operations primarily to fund capital
expenditures and to pay debt as it comes due. If we seek to reduce our debt
other than scheduled maturities, we could do so through repayment of bank or
commercial paper borrowings or through repurchases or redemptions of, or tender
offers for, debt securities. We expect to significantly reduce capital
expenditures going forward due to the completion of our newbuild program.

Our internally generated cash flow is directly related to our business and
the market segments in which we operate. Should the drilling market deteriorate
further, or should we experience poor results in our operations, cash flow from
operations may be reduced. While we have continued to generate positive cash
flow from operations and expect to do so in the foreseeable future, many of the
market segments in which we operate are, at present, weakening and may continue
to weaken in the near and medium term.

We have access to $800 million in bank lines of credit under two revolving
credit agreements. These credit lines are used primarily to back our $800
million commercial paper program and may also be drawn on directly. As of
year-end 2001, $326 million of the credit line capacity was used to back
issuance of $326 million of commercial paper, leaving $474 million of
availability under the bank lines of credit for commercial paper issuance or
drawdowns. In January 2002, the entire amount of commercial paper borrowings
was repaid utilizing cash investments, leaving $800 million in commercial paper
and/or bank line availability.

The bank credit lines require compliance with various covenants and
provisions customary for agreements of this nature, including an interest
coverage ratio of not less than 3 to 1, a leverage ratio of not greater than 40
percent and limitations on mergers and sale of substantially all assets,
creating liens, incurring debt, transactions with affiliates and sale/leaseback
transactions. Should we fail to comply with these covenants, we would be in
default and may lose access to these facilities. A loss of the bank facilities
would also cause us to lose access to the commercial paper markets. We are also
subject to various covenants under the indentures pursuant to which our public
debt was issued, including restrictions on creating liens, engaging in
sale/leaseback transactions and engaging in merger, consolidation or
reorganization transactions. A default under our public debt could trigger a
default under our credit lines and cause us to lose access to these facilities.
See Note 8 to our consolidated financial statements for a description of our
credit agreements and debt securities.

In April 2001, the Securities and Exchange Commission ("SEC") declared
effective our shelf registration statement on Form S-3 for the proposed offering
from time to time of up to $2.0 billion in gross proceeds of senior or
subordinated debt securities, preference shares, ordinary shares and warrants to
purchase debt securities, preference shares, ordinary shares or other
securities. In May 2001, we issued $400.0 million aggregate principal amount of
1.5% Convertible Debentures due May 15, 2021 under the shelf registration
statement. At March 1, 2002, $1.6 billion in gross proceeds of securities
remained unissued under the shelf registration statement.

Our access to commercial paper, debt and equity markets may be reduced or
closed to us due to a variety of events, including, among others, downgrades of
ratings of our debt and commercial paper, industry conditions, general economic
conditions, market conditions and market perceptions of us and our industry.

Our contractual obligations in the table below include our debt obligations
at face value.

AS OF DECEMBER 31, 2001
------------------------------------------------
LESS THAN 1 TO 3 4 - 5 AFTER
TOTAL 1 YEAR YEARS YEARS 5 YEARS
------ ---------- ---------- ------ --------
(IN MILLIONS)

CONTRACTUAL OBLIGATIONS
Debt. . . . . . . . . . $4,995 $ 484 $ 1,711 $ 500 $ 2,300
Operating Leases. . . . 127 28 66 12 21
------ ---------- ---------- ------ --------
Total Obligations . . $5,122 $ 512 $ 1,777 $ 512 $ 2,321
====== ========== ========== ====== ========

We are required to repurchase the Zero Coupon Convertible Debentures due
2020 and the 1.5% Convertible Debentures due 2021 at the option of the holder on
specified dates. We have the option to pay the repurchase price in cash,
ordinary shares or any combination of cash and ordinary shares. The chart above
assumes that the holders of these debentures exercise this option at the first
available date. These debentures are more fully described in Note 8 to our
consolidated financial statements.

At December 31, 2001, we had other commitments that we are contractually
obligated to fulfill with cash should the obligations be called. These
obligations consisted primarily of standby letters of credit and surety bonds,
which guarantee our performance as it relates to our drilling contracts,
insurance, tax and other obligations in various jurisdictions. These
obligations are not normally called as we typically comply with the underlying
performance requirement. The table below provides a list of these obligations
in U.S. dollar equivalents and their time to expiration. It should be noted
that these obligations could be called at any time prior to the expiration
dates.

AS OF DECEMBER 31, 2001
----------------------------------------------
LESS THAN 1 TO 3 4 - 5 AFTER
TOTAL 1 YEAR YEARS YEARS 5 YEARS
------ ---------- -------- ------ --------
(IN MILLIONS)

OTHER COMMERCIAL COMMITMENTS
Standby Letters of Credit . . $ 38 $ 34 $ 4 $ - $ -
Surety Bonds. . . . . . . . . 190 124 66 - -
Purchase Option Guarantees -
Joint Ventures (a). . . . . 209 - 209 - -
Other Commitments . . . . . . 4 4 - - -
------ ---------- -------- ------ --------
Total . . . . . . . . . . . $ 441 $ 162 $ 279 $ - $ -
====== ========== ======== ====== ========

--------------------
(a) See "-Special Purpose Entities".

Letters of credit are issued under a number of facilities provided by
several banks. The obligations that are the subject of these surety bonds are
geographically concentrated in Brazil and Nigeria, of which 73 percent are
concentrated in three bonds.

In March 2002, the Company completed an exchange offer pursuant to which
the 6.50% Notes due April 15, 2003, 6.75% Notes due April 15, 2005, 6.95% Notes
due April 15, 2008, 7.375% Notes due April 15, 2018, 9.125% Notes due December
15, 2003 and 9.50% Notes due December 15, 2008 of R&B Falcon whose holders
accepted the offer were exchanged for newly issued notes of the Company. The new
notes were issued in six series corresponding to the six series of R&B Falcon
notes and have the same principal amount, interest rate, redemption terms and
payment and maturity dates as the corresponding series of R&B Falcon notes. The
aggregate principal amount of the new notes issued was approximately $1.4
billion. Because the holders of a majority in principal amount of each of these
series of notes consented to the proposed amendments to the applicable indenture
pursuant to which the notes were issued, some covenants, restrictions and events
of default were eliminated from the indentures with respect to these series of
notes. In connection with the exchange offers, an aggregate of $8.3 million in
consent payments were made by R&B Falcon to holders of R&B Falcon notes whose
notes were tendered (and not validly withdrawn) within the required time periods
and accepted for exchange.

Derivative Instruments

We have established policies and procedures for derivative instruments
that have been approved by our Board of Directors. These policies and
procedures provide for the prior approval of derivative instruments by our Chief
Financial Officer. From time to time, we may enter into a variety of derivative
financial instruments in connection with the management of our exposure to
fluctuations in foreign exchange rates and interest rates. We do not enter into
derivative transactions for speculative purposes; however, for accounting
purposes, certain transactions may not meet the criteria for hedge accounting.

Gains and losses on foreign exchange derivative instruments that qualify as
accounting hedges are deferred as accumulated other comprehensive income and
recognized when the underlying foreign exchange exposure is realized. Gains and
losses on foreign exchange derivative instruments that do not qualify as hedges
for accounting purposes are recognized currently based on the change in market
value of the derivative instruments. At December 31, 2001, we had no material
open foreign exchange derivative instruments.

From time to time, we may use interest rate swaps to manage the effect of
interest rate changes on future income. Interest rate swaps are designated as a
hedge of underlying future interest payments. The interest rate differential to
be received or paid under the swaps is recognized over the lives of the swaps as
an adjustment to interest expense (see "Item 7A. Quantitative and Qualitative
Disclosures About Market Risk Interest Rate Risk"). If an interest rate swap is
terminated, the gain or loss is amortized over the life of the underlying debt.
At December 31, 2001, we had a $3.9 million gain related to a terminated

interest rate swap that is included in accumulated other comprehensive income in
our consolidated balance sheet and is being amortized over the life of the
underlying debt.

One of our unconsolidated joint ventures, Deepwater Drilling LLC ("DD
LLC"), has an interest rate swap associated with the operating lease for the
Deepwater Pathfinder. The effect of the swap has been to convert the interest
portion of the operating lease payments from a floating rate of one-month London
Interbank Offered Rate ("LIBOR") plus a margin to a fixed rate of 5.7175 percent
per annum. We report our share of the fair value of the interest rate swap in
accumulated other comprehensive income in our consolidated balance sheet. At
December 31, 2001, this amount was an unrealized loss of $5.6 million.

In June 2001, we entered into $700 million aggregate notional amount of
interest rate swaps as a fair value hedge against our 6.625% Notes due April
2011. The swaps effectively convert the fixed interest rate on such notes into
a floating rate of LIBOR plus 0.50 percent per annum. The market value of the
swaps are carried as an asset or a liability in our consolidated balance sheet
and the carrying value of the hedged debt is adjusted accordingly. At December
31, 2001, the swaps had a market value of $15.1 million. The swaps mature on
the same date as the notes.

In February 2002, we entered into $900 million aggregate notional amount of
interest rate swaps as a hedge against certain fixed rate debt. The effect of
the swaps was to convert the fixed interest rates into a floating rate of LIBOR
plus a margin.

Special Purpose Entities

As a result of the R&B Falcon merger, we have ownership interests in two
unconsolidated joint ventures, 50 percent in DD LLC, and 60 percent in Deepwater
Drilling II, LLC ("DDII LLC"). Subsidiaries of Conoco Inc. ("Conoco") own the
remaining interests in DD LLC and DDII LLC. Conoco and the Company share
management of the joint ventures equally. Each of the joint ventures is a
lessee in a synthetic lease financing facility entered into in connection with
the construction of the Deepwater Pathfinder, in the case of DD LLC, and the
Deepwater Frontier, in the case of DDII LLC. Pursuant to the lease financings,
the rigs are owned by special purpose entities and leased to the joint ventures.
We do not own, manage or control the special purpose entities. The lease
payments under both synthetic leases are supported by drilling contracts between
the two respective joint ventures and Conoco and, in the case of DDII LLC, one
of our subsidiaries. Conoco is responsible for all of the remaining commitment
to DD LLC and most of the remaining commitment to DDII LLC under these drilling
contracts.

Conoco and the Company provide the joint ventures with certain operational
support services. For each of the joint ventures, Conoco and the Company
guarantee the obligation of the joint venture to pay certain contingent lease
obligations in proportion to their respective ownership interests in the joint
ventures.

DD LLC's annual rent payments of $22 million per annum for the Deepwater
Pathfinder are effectively fixed due to the interest rate swap described above.
The scheduled termination of the lease for the Deepwater Pathfinder is December
2003 subject to certain extension options of DD LLC. DDII LLC's annual rent
payments for the Deepwater Frontier are subject to changes in market interest
rates and are estimated to be $24 million per annum based on interest rates at
December 31, 2001. The scheduled termination of the lease for the Deepwater
Frontier is March 2004 subject to certain extension options of DDII LLC.

At the expiration of the leases, each joint venture may purchase the rig
for $185 million, in the case of the Deepwater Pathfinder, and $194 million, in
the case of the Deepwater Frontier, or return the rig to the special purpose
entities. The Company would be obligated to pay only a portion of such price
equal to its percentage ownership interest in the applicable joint venture. The
Company's proportionate share for such purchase options is $97 million and $112
million, respectively. Under each joint venture agreement, the consent of each
venturer is generally required to approve actions of the joint venture,
including the exercise of this purchase option.

If a joint venture returns the rig at the end of the lease, the special
purpose entity may sell the rig. In connection with the return, DD LLC may be
required to pay an amount up to $138 million, and DDII LLC may be required to
pay an amount up to $145 million, plus certain expenses in each case. These
payments may be reduced by a portion of the proceeds of the sale of the
applicable rig. If an event of default occurs under the applicable lease
documents, each joint venture may be required to pay an amount equal to the
amount of debt and equity financing owed by the applicable special purpose
entity plus certain expenses. The debt and equity financing outstanding as of
December 31, 2001, applicable to the owner of Deepwater Pathfinder and of
Deepwater Frontier, was $219 million and $237 million, respectively. The Company
and Conoco have guaranteed their respective share of the joint ventures'
obligation to pay these amounts.

These leases contain ratings triggers that are invoked only if we are
involved in a change of control and the acquiror has a credit rating lower than
BBB or Baa2. Should these triggers be invoked, the acquiring company would, at
the option of the investors, be obligated to pay our share of the outstanding
investments under the leases.

Sale/Leaseback

We lease the M. G. Hulme, Jr. from Deep Sea Investors, L.L.C., a special
purpose entity formed by several leasing companies to acquire the rig from a
subsidiary of R&B Falcon in November of 1995 in a sale/leaseback transaction.
We are obligated to pay rent of approximately $13 million per year through
December 2005. At the termination of the lease, we may purchase the rig for
$37.5 million.

The lease has several ratings triggers. It requires collateral be
maintained currently, the Jim Cunningham, whenever R&B Falcon is rated less than
BBB+/Baa1 prior to November 2002 and at least BBB/Baa3 after such date. The
lease contains another ratings trigger that may be invoked should R&B Falcon be
subject to a change of control with an acquiror having a rating of less than
B+/B1. Should that occur, the lease payments will become due in full, at the
option of the investors.

Related Party Transactions

Delta Towing - In connection with the R&B Falcon merger, R&B Falcon formed
a joint venture to own and operate its U.S. inland marine support vessel
business (the "Marine Business"). As part of the joint venture formation in
January 2001, the Marine Business was transferred by a subsidiary of R&B Falcon
to Delta Towing, LLC ("Delta Towing") in exchange for a 25 percent equity
interest in Delta Towing Holdings, LLC, the parent of Delta Towing, and certain
secured notes payable from Delta Towing in a principal amount of $144 million.
R&B Falcon valued these notes at $80 million immediately prior to the closing of
the R&B Falcon merger. In December 2001, the note agreement was amended to
provide for a $4 million, three-year revolving credit facility (the "Delta
Towing Revolver").

As part of the formation of the joint venture on January 31, 2001, R&B
Falcon entered into a charter arrangement with Delta Towing under which the
Company committed to charter certain vessels for a period of one year ending
January 31, 2002, and committed to charter for a period of 2.5 years from date
of delivery 10 crewboats then under construction, four of which have been placed
into service as of March 1, 2002. R&B Falcon also entered into an alliance
agreement with Delta Towing under which we agreed to treat Delta Towing as a
preferred supplier for the provision of marine support services.

In 2001, the Company incurred charges totaling $15.6 million from Delta
Towing for services rendered, of which $6.5 million was rebilled to the
Company's customers and $9.1 million was reflected in operating and maintenance
expense. As of March 1, 2002, the carrying value of the notes was $78.7 million
and $4.0 million was outstanding under the Delta Towing Revolver. In addition,
$1.1 million unpaid interest was outstanding.

Delta Towing operates in the Gulf of Mexico in support of the oil and gas
industry and faces similar market conditions as we do with our Gulf of Mexico
Shallow and Inland Water business segment. Should weakened market conditions
persist or should market conditions deteriorate further, Delta Towing's ability
to pay its debts to us as they come due may be adversely affected.

DD LLC and DDII LLC - We are a party to drilling services agreements with
DD LLC and DDII LLC for the operation of the Deepwater Pathfinder and Deepwater
Frontier, respectively. For the year ended December 31, 2001, we earned $1.4
million for such drilling services from each of DD LLC and DDII LLC.

From time to time, we contract with DDII LLC to provide drilling services
to us. For the year ended December 31, 2001, we incurred expense of $54.4
million under this drilling contract. See "-Special Purpose Entities" for
further discussion of DD LLC and DDII LLC.

ODL - We own a 50 percent interest in an unconsolidated joint venture
company, Overseas Drilling Limited ("ODL"). ODL owns the Joides Resolution, for
which we provide certain operational and management services. For the year
ended December 31, 2001, we earned $1.2 million for those services.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, Business Combinations.
SFAS 141 requires that all business combinations initiated or completed after
June 30,

2001 be accounted for using the purchase method of accounting. The statement
provides for recognition and measurement of intangible assets separate from
goodwill. We adopted SFAS 141 as of July 1, 2001. The adoption of the new
statement had no effect on our consolidated results of operations or financial
position.

In July 2001, the FASB issued SFAS 142, Goodwill and Other Intangible
Assets. Under SFAS 142, goodwill and intangible assets with indefinite lives are
no longer amortized but are reviewed at least annually for impairment. The
amortization provisions of SFAS 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, we are required to and have adopted SFAS 142
effective January 1, 2002. Application of the non-amortization provisions of
SFAS 142 for goodwill is expected to result in an increase in operating income
of approximately $155 million in 2002. At December 31, 2001, we had goodwill of
approximately $6.5 billion. Pursuant to SFAS 142, we will test our goodwill for
impairment upon adoption and, if impairment is indicated, record such impairment
as a cumulative effect of an accounting change. In accordance with SFAS 142, we
will test goodwill for impairment at a reporting unit level. SFAS 142 defines a
reporting unit as an operating segment or a component of an operating segment
that constitutes a business for which financial information is available and is
regularly reviewed by management. Management has determined our reporting units
are the same as our operating segments for the purpose of testing goodwill for
impairment. While we are currently evaluating the effect the adoption may have
on our consolidated results of operations and financial position, we expect a
significant impairment of goodwill within our Gulf of Mexico Shallow and Inland
Water reporting unit. We do not currently expect a significant impairment of
goodwill within our International and U.S. Floater Contract Drilling Services
reporting unit.

In August 2001, the FASB issued SFAS 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS 144 supersedes SFAS 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and
the accounting and reporting provisions of Accounting Principles Board Opinion
("APB") 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 144 retains the fundamental provisions
of SFAS 121 for recognition and measurement of long-lived asset impairment and
for the measurement of long-lived assets to be disposed of by sale and the basic
requirements of APB 30. In addition to these fundamental provisions, SFAS 144
provides guidance for determining whether long-lived assets should be tested for
impairment and specific criteria for classifying assets to be disposed of as
held for sale. The statement is effective for fiscal years beginning after
December 15, 2001, and we have adopted the statement as of January 1, 2002. The
adoption of this statement will not have a material effect on our consolidated
financial position or results of operations.

Forward-Looking Information

The statements included in this annual report regarding future financial
performance and results of operations and other statements that are not
historical facts are 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. Statements to the effect that the Company or management "anticipates,"
"believes," "budgets," "estimates," "expects," "forecasts," "intends," "plans,"
"predicts," or "projects" a particular result or course of events, or that such
result or course of events "could," "might," "may," "scheduled" or "should"
occur, and similar expressions, are also intended to identify forward-looking
statements. Forward-looking statements in this annual report include, but are
not limited to, statements involving payment of severance costs, contract
commencements, potential revenues, increased expenses, customer drilling
programs, utilization rates, dayrates, planned shipyard projects, expected
downtime, effect of technical difficulties with newbuild rigs, future activity
in the deepwater and the shallow and inland water markets, the U.S. gas drilling
market, planned asset sales, timing of asset sales, proceeds from asset sales,
reactivation of stacked units, timing of and results of negotiations with the
labor union representing U.K. employees, future labor costs, the Company's other
expectations with regard to market outlook, operations in international markets,
expected capital expenditures, results and effects of legal proceedings,
adequacy of insurance, receipt of loss of hire insurance proceeds, liabilities
for tax issues, liquidity, positive cash flow from operations, the exercise of
the option of holders of Zero Coupon Convertible Debentures or the 1.5%
Convertible Debentures to require the Company to repurchase the debentures,
adequacy of cash flow for 2002 obligations, effects of accounting changes, and
the timing and cost of completion of capital projects. Such statements are
subject to numerous risks, uncertainties and assumptions, including, but not
limited to, worldwide demand for oil and gas, uncertainties relating to the
level of activity in offshore oil and gas exploration and development,
exploration success by producers, oil and gas prices (including U.S. natural gas
prices), demand for offshore and inland water rigs, competition and market
conditions in the contract drilling industry, our ability to successfully
integrate the operations of acquired businesses, delays or terminations of
drilling contracts due to a number of events, delays or cost overruns on
construction and shipyard projects and possible cancellation of drilling
contracts as a result of delays or performance, our ability to enter into and
the terms of future contracts, the availability of qualified personnel, labor
relations and the outcome of negotiations with unions representing workers,
operating hazards, political and other uncertainties inherent in non-U.S.
operations (including exchange and currency fluctuations), risks of war,
terrorism and cancellation or unavailability of certain insurance coverage, the
impact of

governmental laws and regulations, the adequacy of sources of liquidity, the
effect of litigation and contingencies and other factors discussed in this
annual report and in the Company's other filings with the SEC, which are
available free of charge on the SEC's website at www.sec.gov. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those indicated. You
should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the particular
statement, and we undertake no obligation to publicly update or revise any
forward-looking statements.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily
to our long-term and short-term debt obligations. The table below presents
expected cash flows and related weighted-average interest rates for the year
ended December 31 for each of the years presented by scheduled maturity dates
relating to debt obligations as of December 31, 2001. Weighted-average variable
rates are based on estimated LIBOR rates as of December 31, 2001, plus
applicable margins. The fair value of fixed rate debt is based on the estimated
yield to maturity for each debt issue as of December 31, 2001.

As of December 31, 2001 (in millions, except interest rate percentages):

SCHEDULED MATURITY DATE FAIR VALUE
----------------------------------------------------------------- ----------
2002 2003 2004 2005 2006 THEREAFTER TOTAL 12/31/01
------- ------- ------- ------- ---- ------------ --------- ----------

Total debt
Fixed Rate(a) . . . . . . . . . . . . $ 58.0 $382.6 $ 61.4 $419.6 - $ 2,965.0 $3,886.6 $ 3,586.2
Average interest rate. . . . . . . 6.7% 7.1% 6.5% 7.0% - 5.5% 5.8%
Variable Rate . . . . . . . . . . . . $100.0 $150.0 $150.0 - - - $ 400.0 $ 400.0
Average interest rate. . . . . . . 2.6% 2.6% 2.6% - - - 2.6%
Receive Fixed/Pay Variable
Swaps(b) . . . . . . . . . . . . . - - - - - $ 700.0 $ 700.0 $ 689.2
Average interest rate. . . . . . . - - - - - 2.4% 2.4%
Commercial Paper. . . . . . . . . . . . $326.4 - - - - - $ 326.4 $ 326.4
Average interest rate. . . . . . . 3.2% - - - - - 3.2%

--------------------
(a) Expected maturity amounts are based on the face value of debt and do not reflect fair market value of debt.
(b) The 6.625% Notes are considered variable as a result of the interest rate swaps. See Note 8 to our consolidated
financial statements.

At December 31, 2001, we had approximately $1.4 billion of variable rate
debt (29 percent of total debt). Of that variable rate debt, $700 million
resulted from interest rate swaps with the remainder representing term bank debt
and commercial paper. Given outstanding amounts as of that date, a one percent
rise in interest rates would result in an additional $14 million in interest
expense per year. Offsetting this, a large part of our investments would earn
commensurate higher rates of return. Using December 31, 2001 investments
levels, a one percent increase in interest rates would result in approximately
$7 million of additional interest income per year.

As a result of the February 2002 interest rate swaps (see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources"), our variable rate debt increased
to $2.1 billion (44 percent of total debt). Given outstanding amounts as of
February 1, 2002, a one percent rise in interest rates would result in an
additional $21 million in interest expense per year. Offsetting this, a large
part of our investments would earn commensurate higher rates of return. Using
February 1, 2002 investment levels, a one percent increase in interest rates
would result in approximately $5 million additional interest income per year.

Foreign Exchange Risk

Our international operations expose us to foreign exchange risk. We use a
variety of techniques to minimize the exposure to foreign exchange risk. Our
primary foreign exchange risk management strategy involves structuring customer
contracts to provide for payment in both U.S. dollars and local currency. The
payment portion denominated in local currency is based on anticipated local
currency requirements over the contract term. We may also use foreign exchange
derivative instruments or spot purchases. We do not enter into derivative
transactions for speculative purposes. At December 31, 2001, we had no material
open foreign exchange contracts.

ITEM 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors
Transocean Sedco Forex Inc.

We have audited the accompanying consolidated balance sheets of Transocean
Sedco Forex Inc. and Subsidiaries as of December 31, 2001 and 2000, the related
consolidated statements of operations, equity, and cash flows for the years
ended December 31, 2001 and 2000, and the related combined statements of
operations, equity, and cash flows for the year ended December 31, 1999. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Transocean
Sedco Forex Inc. and Subsidiaries at December 31, 2001 and 2000, the
consolidated results of their operations and their cash flows for the years
ended December 31, 2001 and 2000, and the combined results of their operations
and their cash flows for the year ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ Ernst & Young LLP

Houston, Texas
January 29, 2002

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE)

YEARS ENDED DECEMBER 31,
-----------------------------
2001 2000 1999
--------- --------- -------

OPERATING REVENUES . . . . . . . . . . . . . . . . $2,820.1 $1,229.5 $648.2
--------- --------- -------

COSTS AND EXPENSES
Operating and maintenance . . . . . . . . . . . 1,603.3 812.6 448.9
Depreciation. . . . . . . . . . . . . . . . . . 470.1 232.8 131.9
Goodwill amortization . . . . . . . . . . . . . 154.9 26.7 -
General and administrative. . . . . . . . . . . 57.9 42.1 16.8
--------- --------- -------
2,286.2 1,114.2 597.6
--------- --------- -------
Impairment Loss on Long-Lived Assets . . . . . . . (40.4) - -
Gain (Loss) from Sale of Assets, net . . . . . . . 56.5 17.8 (1.3)
--------- --------- -------
OPERATING INCOME . . . . . . . . . . . . . . . . . 550.0 133.1 49.3
--------- --------- -------
OTHER INCOME (EXPENSE), NET
Equity in earnings of joint ventures. . . . . . 16.5 9.4 5.6
Interest income . . . . . . . . . . . . . . . . 18.7 6.2 5.4
Interest expense, net of amounts capitalized. . (223.9) (3.0) (10.3)
Other, net. . . . . . . . . . . . . . . . . . . (0.8) (1.3) (0.7)
--------- --------- -------
(189.5) 11.3 -
--------- --------- -------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST AND EXTRAORDINARY ITEMS. . . . . . . . 360.5 144.4 49.3
Income Tax Expense (Benefit) . . . . . . . . . . . 85.7 36.7 (9.3)
Minority Interest. . . . . . . . . . . . . . . . . 2.9 0.6 0.5
--------- --------- -------
INCOME BEFORE EXTRAORDINARY ITEMS. . . . . . . . . 271.9 107.1 58.1
Gain (Loss) on Extraordinary Items, net of tax . . (19.3) 1.4 -
--------- --------- -------
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 252.6 $ 108.5 $ 58.1
========= ========= =======

BASIC EARNINGS PER SHARE
(UNAUDITED PRO FORMA PRIOR TO THE EFFECTIVE
DATE OF THE SEDCO FOREX MERGER)
Income Before Extraordinary Items . . . . . . . $ 0.88 $ 0.51 $ 0.53
Gain (Loss) on Extraordinary Items, net of tax. (0.06) 0.01 -
--------- --------- -------
Net Income . . . . . . . . . . . . . . . . . $ 0.82 $ 0.52 $ 0.53
========= ========= =======

DILUTED EARNINGS PER SHARE
(UNAUDITED PRO FORMA PRIOR TO THE EFFECTIVE
DATE OF THE SEDCO FOREX MERGER)
Income Before Extraordinary Items . . . . . . . $ 0.86 $ 0.50 $ 0.53
Gain (Loss) on Extraordinary Items, net of tax. (0.06) 0.01 -
--------- --------- -------
Net Income . . . . . . . . . . . . . . . . . $ 0.80 $ 0.51 $ 0.53
========= ========= =======

WEIGHTED AVERAGE SHARES OUTSTANDING
(UNAUDITED PRO FORMA PRIOR TO THE EFFECTIVE
DATE OF THE SEDCO FOREX MERGER)
Basic . . . . . . . . . . . . . . . . . . . . . 309.2 210.4 109.6
--------- --------- -------
Diluted . . . . . . . . . . . . . . . . . . . . 314.8 211.7 109.6
--------- --------- -------

DIVIDENDS PAID PER SHARE . . . . . . . . . . . . . $ 0.12 $ 0.12 $ -

See accompanying notes.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)

DECEMBER 31,
--------------------
2001 2000
---------- --------

ASSETS
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 853.4 $ 34.5
Accounts Receivable
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602.9 268.9
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.8 27.1
Materials and Supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158.8 89.5
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.0 18.1
Other Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.9 10.0
---------- --------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,736.8 448.1
---------- --------

Property and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,081.4 6,003.2
Less Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 1,713.3 1,308.2
---------- --------
Property and Equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 8,368.1 4,695.0
---------- --------
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,466.7 1,037.9
Investments in and Advances to Joint Ventures . . . . . . . . . . . . . . . . . . 28.2 105.9
Note Receivable from Related Party. . . . . . . . . . . . . . . . . . . . . . . . 78.9 -
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341.1 71.9
---------- --------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,019.8 $6,358.8
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188.4 $ 135.6
Accrued Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188.2 113.1
Debt Due Within One Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484.4 23.1
Other Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283.4 223.4
---------- --------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,144.4 495.2
---------- --------

Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,539.4 1,430.3
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317.1 359.2
Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.6 70.0
---------- --------
Total Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 4,965.1 1,859.5
---------- --------

Commitments and Contingencies

Preference Shares, $0.10 par value; 50,000,000 shares authorized, none issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Ordinary Shares, $0.01 par value; 800,000,000 shares authorized, 318,816,035 and
210,710,363 shares issued and outstanding at December 31, 2001 and 2000,
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 2.1
Additional Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,611.7 3,918.7
Accumulated Other Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . (2.3) -
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.7 83.3
---------- --------
Total Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . 10,910.3 4,004.1
---------- --------
Total Liabilities and Shareholders' Equity. . . . . . . . . . . . . . . . . . $17,019.8 $6,358.8
========== ========

See accompanying notes.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In millions, except per share data)

ACCUMULATED
ORDINARY SHARES ADDITIONAL OTHER
------------------ PAID-IN COMPREHENSIVE RETAINED PRE-MERGER TOTAL
SHARES AMOUNT CAPITAL INCOME EARNINGS EQUITY EQUITY
--------- ------- ------------ --------------- ---------- ------------ ----------

Balance at December 31, 1998 $ 564.4 $ 564.4
Net income 58.1 58.1
Advances from related parties
and other 299.6 299.6
Merger with Transocean Offshore Inc.. . 210.1 $ 2.1 $ 3,908.0 $ - $ - (922.1) 2,988.0
--------- ------- ------------ --------------- ---------- ------------ ----------

Balance at December 31, 1999. . . . . . . 210.1 2.1 3,908.0 - - - 3,910.1
Net income. . . . . . . . . . . . . . . - - - - 108.5 - 108.5
Issuance of ordinary shares under
stock-based compensation plans. . . . 0.6 - 16.6 - - - 16.6
Other . . . . . . . . . . . . . . . . . - - (5.9) - - - (5.9)
Cash dividends ($0.12 per share). . . . - - - - (25.2) - (25.2)
--------- ------- ------------ --------------- ---------- ------------ ----------

Balance at December 31, 2000. . . . . . . 210.7 2.1 3,918.7 - 83.3 - 4,004.1
Net income. . . . . . . . . . . . . . . - - - - 252.6 - 252.6
Shares issued for R&B Falcon
merger. . . . . . . . . . . . . . . . 106.1 1.1 6,654.9 - - - 6,656.0
Issuance of ordinary shares under
stock-based compensation plans. . . . 1.6 - 45.2 - - - 45.2
Issuance of ordinary shares upon
exercise of warrants. . . . . . . . . 0.6 - 10.6 - - - 10.6
Other . . . . . . . . . . . . . . . . . (0.2) - (17.7) - - - (17.7)
Cash dividends ($0.12 per share). . . . - - - - (38.2) - (38.2)
Gain on terminated interest rate swaps. - - - 3.9 - - 3.9
Fair value adjustment on marketable
securities held for sale. . . . . . . - - - (0.6) - - (0.6)
Other comprehensive income
related to joint venture. . . . . . . - - - (5.6) - - (5.6)
--------- ------- ------------ --------------- ---------- ------------ ----------
Balance at December 31, 2001. . . . . . . 318.8 $ 3.2 $ 10,611.7 $ (2.3) $ 297.7 $ - $10,910.3
========= ======= ============ =============== ========== ============ ==========

See accompanying notes.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

YEARS ENDED DECEMBER 31,
----------------------------
2001 2000 1999
-------- -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 252.6 $ 108.5 $ 58.1
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 625.0 259.5 131.9
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . (98.2) (30.1) (24.3)
1999 charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 29.4
Equity in earnings of joint ventures. . . . . . . . . . . . . . . . . . . . (16.5) (9.4) (5.6)
Net (gain) loss from sale of assets . . . . . . . . . . . . . . . . . . . . (52.5) (15.0) 1.3
Impairment loss on long-lived assets. . . . . . . . . . . . . . . . . . . . 40.4 - -
Amortization of debt-related discounts/premiums, fair value
adjustments and issue costs, net. . . . . . . . . . . . . . . . . . . . . (4.0) 9.4 -
Deferred income, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (46.5) (20.7) (26.2)
Deferred expenses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . (53.8) (18.6) -
Extraordinary (gain) loss on debt extinguishment, net of tax. . . . . . . . 19.3 (1.4) -
Tax benefit from exercise of stock options. . . . . . . . . . . . . . . . . 9.6 1.9 -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.4) (7.0) (0.1)
Changes in operating assets and liabilities, net of effects from the R&B Falcon
merger
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (55.2) (5.9) 100.5
Accounts payable and other accrued liabilities. . . . . . . . . . . . . . . (95.9) (58.6) (22.5)
Receivable/payable with related parties, net. . . . . . . . . . . . . . . . - - 19.5
Income taxes receivable/payable, net. . . . . . . . . . . . . . . . . . . . 48.2 1.2 (21.5)
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.3) (17.9) 0.1
-------- -------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . 566.8 195.9 240.6
-------- -------- --------

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (506.2) (574.7) (537.0)
Proceeds from sale of coiled tubing drilling services business. . . . . . . . . - 24.9 -
Proceeds from sale of securities. . . . . . . . . . . . . . . . . . . . . . . . 17.2 - -
Proceeds from sale of subsidiary. . . . . . . . . . . . . . . . . . . . . . . . 85.6 - -
Other proceeds from disposal of assets, net . . . . . . . . . . . . . . . . . . 116.1 56.3 0.7
Merger costs paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24.4) (4.5) -
Cash acquired in merger, net of cash paid . . . . . . . . . . . . . . . . . . . 264.7 - 439.8
Joint ventures and other investments, net . . . . . . . . . . . . . . . . . . . 20.6 5.1 6.3
-------- -------- --------
Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . . . . . . . (26.4) (492.9) (90.2)
-------- -------- --------

See accompanying notes.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In millions)

YEARS ENDED DECEMBER 31,
------------------------------
2001 2000 1999
---------- -------- --------

CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under commercial paper program. . . . . . . . . . . . . . 326.4 - -
Net proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . 1,693.5 489.1 -
Early repayments of debt instruments . . . . . . . . . . . . . . . . . . (1,495.0) (233.8) -
Net repayments on revolving credit agreements. . . . . . . . . . . . . . (180.1) (54.9) -
Other repayments of debt instruments . . . . . . . . . . . . . . . . . . (56.0) (21.1) (15.3)
Proceeds from issuance of ordinary shares under stock-based compensation
plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.6 13.7 -
Proceeds from issuance of ordinary shares upon exercise of warrants. . . 10.6 - -
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38.2) (25.3) -
Financing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15.2) (2.6) -
Net repayments of debt to related parties. . . . . . . . . . . . . . . . - - (407.4)
Advances and other from related parties, net . . . . . . . . . . . . . . - - 265.5
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 0.7 (2.0)
---------- -------- --------
Net Cash Provided by (Used in) Financing Activities. . . . . . . . . . . . 278.5 165.8 (159.2)
---------- -------- --------

Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . 818.9 (131.2) (8.8)
---------- -------- --------
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . . 34.5 165.7 174.5
---------- -------- --------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . $ 853.4 $ 34.5 $ 165.7
========== ======== ========

See accompanying notes.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Nature of Business and Principles of Consolidation

Transocean Sedco Forex Inc. (together with its subsidiaries and
predecessors, unless the context requires otherwise, the "Company," "we" or
"our") is a leading international provider of offshore and inland marine
contract drilling services for oil and gas wells. The Company's mobile offshore
drilling fleet is considered one of the most modern and versatile fleets in the
world. The Company specializes in technically demanding segments of the
offshore drilling business with a particular focus on deepwater and harsh
environment drilling services. At December 31, 2001, the Company owned, had
partial ownership interests in or operated more than 160 mobile offshore and
barge drilling units. As of this date, the Company's active fleet consisted of
31 high-specification drillships and semisubmersibles ("floaters"), 30 other
floaters, 54 jackup rigs, 35 drilling barges, four tenders and three submersible
drilling rigs. In addition, the fleet includes mobile offshore production
units, platform drilling rigs and 10 land drilling rigs in Venezuela. The
Company contracts its drilling rigs, related equipment and work crews primarily
on a dayrate basis to drill oil and gas wells.

Intercompany transactions and accounts have been eliminated. The equity
method of accounting is used for investments in joint ventures owned 50 percent
or less and for investments in joint ventures owned 50 percent or more where the
Company does not have significant influence or control over the day-to-day
operations of the joint venture.

On January 31, 2001, we completed a merger transaction with R&B Falcon
Corporation ("R&B Falcon"). At the time of the merger, R&B Falcon owned, had
partial ownership interests in, operated or had under construction more than 100
mobile offshore drilling units and other units utilized in the support of
offshore drilling activities. As a result of the merger, R&B Falcon became an
indirect wholly owned subsidiary of the Company. The merger was accounted for
as a purchase with the Company as the accounting acquiror. The consolidated
balance sheet as of December 31, 2001 represents the financial position of the
merged company. The consolidated statements of operations and of cash flows for
the year ended December 31, 2001 include 11 months of operating results and
cash flows for R&B Falcon.

On December 31, 1999, the merger of Transocean Offshore Inc. and Sedco
Forex Holdings Limited ("Sedco Forex") was completed. Sedco Forex was the
offshore contract drilling service business of Schlumberger Limited
("Schlumberger") and was spun off immediately prior to the merger transaction.
As a result of the merger, Sedco Forex became a wholly owned subsidiary of
Transocean Offshore Inc., which changed its name to Transocean Sedco Forex Inc.
The merger was accounted for as a purchase with Sedco Forex as the accounting
acquiror. The consolidated balance sheet as of December 31, 2000, the
consolidated statements of cash flows and of operations for the year ended
December 31, 2000 represent the financial position, cash flows and results of
operations of the merged company. The combined statements of cash flows and
operations for the year ended December 31, 1999 represent the cash flows and
results of operations of Sedco Forex and not those of historical Transocean
Offshore Inc.

The combined financial statements for the period prior to the Sedco Forex
merger represent the offshore contract drilling service business of
Schlumberger, which comprised certain businesses, operations, assets and
liabilities of Sedco Forex and its subsidiaries and of Schlumberger and its
subsidiaries, as defined in the Distribution Agreement (see Note 4). Although
Sedco Forex was not a separate public company prior to the merger, the combined
financial statements are presented as if Sedco Forex had existed as an entity
separate from its parent, Schlumberger. The combined financial statements
include the historical revenues and expenses and cash flows that were directly
related to the offshore contract drilling service business of Schlumberger for
the year ended December 31, 1999 and have been prepared using Schlumberger's
historical results of operations of Sedco Forex.

Prior to the Sedco Forex merger, certain Schlumberger corporate expenses,
including centralized research and engineering, legal, accounting, employee
benefits, real estate, insurance, information technology services, treasury and
other corporate and infrastructure costs, although not directly attributable to
Sedco Forex's operations, were allocated to Sedco Forex on bases that
Schlumberger and Sedco Forex considered to be a reasonable reflection of the
utilization of services provided or the benefit received by Sedco Forex (see
Note 19). The financial information for the period prior to the Sedco Forex
merger included herein may not reflect the consolidated results of operations
and cash flows of Sedco Forex had it been a separate, stand-alone entity during
the periods presented.

Because Sedco Forex historically was not operated as a separate,
stand-alone entity, and in many cases Sedco Forex's results were included in the
consolidated financial statements of Schlumberger on a divisional basis, there
are no separate meaningful historical equity accounts for Sedco Forex prior to
the merger.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 2 - Summary of Significant Accounting Policies

Accounting Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
("U.S.") requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and disclosure of
contingent assets and liabilities. On an on going basis, the Company evaluates
its estimates, including those related to bad debts, materials and supplies
obsolescence, investments, intangible assets and goodwill, income taxes,
financing operations, workers' insurance, pensions and other post-retirement and
employment benefits and contingent liabilities. The Company bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results could differ from such
estimates.

Cash and Cash Equivalents - Cash equivalents are stated at cost plus
accrued interest, which approximates fair value. Cash equivalents are highly
liquid debt instruments with an original maturity of three months or less and
consist of time deposits with a number of commercial banks with high credit
ratings, Eurodollar time deposits, certificates of deposit and commercial paper.
The Company may also invest excess funds in no-load, open-end, management
investment trusts ("mutual funds"). The mutual funds invest exclusively in high
quality money market instruments. Generally, the maturity date of the Company's
investments is the next business day.

At December 31, 2001, $39.5 million of cash and cash equivalents related to
the Company's wholly owned subsidiary Arcade Drilling as ("Arcade"). Arcade's
cash and cash equivalents are available to Arcade for all purposes subject to
restrictions under the Standstill Agreement dated as of August 31, 1991 between
the Company and Arcade. Such restrictions preclude the Company from borrowing
any cash from Arcade.

As a result of the Deepwater Nautilus project financing in 1999, the
Company is required to maintain in cash an amount to cover certain principal and
interest payments. At December 31, 2001, such restricted cash, classified as
other assets in the consolidated balance sheet, amounted to $13.2 million.

Allowance for Doubtful Accounts Receivable - The Company establishes an
allowance for doubtful accounts on a case-by-case basis when it believes the
required payment of specific amounts owed is unlikely to occur. This allowance
was approximately $24 million at December 31, 2001 and 2000.

Materials and Supplies - Materials and supplies are carried at average cost
less an allowance for obsolescence. Such allowance was $24.1 million and $23.1
million at December 31, 2001 and 2000, respectively.

Property and Equipment - Property and equipment, consisting primarily of
offshore drilling rigs and related equipment, are carried at cost. Property and
equipment obtained in the Sedco Forex and R&B Falcon mergers (see Note 4) were
recorded at fair value. The Company generally provides for depreciation on the
straight-line method after allowing for salvage values. Expenditures for
renewals, replacements and improvements are capitalized. Maintenance and
repairs are charged to operating expense as incurred. Upon sale or other
disposition, the applicable amounts of asset cost and accumulated depreciation
are removed from the accounts and the net amount, less proceeds from disposal,
is charged or credited to income.

As a result of the Sedco Forex and R&B Falcon mergers, the Company
conformed its policies relating to estimated rig lives and salvage values.
Estimated useful lives of its drilling units now range from 18 to 35 years,
reflecting maintenance history and market demand for these drilling units,
buildings and improvements from 10 to 30 years and machinery and equipment from
four to 12 years. Depreciation expense for the years ended December 31, 2001
and 2000 was reduced by approximately $23 million (net $0.07 per diluted share)
and $72 million (net $0.34 per diluted share), respectively, as a result of
conforming these policies.

Goodwill - The excess of the purchase price over the estimated fair value
of net assets acquired is accounted for as goodwill and has been amortized on a
straight-line basis based on a 40-year life. The amortization period was based
on the nature of the offshore drilling industry, long-lived drilling equipment
and the long-standing relationships with core customers. Accumulated
amortization at December 31, 2001 and 2000 totaled $181.6 million and $26.7
million, respectively. See "New Accounting Pronouncements."

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Impairment of Long-Lived Assets - The carrying value of long-lived assets,
principally goodwill and property and equipment, is reviewed for potential
impairment when events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. For property and equipment held
for use, the determination of recoverability is made based upon the estimated
undiscounted future net cash flows of the related asset. Property and equipment
held for sale are recorded at the lower of net book value or net realizable
value. See Note 7. For goodwill, the determination of recoverability has been
made based upon a comparison of the Company's net book value to the value
indicated by the market price of its equity securities (see "-New Accounting
Pronouncements").

Operating Revenues and Expenses - Operating revenues are recognized as
earned, based on contractual daily rates or on a fixed price basis. Turnkey
profits are recognized upon completion of the well and acceptance by the
customer. Provisions for losses are made on contracts in progress when losses
are anticipated. In connection with drilling contracts, the Company may receive
revenues for preparation and mobilization of equipment and personnel or for
capital improvements to rigs. In connection with contracted mobilizations,
revenues earned and related costs incurred are deferred and recognized over the
primary contract term of the drilling project. Costs of relocating drilling
units without contracts to more promising market areas are expensed as incurred.
Upon completion of drilling contracts, any demobilization fees received are
reflected in income, as are any related expenses. Capital upgrade revenues
received are deferred and recognized over the primary contract term of the
drilling project. The actual cost incurred for the capital upgrade is
depreciated over the estimated useful life of the asset. The Company incurs
periodic survey and drydock costs in connection with obtaining regulatory
certification to operate its rigs on an ongoing basis. Costs associated with
these certifications are deferred and amortized over the period until the next
survey.

Capitalized Interest - Interest costs for the construction and upgrade of
qualifying assets are capitalized. The Company capitalized interest costs on
construction work in progress of $34.9 million, $86.6 million and $27.2 million
for the years ended December 31, 2001, 2000 and 1999, respectively.

Derivative Instruments and Hedging Activities - In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") 133, Accounting for Derivative Instruments and Hedging
Activities, as amended in June 1999. The Company adopted SFAS 133 as of January
1, 2001. Because of the Company's limited use of derivatives to manage its
exposure to fluctuations in foreign currency exchange rates and interest rates,
the adoption of the new statement had no effect on the results of operations or
the consolidated financial position of the Company. See Note 9.

Foreign Currency Translation - The U.S. dollar is the functional currency
for the Company's foreign operations. Foreign currency exchange gains and losses
are included in other income as incurred. Net foreign currency gains (losses)
were $1.1 million, $(1.4) million and $(0.8) million for the years ended
December 31, 2001, 2000 and 1999, respectively.

Income Taxes - Income taxes have been provided based upon the tax laws and
rates in the countries in which operations are conducted and income is earned.
The income tax rates imposed by these taxing authorities vary substantially.
Taxable income may differ from pre-tax income for financial accounting purposes.
There is no expected relationship between the provision for income taxes and
income before income taxes because the countries have different taxation
regimes, which vary not only with respect to nominal rate, but also in terms of
the availability of deductions, credits and other benefits. Variations also
arise because income earned and taxed in any particular country or countries may
fluctuate from period to period. Deferred tax assets and liabilities are
recognized for the anticipated future tax effects of temporary differences
between the financial statement basis and the tax basis of the Company's assets
and liabilities using the applicable tax rates in effect at year end. A
valuation allowance for deferred tax assets is recorded when it is more likely
than not that some or all of the benefit from the deferred tax asset will not be
realized. Prior to the Sedco Forex merger, the provision for income taxes in the
combined financial statements was determined on a separate return basis. See
Note 12.

Segments - The Company's operations have been aggregated into two
reportable segments: (i) International and U.S. Floater Contract Drilling
Services and (ii) Gulf of Mexico Shallow and Inland Water. The Company provides
services with different types of drilling equipment in several geographic
regions. The location of the Company's operating assets and the allocation of
resources to build or upgrade drilling units is determined by the activities and
needs of customers. See Note 17.

Stock-Based Compensation - In accordance with the provisions of the FASB's
SFAS 123, Accounting for Stock-based Compensation, the Company has elected to
follow the Accounting Principles Board Opinion ("APB") 25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for its employee
stock-based compensation plans. Under

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

APB 25, if the exercise price of employee stock options equals or exceeds the
fair value of the underlying stock on the date of grant, no compensation expense
is recognized. See Note 14.

New Accounting Pronouncements - In July 2001, the FASB issued SFAS 141,
Business Combinations. SFAS 141 requires that all business combinations
initiated or completed after June 30, 2001 be accounted for using the purchase
method of accounting. The statement provides for recognition and measurement of
intangible assets separate from goodwill. The Company adopted SFAS 141 as of
July 1, 2001. The adoption of the new statement had no effect on the
consolidated results of operations or financial position of the Company.

In July 2001, the FASB issued SFAS 142, Goodwill and Other Intangible
Assets. Under SFAS 142, goodwill and intangible assets with indefinite lives are
no longer amortized but are reviewed at least annually for impairment. The
amortization provisions of SFAS 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company is required to and has adopted SFAS
142, effective January 1, 2002. Application of the non-amortization provisions
of SFAS 142 for goodwill is expected to result in an increase in operating
income of approximately $155 million in 2002. At December 31, 2001, the Company
had goodwill of approximately $6.5 billion. Pursuant to SFAS 142, the Company
will test its goodwill for impairment upon adoption and, if impairment is
indicated, record such impairment as a cumulative effect of an accounting
change. In accordance with SFAS 142, the Company will test goodwill for
impairment at a reporting unit level. SFAS 142 defines a reporting unit as an
operating segment or a component of an operating segment that constitutes a
business for which financial information is available and is regularly reviewed
by management. Management has determined that the Company's reporting units are
the same as its operating segments for the purposes of testing goodwill for
impairment. While the Company is currently evaluating the effect the adoption
may have on its consolidated results of operations and financial position, it
expects a significant impairment of goodwill within its Gulf of Mexico Shallow
and Inland Water reporting unit. The Company does not currently expect a
significant impairment of goodwill within its International and U.S. Floater
Contract Drilling Services reporting unit.

In August 2001, the FASB issued SFAS 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS 144 supersedes SFAS 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and
the accounting and reporting provisions of APB 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
144 retains the fundamental provisions of SFAS 121 for recognition and
measurement of long-lived asset impairment and for the measurement of long-lived
assets to be disposed of by sale and the basic requirements of APB 30. In
addition to these fundamental provisions, SFAS 144 provides guidance for
determining whether long-lived assets should be tested for impairment and
specific criteria for classifying assets to be disposed of as held for sale.
The statement is effective for fiscal years beginning after December 15, 2001,
and the Company has adopted the statement as of January 1, 2002. Management
does not expect the adoption of this statement to have a material effect on the
Company's consolidated financial position or results of operations.

Reclassifications - Certain reclassifications have been made to prior
period amounts to conform with the current year presentation.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 3 - Comprehensive Income

The components of total comprehensive income for the years ended December
31, 2001, 2000 and 1999, respectively, are as follows (in millions):

YEARS ENDED
DECEMBER 31,
----------------------
2001 2000 1999
------- ------ -----

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $252.6 $108.5 $58.1
Gain on terminated interest rate swaps . . . . . . . . . . . . . . . . . . . . 3.9 - -
Unrealized loss on securities available for sale . . . . . . . . . . . . . . . (0.6) - -
Share of unrealized loss in unconsolidated joint venture's interest rate hedge (5.6) - -
------- ------ -----
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . $250.3 $108.5 $58.1
======= ====== =====

There was no accumulated other comprehensive income at December 31, 2000.
The components of accumulated other comprehensive income at December 31, 2001
are as follows (in millions):

DECEMBER 31,
2001
--------------

Gain on terminated interest rate swaps . . . . . . . . . . . . . . . . . . . . $ 3.9
Unrealized loss on securities available for sale . . . . . . . . . . . . . . . (0.6)
Share of unrealized loss in unconsolidated joint venture's interest rate hedge (5.6)
--------------
Accumulated other comprehensive income. . . . . . . . . . . . . . . . . . . $ (2.3)
==============

Note 4 - Business Combinations

Merger with R&B Falcon - On January 31, 2001, the Company completed a
merger transaction with R&B Falcon in which an indirect wholly owned subsidiary
of the Company merged with and into R&B Falcon. As a result of the merger, R&B
Falcon common shareholders received 0.5 newly issued ordinary shares of the
Company for each R&B Falcon share. The Company issued approximately 106 million
ordinary shares in exchange for the issued and outstanding shares of R&B Falcon
and assumed warrants and options exercisable for approximately 13 million
ordinary shares. The ordinary shares issued in exchange for the issued and
outstanding shares of R&B Falcon constituted approximately 33 percent of the
Company's outstanding ordinary shares after the merger.

The Company accounted for the merger using the purchase method of
accounting with the Company treated as the accounting acquiror. The purchase
price of $6.7 billion was comprised of the calculated market capitalization of
the Company's ordinary shares issued at the time of merger with R&B Falcon of
$6.1 billion and the estimated fair value of R&B Falcon stock options and
warrants at the time of the merger of $0.6 billion. The market capitalization of
the Company's ordinary shares issued was calculated using the average closing
price of the Company's ordinary shares for a period immediately before and after
August 21, 2000, the date the merger was announced.

The purchase price included, at estimated fair value, current assets of
$672 million, drilling and other property and equipment of $4,010 million, other
assets of $160 million and the assumption of current liabilities of $338
million, other net long-term liabilities of $242 million and long-term debt of
$3,206 million. The excess of the purchase price over the estimated fair value
of net assets acquired was $5,630 million, which has been accounted for as
goodwill and was amortized on a straight-line basis using a 40-year life. See
Note 2.

In conjunction with the R&B Falcon merger, the Company established a
liability of $16.5 million for the estimated severance-related costs associated
with the involuntary termination of 569 R&B Falcon employees pursuant to
management's plan to consolidate operations and administrative functions
post-merger. Included in the 569 planned involuntary terminations were 387
employees engaged in the Company's land drilling business in Venezuela. The
Company has suspended active marketing efforts to divest this business and, as a
result, the estimated liability was reduced by $4.3 million in the third quarter
of 2001 with an offset to goodwill. Through December 31, 2001, approximately
$11.6 million in

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

severance-related costs have been paid to 173 employees whose positions were
eliminated as a result of the consolidation of operations and administrative
functions post-merger. The Company anticipates that substantially all of the
remaining amounts will be paid by the end of the first quarter of 2002.

Unaudited pro forma combined operating results of the Company and R&B
Falcon assuming the merger was completed as of January 1, 2001 and 2000,
respectively, are as follows (in millions, except per share data):

YEARS ENDED DECEMBER 31,
------------------------
2001 2002
----------- -----------

Operating revenues . . . . . . . . . . . $ 2,946.0 $ 2,292.4
Operating income . . . . . . . . . . . . 549.5 129.9
Income (loss) from continuing operations 257.6 (300.6)
Earnings (loss) per share:
Basic and Diluted. . . . . . . . . . . $ 0.80 $ (0.95)

The pro forma information includes adjustments for additional depreciation
based on the fair market value of the drilling and other property and equipment
acquired, amortization of goodwill arising from the transaction, increased
interest expense for debt assumed in the merger and related adjustments for
income taxes. The pro forma information is not necessarily indicative of the
results of operations had the transaction been effected on the assumed dates or
the results of operations for any future periods.

Distribution, Spin-off and Merger with Sedco Forex - Pursuant to the
distribution agreement dated July 12, 1999 between Schlumberger and Sedco Forex
(the "Distribution Agreement"), Schlumberger separated and combined its offshore
contract drilling service business under Sedco Forex. In December 1999,
Schlumberger made a net capital contribution of $226.7 million to Sedco Forex to
adjust Sedco Forex's level of indebtedness and cash balances to those required
by the terms of the Distribution Agreement.

In accordance with the Distribution Agreement, certain Sedco Forex assets
and liabilities primarily associated with employee benefits, income taxes and
balances due to or from Schlumberger companies other than Sedco Forex were
retained by Schlumberger. The net liabilities retained totaled $30.9 million and
were treated as a capital contribution by Schlumberger.

On December 30, 1999, Schlumberger completed the spin-off of Sedco Forex to
the Schlumberger shareholders by issuing one share of Sedco Forex capital stock
for each share of Schlumberger common stock owned.

On December 31, 1999, the merger of Transocean Offshore Inc. and Sedco
Forex was completed. Under the terms of the Agreement and Plan of Merger dated
July 12, 1999 among Schlumberger, Sedco Forex, Transocean Offshore Inc. and
Transocean SF Limited, a wholly owned Transocean Offshore Inc. subsidiary,
Transocean SF Limited merged with and into Sedco Forex, and Schlumberger
shareholders exchanged all of the Sedco Forex shares distributed by Schlumberger
for 109,564,268 ordinary shares of the Company, of which 145,102 ordinary
shares were sold on the market for cash paid in lieu of fractional shares.

The merger was accounted for as a purchase with Sedco Forex as the
accounting acquiror. The purchase price of $3.0 billion was comprised of the
calculated market capitalization of Transocean Offshore Inc. of $2.9 billion and
the estimated fair value of Transocean Offshore Inc. stock options at the time
of the merger of $50 million. The market capitalization of Transocean Offshore
Inc. was calculated using the average closing price of Transocean Offshore Inc.
ordinary shares for the period immediately before and after July 12, 1999, the
date the merger was announced.

The purchase price included, at estimated fair value, current assets of
$638 million, drilling and other property and equipment of $3,029 million, other
assets of $136 million and the assumption of current liabilities of $299
million, other net long-term liabilities of $278 million and long-term debt of
$1,119 million. In addition, a deferred tax liability of $188 million was
recorded primarily for the difference in the basis for tax and financial
reporting purposes of the net assets acquired. The excess of the purchase price
over the estimated fair value of net assets acquired was $1,068 million, which
has been accounted for as goodwill and was amortized on a straight-line basis
using a 40-year life. See Note 2.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Unaudited pro forma combined operating results of Sedco Forex and
Transocean Offshore Inc. for the year ended December 31, 1999, assuming the
acquisition was completed as of January 1, 1999, are summarized as follows (in
millions, except per share data):

Year ended
December 31, 1999
------------------

Operating revenues . . . . . . . . . . . $ 1,579.1
Operating income . . . . . . . . . . . . 291.1
Net income . . . . . . . . . . . . . . . 237.9
Earnings per share:
Basic and Diluted . . . . . . . . . . $ 1.13

The pro forma information includes adjustments for additional depreciation
based on the fair market value of the drilling and other property and equipment
acquired, amortization of goodwill arising from the transaction, decreased
interest expense for related party debt replaced by borrowings under the Term
Loan Agreement (see Note 8) and related adjustments for income taxes. The pro
forma information is not necessarily indicative of the results of operations had
the transaction been effected on the assumed date or the results of operations
for any future periods.

Note 5 - Upgrade and Expansion of Drilling Fleet

Capital expenditures, including capitalized interest, totaled $506 million
during the year ended December 31, 2001 and included $175 million, $42 million,
$41 million and $24 million spent on the construction of the Deepwater Horizon,
Sedco Energy, Sedco Express and Cajun Express, respectively. A substantial
majority of the capital expenditures is related to the International and U.S.
Floater Contract Drilling Services segment. The Company's construction program
was completed as of December 31, 2001.

Note 6 - Asset Dispositions

In February 2001, Sea Wolf Drilling Limited ("Sea Wolf"), a joint venture
in which the Company holds a 25 percent interest, sold two semisubmersible rigs,
the Drill Star and Sedco Explorer, to Pride International, Inc. In the first
quarter of 2001, the Company recognized accelerated amortization of the deferred
gain related to the Sedco Explorer of $18.5 million ($0.06 per diluted share),
which is included in gain from sale of assets. The Company's bareboat charter
with Sea Wolf on the Sedco Explorer was terminated effective June 2000. The
Company continued to operate the Drill Star, which has been renamed the Pride
North Atlantic, under a bareboat charter agreement until October 2001, at which
time the rig was returned to its owner. The amortization of the Drill Star's
deferred gain was accelerated and produced incremental gains in 2001 of $36.3
million ($0.12 per diluted share), which is included as a reduction in operating
and maintenance expense.

In December 2001, the Company sold RBF FPSO L.P., which owned the Seillean,
a multi-purpose service vessel. The Company received net proceeds from the sale
of $85.6 million and recorded a net after-tax gain of $17.1 million ($0.05 per
diluted share) for the year ended December 31, 2001. In addition, during the
year ended December 31, 2001, the Company sold certain other non-strategic
assets acquired in the R&B Falcon merger and certain other assets held for sale.
The Company received net proceeds of approximately $116.1 million. These sales
resulted in a net after-tax gain of $7.5 million ($0.02 per diluted share) for
the year ended December 31, 2001.

In July 2000, the Company sold a semisubmersible, the Transocean
Discoverer. Net proceeds from the sale of the rig, which had been idle in the
U.K. sector of the North Sea since February 2000, totaled $42.7 million and
resulted in a net after-tax gain of $9.4 million, or $0.04 per diluted share.

In February 2000, the Company sold its coiled tubing drilling services
business to Schlumberger Limited. The net proceeds from the sale were $24.9
million and no gain or loss was recognized on the sale. The Company's interests
in its Transocean-Nabors Drilling Technology LLC and DeepVision LLC joint
ventures were excluded from the sale.

Note 7 - Impairment Loss on Long-Lived Assets

During the fourth quarter 2001, the Company recorded noncash impairment
charges in the International and U.S. Floater Contract Drilling Services segment
and Gulf of Mexico Shallow and Inland Water segment of $36.3 million and $4.1
million, respectively. In the International and U.S. Floater Contract Drilling
Services segment, the impairment related to assets held

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

for sale and certain non-core assets held and used of $24.5 million and $11.8
million, respectively. In the Gulf of Mexico Shallow and Inland Water segment,
the impairment related to assets held for sale and certain non-core assets held
and used of $3.1 million and $1.0 million, respectively. The impairments
resulted from deterioration in current market conditions. The methodology used
in determining the fair market value included third-party appraisals and
industry experience for non-core assets held and used and offers from potential
buyers for assets held for sale.

Note 8 - Debt

Debt, net of unamortized discounts, premiums and fair value adjustments, is
comprised of the following (in millions):

DECEMBER 31,
------------------
2001 2000
-------- --------

Commercial Paper. . . . . . . . . . . . . . . . . . . . . . . . . . $ 326.4 $ -
6.5% Senior Notes, due April 2003 . . . . . . . . . . . . . . . . . 240.5 -
9.125% Senior Notes, due December 2003. . . . . . . . . . . . . . . 92.0 -
Amortizing Term Loan Agreement - Final Maturity December 2004. . . 400.0 400.0
550 million Revolving Credit Agreement, due December 2005. . . . . - 180.1
7.31% Nautilus Class A1 Amortizing Notes - Final Maturity May 2005. 142.9 -
9.41% Nautilus Class A2 Notes, due May 2005 . . . . . . . . . . . . 52.4 -
6.75% Senior Notes, due April 2005. . . . . . . . . . . . . . . . . 354.6 -
Secured Rig Financing . . . . . . . . . . . . . . . . . . . . . . . 50.6 68.6
6.95% Senior Notes, due April 2008. . . . . . . . . . . . . . . . . 252.3 -
9.5% Senior Notes, due December 2008. . . . . . . . . . . . . . . . 348.1 -
6.625% Notes, due April 2011. . . . . . . . . . . . . . . . . . . . 711.7 -
7.375% Senior Notes, due April 2018 . . . . . . . . . . . . . . . . 250.5 -
Zero Coupon Convertible Debentures, due May 2020. . . . . . . . . . 512.2 497.7
1.5% Convertible Debentures, due May 2021 . . . . . . . . . . . . . 400.0 -
8% Debentures, due April 2027 . . . . . . . . . . . . . . . . . . . 197.9 197.9
7.45% Notes, due April 2027 . . . . . . . . . . . . . . . . . . . . 94.4 94.1
7.5% Notes, due April 2031. . . . . . . . . . . . . . . . . . . . . 597.3 -
6.9% Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14.9
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 0.1
-------- --------
Total Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,023.8 1,453.4
Less Debt Due Within One Year . . . . . . . . . . . . . . . . . . . 484.4 23.1
-------- --------
Total Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . $4,539.4 $1,430.3
======== ========

The scheduled maturity of the face value of the Company's debt is as
follows (in millions):

Years Ended
December 31,
-------------

2002 . . . . . . . . . . . . . . $ 484.4
2003 . . . . . . . . . . . . . . 532.3
2004 . . . . . . . . . . . . . . 211.4
2005 . . . . . . . . . . . . . . 423.4
2006 . . . . . . . . . . . . . . -
Thereafter . . . . . . . . . . . 3,650.0
-------------
Total. . . . . . . . . . . . $ 5,301.5
=============

Commercial Paper Program - The borrowings as of December 31, 2001 had a
maturity of one day to seven days and an average yield of 3.21 percent. The
Revolving Credit Agreements (described below) provide liquidity for commercial
paper borrowings.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Revolving Credit Agreements - The Company is a party to two revolving
credit agreements (together the "Revolving Credit Agreements"), a $550.0 million
five-year revolving credit agreement (the "Five-Year Revolver") dated December
29, 2000 and a $250.0 million 364-day revolving credit agreement (the "364-Day
Revolver") dated December 27, 2001. The Revolving Credit Agreements bear
interest, at the Company's option, at a base rate or London Interbank Offer Rate
("LIBOR") plus a margin that can vary from 0.180 percent to 0.700 percent under
the Five-Year Revolver and from 0.190 percent to 0.725 percent under the 364-Day
Revolver depending on the Company's senior unsecured public debt rating. At
December 31, 2001, the Five-Year Revolver and the 364-Day Revolver margins were
0.45 percent and 0.475 percent, respectively. A utilization fee varying from
0.075 percent to 0.150 percent, depending on the Company's senior unsecured
public debt rating, is payable if amounts outstanding under the Five-Year
Revolver or the 364-Day Revolver are greater than $181.5 million or $82.5
million, respectively. The Revolving Credit Agreements contain covenants
similar to those contained in the Term Loan Agreement described below. There
were no amounts outstanding under the Revolving Credit Agreements at December
31, 2001.

Term Loan Agreement - The Company is a party to a $400.0 million unsecured
five-year term loan agreement dated as of December 16, 1999. Amounts
outstanding under the Term Loan Agreement bear interest at the Company's option,
at a base rate or LIBOR plus a margin (0.70 percent per annum at December 31,
2001) that varies depending on the Company's senior unsecured public debt
rating. The debt begins to amortize in March 2002, at a rate of $25.0 million
per quarter in 2002. In 2003 and 2004, the debt amortizes at a rate of $37.5
million per quarter.

The Term Loan Agreement and the Revolving Credit Agreements require
compliance with various covenants and provisions customary for agreements of
this nature, including an interest coverage ratio of not less than 3 to 1, a
debt to total capital ratio of not greater than 40 percent, and limitations on
mergers and sale of substantially all assets, creating liens, incurring debt,
transactions with affiliates and sale/leaseback transactions. Furthermore, the
agreements contain a "material adverse effect" representation that may prevent
the Company from borrowing under the agreements should an event occur which
materially impacts the Company's business or its ability to meet any of its
obligations under the agreements.

6.625% Notes and 7.5% Notes - In April 2001, the Company issued $700.0
million aggregate principal amount of 6.625% Notes due April 15, 2011 and $600.0
million aggregate principal amount of 7.5% Notes due April 15, 2031. The fair
value of the 6.625% Notes and 7.5% Notes at December 31, 2001 was approximately
$689.0 million and $599.0 million, respectively, based on the estimated yield to
maturity as of that date. At December 31, 2001, $700.0 million and $600.0
million principal amount of these notes was outstanding, respectively.

The Company entered into interest rate swaps relating to the 6.625% Notes
and 7.5% Notes. See Note 9.

1.5% Convertible Debentures - In May 2001, the Company issued $400.0
million aggregate principal amount of 1.5% Convertible Debentures due May 2021.
The Company has the right to redeem the debentures after five years for a price
equal to 100 percent of the principal. Each holder has the right to require the
Company to repurchase the debentures after five, 10 and 15 years at 100
percent of the principal amount. The Company may pay this repurchase price with
either cash or ordinary shares or a combination of cash and ordinary shares.
The debentures are convertible into ordinary shares of the Company at the option
of the holder at any time at a ratio of 13.8627 shares per $1,000 principal
amount debenture, subject to adjustments if certain events take place, if the
closing sale price per ordinary share exceeds 110 percent of the conversion
price for at least 20 trading days in a period of 30 consecutive trading days
ending on the trading day immediately prior to the conversion date or if other
specified conditions are met. At December 31, 2001, $400.0 million principal
amount of these notes was outstanding. The fair value of the 1.5% Convertible
Debentures at December 31, 2001 was approximately $354.0 million based on the
estimated yield to maturity as of that date.

Zero Coupon Convertible Debentures - In May 2000, the Company issued Zero
Coupon Convertible Debentures due May 2020 with a face value at maturity of
$865.0 million. The debentures were issued at a price to the public of $579.12
per debenture and accrue original issue discount at a rate of 2.75 percent per
annum compounded semiannually to reach a face value at maturity of $1,000 per
debenture. The Company will pay no interest on the debentures prior to maturity
and has the right to redeem the debentures after three years for a price equal
to the issuance price plus accrued original issue discount to the date of
redemption. Each holder has the right to require the Company to repurchase the
debentures on the third, eighth and thirteenth anniversary of issuance at the
issuance price plus accrued original issue discount to the date of repurchase.
The Company may pay this repurchase price with either cash or ordinary shares or
a combination of cash and ordinary shares. The debentures are convertible into
ordinary shares of the Company at the option of the holder at any time at a
ratio of 8.1566 shares per debenture subject to adjustments if certain events
take place. At December 31, 2001, $865.0 million principal

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

amount of these notes was outstanding. The fair value of the Zero Coupon
Convertible Debentures at December 31, 2001 was approximately $513.0 million
based on the estimated yield to maturity as of that date.

6.5%, 6.75%, 6.95% and 7.375% Senior Notes - In April 1998, R&B Falcon
issued 6.5% Senior Notes, 6.75% Senior Notes, 6.95% Senior Notes and 7.375%
Senior Notes with an aggregate principal amount of $1.1 billion. These notes
were recorded at fair value on January 31, 2001 as part of the R&B Falcon
merger. At December 31, 2001, approximately $239.5 million, $350.0 million,
$250.0 million and $250.0 million principal amount of these notes was
outstanding, respectively. The fair value of the 6.5%, 6.75%, 6.95% and 7.375%
Senior Notes at December 31, 2001 was approximately $247.0 million, $363.0
million, $254.0 million and $246.0 million, respectively, based on the estimated
yield to maturity as of that date.

The 6.75% Senior Notes, 6.95% Senior Notes and 7.375% Senior Notes are
redeemable at the option of the Company at a make-whole premium. The 6.5%
Senior Notes are not redeemable at the option of the Company .

9.125% and 9.5% Senior Notes - In December 1998, R&B Falcon issued 9.125%
Senior Notes and 9.5% Senior Notes with an aggregate principal amount of $400.0
million. These notes were recorded at fair value on January 31, 2001 as part of
the R&B Falcon merger. These notes are redeemable at the option of the Company
at a make-whole premium. At December 31, 2001, approximately $87.2 million and
$300.0 million principal amount of these notes was outstanding, respectively.
The fair value of the 9.125% and 9.5% Senior Notes at December 31, 2001 was
approximately $94.0 million and $345.0 million, respectively, based on the
estimated yield to maturity as of that date.

7.45% Notes and 8% Debentures - In April 1997, the Company issued $100.0
million aggregate principal amount of 7.45% Notes due April 15, 2027 and $200.0
million aggregate principal amount of 8% Debentures due April 15, 2027. Holders
of the 7.45% Notes may elect to have all or any portion of the 7.45% Notes
repaid on April 15, 2007 at 100 percent of the principal amount. The 7.45%
Notes, at any time after April 15, 2007, and the 8% Debentures, at any time, are
redeemable at the Company's option at a make-whole premium. At December 31,
2001, $100.0 million and $200.0 million principal amount of these notes was
outstanding, respectively. The fair value of the 7.45% Notes and 8% Debentures
at December 31, 2001 was approximately $98.0 million and $209.0 million,
respectively, based on the estimated yield to maturity as of that date.

All of the notes, debentures and bank agreements described above are senior
and unsecured.

Nautilus Class A1 and A2 Notes - In August 1999, a subsidiary of R&B Falcon
completed a $250.0 million project financing for the construction of the
Deepwater Nautilus that consisted of two five-year notes. The first note with
an original principal amount of $200.0 million and bearing interest at 7.31
percent calls for monthly interest and principal payments and matures in May
2005. The second note with a principal amount of $50.0 million and bearing
interest at 9.41 percent calls for monthly interest payments and a balloon
principal payment due at maturity in May 2005. Both notes are collateralized by
the Deepwater Nautilus and drilling contract revenues from such rig. At
December 31, 2001, approximately $144.0 million and $50.0 million principal
amount of these notes was outstanding, respectively. These notes were recorded
at fair value on January 31, 2001 as part of the R&B Falcon merger. The fair
value of the Nautilus Class A1 and A2 Notes at December 31, 2001 was
approximately $154.0 million and $55.0 million, respectively, based on the
estimated yield to maturity as of that date.

Secured Rig Financing - At December 31, 2001, the Company had outstanding
$50.6 million of debt secured by the Trident IX and Trident 16. Payments under
these financing agreements include an interest component of 7.95 percent for the
Trident IX and 7.20 percent for the Trident 16. The Trident IX facility expires
in April 2003 while the Trident 16 facility expires in September 2004. The
financing arrangements provide for a call right on the part of the Company to
repay the financing prior to expiration of their scheduled terms and in some
circumstances a put right on the part of the banks to require the Company to
repay the financing. Under either circumstance, the Company would retain
ownership of the rigs. See Note 23. The fair value of the Secured Rig
Financing at December 31, 2001 was approximately $53.0 million based on the
estimated yield to maturity as of that date.

Redeemed and Repurchased Debt - On May 18, 2001, Cliffs Drilling, an
indirect wholly owned subsidiary of the Company, redeemed all of the
approximately $200.0 million principal amount outstanding 10.25% Senior Notes
due 2003, at 102.5 percent, or $1,025 per $1,000 principal amount, plus interest
accrued to the redemption date. The Company recognized an extraordinary gain,
net of tax, of approximately $1.6 million ($0.01 per diluted share) in the
second quarter of 2001 relating to the early extinguishment of this debt.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

On April 10, 2001, R&B Falcon acquired, pursuant to a tender offer, all of
the approximately $400.0 million principal amount outstanding 11.375% Senior
Secured Notes due 2009 of its affiliate, RBF Finance Co., at 122.51 percent of
principal amount, or $1,225.10 per $1,000 principal amount, plus accrued and
unpaid interest.

On April 6, 2001, RBF Finance Co., an indirect wholly owned subsidiary of
the Company, redeemed all of the approximately $400.0 million principal amount
outstanding 11% Senior Secured Notes due 2006 at 125.282 percent, or $1,252.82
per $1,000 principal amount, plus accrued and unpaid interest, and R&B Falcon
redeemed all of the approximately $200.0 million principal amount outstanding
12.25% Senior Notes due 2006 at 130.675 percent or $1,306.75 per $1,000
principal amount, plus accrued and unpaid interest. The Company funded the
redemption from the issuance of the 6.625% Notes and 7.5% Notes in April 2001.

In the second quarter of 2001, the Company recognized an extraordinary
loss, net of tax, of approximately $18.9 million ($0.06 per diluted share) on
the early retirement of these three debt instruments.

On November 30, 2001, the Company repaid all amounts outstanding related to
the 6.9% Notes using cash on hand. As a result, the Company recognized an
extraordinary loss, net of tax, of approximately $1.4 million in the fourth
quarter of 2001 relating to the early extinguishment of this debt.

In November and December of 2001, the Company repurchased and retired
approximately $11.3 million face value of the 9.125% Senior Notes due 2003 and
$10.5 million face value of the 6.5% Senior Notes due 2003. The Company funded
the repurchases from cash on hand. As a result, the Company recognized an
extraordinary loss, net of tax, of approximately $0.6 million in the fourth
quarter of 2001 relating to the early extinguishment of this debt.

Note 9 - Financial Instruments and Risk Concentration

Foreign Exchange Risk - The Company's international operations expose the
Company to foreign exchange risk. This risk is primarily associated with
compensation costs denominated in currencies other than the U.S. dollar and with
purchases from foreign suppliers. The Company uses a variety of techniques to
minimize exposure to foreign exchange risk, including customer contract payment
terms and foreign exchange derivative instruments.

The Company's primary foreign exchange risk management strategy involves
structuring customer contracts to provide for payment in both U.S. dollars and
local currency. The payment portion denominated in local currency is based on
anticipated local currency requirements over the contract term. Foreign exchange
derivative instruments, specifically foreign exchange forward contracts, may be
used to minimize foreign exchange risk in instances where the primary strategy
is not attainable. A foreign exchange forward contract obligates the Company to
exchange predetermined amounts of specified foreign currencies at specified
exchange rates on specified dates or to make an equivalent U.S. dollar payment
equal to the value of such exchange.

Gains and losses on foreign exchange derivative instruments, which qualify
as accounting hedges, are deferred as other comprehensive income and recognized
when the underlying foreign exchange exposure is realized. Gains and losses on
foreign exchange derivative instruments, which do not qualify as hedges for
accounting purposes, are recognized currently based on the change in market
value of the derivative instruments. At December 31, 2001 and 2000, the Company
did not have any foreign exchange derivative instruments not qualifying as
accounting hedges.

Interest Rate Risk -The Company's use of debt directly exposes the Company
to interest rate risk. Floating rate debt, where the interest rate can be
changed every year or less over the life of the instrument, exposes the Company
to short-term changes in market interest rates. Fixed rate debt, where the
interest rate is fixed over the life of the instrument and the instrument's
maturity is greater than one year, exposes the Company to changes in market
interest rates should the Company refinance maturing debt with new debt.

In addition, the Company is exposed to interest rate risk in its cash
investments, as the interest rates on these investments change with market
interest rates.

The Company, from time to time, may use interest rate swap agreements to
manage the effect of interest rate changes on future income. These derivatives
are used as hedges and are not used for speculative or trading purposes.
Interest rate swaps are designated as a hedge of underlying future interest
payments. These agreements involve the exchange of amounts based

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

on variable interest rates and amounts based on a fixed interest rate over the
life of the agreement without an exchange of the notional amount upon which the
payments are based. The interest rate differential to be received or paid on the
swaps is recognized over the lives of the swaps as an adjustment to interest
expense. Gains and losses on terminations of interest rate swap agreements are
deferred as other comprehensive income and recognized as an adjustment to
interest expense related to the debt over the remaining term of the original
contract life of the terminated swap agreement. In the event of the early
extinguishment of a designated debt obligation, any realized or unrealized gain
or loss from the swap would be recognized in income.

The major risks in using interest rate derivatives include changes in
interest rates affecting the value of such instruments, potential increases in
the interest expense of the Company due to market increases in floating interest
rates in the case of derivatives which exchange fixed interest rates for
floating interest rates and the credit worthiness of the counterparties in such
transactions.

The Company has entered into interest rate swap transactions hedging debt.
The Company has not hedged any of its other assets or liabilities against
interest rate movements. The swaps are traded in liquid, over-the-counter, bank
markets. None of the swaps are traded on an exchange. All but one of the swaps
have industry standard "mutual puts" that allow either party, the Company or the
counterparty, to end the transaction on the fifth anniversary of the inception
of the swap. One swap, instead of a mutual put, requires the Company or its
counterparty to provide cash as collateral on the fifth anniversary, depending
upon the value of the swap and the debt rating of the party with the net
liability. This swap is to be revalued and re-collateralized monthly after the
fifth anniversary.

The market value of the Company's swaps is carried on its consolidated
balance sheet as an asset or liability depending on the movement of interest
rates after the transaction is entered into and depending on the security being
hedged. Because the Company's swaps are considered to be perfectly effective,
the carrying value of the debt being hedged is adjusted for the market value of
the swaps.

Should a counterparty default, and the market value of the swap with that
counterparty is classified as an asset in the Company's consolidated balance
sheet at the time of the default, the Company may be unable to collect on that
asset. To mitigate such risk of failure, the Company enters into swap
transactions with a diverse group of high-quality institutions.

On March 13, 2001, the Company entered into interest rate swap agreements
relating to the anticipated private placement of $700.0 million aggregate
principal amount of 6.625% Notes due April 15, 2011 and $600.0 million aggregate
principal amount of 7.5% Notes due April 15, 2031 in the notional amounts of
$200.0 million and $400.0 million, respectively. The objective of each
transaction was to hedge a portion of the forecasted payments of interest
resulting from the anticipated issuance of fixed rate debt. Under each forward
interest rate swap, the Company paid a LIBOR swap rate and received the floating
rate of three-month LIBOR. Hedge effectiveness was assessed by the
dollar-offset method by comparing the changes in expected cash flows from the
hedges with the change in the LIBOR swap rates and the forward interest rate
swaps were determined to be highly effective. The hedge transactions were
closed out on March 30, 2001. The gain on these hedge transactions ($3.9
million as of December 31, 2001) is a component of accumulated other
comprehensive income in the consolidated balance sheet at December 31, 2001 and
had no material effect on the results of operations for the year ended December
31, 2001. This gain is being recognized as a reduction of interest expense over
the life of the 7.5% Notes beginning in April 2001. Over the 12-month period
commencing January 1, 2002, the amount of gain to be recognized will be
approximately $0.3 million.

In June 2001, the Company entered into interest rate swap agreements in the
aggregate notional amount of $700.0 million with a group of banks relating to
the Company's $700.0 million aggregate principal amount of 6.625% Notes due
April 15, 2011. The objective of such transactions is to protect the debt
against changes in fair value due to changes in the benchmark interest rate,
which has been designated as LIBOR plus a weighted average spread of 49.6 basis
points per annum. Under each interest rate swap, on October 15 and April 15 of
each year until the maturity on April 15, 2011, the Company receives the fixed
rate equal to 6.625 percent per annum and pays the benchmark interest rate. The
hedge is considered perfectly effective against changes in the fair value of the
debt due to changes in the benchmark interest rate over its term. As a result,
the shortcut method applies and there is no need to periodically reassess the
effectiveness of the hedge during the term of the swaps. At December 31, 2001,
the fair value of the interest rate swap was approximately $15.1 million and has
been reflected in the consolidated balance sheet as an increase in other assets
with a corresponding increase in long-term debt.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Credit Risk - Financial instruments which potentially subject the Company
to concentrations of credit risk are primarily cash and cash equivalents, trade
receivables, swap receivables and notes receivable from Delta Towing LLC (see
Note 19). It is the Company's practice to place its cash and cash equivalents
in time deposits at commercial banks with high credit ratings or mutual funds,
which invest exclusively in high quality money market instruments. In foreign
locations, local financial institutions are generally utilized for local
currency needs. The Company limits the amount of exposure to any one institution
and does not believe it is exposed to any significant credit risk.

The Company derives the majority of its revenue from services to
international oil companies and government-owned and government-controlled oil
companies. Receivables are concentrated in various countries. See Note 17. The
Company maintains an allowance for uncollectible accounts receivable based upon
expected collectibility. The Company is not aware of any significant credit
risks relating to its customer base and does not generally require collateral or
other security to support customer receivables.

Labor Agreements - On a worldwide basis, the Company had approximately 11
percent of its employees working under collective bargaining agreements at
December 31, 2001, most of whom were working in Norway, Nigeria, Brazil and
Venezuela. Of these represented employees, a majority are working under
agreements that are subject to salary negotiation in 2002.

Note 10 - Other Current Liabilities

Other current liabilities are comprised of the following (in millions):

December 31,
--------------
2001 2000
------ ------
Accrued Payroll and Employee Benefits . $134.2 $ 81.2
Contract Disputes and Legal Claims. . . 47.5 36.8
Accrued Interest. . . . . . . . . . . . 38.8 7.0
Accrued Taxes, Other than Income. . . . 26.6 13.0
Deferred Revenue. . . . . . . . . . . . 18.2 9.2
Deferred Gain on Sale of Rigs . . . . . - 57.7
Other . . . . . . . . . . . . . . . . . 18.1 18.5
------ ------
Total Other Current Liabilities . . . $283.4 $223.4
====== ======

Note 11 - Supplementary Cash Flow Information

Non-cash financing activities for the year ended December 31, 2001 included
$6.7 billion related to the Company's ordinary shares issued in connection with
the R&B Falcon merger. Non-cash investing activities for the year ended
December 31, 2001 included $6.4 billion of net assets acquired in the R&B Falcon
merger.

Concurrent with and subsequent to the R&B Falcon merger, the Company
removed certain non-strategic assets from the active rig fleet and categorized
them as assets held for sale. These reclassifications were reflected in the
December 31, 2001 consolidated balance sheet as a decrease in property and
equipment, net of $177.8 million, with a corresponding increase in other assets.

In February 2001, the Company received a distribution from a joint venture
in the form of marketable securities held for sale valued at $19.9 million. The
distribution was reflected in the consolidated balance sheet as an increase in
other current assets with a corresponding decrease in investments in and
advances to joint ventures.

Non-cash investing activities for the year ended December 31, 2000 included
$45.0 million related to accruals of capital expenditures, which was primarily
due to the settlement with DCN International related to the construction of the
Sedco Energy and the Sedco Express. The accruals have been reflected in the
consolidated balance sheet as an increase in property and equipment, net and
accounts payable.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Non-cash financing activities for the year ended December 31, 1999 included
$3.0 billion related to the ordinary shares held by Transocean Offshore Inc.
shareholders at the time of the Sedco Forex merger. Also included was $34.1
million of non-cash increases in equity advances from Schlumberger relating to
balances retained under the Distribution Agreement (see Note 4). Non-cash
investing activities for the year ended December 31, 1999 included $2.6 billion
of net assets acquired in the Sedco Forex merger.

Cash payments for interest were $190.6 million, $81.3 million and $39.8
million for the years ended December 31, 2001, 2000 and 1999, respectively.
Cash payments for income taxes, net, were $122.5 million, $63.3 million and
$35.3 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

Note 12 - Income Taxes

Income taxes have been provided based upon the tax laws and rates in the
countries in which operations are conducted and income is earned. There is no
expected relationship between the provision for or benefit from income taxes and
income or loss before income taxes because the countries have taxation regimes
that vary not only with respect to nominal rate, but also in terms of the
availability of deductions, credits and other benefits. Variations also arise
because income earned and taxed in any particular country or countries may
fluctuate from year to year. Transocean Sedco Forex Inc., a Cayman Islands
company, is not subject to income tax in the Cayman Islands. The effective tax
rate for the years ended December 31, 2001, 2000 and 1999 was 22.9 percent, 25.1
percent and (19.0) percent, respectively.

The components of the provision for income taxes are as follows (in
millions):

Years ended December 31,
-------------------------
2001 2000 1999
------- ------- -------

Current provision . . . . . . . . . . . . . . . . . . . . $174.2 $ 66.5 $ 15.0
Deferred benefit . . . . . . . . . . . . . . . . . . . . (98.2) (30.1) (24.3)
------- ------- -------
Income tax expense (benefit) after extraordinary items. . 76.0 36.4 (9.3)
Tax effect of extraordinary items . . . . . . . . . . . . 9.7 0.3 -
------- ------- -------
Income Tax Expense (Benefit) before Extraordinary Items . $ 85.7 $ 36.7 $ (9.3)
======= ======= =======

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Significant components of deferred tax assets and liabilities are as
follows (in millions):

DECEMBER 31,
----------------------
2001 2000
---------- ----------

DEFERRED TAX ASSETS-CURRENT
Accrued personnel taxes. . . . . . . . . . . . . . . . $ 1.4 $ 1.3
Accrued workers' compensation insurance. . . . . . . . 4.4 1.7
Other accruals . . . . . . . . . . . . . . . . . . . . 17.9 11.4
Other. . . . . . . . . . . . . . . . . . . . . . . . . 3.7 5.0
---------- ----------
Total Current Deferred Tax Assets. . . . . . . . . . 27.4 19.4
---------- ----------

DEFERRED TAX LIABILITIES-CURRENT
Insurance accruals . . . . . . . . . . . . . . . . . . (3.5) -
Deferred drydock . . . . . . . . . . . . . . . . . . . (2.7) (1.3)
Other accruals . . . . . . . . . . . . . . . . . . . . (0.2) -
---------- ----------
Total Current Deferred Tax Liabilities . . . . . . . (6.4) (1.3)
---------- ----------
Net Current Deferred Tax Assets. . . . . . . . . . . $ 21.0 $ 18.1
========== ==========

DEFERRED TAX ASSETS-NONCURRENT
Net operating loss carryforwards . . . . . . . . . . . $ 447.0 $ 78.5
Foreign tax credit carryforwards . . . . . . . . . . . 185.6 12.4
Retirement and benefit plan accruals . . . . . . . . . 0.8 3.1
Other accruals . . . . . . . . . . . . . . . . . . . . 7.9 6.6
Deferred income and other. . . . . . . . . . . . . . . 41.3 3.5
Valuation allowance for noncurrent deferred tax assets (115.4) (24.7)
---------- ----------
Total Noncurrent Deferred Tax Assets . . . . . . . . 567.2 79.4
---------- ----------

DEFERRED TAX LIABILITIES-NONCURRENT
Depreciation and amortization. . . . . . . . . . . . . (680.0) (383.2)
Deferred gains . . . . . . . . . . . . . . . . . . . . (123.2) (28.4)
Investment in subsidiaries . . . . . . . . . . . . . . (72.1) (22.6)
Other. . . . . . . . . . . . . . . . . . . . . . . . . (9.0) (4.4)
---------- ----------
Total Noncurrent Deferred Tax Liabilities. . . . . . (884.3) (438.6)
---------- ----------
Net Noncurrent Deferred Tax Liabilities. . . . . . . $ (317.1) $ (359.2)
========== ==========

Deferred tax assets and liabilities are recognized for the anticipated
future tax effects of temporary differences between the financial statement
basis and the tax basis of the Company's assets and liabilities using the
applicable tax rates in effect at year end. A valuation allowance for deferred
tax assets is recorded when it is more likely than not that some or all of the
benefit from the deferred tax asset will not be realized.

In 2001 and 2000, the Company provided a valuation allowance to offset
deferred tax assets on net operating losses incurred during the year in certain
jurisdictions where, in the opinion of management, it is more likely than not
that the financial statement benefit of these losses would not be realized. The
Company has also provided a valuation allowance for foreign tax credit
carryforwards reflecting the possible expiration of their benefits prior to
their utilization. The valuation allowance for noncurrent deferred tax assets
of $115.4 million increased $90.7 million from $24.7 million at December 31,
2000. The increase is primarily related to R&B Falcon's valuation allowance at
the time of the merger.

The Company's net operating loss carryforwards include a tax effected U.S.
loss of $392.4 million which will expire between 2005 and 2021. The remaining
$54.6 million of tax effected U.K. net operating losses do not expire. The
Company's fully benefited foreign tax credit carryforwards will expire between
2004 and 2006.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Transocean Sedco Forex Inc., a Cayman Islands company, is not subject to
income taxes in the Cayman Islands. For the two years ended December 31, 2001,
there was no Cayman Islands income or profits tax, withholding tax, capital
gains tax, capital transfer tax, estate duty or inheritance tax payable by a
Cayman Islands company or its shareholders. The Company has obtained an
assurance from the Cayman Islands government under the Tax Concessions Law (1995
Revision) that, in the event that any legislation is enacted in the Cayman
Islands imposing tax computed on profits or income, or computed on any capital
assets, gain or appreciation, or any tax in the nature of estate duty or
inheritance tax, such tax shall not, until June 1, 2019, be applicable to the
Company or to any of its operations or to the shares, debentures or other
obligations of the Company. Therefore, under present law there will be no
Cayman Islands tax consequences affecting distributions.

The Company's income tax returns are subject to review and examination in
the various jurisdictions in which the Company operates. The U.S. Internal
Revenue Service is currently auditing the years 1998 through 2000. In addition,
other tax authorities have questioned the amounts of income and expense subject
to tax in their jurisdiction for prior periods. The Company is currently
contesting additional assessments which have been asserted and may contest any
future assessments. In the opinion of management, the ultimate resolution of
these asserted income tax liabilities will not have a material adverse effect on
the Company's business, consolidated financial position or results of
operations.

In connection with the distribution of Sedco Forex to the Schlumberger
shareholders, Sedco Forex and Schlumberger entered into a Tax Separation
Agreement. In accordance with the terms of the Tax Separation Agreement,
Schlumberger agreed to indemnify Sedco Forex for any tax liabilities incurred
directly in connection with the preparation of Sedco Forex for this
distribution. In addition, Schlumberger agreed to indemnify Sedco Forex for tax
liabilities associated with Sedco Forex operations conducted through
Schlumberger entities prior to the merger and any tax liabilities associated
with Sedco Forex assets retained by Schlumberger.

Transocean Offshore Inc. was included in the consolidated federal income
tax returns filed by a former parent, Sonat Inc. ("Sonat") during all periods in
which Sonat's ownership was greater than or equal to 80 percent ("Affiliation
Years"). Transocean Offshore Inc. and Sonat entered into a Tax Sharing
Agreement providing for the manner of determining payments with respect to
federal income tax liabilities and benefits arising in the Affiliation Years.
Under the Tax Sharing Agreement, the Company will pay to Sonat an amount equal
to the Company's share of the Sonat consolidated federal income tax liability,
generally determined on a separate return basis. In addition, Sonat will pay
the Company for Sonat's utilization of deductions, losses and credits which are
attributable to the Company and in excess of that which would be utilized on a
separate return basis.

Note 13 - Commitments and Contingencies

Operating Leases - The Company has operating lease commitments expiring at
various dates, principally for real estate, office space, office equipment and
rig bareboat charters. In addition to rental payments, some leases provide that
the Company pay a pro rata share of operating costs applicable to the leased
property. As of December 31, 2001, future minimum rental payments related to
noncancellable operating leases are as follows (in millions):

Years ended
December 31,
-------------
2002. . . . . . . . . . . . . . . . $ 27.9
2003. . . . . . . . . . . . . . . . 24.8
2004. . . . . . . . . . . . . . . . 22.2
2005. . . . . . . . . . . . . . . . 18.9
2006. . . . . . . . . . . . . . . . 6.7
Thereafter. . . . . . . . . . . . . 26.6
-------------
Total . . . . . . . . . . . . . . $ 127.1
=============

The Company is a party to an operating lease on the M. G. Hulme, Jr. Under
this lease, the Company may purchase the rig for $35.7 million at the end of
the lease term of November 29, 2005. At December 31, 2001, the future minimum
lease payments, excluding the purchase option, was $50.8 million.

Rental expense for all operating leases, including leases with terms of
less than one year, was $96 million, $50 million and $37 million for the years
ended December 31, 2001, 2000 and 1999, respectively.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Legal Proceedings - In 1990 and 1991, two of the Company's subsidiaries
were served with various assessments collectively valued at approximately $7
million from the municipality of Rio de Janeiro, Brazil to collect a municipal
tax on services. The Company believes that neither subsidiary is liable for the
taxes and has contested the assessments in the Brazilian administrative and
court systems. In October 2001, the Brazil Supreme Court rejected the Company's
appeal of an adverse lower court's ruling with respect to a June 1991
assessment, which was valued at approximately $6 million. The Company is
challenging the assessment in a separate proceeding, which is currently at the
trial court level. The Company has received adverse rulings at various levels in
connection with a disputed August 1990 assessment which is still pending before
the Brazil Superior Court of Justice. The Company also received an adverse
ruling from the Taxpayer's Council in connection with an October 1990 assessment
and is appealing the ruling. If the Company's defenses are ultimately
unsuccessful, the Company believes that the Brazilian government-controlled oil
company, Petrobras, has a contractual obligation to reimburse the Company for
municipal tax payments required to be paid by them. The Company does not expect
the liability, if any, resulting from these assessments to have a material
adverse effect on its business or consolidated financial position.

The Indian Customs Department, Mumbai, filed a "show cause notice" against
a subsidiary of the Company and various third parties in July 1999. The show
cause notice alleged that the initial entry into India in 1988 and other
subsequent movements of the Trident II jackup rig operated by the subsidiary
constituted imports and exports for which proper customs procedures were not
followed and sought payment of customs duties of approximately $31 million based
on an alleged 1998 rig value of $49 million, with interest and penalties, and
confiscation of the rig. In January 2000, the Customs Department issued its
order, which found that the Company had imported the rig improperly and
intentionally concealed the import from the authorities, and directed the
Company to pay a redemption fee of approximately $3 million for the rig in lieu
of confiscation and to pay penalties of approximately $1 million in addition to
the amount of customs duties owed. In February 2000, the Company filed an appeal
with the Customs, Excise and Gold (Control) Appellate Tribunal ("CEGAT")
together with an application to have the confiscation of the rig stayed pending
the outcome of the appeal. In March 2000, the CEGAT ruled on the stay
application, directing that the confiscation be stayed pending the appeal. The
CEGAT issued its opinion on the Company's appeal on February 2, 2001, and while
it found that the rig was imported in 1988 without proper documentation or
payment of duties, the redemption fee and penalties were reduced to less than
$0.1 million in view of the ambiguity surrounding the import practice at the
time and the lack of intentional concealment by the Company. The CEGAT further
sustained the Company's position regarding the value of the rig at the time of
import as $13 million and ruled that subsequent movements of the rig were not
liable to import documentation or duties in view of the prevailing practice of
the Customs Department, thus limiting the Company's exposure as to custom duties
to approximately $6 million. Following the CEGAT order, the Company tendered
payment of redemption, penalty and duty in the amount specified by the order by
offset against a $0.6 million deposit and $10.7 million guarantee previously
made by the Company. The Customs Department attempted to draw the entire
guarantee, alleging the actual duty payable is approximately $22 million based
on an interpretation of the CEGAT order that the Company believes is incorrect.
This action was stopped by an interim ruling of the High Court, Mumbai on writ
petition filed by the Company. Both the Customs Department and the Company filed
appeals with the Supreme Court of India against the order of the CEGAT, and both
appeals have been admitted. The Company applied for an expedited hearing, which
was denied. The Company and its customer agreed to pursue and obtained the
issuance of documentation from the Ministry of Petroleum that, if accepted by
the Customs Department, would reduce the duty to nil. The agreement with the
customer further provides that if this reduction was not obtained by December
31, 2001, the customer would pay the duty up to a limit of $7.7 million. The
Customs Department has not accepted the documentation or agreed to refund the
duties already paid. The Company has requested the refund from the customer and
also intends to pursue the action with the Customs Department. The Company does
not expect, in any event, that the ultimate liability, if any, resulting from
the matter will have a material adverse effect on its business or consolidated
financial position.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

which has been to stay the first two suits and to cause potential claimants
(including the plaintiffs in the existing suits) to file claims in this
proceeding. El Paso Energy Corporation, the owner/operator of the platform from
which a riser was allegedly damaged, and Texaco Exploration and Production Inc.
have filed claims in the limitation of liability proceeding as well. The Company
expects that existing insurance will substantially cover any potential liability
associated with this matter and that the outcome of this matter will not have a
material adverse effect on its business or consolidated financial position.

In November 1988, a lawsuit was filed in the U.S. District Court for the
Southern District of West Virginia against Reading & Bates Coal Co., a wholly
owned subsidiary of R&B Falcon, by SCW Associates, Inc. claiming breach of an
alleged agreement to purchase the stock of Belva Coal Company, a wholly owned
subsidiary of Reading & Bates Coal Co. with coal properties in West Virginia.
When those coal properties were sold in July 1989 as part of the disposition of
R&B Falcon's coal operations, the purchasing joint venture indemnified Reading &
Bates Coal Co. and R&B Falcon against any liability Reading & Bates Coal Co.
might incur as a result of this litigation. A judgment for the plaintiff of
$32,000 entered in February 1991 was satisfied and Reading & Bates Coal Co. was
indemnified by the purchasing joint venture. On October 31, 1990, SCW
Associates, Inc., the plaintiff in the above-referenced action, filed a separate
ancillary action in the Circuit Court, Kanawha County, West Virginia against R&B
Falcon, Caymen Coal, Inc. (the former owner of R&B Falcon's West Virginia coal
properties), as well as the joint venture, Mr. William B. Sturgill (the former
President of Reading & Bates Coal Co.) personally, three other companies in
which the Company believes Mr. Sturgill holds an equity interest, two employees
of the joint venture, First National Bank of Chicago and First Capital
Corporation. The lawsuit seeks to recover compensatory damages of $50 million
and punitive damages of $50 million for alleged tortuous interference with the
contractual rights of the plaintiff and to impose a constructive trust on the
proceeds of the use and/or sale of the assets of Caymen Coal, Inc. as they
existed on October 15, 1988. Currently, the case is pending review by the West
Virginia Supreme Court of Appeals on a certification of a question of law as to
whether denial of the Company's motion for summary judgement was appropriate,
and discovery is proceeding. The Company intends to defend its interests
vigorously and believes that the damages alleged by the plaintiff in this action
are highly exaggerated. In any event, the Company believes that it has valid
defenses and does not expect that the ultimate outcome of this case will have a
material adverse effect on its business or consolidated financial position.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

excess drilling costs, loss of insurance proceeds, loss of hydrocarbons and
interest. The Company is in the process of preparing its appeal of such
judgment. The Company believes that all but potentially the portion of the
verdict representing excess drilling costs of approximately $4.7 million is
covered by relevant primary and excess liability insurance policies of Cliffs
Drilling; however, the insurers and underwriters have denied coverage. Cliffs
Drilling has instituted litigation against those insurers and underwriters to
enforce its rights under the relevant policies. The Company does not expect that
the ultimate outcome of this case will have a material adverse effect on its
business or consolidated financial position.

Self Insurance - The Company is self-insured for the deductible portion of
its insurance coverage. In the opinion of management, adequate accruals have
been made based on known and estimated exposures up to the deductible portion of
the Company's insurance coverages. Management believes that claims and
liabilities in excess of the amounts accrued are adequately insured.

Letters of Credit and Surety Bonds - The Company had letters of credit
outstanding at December 31, 2001 totaling $38.1 million. The total includes
outstanding letters of credit of $1.1 million under a $70.0 million letter of
credit facility entered into with three banks. Under this facility, the Company
pays letter of credit fees of 1.5 percent per annum and commitment fees of 0.375
percent per annum, respectively. This facility, which matures in April 2004,
requires a collateral value ratio of 1.75 times the commitment and is secured by
mortgages on five drilling units, the J.W. McLean, J.T. Angel, Randolph Yost,
D.R. Stewart and George H. Galloway. See Note 23. The remaining letter of credit
amount outstanding guarantees various contract bidding and insurance activities.

As is customary in the contract drilling business, we also have various
surety bonds totaling $190.0 million in place that secure customs obligations
relating to the importation of our rigs and certain performance and other
obligations.

Note 14 - Stock-Based Compensation Plans

Long-Term Incentive Plan - The Company has an incentive plan for key
employees and outside directors (the "Incentive Plan"). Under the Incentive
Plan, awards can be granted in the form of stock options, restricted stock,
stock appreciation rights ("SARs") and cash performance awards. As of December
31, 2001, the Company was authorized to grant up to (i) 18.9 million ordinary
shares to employees; (ii) 600,000 ordinary shares to outside directors; and
(iii) 300,000 freestanding SARs to employees or directors under the Incentive
Plan. Options issued under the Incentive Plan have a 10-year term and become
exercisable in three equal annual installments after the date of grant. On
December 31, 1999, all unvested stock options and SARs and all unvested
restricted shares granted after April 1996 became fully vested as a result of
the Sedco Forex merger. At December 31, 2001, there were approximately 10.5
million total shares available for future grants under the Incentive Plan.

Prior to the spin-off (see Note 4), key employees of Sedco Forex were
granted stock options at various dates under the Schlumberger stock option
plans. For all of the stock options granted under such plans, the exercise
price of each option equaled the market price of Schlumberger stock on the date
of grant, each option's maximum term was 10 years and the options generally
vested in 20 percent increments over five years. Fully vested options held by
Sedco Forex employees at the date of the spin-off will lapse in accordance with
their provisions. Non-vested options were terminated and fully vested stock
options to purchase ordinary shares of Transocean Sedco Forex Inc. were granted
under a new plan (the "SF Plan"). Certain Sedco Forex employees did not join
the Company; therefore, their options remained unchanged under the Schlumberger
stock option plans.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Prior to the R&B Falcon merger (see Note 4), certain employees and outside
directors of R&B Falcon and its subsidiaries were granted stock options under
various plans. As a result of the R&B Falcon merger, the Company assumed all
outstanding R&B Falcon stock options and converted them into options to purchase
ordinary shares of the Company.

The following table summarizes option activities:

NUMBER OF SHARES WEIGHTED-AVERAGE
UNDER OPTION EXERCISE PRICE
----------------- -----------------

SCHLUMBERGER OPTIONS
Outstanding at December 31, 1998. . . . . . . . . 762,920 $ 45.13
Granted . . . . . . . . . . . . . . . . . . . . . 121,250 56.83
Exercised . . . . . . . . . . . . . . . . . . . . (216,616) 33.38
Unvested options terminated . . . . . . . . . . . (282,000) 61.23
Options retained by Schlumberger. . . . . . . . . (385,554) 48.56
----------------- -----------------
Outstanding at December 31, 1999. . . . . . . . . - -
================= =================

TRANSOCEAN SEDCO FOREX INC. OPTIONS
Options outstanding at time of Sedco Forex merger 2,747,773 $ 25.04
Options issued under the SF Plan. . . . . . . . . 491,645 34.09
Options issued under the Incentive Plan . . . . . 20,000 33.69
----------------- -----------------
Outstanding at December 31, 1999. . . . . . . . . 3,259,418 26.46

Granted . . . . . . . . . . . . . . . . . . . . . 1,636,918 37.30
Exercised . . . . . . . . . . . . . . . . . . . . (499,428) 23.99
Forfeited . . . . . . . . . . . . . . . . . . . . (22,500) 37.00
----------------- -----------------
Outstanding at December 31, 2000. . . . . . . . . 4,374,408 30.74

Granted . . . . . . . . . . . . . . . . . . . . . 2,370,840 38.53
Options assumed in the R&B Falcon merger. . . . . 8,094,010 22.25
Exercised . . . . . . . . . . . . . . . . . . . . (1,286,554) 20.91
Forfeited . . . . . . . . . . . . . . . . . . . . (92,025) 42.15
----------------- -----------------
Outstanding at December 31, 2001. . . . . . . . . 13,460,679 $ 27.99
================= =================

Exercisable at December 31, 1999. . . . . . . . . 3,239,418 $ 26.41
Exercisable at December 31, 2000. . . . . . . . . 2,754,073 $ 26.91
Exercisable at December 31, 2001. . . . . . . . . 9,977,963 $ 24.29

The following table summarizes information about stock options outstanding
at December 31, 2001:

Options Outstanding Options Exercisable
Weighted-Average ----------------------------- -----------------------------
Remaining Number Weighted-Average Number Weighted-Average
Range of Exercise Prices Contractual Life Outstanding Exercise Price Outstanding Exercise Price
------------------------ ----------------- ----------- ---------------- ----------- ----------------

$ 7.58 - $19.50 6.50 years 4,072,452 $14.88 4,072,452 $14.88
$20.12 - $34.63 6.53 years 4,156,062 $25.10 4,147,241 $25.08
$37.00 - $81.78 8.45 years 5,232,165 $40.48 1,758,270 $44.19

At December 31, 2001, there were 61,667 restricted ordinary shares and
118,785 SARs outstanding under the Incentive Plan.

Employee Stock Purchase Plan - The Company provides a stock purchase plan
(the "Stock Purchase Plan") for certain full-time employees. Under the terms of
the Stock Purchase Plan, employees can choose each year to have between two and
20 percent of their annual base earnings withheld to purchase up to $25,000 of
the Company's ordinary shares. The purchase price of the stock is 85 percent of
the lower of its beginning-of-year or end-of-year market price. At December 31,
2001, up to 1,070,159 ordinary shares were available for issuance pursuant to
the Stock Purchase Plan.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

As discussed in Note 2, APB 25 and related interpretations are applied in
accounting for stock-based compensation plans. If compensation expense for
stock options granted under the Schlumberger stock option plans for the year
ended December 31, 1999 and the Incentive Plan and the Stock Purchase Plan for
the years ended December 31, 2001 and 2000, were recognized using the
alternative fair value method of accounting under SFAS 123, net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

YEARS ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)

Net Income
As Reported . . . . . . . . . . . . . . . . . $ 252.6 $ 108.5 $ 58.1
Pro Forma . . . . . . . . . . . . . . . . . . 239.8 101.5 56.3

Basic Earnings Per Share
(Unaudited pro forma prior to the effective date
of the Sedco Forex merger)
As Reported . . . . . . . . . . . . . . . . . $ 0.82 $ 0.52 $ 0.53
Pro Forma . . . . . . . . . . . . . . . . . . 0.78 0.48 0.51

Diluted Earnings Per Share
(Unaudited pro forma prior to the effective date
of the Sedco Forex merger)
As Reported . . . . . . . . . . . . . . . . . $ 0.80 $ 0.51 $ 0.53
Pro Forma . . . . . . . . . . . . . . . . . . 0.76 0.48 0.51

The above pro forma amounts are not indicative of future pro forma results.
The fair value of each option grant under the Schlumberger stock option plans
for the year ended December 31, 1999 and the Incentive Plan for the years ended
December 31, 2001 and 2000, was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999:

2001 2000 1999
----------- ----------- -----------

Dividend yield. . . . . . . . . . . . . . . . . . 0.30% 0.25% 0.75%
Expected price volatility range . . . . . . . . . 50-51% 46-47% 26-27%
Risk-free interest rate range . . . . . . . . . . 4.13-5.25% 6.13-6.56% 4.86-5.22%
Expected life of options (in years) . . . . . . . 4.00 4.00 5.60
Weighted-average fair value of options granted. . $16.26 $15.21 $18.31

The fair value of each option grant under the Stock Purchase Plan for the
years ended December 31, 2001 and 2000, was estimated using the following
weighted-average assumptions for grants in 2001:

2001 2000
-------------------- -------------------

Dividend yield . . . . . . . . . . . . . . . . . 0.30% 0.25%
Expected price volatility. . . . . . . . . . . . 51% 50%
Risk-free interest rate. . . . . . . . . . . . . 1.71% 5.64%
Expected life of options . . . . . . . . . . . . Less than one year Less than one year
Weighted-average fair value of options granted . $7.22 $7.67

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 15 - Retirement Plans and Other Postemployment Benefits

Defined Benefit Pension Plans - The change in benefit obligation, change in
plan assets and funded status for the years ended December 31, 2001 and 2000 is
shown in the table below (in millions).

DECEMBER 31,
----------------------
2001 2000
---------- ----------

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year . . . . $ 133.6 $ 133.2
Merger with R&B Falcon. . . . . . . . . . . . . 85.7 -
Service cost. . . . . . . . . . . . . . . . . . 12.0 9.5
Interest cost . . . . . . . . . . . . . . . . . 15.9 9.1
Actuarial losses. . . . . . . . . . . . . . . . 4.8 4.1
Plan settlements. . . . . . . . . . . . . . . . - (17.4)
Plan amendments . . . . . . . . . . . . . . . . 0.8 -
Benefits paid . . . . . . . . . . . . . . . . . (10.1) (4.9)
---------- ----------
Benefit obligation at end of year . . . . . . 242.7 133.6
---------- ----------

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 117.7 134.4
Merger with R&B Falcon. . . . . . . . . . . . . 99.3 -
Actual return on plan assets. . . . . . . . . . (1.3) (0.5)
Company contributions . . . . . . . . . . . . . 4.8 8.8
Benefits paid . . . . . . . . . . . . . . . . . (10.1) (25.0)
---------- ----------
Fair value of plan assets at end of year. . . 210.4 117.7
---------- ----------

FUNDED STATUS . . . . . . . . . . . . . . . . . (32.3) (15.9)
Unrecognized transition obligation. . . . . . . 3.5 4.2
Unrecognized net actuarial loss . . . . . . . . 32.4 6.1
Unrecognized prior service cost . . . . . . . . 0.1 0.2
---------- ----------
Accrued pension asset (liability) . . . . . . $ 3.7 $ (5.4)
========== ==========

Comprised of:
Prepaid benefit cost. . . . . . . . . . . . . . $ 34.2 $ 18.9
Accrued benefit liability . . . . . . . . . . . (30.5) (24.3)
---------- ----------
Accrued pension asset (liability) . . . . . . $ 3.7 $ (5.4)
========== ==========

AS OF DECEMBER 31,
----------------------
2001 2000
---------- ----------
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate . . . . . . . . . . . . . . . . . 7.45% 7.36%
Expected return on plan assets. . . . . . . . . 9.24% 8.69%
Rate of compensation increase . . . . . . . . . 5.71% 5.83%

The aggregate projected benefit obligation and fair value of plan assets
for plans with projected benefit obligations in excess of plan assets were
$153.2 million and $112.5 million, respectively, at December 31, 2001. The
aggregate projected benefit obligation and fair value of plan assets for plans
with projected benefit obligations in excess of plan assets were $48.8 million
and $15.0 million, respectively, at December 31, 2000.

The aggregate accumulated benefit obligation and fair value of plan assets
for plans with accumulated benefit obligations in excess of plan assets were
$23.9 million and $7.0 million, respectively, at December 31, 2001. The
aggregate accumulated

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

benefit obligation and fair value of plan assets for plans with accumulated
benefit obligations in excess of plan assets were $16.2 million and $4.0
million, respectively, at December 31, 2000.

Net periodic benefit cost included the following components (in millions):

Years ended December 31,
------------------------
2001 2000 1999
------- ------ ------
Components of Net Periodic Benefit Cost
Service cost. . . . . . . . . . . . . . $ 12.0 $ 9.5 $ 0.8
Interest cost . . . . . . . . . . . . . 15.9 9.1 0.5
Expected return on plan assets. . . . . (7.5) (8.9) (0.6)
Amortization of transition obligation . 0.3 0.4 -
Amortization of prior service cost. . . 0.4 - -
Recognized net actuarial gains. . . . . (11.3) (1.4) -
Early retirement charge . . . . . . . . - - 0.1
------- ------ ------
Benefit cost . . . . . . . . . . . . $ 9.8 $ 8.7 $ 0.8
======= ====== ======

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Postretirement Benefits Other Than Pensions - The change in benefit
obligation, change in plan assets and funded status for the years ended December
31, 2001 and 2000 is shown in the table below (in millions).

DECEMBER 31,
----------------------
2001 2000
---------- ----------

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year . . . . $ 12.0 $ 8.8
Merger with R&B Falcon. . . . . . . . . . . . . 16.1 -
Service cost. . . . . . . . . . . . . . . . . . 0.4 0.2
Interest cost . . . . . . . . . . . . . . . . . 1.9 0.8
Actuarial losses (gains). . . . . . . . . . . . (0.2) 2.4
Participant's contributions . . . . . . . . . . 0.2 -
Plan amendments . . . . . . . . . . . . . . . . - 0.4
Benefits paid . . . . . . . . . . . . . . . . . (1.2) (0.6)
---------- ----------
Benefit obligation at end of year . . . . . . 29.2 12.0
---------- ----------

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year. 0.6 0.6
Actual return on plan assets. . . . . . . . . . 0.1 0.2
Company contributions . . . . . . . . . . . . . 0.8 0.4
Participant's contributions . . . . . . . . . . 0.2 -
Benefits paid . . . . . . . . . . . . . . . . . (1.2) (0.6)
---------- ----------
Fair value of plan assets at end of year. . . 0.5 0.6
---------- ----------

FUNDED STATUS . . . . . . . . . . . . . . . . . (28.7) (11.4)
Unrecognized net actuarial gain . . . . . . . . 0.9 1.0
Unrecognized prior service cost . . . . . . . . 0.3 0.4
---------- ----------
Postretirement benefit liability. . . . . . . $ (27.5) $ (10.0)
========== ==========

AS OF DECEMBER 31,
----------------------
2001 2000
---------- ----------
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate 7.00% 7.25%
Expected return on plan assets 7.00% 7.00%
Rate of compensation increase 5.50% 5.50%

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Net periodic benefit cost included the following components (in millions):

YEARS ENDED DECEMBER 31,
-----------------------------
2001 2000 1999
--------- -------- --------

COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost. . . . . . . . . . . . . . $ 0.4 $ 0.2 $ 0.2
Interest cost . . . . . . . . . . . . . 1.9 0.8 0.3
Amortization of prior service cost. . . - 0.1 -
Recognized net actuarial gain . . . . . (0.1) - -
--------- -------- --------
Benefit Cost. . . . . . . . . . . . . $ 2.2 $ 1.1 $ 0.5
========= ======== ========

For measurement purposes, the rate of increase in the per capita costs of
covered health care benefits was assumed to be 8.5 percent in 2001, decreasing
gradually to 5.0 percent by the year 2021.

The assumed health care cost trend rate has significant impact on the
amounts reported for postretirement benefits other than pensions. A
one-percentage point change in the assumed health care trend rate would have the
following effects (in millions):

One- One-
Percentage Percentage
Point Point
Increase Decrease
--------- ----------

Effect on total service and interest cost components in 2001 . . . . . . $ 0.2 $ (0.2)
Effect on postretirement benefit obligations as of December 31, 2001 . . $ 2.9 $ (2.7)

Defined Contribution Plans - The Company provides a defined contribution
pension and savings plan covering senior non-U.S. field employees working
outside the United States. Contributions and costs are determined as 4.5 percent
to 6.5 percent of each covered employee's salary, based on years of service. In
addition, the Company sponsors a U.S. defined contribution savings plan. It
covers certain employees and limits Company contributions to no more than 4.5
percent of each covered employee's salary, based on the employee's contribution.
The Company also sponsors various other defined contribution plans worldwide.
The Company recorded approximately $21.6 million and $11.5 million of expense
related to its defined contribution plans for the years ended December 31, 2001
and 2000, respectively.

Pursuant to an employee matters agreement with Schlumberger, Schlumberger
will continue to maintain various non-U.S. defined benefit and defined
contribution plans. Expenses for these funds were immaterial for the year ended
December 31, 1999.

Deferred Compensation Plan - The Company provides a Deferred Compensation
Plan (the "Plan"). The Plan's primary purpose is to provide tax-advantageous
asset accumulation for a select group of management, highly compensated
employees and non-employee members of the Board of Directors of the Company.

Eligible employees who enroll in the Plan may elect to defer up to a
maximum of 90 percent of base salary, 100 percent of any future performance
awards, 100 percent of any special payments and 100 percent of directors'
meeting fees and annual retainers; however, the Administrative Committee (9
individuals appointed by the Finance and Benefits Committee of the Board of
Directors) may, at its discretion, establish minimum amounts that must be
deferred by anyone electing to participate in the Plan. In addition, the
Executive Compensation Committee of the Board of Directors may authorize
employer contributions to participants and the Chief Executive Officer of the
Company (with Executive Compensation Committee approval) is authorized to cause
the Company to enter into "Deferred Compensation Award Agreements" with such
participants. There were no employer contributions to the Plan during the years
ending December 31, 2001 or 2000.

Note 16 - Investments in and Advances to Joint Ventures

The Company has a 25 percent interest in Sea Wolf. In September 1997,
Sedco Forex sold two semisubmersible rigs, the Drill Star and Sedco Explorer, to
Sea Wolf. The Company operated the rigs under bareboat charters. The sale
resulted in a deferred gain of $157 million which was being amortized to
operating and maintenance expense over the six year life of

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

the bareboat charters. See Note 6. As of December 31, 2001, Sea Wolf has
distributed substantially all of its assets to its shareholders.

The Company has a 50 percent interest in Overseas Drilling Limited ("ODL"),
which owns the drillship, Joides Resolution. The drillship is contracted to
perform drilling and coring operations in deep waters worldwide for the purpose
of scientific research. The Company manages and operates the vessel on behalf
of ODL. See Note 19.

At December 31, 2000, the Company had a 24.9 percent interest in Arcade, a
Norwegian offshore drilling company. Arcade owns two high-specification
semisubmersible rigs, the Henry Goodrich and Paul B. Loyd, Jr. The investment
in Arcade was recorded at fair value as part of the Sedco Forex merger. Because
R&B Falcon owns 74.4 percent of Arcade, Arcade is now consolidated in the
Company's financial statements effective with the R&B Falcon merger. In October
2001, the Company purchased the remaining minority interest in Arcade for
approximately $2.0 million.

As a result of the R&B Falcon merger, the Company has a 50 percent interest
in Deepwater Drilling L.L.C. ("DD LLC"). DD LLC leases and operates the
Deepwater Pathfinder, which commenced operations in the first quarter of 1999.
The investment in DD LLC was recorded at fair value as part of the R&B Falcon
merger. See Note 19.

As a result of the R&B Falcon merger, the Company has a 60 percent interest
in Deepwater Drilling II L.L.C. ("DDII LLC"). DDII LLC leases and operates the
Deepwater Frontier, which commenced operations in the second quarter of 1999.
The investment in DDII LLC was recorded at fair value as part of the R&B Falcon
merger. See Note 19.

As a result of the R&B Falcon merger, the Company has a 25 percent interest
in Delta Towing Holdings LLC. See Note 19.

Note 17 - Segments, Geographical Analysis and Major Customers

Prior to the R&B Falcon merger, the Company operated in one industry
segment. As a result of acquiring shallow and inland water drilling units in the
R&B Falcon merger, the Company's operations have been aggregated into two
reportable segments: (i) International and U.S. Floater Contract Drilling
Services and (ii) Gulf of Mexico Shallow and Inland Water. The International and
U.S. Floater Contract Drilling Services segment consists of high-specification
floaters, other floaters, non-U.S. jackups, other mobile offshore and land
drilling units, other assets used in support of offshore drilling activities and
other offshore support services. The Gulf of Mexico Shallow and Inland Water
segment consists of the Gulf of Mexico jackups and submersible drilling rigs and
the U.S. inland drilling barges. The Company provides services with different
types of drilling equipment in several geographic regions. The location of the
Company's rigs and the allocation of resources to build or upgrade rigs is
determined by the activities and needs of customers.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Operating revenues and income before income taxes, minority interest and
extraordinary items by segment are as follows (in millions):

Years ended December 31,
----------------------------
2001 2000 1999
--------- --------- ------

Operating Revenues
International and U.S. Floater Contract Drilling Services . $2,430.3 $1,229.5 $648.2
Gulf of Mexico Shallow and Inland Water . . . . . . . . . . 396.0 - -
Elimination of intersegment revenues. . . . . . . . . . . . (6.2) - -
--------- --------- ------
Total Operating Revenues. . . . . . . . . . . . . . . . . $2,820.1 $1,229.5 $648.2
========= ========= ======

Income Before Income Taxes, Minority Interest and
Extraordinary Items
International and U.S. Floater Contract Drilling Services . $ 625.2 $ 144.4 $ 49.3
Gulf of Mexico Shallow and Inland Water . . . . . . . . . . (17.3) - -
--------- --------- ------
607.9 144.4 49.3
Unallocated general and administrative expense . . . . . . . (57.9) - -
Unallocated other expense, net . . . . . . . . . . . . . . . (189.5) - -
--------- --------- ------
Total Income Before Income Taxes, Minority Interest
and Extraordinary Items . . . . . . . . . . . . . . . . $ 360.5 $ 144.4 $ 49.3
========= ========= ======

Total assets by segment are as follows (in millions):

December 31,
-------------------
2001 2000
--------- --------

International and U.S. Floater Contract Drilling Services . . $14,290.0 $6,358.8
Gulf of Mexico Shallow and Inland Water . . . . . . . . . . . 2,671.6 -
Unallocated Corporate . . . . . . . . . . . . . . . . . . . . 58.2 -
--------- --------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . $17,019.8 $6,358.8
========= ========

Prior to the R&B Falcon merger on January 31, 2001, the Company operated in
one industry segment and, as such, there were no unallocated assets or income
items for periods prior to the merger.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Operating revenues and long-lived assets by country are as follows (in
millions):

Years ended December 31,
---------------------------
2001 2000 1999
--------- -------- ------

Operating Revenues
United States. . . . . . . $ 979.5 $ 265.0 $ 2.0
Brazil . . . . . . . . . . 355.8 153.6 60.6
United Kingdom . . . . . . 354.6 158.9 124.9
Norway . . . . . . . . . . 227.8 248.5 -
Nigeria. . . . . . . . . . 166.2 76.2 69.3
Indonesia. . . . . . . . . 70.2 54.7 88.2
Rest of the World. . . . . 666.0 272.6 303.2
--------- -------- ------
Total Operating Revenues. $ 2,820.1 $1,229.5 $648.2
========= ======== ======

As of December 31,
-------------------
2001 2002
--------- --------
Long-Lived Assets
United States. . . . . . . $ 3,853.5 $2,038.9
Brazil . . . . . . . . . . 1,036.2 383.8
United Kingdom . . . . . . 851.7 504.8
Norway . . . . . . . . . . 626.7 657.3
Spain. . . . . . . . . . . - 777.6
Goodwill (a) . . . . . . . 6,466.7 1,037.9
Rest of the World. . . . . 2,448.2 510.4
--------- --------
Total Long-Lived Assets . $15,283.0 $5,910.7
========= ========

--------------------
(a) Goodwill resulting from the Sedco Forex and R&B Falcon mergers has not
been allocated to individual countries.

A substantial portion of the Company's assets are mobile. Asset locations
at the end of the period are not necessarily indicative of the geographic
distribution of the earnings generated by such assets during the periods.

The Company's international operations are subject to certain political and
other uncertainties, including risks of war and civil disturbances (or other
events that disrupt markets), expropriation of equipment, repatriation of income
or capital, taxation policies, and the general hazards associated with certain
areas in which operations are conducted.

For the year ended December 31, 2001, BP and Petrobras accounted for
approximately 12.3 percent and 10.9 percent, respectively, of the Company's
operating revenues, the majority of which was reported in the International and
U.S. Floater Contract Drilling Services segment. For the year ended December 31,
2000, Statoil, BP and Petrobras accounted for approximately 16.8 percent, 14.4
percent and 12.5 percent, respectively, of the Company's operating revenues. For
the year ended December 31, 1999, the Royal Dutch Shell Group accounted for
approximately 16.2 percent of the Company's operating revenues. The loss of
these or other significant customers could have a material adverse effect on the
Company's results of operations.

Note 18 - 1999 Charges

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 19 - Related Party Transactions

Schlumberger - The financial statements for the year ended December 31,
1999 included allocations from Schlumberger of certain corporate expenses,
including centralized research and engineering, legal, accounting, employee
benefits, real estate, insurance, information technology services, treasury and
other corporate and infrastructure costs. Although not directly attributable to
Sedco Forex's operations, these expenses were allocated to Sedco Forex on bases
that Schlumberger and Sedco Forex considered to be a reasonable reflection of
the utilization of services provided or the benefit received by Sedco Forex.
The allocation methods included relative revenues, headcount, square footage,
transaction processing costs, adjusted operating expenses and others. These
allocations resulted in charges being recorded in the consolidated statement of
operations for the year ended December 31, 1999, as follows (in millions):

Year ended
December 31,
------------
1999
------------
Operating and maintenance . . . . . . $ 56.2
General and administrative. . . . . . 8.0
------------
$ 64.2
============

The Company incurred expenses amounting to approximately $3.5 million and
$9.0 million for the years ended December 31, 2001 and 2000, respectively, for
transitional services provided by Schlumberger.

During 1999, Sedco Forex had long-term debt due to Schlumberger. These
loans bore interest at rates based on 50 basis points over LIBOR and were used
to finance both Sedco Forex's existing fleet of rigs and ongoing major
construction projects. Interest expense on related party indebtedness totaled
$26 million for 1999. On December 31, 1999, the Company repaid these loans in
connection with the Sedco Forex merger.

DD LLC and DDII LLC - The Company is party to drilling services agreements
with DD LLC and DDII LLC for the operations of the Deepwater Pathfinder and
Deepwater Frontier, respectively. For the year ended December 31, 2001, the
Company earned $1.4 million each for such services to DD LLC and DDII LLC. Such
revenue amounts are included in operating revenues in the consolidated statement
of operations. At December 31, 2001, the Company had receivables from DD LLC and
DDII LLC of $2.6 million and $2.3 million, respectively, which are included in
accounts receivable - other.

From time to time, the Company contracts the Deepwater Frontier from DDII
LLC. During this time, DDII LLC bills the Company for the full operating
dayrate and issues a non-cash credit for downtime hours in excess of 24 hours in
any calendar month. The Company records a dayrate rebate receivable for all such
non-cash credits and is responsible for payment of 100 percent of all drilling
contract invoices received. At the end of the drilling contract, the Company
will receive in cash or services, at its election, the credits issued for
downtime hours plus an escalation factor. At December 31, 2001, the cumulative
dayrate rebate receivable from DDII LLC totaled $13.7 million and is recorded as
investment and advances to joint ventures on the consolidated balance sheet.
For the year ended December 31, 2001, the Company incurred $54.4 million net
expense from DDII LLC under the drilling contract. This amount is included in
operating and maintenance expense in the Company's consolidated statement of
operations. At December 31, 2001, the Company had amounts payable to DDII LLC
of $2.1 million which is recorded in accounts payable in the consolidated
balance sheet.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

expenses. The debt and equity financing outstanding as of December 31, 2001,
applicable to the owner of Deepwater Pathfinder and of Deepwater Frontier, was
$219 million and $237 million, respectively. The Company and Conoco have
guaranteed their respective share of the joint ventures' obligation to pay these
amounts.

Delta Towing - Immediately prior to the closing of the R&B Falcon merger,
R&B Falcon formed a joint venture to own and operate its U.S. inland marine
support vessel business (the "Marine Business"). In connection with the
formation of the joint venture, the Marine Business was transferred by a
subsidiary of R&B Falcon to Delta Towing, LLC ("Delta Towing") in exchange for a
25 percent equity interest in Delta Towing Holdings, LLC, the parent of Delta
Towing, and certain secured notes payable from Delta Towing. The secured notes
consisted of (i) an $80 million principal amount note bearing interest at eight
percent per annum due January 30, 2024 (the "Tier 1 Note"), (ii) a contingent
$20 million principal amount note bearing interest at eight percent per annum
with an expiration date of January 30, 2011 (the "Tier 2 Note"), and (iii) a
contingent $44 million principal amount note bearing interest at eight percent
per annum with an expiration date of January 30, 2011 (the "Tier 3 Note"). The
75% equity interest holder in the joint venture also loaned Delta Towing $3
million in the form of a Tier 1 Note. Until January 2011, Delta Towing must use
100% of its excess cash flow towards the payment of principal and interest on
the Tier 1 Notes. After January 2011, 50 percent of its excess cash flows are
to be applied towards the payment of principal and unpaid interest on the Tier 1
Notes. Interest is due and payable quarterly without regard to excess cash
flow.

Delta Towing must repay at least (i) 10 percent of the aggregate principal
amount of the Tier 1 Note ($8.3 million) no later than January 2004, (ii) 30
percent of the aggregate principal amount ($24.9 million) no later than January
2006, and (iii) 75 percent of the aggregate principal amount ($62.3 million) no
later than January 2008. After the Tier 1 Note has been repaid, Delta Towing
must apply 75 percent of its excess cash flow towards payment of the Tier 2
Note. Upon the repayment of the Tier 2 Note, Delta Towing must apply 50 percent
of its excess cash to repay principal and interest on the Tier 3 Note. Any
amounts not yet due under the Tier 2 and Tier 3 Notes at the time of their
expiration will be waived. The Tier 1, 2 and 3 Notes are secured by mortgages
and liens on the vessels and other assets of Delta Towing.

R&B Falcon valued its Tier 1, 2 and 3 Notes at $80 million immediately
prior to the closing of the R&B Falcon merger the effect of which was to fully
reserve the Tier 2 and 3 Notes. At December 31, 2001, $78.9 million was
outstanding under the Company's Tier 1 Note. During 2001, the Company earned
$5.8 million of interest income on the Tier 1 Notes. At December 31, 2001, the
Company had interest receivable from Delta Towing of $1.6 million. In December
2001, the note agreement was amended to provide for a $4 million, three-year
revolving credit facility (the "Delta Towing Revolver") from the Company.
Amounts drawn under the Delta Towing Revolver accrue interest at eight percent
per annum, with interest payable quarterly. At December 31, 2001, no amounts
were outstanding under the Delta Towing Revolver. See Note 23.

As part of the formation of the joint venture on January 31, 2001, the
Company entered into an agreement with Delta Towing under which the Company
committed to charter certain vessels for a period of one year ending January 31,
2002, and committed to charter for a period of 2.5 years from the date of
delivery 10 crewboats then under construction, four of which had been placed
into service as of December 31, 2001. In 2001, the Company incurred charges
totaling $15.6 million from Delta Towing for services rendered, of which $6.5
million was rebilled to the Company's customers and $9.1 million was reflected
in operating and maintenance expense.

ODL - In conjunction with the management and operation of the Joides
Resolution on behalf of ODL, the Company earned $1.2 million, $1.1 million and
$1.1 million for the years ended December 31, 2001, 2000 and 1999, respectively.
Such amounts are included in operating revenues in the Company's consolidated
statements of operations. At December 31, 2001 and 2000, the Company had
receivables from ODL of $2.6 million and $2.5 million, respectively, which were
recorded as accounts receivable - trade in the consolidated balance sheets.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 20 - Earnings Per Share

The reconciliation of the numerator and denominator used for the
computation of basic and diluted earnings per share is as follows (in millions,
except per share data):

Years ended December 31,
-------------------------
2001 2000 1999
------- ------ -------

Income Before Extraordinary Items . . . . . . . . . . . . . . . . . . . . . $271.9 $107.1 $ 58.1
Gain (Loss) on Extraordinary Items, net of tax. . . . . . . . . . . . . . . (19.3) 1.4 -
------- ------ -------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $252.6 $108.5 $ 58.1
======= ====== =======

Weighted Average Shares Outstanding
(Unaudited pro forma prior to the effective date of the Sedco Forex merger)
Shares for basic earnings per share . . . . . . . . . . . . . . . . . . . . 309.2 210.4 109.6
Effect of dilutive securities:
Employee stock options and unvested stock grants . . . . . . . . . . . . 3.4 1.3 -
Warrants to purchase ordinary shares . . . . . . . . . . . . . . . . . . 2.2 - -
------- ------ ------
Adjusted weighted-average shares and assumed
conversions for diluted earnings per share . . . . . . . . . . . . . . . 314.8 211.7 109.6
======= ====== ======

Basic Earnings Per Share
(Unaudited pro forma prior to the effective date of the Sedco Forex merger)
Income Before Extraordinary Items. . . . . . . . . . . . . . . . . . . . $ 0.88 $ 0.51 $ 0.53
Gain (Loss) on Extraordinary Items, net of tax . . . . . . . . . . . . . (0.06) 0.01 -
------- ------ ------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.82 $ 0.52 $ 0.53
======= ====== ======

Diluted Earnings Per Share
(Unaudited pro forma prior to the effective date of the Sedco Forex merger)
Income Before Extraordinary Items. . . . . . . . . . . . . . . . . . . . $ 0.86 $ 0.50 $ 0.53
Gain (Loss) on Extraordinary Items, net of tax . . . . . . . . . . . . . (0.06) 0.01 -
------- ------ ------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.80 $ 0.51 $ 0.53
======= ====== ======

Ordinary shares subject to issuance pursuant to the conversion features of
the convertible debentures (see Note 8) are not included in the calculation of
adjusted weighted-average shares and assumed conversions for diluted earnings
per share because the effect of including those shares is anti-dilutive.

Sedco Forex did not have a separate capital structure prior to the spin-off
from Schlumberger and merger with Transocean Offshore Inc. Accordingly,
historical earnings per share has not been presented for the periods prior to
the merger (see Note 1). Unaudited pro forma earnings per share for the year
ended December 31, 1999 was calculated using the Transocean Sedco Forex Inc.
ordinary shares issued pursuant to the merger agreement and the dilutive effect
of Transocean Sedco Forex Inc. stock options granted to former Sedco Forex
employees at the time of the merger, as applicable.

Note 21 - Stock Warrants

In connection with the R&B Falcon merger, the Company assumed the
outstanding R&B Falcon stock warrants. Each warrant enables the holder to
purchase 17.5 ordinary shares at an exercise price of $19.00 per share. The
warrants expire on May 1, 2009. In 2001, the Company received $10.6 million and
issued 560,000 ordinary shares as a result of 32,000 warrants being exercised.
At December 31, 2001 there were 261,000 warrants outstanding to purchase
4,567,500 ordinary shares.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 22 - Quarterly Results (Unaudited)

Shown below are selected unaudited quarterly data (in millions, except per
share data):

Quarter First Second Third Fourth
------------------- -------- -------- ------- -------

2001 (a)
Operating Revenues $550.1 $752.2 $770.2 $747.6
Operating Income. . . . . . . . . . . . . . 74.5 178.2 179.8 117.5
Income Before Extraordinary Items . . . . 30.5 85.8 97.6 58.0
Net Income (b). . . . . . . . . . . . . . . 30.5 68.5 97.6 56.0
Basic Earnings Per Share
Income Before Extraordinary Items . . . . $ 0.11 $ 0.27 $0.31 $ 0.19
Diluted Earnings Per Share
Income Before Extraordinary Items . . . . $ 0.11 $ 0.26 $0.30 $ 0.19
Weighted Average Shares Outstanding (c)
Shares for basic earnings per share . . . 280.6 318.2 318.7 318.7
Shares for diluted earnings per share . . 285.5 325.0 322.7 322.7

2000 (e)
Operating Revenues. . . . . . . . . . . . . $300.8 $299.2 $314.5 $314.9
Operating Income (Loss) (d) . . . . . . . . 37.6 43.2 60.0 (7.7)
Income (Loss) Before Extraordinary Items. 32.5 35.9 47.9 (9.2)
Net Income (Loss) . . . . . . . . . . . . . 32.5 35.9 49.3 (9.2)
Basic Earnings (Loss) Per Share
Income (Loss) Before Extraordinary Items. $ 0.15 $ 0.17 $ 0.22 $(0.04)
Diluted Earnings (Loss) Per Share
Income (Loss) Before Extraordinary Items. $ 0.15 $ 0.17 $ 0.22 $(0.04)
Weighted Average Shares Outstanding
Shares for basic earnings per share . . . 210.2 210.4 210.5 210.6
Shares for diluted earnings per share . . 211.0 211.7 212.0 210.6

--------------------
(a) First quarter 2001 included two months of operating results for R&B Falcon
and the second, third and fourth quarters of 2001 included three months of
operating results of R&B Falcon, respectively. Fourth quarter 2001 included
impairment charges (see Note 7) and gain on sale of RBF FPSO L.P. (see Note
6).

(b) Second and fourth quarter 2001 included extraordinary losses of $17.3
million and $2.0 million, net of income taxes, respectively, relating to
the early extinguishment of debt.

(c) First quarter 2001 included approximately 106 million ordinary shares
issued on January 31, 2001 in exchange for each R&B Falcon share.

(d) First and second quarter 2000 included certain reclassifications for
minority interest and gain (loss) from sale of assets to conform with the
current presentation.

(e) Third quarter 2000 included an extraordinary gain of $1.4 million, net of
income taxes, relating to the early termination of debt. Fourth quarter
2000 included charges totaling $37.2 million related to the settlement of
an arbitration proceeding with Global Marine and a $6.7 million ($4.8
million after taxes) increase in provisions for legal claims.

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 23 - Subsequent Events (Unaudited)

Exchange Offer - In March 2002, the Company completed exchange offers and
consent solicitations for the 6.5%, 6.75%, 6.95%, 7.375%, 9.125% and 9.5% notes
of R&B Falcon. As a result of these exchange offers and consent solicitations,
approximately $231.1 million, $342.9 million, $247.8 million, $246.5 million,
$76.7 million, and $289.1 million principal amount of the outstanding 6.5%,
6.75%, 6.95%, 7.375%, 9.125% and 9.5% notes, respectively, of R&B Falcon were
exchanged for newly issued 6.5%, 6.75%, 6.95%, 7.375%, 9.125% and 9.5% notes of
the Company having the same principal amount, interest rate, redemption terms
and payment and maturity dates (and accruing interest from the last date for
which interest had been paid on the R&B Falcon notes). Because the holders of a
majority in principal amount of each of these series of notes consented to the
proposed amendments to the applicable indenture pursuant to which the notes were
issued, some covenants, restrictions and events of default were eliminated from
the indentures with respect to these series of notes. In connection with the
exchange offers, an aggregate of $8.3 million in consent payments were made by
R&B Falcon to holders of R&B Falcon notes whose notes were tendered (and not
validly withdrawn) within the required time periods and accepted for exchange.
The consent payments will be amortized as an increase to interest expense over
the remaining term of the respective notes using the interest method. As a
result of the exchange offers, interest expense for 2002 is expected to increase
by approximately $1.3 million.

Secured Rig Financing - In January 2002, the Company exercised its call
option under the financing arrangement to repay the financing on the Trident 16
prior to the expiration of the scheduled term. The aggregate principal amount
outstanding was $32.2 million. The premium paid as a result of the call option
of approximately $2 million was recorded as an increase in the net book value
of the Trident 16.

In March 2002, the Company also exercised its call option to repay the
financing on the Trident IX prior to the expiration of the scheduled term. The
aggregate principal amount outstanding was $14.9 million. The premium paid as a
result of the call option of approximately $0.5 million was recorded as an
increase in the net book value of the Trident IX.

Letter of Credit Facility - In January 2002, the Company terminated its
$70.0 million letter of credit facility. This facility was secured by mortgages
on five drilling units, the J. W. McLean, J. T. Angel, Randolph Yost, D. R.
Stewart and George H. Galloway.

Delta Towing - In January 2002, Delta Towing drew $4 million on the Delta
Towing Revolver.

Interest Rate Swaps - In February 2002, the Company entered into interest
rate swap agreements with a group of banks in the aggregate notional amount of
$900.0 million relating to the Company's $350.0 million aggregate principal
amount of 6.75% Senior Notes due April 2005, $250 million aggregate principal
amount of 6.95% Senior Notes due April 2008 and $300.0 million aggregate
principal amount of 9.50% Senior Notes due December 2008. The objective of each
transaction is to protect the debt against changes in fair value due to changes
in the benchmark interest rate. Under each interest rate swap, the Company
receives the fixed rate equal to the coupon of the hedged item and pays the
floating rate (LIBOR) plus a margin of 171 basis points, 246 basis points and
413 basis points, respectively, which are designated as the respective benchmark
interest rates, on each of the interest payment dates until maturity of the
respective notes. The hedges are considered perfectly effective against changes
in the fair value of the debt due to changes in the benchmark interest rates
over their term. As a result, the shortcut method applies and there is no need
to periodically reassess the effectiveness of the hedges during the term of the
swaps.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

The Company has not had a change in or disagreement with its accountants
within 24 months prior to the date of its most recent financial statements or in
any period subsequent to such date.

PART III

ITEM 10. Directors and Executive Officers of the Registrant

ITEM 11. Executive Compensation

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

ITEM 13. Certain Relationships and Related Transactions

The information required by Items 10, 11, 12 and 13 is incorporated herein
by reference to the Company's definitive proxy statement for its 2002 annual
general meeting of shareholders, which will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act
of 1934 within 120 days of December 31, 2001. Certain information with respect
to the executive officers of the Company is set forth in Item 4 of this annual
report under the caption "Executive Officers of the Registrant."

PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Index to Financial Statements, Financial Statement Schedules and Exhibits

(1) Financial Statements

Page
------
Included in Part II of this report:
Report of Independent Auditors . . . . . . . . . . . . . . . 44
Consolidated Statements of Operations. . . . . . . . . . . . 45
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 46
Consolidated Statements of Equity. . . . . . . . . . . . . . 47
Consolidated Statements of Cash Flows . . . . . . . . . . . 48
Notes to Consolidated Financial Statements. . . . . . . . . 50

Financial statements of unconsolidated joint ventures are not presented
herein because such joint ventures do not meet the significance test.

(2) Financial Statement Schedules

Transocean Sedco Forex Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(In millions)

Additions
--------------------
Charged Charged
Balance at to Costs to Other Balance at
Beginning and Accounts- Deductions- End of
of Period Expenses Describe Describe Period
---------- --------- ---------- ------------ --------

Year Ended December 31, 1999
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . $ 0.8 $13.8 $12.6 (1) $ 0.1 (3) $27.1

Allowance for obsolete materials and
supplies . . . . . . . . . . . . . . . 10.2 1.8 12.5 (2) 1.4 (4) 23.1

Year Ended December 31, 2000
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . 27.1 20.0 0.2 (3) 23.0 (3) 24.3

Allowance for obsolete materials and
supplies . . . . . . . . . . . . . . . 23.1 0.3 (0.2)(5) (0.1)(4) 23.3
(6)

Year Ended December 31, 2001
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts
receivable . . . . . . . . . . . . . . 24.3 12.0 14.9 (7) 27.0 (3) 24.2
(9)

Allowance for obsolete materials and
supplies . . . . . . . . . . . . . . . $23.3 $ - $ 9.2 (8) $ 8.4 (4) $24.1
(10)

_____________________________
(1) Amount includes $10.5 relating to the allowance for doubtful accounts
receivable assumed in the Sedco Forex merger and $2.1 in receivable
reserves reclassifications.
(2) Amount includes $12.5 relating to the allowance for obsolete materials and
supplies assumed in the Sedco Forex merger.
(3) Uncollectible accounts receivable written off, net of recoveries.
(4) Obsolete materials and supplies written off, net of scrap.
(5) Amount includes $0.4 related to a write-off to assets held for sale.
(6) Amount includes $0.7 related to reversals of prior year write-offs.
(7) Amount includes $15.0 relating to the allowance for doubtful accounts
receivable assumed in the RBF merger.
(8) Amount includes $8.7 relating to the obsolete materials and supplies
inventory assumed in the RBF merger.
(9) Amount includes $4.9 related to adjustments to the provision.
(10) Amount includes $2.7 related to sale of rigs.

Other schedules are omitted either because they are not required or are not
applicable, or because the required information is included in the financial
statements or notes thereto.

(3) Exhibits

The following exhibits are filed in connection with this Report:

Number Description
-------------------

2.1 Agreement and Plan of Merger dated as of August 19, 2000 by and among
Transocean Sedco Forex Inc., Transocean Holdings Inc., TSF Delaware Inc.
and R&B Falcon Corporation (incorporated by reference to Annex A to the
Joint Proxy Statement/Prospectus dated October 30, 2000 included in a
424(b)(3) prospectus filed by the Company on November 1, 2000)

2.2 Agreement and Plan of Merger dated as of July 12, 1999 among Schlumberger
Limited, Sedco Forex Holdings Limited, Transocean Offshore Inc. and
Transocean SF Limited (incorporated by reference to Annex A to the Joint
Proxy Statement/Prospectus dated October 27, included in a 424(b)(3)
prospectus filed by the Company on November 1, 2000)

2.3 Distribution Agreement dated as of July 12, 1999 between Schlumberger
Limited and Sedco Forex Holdings Limited (incorporated by reference to
Annex B to the Joint Proxy Statement/Prospectus dated October 27, included
in a 424(b)(3) prospectus filed by the Company on November 1, 2000)

2.4 Agreement and Plan of Merger and Conversion dated as of March 12, 1999
between Transocean Offshore Inc. and Transocean Offshore (Texas) Inc.
(incorporated by reference to Exhibit 2.1 to the Registration Statement on
Form S-4 of Transocean Offshore (Texas) Inc. filed on April 8, 1999
(Registration No. 333-75899))

2.5 Agreement and Plan of Merger dated as of July 10, 1997 among R&B Falcon,
FDC Acquisition Corp., Reading & Bates Acquisition Corp., Falcon Drilling
Company, Inc. and Reading & Bates Corporation (incorporated by reference
to Exhibit 2.1 to R&B Falcon's Registration Statement on Form S-4 dated
November 20, 1997)

2.6 Agreement and Plan of Merger dated as of August 21, 1998 by and among
Cliffs Drilling Company, R&B Falcon Corporation and RBF Cliffs Drilling
Acquisition Corp. (incorporated by reference to Exhibit 2 to R&B Falcon's
Registration Statement No. 333-63471 on Form S-4 dated September 15, 1998)

3.1 Memorandum of Association of Transocean Sedco Forex Inc., as amended
(incorporated by reference to Annex E to the Joint Proxy
Statement/Prospectus dated October 30, 2000 included in a 424(b)(3)
prospectus filed by the Company on November 1, 2000)

3.2 Articles of Association of Transocean Sedco Forex Inc., as amended
(incorporated by reference to Annex F to the Joint Proxy
Statement/Prospectus dated October 30, 2000 included in a 424(b)(3)
prospectus filed by the Company on November 1, 2000)

4.1 Credit Agreement dated as of December 16, 1999 among Transocean Offshore
Inc., the Lenders party thereto, and SunTrust Bank, Atlanta, as Agent
(incorporated by reference to Exhibit 4.6 to the Company's Form 10-K for
the year ended December 31, 1997)

4.2 Indenture dated as of April 15, 1997 between the Company and Texas
Commerce Bank National Association, as trustee (incorporated by reference
to Exhibit 4.1 to the Company's Form 8-K dated April 29, 1997)

4.3 First Supplemental Indenture dated as of April 15, 1997 between the
Company and Texas Commerce Bank National Association, as trustee,
supplementing the Indenture dated as of April 15, 1997 (incorporated by
reference to Exhibit 4.2 to the Company's Form 8-K dated April 29, 1997)

4.4 Second Supplemental Indenture dated as of May 14, 1999 between the Company
and Chase Bank of Texas, National Association, as trustee (incorporated by
reference to Exhibit 4.5 to the Company's Post-Effective Amendment No. 1
to Registration Statement on Form S-3 (Registration No. 333-59001-99))

4.5 Third Supplemental Indenture dated as of May 24, 2000 between the Company
and Chase Bank of Texas, National Association, as trustee (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed
on May 24, 2000)

4.6 Fourth Supplemental Indenture dated as of May 11, 2001 between the Company
and The Chase Manhattan Bank (incorporated by reference to Exhibit 4.3 to
the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 2001)

4.7 Form of 7.45% Notes due April 15, 2027 (incorporated by reference to
Exhibit 4.3 to the Company's Form 8-K dated April 29, 1997)

4.8 Form of 8.00% Debentures due April 15, 2027 (incorporated by reference to
Exhibit 4.4 to the Company's Form 8-K dated April 19, 1997)

4.9 Form of Zero Coupon Convertible Debenture due May 24, 2020 between the
Company and Chase Bank of Texas, National Association, as trustee
(incorporated by reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K filed on May 24, 2000)

4.10 Form of 1.5% Convertible Debenture due May 15, 2021 (incorporated by
reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated
May 8, 2001)

4.11 Form of 6.625% Note due April 15, 2011 (incorporated by reference to
Exhibit 4.3 to the Company's Current Report on Form 8-K dated March 30,
2001)

4.12 Form of 7.5% Note due April 15, 2031 (incorporated by reference to Exhibit
4.3 to the Company's Current Report on Form 8-K dated March 30, 2001)

+4.13 Officers' Certificate establishing the terms of the 6.50% Notes due 2003,
6.75% Notes due 2005, 6.95% Notes due 2008, 9.125% Notes due 2003 and
9.50% Notes due 2008

+4.14 Officers' Certificate establishing the terms of the 7.375% Notes due 2018

4.15 Indenture dated as of April 14, 1998, between R&B Falcon Corporation, as
issuer, and Chase Bank of Texas, National Association, as trustee, with
respect to Series A and Series B of each of $250,000,000 6 1/2% Senior
Notes due 2003, $350,000,000 6 3/4% Senior Notes due 2005, $250,000,000
6.95% Senior Notes due 2008, and $250,000,000 7 3/8% Senior Notes due 2018
(incorporated by reference to Exhibit 4.1 to R&B Falcon's Registration
Statement No. 333-56821 on Form S-4 dated June 15, 1998)

+4.16 First Supplemental Indenture dated as of February 14, 2002 between R&B
Falcon Corporation and The Bank of New York

+4.17 Second Supplemental Indenture dated as of March 13, 2002 between R&B
Falcon Corporation and The Bank of New York

4.18 Indenture dated as of December 22, 1998, between R&B Falcon Corporation,
as issuer and Chase Bank of Texas, National Association, as trustee, with
respect to $400,000,000 Series A and Series B 9 1/8% Senior Notes due
2003, and 9 1/2% Senior Notes due 2008 (incorporated by reference to
Exhibit 4.21 to R&B Falcon's Annual Report on Form 10-K for 1998)

+4.19 First Supplemental Indenture dated as of February 14, 2002 between R&B
Falcon Corporation and The Bank of New York

4.20 Warrant Agreement, including form of Warrant, dated April 22, 1999 between
R&B Falcon and American Stock Transfer & Trust Company (incorporated by
reference to Exhibit 4.1 to R&B Falcon's Registration Statement No.
333-81181 on Form S-3 dated June 21, 1999)

4.21 Supplement to Warrant Agreement dated January 31, 2001 among Transocean
Sedco Forex Inc., R&B Falcon Corporation and American Stock Transfer &
Trust Company (incorporated by reference to Exhibit 4.28 to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000)

4.22 Registration Rights Agreement dated April 22, 1999 between R&B Falcon and
American Stock Transfer & Trust Company (incorporated by reference to
Exhibit 4.2 to R&B Falcon's Registration Statement No. 333-81181 on Form
S-3 dated June 21, 1999)

4.23 Supplement to Registration Rights Agreement dated January 31, 2001 between
Transocean Sedco Forex Inc. and R&B Falcon Corporation (incorporated by
reference to Exhibit 4.30 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000)

4.24 Exchange and Registration Rights Agreement dated April 5, 2001 by and
between the Company and Goldman, Sachs & Co., as representatives of the
initial purchasers (incorporated by reference to the Company's Current
Report on Form 8-K dated March 30, 2001)

4.25 Credit Agreement dated as of December 29, 2000 among the Company, the
Lenders party thereto, Suntrust Bank, as Administrative Agent, ABN AMRO
Bank, N.V., as Syndication Agent, Bank of America, N.A., as Documentation
Agent, and Wells Fargo Bank Texas, National Association, as Senior
Managing Agent (incorporated by reference to Exhibit 4.32 to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000)

+4.26 364-Day Credit Agreement dated as of December 27, 2001 among the Company,
the Lenders party thereto, Suntrust Bank, as Administrative Agent, ABN
AMRO Bank, N.V., as Syndication Agent, Bank of America, N.A., as
Documentation Agent, and Wells Fargo Bank Texas, National Association, as
Senior Managing Agent

4.27 Note Agreement dated as of January 30, 2001 among Delta Towing, LLC, as
Borrower, R&B Falcon Drilling USA, Inc., as RBF Noteholder and Beta Marine
Services, L.L.C., as Beta Noteholder (incorporated by reference to Exhibit
4.35 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000)

4.28 Trust Indenture and Security Agreement dated as of August 12, 1999 between
RBF Exploration Co., a Nevada corporation, and Chase Bank of Texas,
National Association, as trustee (incorporated by reference to Exhibit
10.6 to R&B Falcon's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999)

4.29 Supplemental Indenture and Amendment dated as of February 1, 2000 to the
Trust Indenture and Security Agreement dated as of August 12, 1999 among
RBF Exploration Co., BTM Capital Corporation and Chase Bank of Texas,
National Association, as trustee (incorporated by reference to Exhibit
10.251 to R&B Falcon's Annual Report on Form 10-K for the year ended
December 31, 1999)

+4.30 Second Supplemental Indenture and Amendment dated as of June 2, 2000 among
RBF Exploration Co., BTM Capital Corporation, Nautilus Exploration
Limited, R&B Falcon Deepwater (UK) Limited and Chase Bank of Texas,
National Association, as trustee

+4.31 Third Supplemental Indenture and Amendment dated as of February 20, 2001
among RBF Exploration Co., BTM Capital Corporation, RBF Nautilus
Corporation, Nautilus Exploration Limited, R&B Falcon Deepwater (UK)
Limited and The Chase Manhattan Bank, as trustee

10.1 Tax Sharing Agreement between Sonat Inc. and Sonat Offshore Drilling Inc.
dated June 3, 1993 (incorporated by reference to Exhibit 10-(3) to the
Company's Form 10-Q for the quarter ended June 30, 1993)

*10.2 Performance Award and Cash Bonus Plan of Sonat Offshore Drilling Inc.
(incorporated by reference to Exhibit 10-(5) to the Company's Form 10-Q
for the quarter ended June 30, 1993)

*10.3 Form of Sonat Offshore Drilling Inc. Executive Life Insurance Program
Split Dollar Agreement and Collateral Assignment Agreement (incorporated
by reference to Exhibit 10-(9) to the Company's Form 10-K for the year
ended December 31, 1993)

*10.4 Employee Stock Purchase Plan, as amended and restated effective January 1,
2000 (incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-8 (Registration No. 333-94551) filed
January 12, 2000)

*10.5 First Amendment to the Amended and Restated Employee Stock Purchase Plan
of Transocean Sedco Forex Inc., effective as of January 31, 2001
(incorporated by reference to Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000)

*10.6 Long-Term Incentive Plan of Transocean Sedco Forex Inc., as amended and
restated effective January 1, 2000 (incorporated by reference to Annex B
to the Company's Proxy Statement dated April 3, 2001)

*10.7 First Amendment to the Amended and Restated Long-Term Incentive Plan of
Transocean Sedco Forex Inc., effective as of January 31, 2001
(incorporated by reference to Exhibit 10.9 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000)

*10.8 Second Amendment to the Amended and Restated Long-Term Incentive Plan of
Transocean Sedco Forex Inc., effective May 11, 2001 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2001)

*10.9 Form of Employment Agreement dated May 14, 1999 between J. Michael
Talbert, W. Dennis Heagney, Robert L. Long, Jon C. Cole, Donald R. Ray,
Eric B. Brown, Barbara S. Koucouthakis and Alan A. Broussard,
individually, and the Company (incorporated by reference to Exhibit 10.1
to the Company's Form 10-Q for the quarter ended June 30, 1999)

*10.10 Deferred Compensation Plan of Transocean Offshore Inc., as amended and
restated effective January 1, 2000 (incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.

*10.11 Employment Matters Agreement dated as of December 13, 1999 among
Schlumberger Limited, Sedco Forex Holdings Limited and Transocean Offshore
Inc. (incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (Registration No. 333-94551) filed
January 12, 2000)

*10.12 Sedco Forex Employees Option Plan of Transocean Sedco Forex Inc.
effective December 31, 1999 (incorporated by reference to Exhibit 4.5 to
the Company's Registration Statement on Form S-8 (Registration No.
333-94569) filed January 12, 2000)

*10.13 Employment Agreement dated September 22, 2000 between J. Michael Talbert
and Transocean Offshore Deepwater Drilling Inc. (incorporated by reference
to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September
30, 2000)

*10.14 Employment Agreement dated October 3, 2000 between Jon C. Cole and
Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended September
30, 2000)

*10.15 Employment Agreement dated September 17, 2000 between Robert L. Long and
Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to
Exhibit 10.3 to the Company's Form 10-Q for the quarter ended September
30, 2000)

*10.16 Employment Agreement dated September 26, 2000 between Donald R. Ray and
Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to
Exhibit 10.4 to the Company's Form 10-Q for the quarter ended September
30, 2000)

*10.17 Agreement dated October 8, 2000 between W. Dennis Heagney and Transocean
Offshore Deepwater Drilling Inc. (incorporated by reference to Exhibit
10.5 to the Company's Form 10-Q for the quarter ended September 30, 2000)

*10.18 Agreement dated September 20, 2000 between Eric B. Brown and Transocean
Offshore Deepwater Drilling Inc. (incorporated by reference to Exhibit
10.6 to the Company's Form 10-Q for the quarter ended September 30, 2000)

*10.19 Agreement dated October 4, 2000 between Barbara S. Koucouthakis and
Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to
Exhibit 10.7 to the Company's Form 10-Q for the quarter ended September
30, 2000)

*10.20 Consulting Agreement dated January 31, 2001 between Paul B. Loyd, Jr. and
R&B Falcon Corporation (incorporated by reference to Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2000)

+*10.21 Consulting Agreement dated December 13, 1999 between Victor E. Grijalva
and Transocean Offshore Inc.

*10.22 1992 Long-Term Incentive Plan of Reading & Bates Corporation
(incorporated by reference to Exhibit B to Reading & Bates' Proxy
Statement dated April 27, 1992)

*10.23 1995 Long-Term Incentive Plan of Reading & Bates Corporation
(incorporated by reference to Exhibit 99.A to Reading & Bates' Proxy
Statement dated March 29, 1995)

*10.24 1995 Director Stock Option Plan of Reading & Bates Corporation
(incorporated by reference to Exhibit 99.B to Reading & Bates' Proxy
Statement dated March 29, 1995)

*10.25 1997 Long-Term Incentive Plan of Reading & Bates Corporation
(incorporated by reference to Exhibit 99.A to Reading & Bates' Proxy
Statement dated March 18, 1997)

*10.26 1998 Employee Long-Term Incentive Plan of R&B Falcon Corporation
(incorporated by reference to Exhibit 99.A to R&B Falcon's Proxy Statement
dated April 23, 1998)

*10.27 1998 Director Long-Term Incentive Plan of R&B Falcon Corporation
(incorporated by reference to Exhibit 99.B to R&B Falcon's Proxy Statement
dated April 23, 1998)

*10.28 1999 Employee Long-Term Incentive Plan of R&B Falcon Corporation
(incorporated by reference to Exhibit 99.A to R&B Falcon's Proxy Statement
dated April 13, 1999)

*10.29 1999 Director Long-Term Incentive Plan of R&B Falcon Corporation
(incorporated by reference to Exhibit 99.B to R&B Falcon's Proxy Statement
dated April 13, 1999)

10.30 Memorandum of Agreement dated November 28, 1995 between Reading and Bates,
Inc., a subsidiary of Reading & Bates Corporation, and Deep Sea Investors,
L.L.C. (incorporated by reference to Exhibit 10.110 to Reading & Bates'
Annual Report on Form 10-K for 1995)

10.31 Amended and Restated Bareboat Charter dated July 1, 1998 to Bareboat
Charter M. G. Hulme, Jr. dated November 28, 1995 between Deep Sea
Investors, L.L.C. and Reading & Bates Drilling Co., a subsidiary of
Reading & Bates Corporation (incorporated by reference to Exhibit 10.177
to R&B Falcon's Annual Report on Form 10-K for the year ended December 31,
1998)

10.32 Limited Liability Company Agreement dated October 28, 1996 between Conoco
Development Company and RB Deepwater Exploration Inc. (incorporated by
reference to Exhibit 10.162 to Reading & Bates' Annual Report on Form 10-K
for the year ended December 31, 1996)

10.33 Amendment No. 1 dated February 7, 1997 to Limited Liability Company
Agreement dated October 28, 1996 between Conoco Development Company and RB
Deepwater Exploration Inc. (incorporated by reference to Exhibit 10.183 to
R&B Falcon's Annual Report on Form 10-K for the year ended December 31,
1998)

10.34 Amendment No. 2 dated April 30, 1997 to Limited Liability Company
Agreement dated October 28, 1996 between Conoco Development Company and RB
Deepwater Exploration Inc. (incorporated by reference to Exhibit 10.184 to
R&B Falcon's Annual Report on Form 10-K for the year ended December 31,
1998)

10.35 Amendment No. 3 dated April 24, 1998 to Limited Liability Company
Agreement dated October 28, 1996 between Conoco Development Company and RB
Deepwater Exploration Inc. (incorporated by reference to Exhibit 10.185 to
R&B Falcon's Annual Report on Form 10-K for the year ended December 31,
1998)

10.36 Amendment No. 4 dated August 7, 1998 to Limited Liability Company
Agreement dated October 28, 1996 between Conoco Development Company and RB
Deepwater Exploration Inc. (incorporated by reference to Exhibit 10.186 to
R&B Falcon's Annual Report on Form 10-K for the year ended December 31,
1998)

+10.37 Participation Agreement dated as of July 30, 1998 among Deepwater
Drilling L.L.C., Deepwater Investment Trust 1998-A, Wilmington Trust FSB
and other Financial Institutions, as Certificate Purchasers, and RBF
Deepwater Exploration Inc. and Conoco Development Company solely with
respect to Sections 5.2 and 6.4

10.38 Limited Liability Company Agreement dated April 30, 1997 between Conoco
Development II Inc. and RB Deepwater Exploration II Inc. (incorporated by
reference to Exhibit 10.159 to R&B Falcon's Annual Report on Form 10-K for
the year ended December 31, 1997)

10.39 Amendment No. 1 dated April 24, 1998 to Limited Liability Company
Agreement dated April 30, 1997 between Conoco Development II Inc. and RB
Deepwater Exploration II Inc. (incorporated by reference to Exhibit 10.188
to R&B Falcon's Annual Report on Form 10-K for the year ended December 31,
1998)

10.40 Guaranty, dated as of July 30, 1998, made by R&B Falcon in favor of the
Deepwater Investment Trust 1998-A, Wilmington Trust FSB, not in its
individual capacity, but solely as Investment Trustee, Wilmington Trust
Company, not in its individual capacity, except as specified herein, but
solely as Charter Trustee, BA Leasing & Capital Corporation, as
Documentation Agent, ABN Amro Bank N.V., as Administrative Agent, The Bank
of Nova Scotia, as Syndication Agent, BA Leasing & Capital Corporation,
ABN Amro Bank N.V., Bank Austria Aktiengesellschaft New York Branch, The
Bank of Nova Scotia, Bayerische Vereinsbank AG New York Branch,
Commerzbank Aktiengesellschaft, Atlanta Agency, Credit Lyonnais New York
Branch, Great-West Life and Annuity Insurance Company, Mees Pierson
Capital Corporation, Westdeutsche Landesbank Girozentrale, New York
Branch, as Certificate Purchasers, and ABN Amro Bank, N.V., Bank of
America National Trust and Savings Association and The Bank of Nova
Scotia, New York Branch, as Swap Counterparties, and the other parties
named therein (incorporated by reference to Exhibit 10.1 to R&B Falcon's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998)

10.41 Letter agreement dated as of August 7, 1998 between RBF Deepwater
Exploration Inc., an indirect subsidiary of R&B Falcon, and Conoco
Development Company and Acknowledgment by Conoco Inc. and R&B Falcon
(incorporated by reference to Exhibit 10.2 to R&B Falcon's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998)

10.42 Letter agreement dated as of August 7, 1998 between RBF Deepwater
Exploration Inc., an indirect subsidiary of R&B Falcon, and Conoco
Development Company and Acknowledgment by Conoco Inc. and R&B Falcon
(incorporated by reference to Exhibit 10.3 to R&B Falcon's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998)

+10.43 Amended and Restated Participation Agreement dated as of December 18,
2001 among Deepwater Drilling II L.L.C., Deepwater Investment Trust
1999-A, Wilmington Trust FSB, Wilmington Trust Company and other Financial
Institutions, as Certificate Purchasers, solely with respect to Sections
2.15, 9.4, 12.13(b) and 12.13(d) Transocean Sedco Forex Inc. and Conoco
Inc., and solely with respect to Sections 5.2 and 6.4, RBF Deepwater
Exploration II Inc. and Conoco Development II Inc.

+10.44 Appendix 1 to Amended and Restated Participation Agreement dated as of
December 18, 2001

10.45 Agreement dated as of August 31, 1991 among Reading & Bates, Arcade
Shipping AS and Sonat Offshore Drilling, Inc. (incorporated by reference
to Exhibit 10.40 to Reading & Bates' Annual Report on Form 10-K for the
year ended December 30, 1991)

+*10.46 Separation Agreement dated as of December 21, 2001 by and between
Transocean Offshore Deepwater Drilling Inc. and W. Dennis Heagney

+21 Subsidiaries of the Company

+23.1 Consent of Ernst & Young LLP

+24 Powers of Attorney

-------------------------------------
*Compensatory plan or arrangement.
+Filed herewith.

Exhibits listed above as previously having been filed with the Securities
and Exchange Commission are incorporated herein by reference pursuant to Rule
12b-32 under the Securities Exchange Act of 1934 and made a part hereof with the
same effect as if filed herewith.

Certain instruments relating to long-term debt of the Company and its
subsidiaries have not been filed as exhibits since the total amount of
securities authorized under any such instrument does not exceed 10 percent of
the total assets of the Company and its subsidiaries on a consolidated basis.
The Company agrees to furnish a copy of each such instrument to the Commission
upon request.

Reports on Form 8-K

The Company filed a Current Report on Form 8-K on October 29, 2001 to
report the availability of drilling rig status and contract information as of
October 29, 2001 and a Current Form on Form 8-K on November 30, 2001 to report
the availability of drilling rig status and contract information as of November
30, 2001.

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, on March 25, 2002.

TRANSOCEAN SEDCO FOREX INC.

By: /s/ Gregory L. Cauthen
-----------------------------------------------------
Gregory L. Cauthen
Vice President, Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 25, 2002.

Signature Title
----------- ---------

* Chairman of the Board of Directors
--------------------------------
Victor E. Grijalva

/s/ J. Michael Talbert Chief Executive Officer and Director
-------------------------------- (Principal Executive Officer)
J. Michael Talbert

/s/ Gregory L. Cauthen Vice President, Chief Financial Officer
-------------------------------- and Treasurer (Principal Financial
Gregory L. Cauthen Officer)

/s/ Ricardo H. Rosa Vice President and Controller
-------------------------------- (Principal Accounting Officer)
Ricardo H. Rosa

* Director
--------------------------------
Richard D. Kinder

* Director
--------------------------------
Ronald L. Kuehn, Jr.

* Director
--------------------------------
Arthur Lindenauer

* Director
--------------------------------
Paul B. Loyd, Jr

* Director
--------------------------------
Martin B. McNamara

* Director
--------------------------------
Roberto Monti

* Director
--------------------------------
Richard A. Pattarozzi

* Director
--------------------------------
Alain Roger

* Director
--------------------------------
Kristian Siem

* Director
--------------------------------
Ian C. Strachan

By: /s/ William E. Turcotte
--------------------------------
William E. Turcotte
(Attorney-in-Fact)