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

FORM 10-Q

(Mark One)

OR

Commission File Number 1-8097

ENSCO International Incorporated
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (214) 397-3000

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 ý        No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act:
          Large accelerated filer ý         Accelerated filer o            Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes o         No ý

There were 151,859,636 shares of Common Stock, $.10 par value, of the registrant outstanding as of October 20, 2006.

ENSCO INTERNATIONAL INCORPORATED

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2006

Table of Contents

FORWARD-LOOKING STATEMENTS

       This report contains forward-looking statements by management and the Company that are subject to a number of risks and uncertainties. The forward-looking statements contained in the report are based on information as of the date of this report. The Company assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking statements include words or phrases such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "projects," "could," "may," "might," "should," "will" and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment; statements regarding future levels of, or trends in, day rates, utilization, revenues, operating expenses, capital expenditures, insurance, financing and funding; statements regarding likely outcome of legal proceedings or claims; and statements regarding future construction, enhancement, upgrade or repair of rigs, future mobilization, relocation or other movement of rigs, and future availability or suitability of rigs. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including those described under "Item 1A. Risk Factors" to Part I of the Company's Form 10-K/A (Amendment No. 1) for the year ended December 31, 2005, as updated under "Item 1A. Risk Factors" and elsewhere herein and in our other 2006 quarterly reports on Form 10-Q.

2

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
ENSCO International Incorporated:

We have reviewed the accompanying condensed consolidated balance sheet of ENSCO International Incorporated and subsidiaries as of September 30, 2006, the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2006 and 2005, and the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2006 and 2005. These condensed consolidated financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of ENSCO International Incorporated and subsidiaries as of December 31, 2005, and the related consolidated statements of income and cash flows for the year then ended (not presented herein); and in our report dated February 22, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Dallas, Texas
October 23, 2006

3

Table of Contents

ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)

The accompanying notes are an integral part of these financial statements.

4

Table of Contents

ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)

The accompanying notes are an integral part of these financial statements.

5

Table of Contents

ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value amounts)

The accompanying notes are an integral part of these financial statements.

6

Table of Contents

ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

The accompanying notes are an integral part of these financial statements.

7

Table of Contents

ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Unaudited Condensed Financial Statements

       The accompanying condensed consolidated financial statements of ENSCO International Incorporated and subsidiaries (the "Company") have been prepared in accordance with U.S. generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included herein is unaudited but, in the opinion of management, includes all adjustments (consisting of normal recurring adjustments) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The December 31, 2005 consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by U.S. generally accepted accounting principles. Certain reclassifications have been made to the 2005 unaudited condensed consolidated financial statements to conform to the 2006 presentation. In addition, the 2005 unaudited condensed consolidated financial statements have been restated for the adoption of Financial Accounting Standards No. 123, (revised 2004) "Share-Based Payment", (see "Note 3 - Share-Based Employee Compensation"). The preparation of the condensed consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. Actual results could differ from those estimates.

       The financial data for the three-month and nine-month periods ended September 30, 2006 and 2005 included herein have been subjected to a limited review by KPMG LLP, the Company's independent registered public accounting firm. The accompanying registered public accounting firm's review report is not a report within the meaning of Sections 7 and 11 of the Securities Act of 1933 and the registered public accounting firm's liability under Section 11 does not extend to it.

       Results of operations for the three-month and nine-month periods ended September 30, 2006 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2006. It is recommended that these financial statements be read in conjunction with the Company's consolidated financial statements and notes thereto for the year ended December 31, 2005 included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K/A (Amendment No. 1).

Note 2 - Earnings Per Share

       For the three-month and nine-month periods ended September 30, 2006 and 2005, there were no adjustments to net income for purposes of calculating basic and diluted earnings per share. The following is a reconciliation of the weighted average common shares used in the basic and diluted earnings per share computations for the three-month and nine-month periods ended September 30, 2006 and 2005 (in millions):

8

Table of Contents

       Options to purchase 1.1 million shares and 15,000 shares of common stock in the three-month periods ended September 30, 2006 and 2005, respectively, were not included in the computation of diluted earnings per share because the exercise price of the options exceeded the average market price of the common stock for the periods. Options to purchase 700,000 shares and 15,000 shares of common stock in the nine-month periods ended September 30, 2006 and 2005, respectively, were not included in the computation of diluted earnings per share because the exercise price of the options exceeded the average market price of the common stock for the periods.

Note 3 - Share-Based Employee Compensation

Adoption of New Accounting Standard

       The Company grants share options, previously referred to as "stock options," and non-vested share awards, previously referred to as "restricted stock," to its employees, officers and directors. Prior to January 1, 2006, the Company accounted for share options using the recognition and measurement provisions of Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), as permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). No compensation cost for share options was recognized in the Company's net income for periods prior to January 1, 2006, as all share options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Non-vested share awards were accounted for under the provisions of SFAS 123. Accordingly, compensation cost for non-vested share awards was measured using the market value of the common stock on the date of grant and was recognized on a straight line basis over the requisite service period (usually the vesting period).

       Effective January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards No. 123, (revised 2004) "Share-Based Payment" ("SFAS 123(R)"), using the modified-retrospective transition method. Under that transition method, compensation cost recognized in prior periods has been restated to include share option compensation cost previously reported in the pro forma footnote disclosures required by SFAS 123. Compensation cost recognized in the three-month and nine-month periods ended September 30, 2005 has been restated to include: (a) compensation cost for all share options granted prior to, but not yet vested as of January 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share options granted during the three-month and nine-month periods ended September 30, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123. The December 31, 2005 consolidated balance sheet has been restated to adjust deferred income taxes, additional paid-in capital and retained earnings to reflect all share options granted prior to, but not yet vested as of January 1, 2005, and to reflect compensation cost recognized during the year ended December 31, 2005.

       No restatement is necessary related to non-vested share awards upon adoption of SFAS 123(R), as compensation cost related to those awards was previously recognized in the financial statements. Under SFAS 123(R), non-vested share awards will continue to be measured using the market value of the common stock on the date of grant and recognized on a straight line basis over the requisite service period (usually the vesting period).

9

Table of Contents

       The following table summarizes share option compensation expense recognized in the three-month and nine-month periods ended September 30, 2005 resulting from the adoption of SFAS 123(R) on January 1, 2006 (in millions, except per share amounts):

       To reflect share option compensation cost recognized prior to January 1, 2006, deferred income tax assets increased by $6.8 million, additional paid-in capital increased by $72.6 million and retained earnings decreased by $65.8 million on the December 31, 2005 consolidated balance sheet.

       Prior to the adoption of SFAS 123(R), tax benefits from share-based compensation plans were reported as cash provided by operating activities of continuing operations in the consolidated statements of cash flows. Under SFAS 123(R), the excess or shortfall of tax deductions, resulting from the exercise of share options and vesting of share awards, compared to the tax benefits resulting from the compensation expense recognized in connection with such exercised share options and vested share awards is reported as an excess tax benefit or tax deficiency, as applicable, under financing activities in the consolidated statements of cash flows. As a result of adopting SFAS 123(R) using the modified-retrospective transition method, both the previously reported amounts of cash provided by operating activities of continuing operations and cash used in financing activities in the consolidated statement of cash flows for the nine-month period ended September 30, 2005, have increased by $4.5 million.

10

Table of Contents

       Share-based compensation expense recognized in the consolidated statements of income for the three-month and nine-month periods ended September 30, 2006, is based on awards ultimately expected to vest, and therefore, has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. Prior to the adoption of SFAS 123(R), the Company accounted for forfeitures as they occurred. On January 1, 2006, the Company estimated that 13.7% of share options and 8.2% of non-vested share awards are not expected to vest. Accordingly, the Company recognized a cumulative adjustment to reduce share-based compensation expense by $600,000, net of tax, for unvested share options and non-vested share awards that have been recognized in the financial statements as a result of applying the modified-retrospective transition method. The estimate is included in "Cumulative effect of accounting change for adoption of SFAS 123(R), net" on the consolidated statement of income for the nine-month period ended September 30, 2006.

       Subsequent to the adoption of SFAS 123(R), compensation cost for all equity awards, regardless of when they were granted, will be recognized based on the number of awards expected to vest. All subsequent changes in estimated forfeitures, including changes in estimates relating to share options and non-vested share awards granted prior to the adoption of SFAS 123(R), will be recognized as a cumulative adjustment to compensation cost in the period in which they occur.

Share Options

       In May 2005, the Company's stockholders approved the 2005 Long-Term Incentive Plan (the "2005 Plan"). The 2005 Plan is similar to and essentially replaces the Company's previously adopted 1998 Incentive Plan (the "1998 Plan") and 1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). No further awards will be granted under the previously adopted plans, however, those plans shall continue to apply to and govern awards made thereunder. Under the 2005 Plan, a maximum of 7.5 million new shares are reserved for issuance as awards of share options to officers, employees and non-employee directors. Share options granted to officers and employees generally become exercisable in 25% increments over a four-year period and to the extent not exercised, expire on the seventh anniversary of the date of grant. Share options granted to non-employee directors are immediately exercisable and to the extent not exercised, expire on the seventh anniversary of the date of grant. The exercise price of share options granted under the 2005 Plan equals the market value of the underlying stock on the date of grant. At September 30, 2006, options to purchase 1.7 million shares of the Company's common stock were outstanding under the 2005 Plan.

       Share options previously granted under the 1998 Plan become exercisable in 25% increments over a four-year period and to the extent not exercised, expire on the fifth anniversary of the date of grant. Share options previously granted under the Directors' Plan become exercisable six months after the date of grant and expire, if not exercised, five years thereafter. The exercise price of share options granted under the 1998 Plan and the Directors' Plan equals the market value of the underlying stock on the date of grant. At September 30, 2006, options to purchase 2.1 million shares of the Company's common stock were outstanding under the 1998 Plan and the Directors' Plan.

11

Table of Contents

       The following table summarizes share option compensation expense recognized for the three-month and nine-month periods ended September 30, 2006 and 2005 (in millions):

       The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions for the three-month and nine-month periods ended September 30, 2006 and 2005:
 

       There were no share options granted during the three-month period ended September 30, 2005. Expected volatility is based on the historical volatility of the Company's stock over the period of time equivalent to the expected term of the options granted. The expected term of options granted is derived from historical exercise patterns over a period of time equivalent to the term of the options granted. The Company has not experienced significant differences in the historical exercise patterns among officers, employees and non-employee directors for them to be considered separately for valuation purposes. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon issues on the date of grant with a remaining term approximating the expected term of the options granted.

12

Table of Contents

       A summary of share option activity for the three-month period ended September 30, 2006, is as follows (shares and intrinsic value in thousands, term in years):
 

       The following table summarizes the value of options granted and exercised during the three-month and nine-month periods ended September 30, 2006 and 2005:
 

       The following table summarizes information about share options outstanding at September 30, 2006 (shares in thousands):
 

       As of September 30, 2006, there was $29.7 million of total unrecognized compensation cost related to share options granted, which is expected to be recognized over a weighted-average period of 2.6 years.

13

Table of Contents

Non-Vested Share Awards

       Key employees, who are in a position to contribute materially to the Company's growth and development and to its long-term success, are eligible for non-vested share awards. Prior to the adoption of the 2005 Plan, non-vested share awards were issued under the 1998 Plan and generally vested at a rate of 10% per year, as determined by a committee of the Board of Directors. No further non-vested share awards will be granted under the 1998 Plan, however, that plan shall continue to apply to and govern awards issued thereunder. The 2005 Plan provides for the issuance of non-vested share awards up to a maximum of 2.5 million new shares. Under the 2005 Plan, shares of common stock subject to annual grants of non-vested share awards generally vest at a rate of 20% per year and grants of non-vested share awards to new or recently promoted employees generally vest at a rate of 10% per year, as determined by a committee of the Board of Directors. All non-vested share awards have voting and dividend rights effective on the date of grant. Compensation expense is measured using the market value of the common stock on the date of grant and is recognized on a straight-line basis over the requisite service period (usually the vesting period). At September 30, 2006, there were 1.8 million shares of common stock available for non-vested share awards under the 2005 Plan.

       The following table summarizes non-vested share award compensation expense recognized for the three-month and nine-month periods ended September 30, 2006 and 2005 (in millions):
 

14

Table of Contents

       The following table summarizes the value of non-vested share awards granted and vested during the three-month and nine-month periods ended September 30, 2006 and 2005:
 

       A summary of non-vested share award activity for the three-month period ended September 30, 2006, is as follows (shares in thousands):
 

       As of September 30, 2006, there was $33.5 million of total unrecognized compensation cost related to non-vested share awards granted, which is expected to be recognized over a weighted-average period of 5.2 years.

15

Table of Contents

Note 4 - Long-Term Debt

       At September 30, 2006, the Company had $120.3 million outstanding under its 6.36% bonds due 2015, which are collateralized by the ENSCO 7500 semisubmersible drilling rig, and $65.3 million outstanding under its 4.65% bonds due 2020, which are collateralized by the ENSCO 105 jackup drilling rig. The bonds are guaranteed by the United States Department of Transportation, Maritime Administration ("MARAD") and the Company has guaranteed the performance of its obligations under the bonds to MARAD through two separate security agreements (the "Security Agreements"). At June 30, 2006, the Company was in compliance with the Security Agreements, which contain customary restrictive covenants that, among other things, require the Company to maintain certain levels of insurance coverage on ENSCO 7500 and ENSCO 105 and limit the amount of deductibles and/or levels of self-insurance retained by the Company to no more than $10.0 million per occurrence and $20.0 million annual aggregate for each rig. The Company has historically insured ENSCO 7500 and ENSCO 105 for amounts no less than their estimated fair market value, subject to certain deductibles and levels of self-insurance that are well within the requirements of the Security Agreements.

       Insurance companies incurred substantial losses in the offshore drilling, exploration and production industries as a consequence of hurricanes that occurred in the Gulf of Mexico during 2005 and 2004. Accordingly, insurance companies have substantially reduced the levels of insurance coverage available for losses arising from Gulf of Mexico hurricane related windstorm damage and have dramatically increased the cost of such coverage. The Company renewed its insurance coverage effective as of July 1, 2006 and obtained coverage for losses arising from Gulf of Mexico hurricane related windstorm damage with limits and deductibles and/or levels of self-insurance that would not have complied with the insurance covenants contained in the Security Agreements. In consideration of the Company issuing letters of credit in favor of MARAD for an aggregate amount of $100.0 million, MARAD has waived the Company's compliance with the insurance covenants in the Security Agreements as they relate to amounts of coverage and self-insurance retention for the period July 1, 2006 through July 1, 2007. Accordingly, the Company remains in compliance with the insurance covenants of the Security Agreements.

       On June 23, 2005, the Company amended and restated its existing $250.0 million unsecured revolving credit agreement (the "Credit Agreement"). The amended and restated agreement (the "2005 Credit Facility") provides for a $350.0 million unsecured revolving credit facility with a syndicate of lenders for general corporate purposes. The 2005 Credit Facility has a five-year term, expiring June 23, 2010, and replaced the Company's $250.0 million five-year Credit Agreement that was scheduled to mature on July 26, 2007. Advances under the 2005 Credit Facility bear interest at LIBOR plus an applicable margin rate (currently .35% per annum), depending on the Company's credit rating. The Company pays a facility fee (currently .10% per annum) on the total $350.0 million commitment, which is also based on the Company's credit rating, and pays an additional utilization fee on outstanding advances if such advances equal or exceed 50% of the total $350.0 million commitment. The Company is required to maintain certain financial covenants under the 2005 Credit Facility, including a specified level of interest coverage and debt to total capitalization ratio. The Company had no amounts outstanding under the 2005 Credit Facility at September 30, 2006 or December 31, 2005.

       In connection with a prior acquisition, the Company assumed 5.63% bonds that were issued to provide long-term financing for ENSCO 76. The bonds were guaranteed by MARAD and were being repaid in 24 equal semiannual principal installments of $2.9 million ending in July 2011. On June 15, 2005, the Company redeemed the bonds for $40.9 million, including $900,000 of accrued interest and a $1.8 million redemption premium. The $1.8 million redemption premium and a $600,000 unamortized debt discount are included in "Other income (expense) - Other, net" in the consolidated statement of income for the nine-month period ended September 30, 2005.

16

Table of Contents

Note 5 - Stockholders' Equity

       On March 14, 2006, the Company's Board of Directors authorized a stock repurchase program for the repurchase of up to $500.0 million of the Company's outstanding common stock. During the nine-month period ended September 30, 2006, the Company repurchased 2.3 million shares of its common stock at a cost of $106.7 million (an average cost of $45.49 per share). At September 30, 2006 and December 31, 2005, the outstanding shares of the Company's common stock, net of treasury shares, were 152.2 million and 153.4 million, respectively.

       A summary of activity in the various stockholders' equity accounts for the nine-month periods ended September 30, 2006 and 2005, is as follows (in millions):
 

17

Table of Contents

Note 6 - Comprehensive Income

       The components of the Company's comprehensive income for the three-month and nine-month periods ended September 30, 2006 and 2005, are as follows (in millions):

       Accumulated other comprehensive loss at September 30, 2006 and December 31, 2005, of $7.6 million and $10.9 million, respectively, consist of net unrealized losses on derivative instruments, net of tax. The estimated amount of net unrealized losses on derivative instruments, net of tax at September 30, 2006, that will be reclassified to earnings during the next twelve months is as follows (in millions):

Note 7 - Income Taxes

       The income tax rates imposed in the tax jurisdictions in which the Company's foreign subsidiaries conduct operations vary, as does the tax base to which the rates are applied. In some cases, tax rates may be applicable to gross revenue, statutory or negotiated deemed profits, or other bases utilized under local tax laws, rather than to net income. In addition, the Company's drilling rigs are frequently moved from one tax jurisdiction to another. As a result, the Company's consolidated effective income tax rate may vary substantially from one reporting period to another, depending on the relative components of the Company's earnings generated in tax jurisdictions with higher tax rates or lower tax rates.

       The Company's effective income tax rates for the three-month periods ended September 30, 2006 and 2005 were 23.2% and 26.7%, respectively. The income tax provision for the three-month period ended September 30, 2006 includes a $6.6 million net benefit that results primarily from the resolution of various issues in connection with the completion of audits by tax authorities of certain foreign tax returns and release of certain tax liabilities recognized in prior years that are determined to no longer be necessary. The income tax provision for the three-month period ended September 30, 2005 includes a $5.4 million net benefit that primarily results from the resolution of various issues relating to an audit by tax authorities of the Company's 2002 U.S. tax return and release of certain tax liabilities recognized in prior years that are determined to no longer be necessary. Excluding the impact of the aforementioned net benefits, the Company's effective income tax rates for the three-month periods ended September 30, 2006 and 2005 would have been 25.5% and 31.8%, respectively.

18

Table of Contents

       The Company's effective income tax rates for the nine-month periods ended September 30, 2006 and 2005 were 26.1% and 28.3%, respectively. The income tax provision for the nine-month period ended September 30, 2006 includes a $2.3 million net benefit that results from the resolution of various issues relating to prior periods. The income tax provision for the nine-month period ended September 30, 2005 includes a $5.4 million net benefit that primarily results from the resolution of issues relating to an audit by tax authorities of the Company's 2002 U.S. tax return and release of certain tax liabilities recognized in prior years that are determined to no longer be necessary. Excluding the impact of the aforementioned net benefits, the Company's effective income tax rates for the nine-month periods ended September 30, 2006 and 2005 would have been 26.4% and 30.5%, respectively.

       Upon filing its 2005 U.S. tax return, the Company elected to defer recognition of a taxable gain, pursuant to Section 1033 of the Internal Revenue Code, associated with the receipt of insurance proceeds for ENSCO 64, which was severely damaged by Hurricane Ivan in 2004. This election resulted in a $19.4 million increase in deferred income tax expense and a corresponding $19.4 million decrease in current income tax expense during the three-month period ended September 30, 2006.

Note 8 - Discontinued Operations

       The ENSCO 29 platform rig sustained substantial damage as a consequence of Hurricane Katrina in September 2005. On January 5, 2006, beneficial ownership of ENSCO 29 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company received the rig's net insured value of $10.0 million and recognized a pre-tax gain of $7.5 million, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the nine-month period ended September 30, 2006. The $7.5 million carrying value of the rig is classified in "Property and equipment, net" on the December 31, 2005 consolidated balance sheet. During the three-month period ended September 30, 2006, the Company recognized a $1.2 million provision ($800,000 net of tax) relating to issues involving ENSCO 29 wreckage and debris removal insurance coverage (see "Note 9 - Contingencies"). The operating results of ENSCO 29 have been reclassified as discontinued operations in the consolidated statements of income for the three-month and nine-month periods ended September 30, 2006 and 2005.

       On October 20, 2005, the Company sold the ENSCO 26 platform rig for $12.0 million and recognized a minimal gain. The operating results of ENSCO 26 have been reclassified as discontinued operations in the consolidated statements of income for the three-month and nine-month periods ended September 30, 2005.

       On June 30, 2005, the Company sold its six South America/Caribbean barge rigs for $59.6 million and recognized a pre-tax gain of $9.6 million, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the nine-month period ended September 30, 2005. The net book value of the rigs was $45.1 million on the date of sale. The operating results of these rigs have been reclassified as discontinued operations in the consolidated statement of income for the nine-month period ended September 30, 2005.

       The ENSCO 64 jackup rig sustained substantial damage during Hurricane Ivan in September 2004. On April 15, 2005, beneficial ownership of ENSCO 64 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company transferred beneficial ownership of ENSCO 64 to insurance underwriters and received the rig's insured value of $65.0 million. On the date of transfer, the net book value of the rig was $52.8 million. The Company recognized a pre-tax gain of $11.7 million upon receipt of the insurance proceeds, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the nine-month period ended September 30, 2005.The operating results of ENSCO 64 have been reclassified as discontinued operations in the consolidated statement of income for the nine-month period ended September 30, 2005.

19

Table of Contents

       Following is a summary of income (loss) from discontinued operations for the three-month and nine-month periods ended September 30, 2006 and 2005 (in millions):

       There is no debt or interest expense allocated to the Company's discontinued operations.

Note 9 - Contingencies

       A portion of the ENSCO 29 drilling rig was lost over the side of a customer's platform during Hurricane Katrina in September 2005. Although beneficial ownership of ENSCO 29 was subsequently transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss, management believes the Company may be required to remove the ENSCO 29 wreckage and debris from the seabed and currently estimates the removal cost could range from $5.0 million to $15.0 million. The Company's property insurance policies include coverage for ENSCO 29 wreckage and debris removal costs up to $3.8 million. The Company also retains liability insurance policies that provide coverage for wreckage and debris removal costs in excess of the $3.8 million of coverage provided under the property insurance policies. The Company's liability insurance underwriters have issued a reservation of rights letter raising issues regarding the applicability of coverage for the potential ENSCO 29 wreckage and debris removal costs. The Company will contest any assertion that the ENSCO 29 wreckage and debris removal is not subject to coverage under the liability insurance policies and intends to pursue all available remedies in the event its liability insurance underwriters deny coverage. While the Company believes it is likely that any ENSCO 29 wreckage and debris removal costs incurred will be fully covered by insurance, a $1.2 million provision, representing the portion of the $5.0 million low range of the estimated removal cost the Company believes is subject to liability insurance coverage, has been recognized during the third quarter of 2006.

       In September 2004, the Republic of India amended the Finance Act, 1994, by enacting the Finance (No. 2) Act, 2004 (the "Act"), which purported to extend a 12.2% tax levied on services to the specific service of "survey and exploration of minerals." Based on the definition of "survey and exploration of minerals" contained in the Act, the Company does not believe its contract drilling operations in India should be considered taxable services, and thus, has neither paid nor recognized a liability for the tax. In March 2006, a Writ Petition, filed by the local chapter of the International Association of Drilling Contractors ("IADC"), challenging the applicability of the Act to contract drilling services, was admitted by an Indian Court and a hearing is currently pending. The position taken by the IADC in its Writ Petition is supported by the Oil and Natural Gas Corporation Limited, the government sponsored oil company in India. In addition, the Company has contractual indemnities from its customer that provide for full reimbursement of any tax that may be assessed. Therefore, if the Indian Court should determine the tax applies to contract drilling services, the Company would recognize, through September 30, 2006, both a $10.1 million expense and liability for such tax and an equal corresponding $10.1 million as reimbursable revenue and receivable from its customer. Accordingly, the Company does not expect the resolution of this matter to have a material effect on the financial position, results of operations or cash flows of the Company.

20

Table of Contents

       In August 2004, the Company and certain subsidiaries were named as defendants in three multi-party lawsuits filed in the Circuit Courts of Jones County (Second Judicial District) and Jasper County (First Judicial District), Mississippi, involving numerous other companies as co-defendants. The lawsuits seek an unspecified amount of monetary damages on behalf of individuals alleging personal injury or death, including claims under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the period 1965 through 1986. The lawsuits are still at a very preliminary stage. Following the recent lapse of a period of time granted by the Special Master appointed to oversee the litigation, all named plaintiffs were required to prepare and submit "Fact Sheets" to facilitate the determination of such issues or facts as (i) whether the plaintiffs have a proper cause of action, (ii) which defendants are the focus of a particular plaintiff's claim, (iii) by whom a plaintiff may have been employed and the period(s) of such employment, (iv) where a plaintiff resides and whether the Mississippi courts have jurisdiction over their alleged claim, and (v) venue, assuming the Mississippi courts have jurisdiction.

       The Company has filed responsive pleadings in the Mississippi lawsuits preserving all defenses and challenges to jurisdiction and venue and, on the basis of information contained or withheld from the plaintiffs' Fact Sheets, all companies named as co-defendants (including the Company) are currently reviewing the information in an effort to ascertain which claims, if any, should be dismissed, which claims, if any, although on their face appear to be proper, should be made the subject of a motion challenging venue and transferred, and, finally, which claims, if any, appear to have been properly filed with the court where they are currently pending. Those plaintiffs whose claims are severed and transferred will be required to re-file new complaints, while those plaintiffs whose causes of action are not transferred will, nonetheless, be required to amend or supplement their complaints to specifically plead their cause of action in respect to each named defendant. The Company intends to vigorously defend against the litigation, including aggressively challenging the propriety of the jurisdiction and venue of such claims. Based on information currently available or, more appropriately, the lack thereof, the Company cannot reasonably estimate a range of potential liability exposure, if any. While the Company does not expect the resolution of these lawsuits to have a material adverse effect on its financial position, results of operations or cash flows, there can be no assurance as to the ultimate outcome of these lawsuits.

       Legislation known as the U.K. Working Time Directive was introduced in August 2003 and may be applicable to employees of the Company and other drilling contractors that work offshore in U.K. territorial waters or in the U.K. sector of the North Sea. Certain unions representing offshore employees have claimed that drilling contractors are not in compliance with the U.K. Working Time Directive in respect of paid time off (vacation time) for employees working offshore on a rotational basis (equal time working and off), and the related issues are subject to pending or potential judicial, administrative and legislative review. Based on the information available at this time, the Company does not expect the resolution of this matter to have a material adverse effect on its financial position, results of operations or cash flows.

       The Company and its subsidiaries are named defendants in certain lawsuits and are involved from time to time as parties to governmental proceedings, including matters related to taxation, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material effect on the financial position, results of operations or cash flows of the Company.

21

Table of Contents

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

       ENSCO International Incorporated and subsidiaries ("ENSCO" or the "Company") is an international offshore contract drilling company with a current operating fleet of 46 drilling rigs, including 43 jackup rigs, one ultra-deepwater semisubmersible rig, one platform rig and one barge rig. Additionally, the Company has three ultra-deepwater semisubmersible rigs and one ultra-high specification jackup rig under construction. The Company's offshore contract drilling operations are integral to the exploration, development and production of oil and natural gas and the Company is one of the leading providers of offshore drilling services to the international oil and gas industry.

       The Company drills and completes offshore oil and gas wells under contracts with major international, government-owned and independent oil and gas companies. The drilling services provided by the Company are conducted on a "day rate" contract basis, under which the Company provides its drilling rigs and rig crews and receives a fixed amount per day for drilling wells. The customer bears substantially all of the ancillary costs of constructing the wells and supporting drilling operations, as well as the economic risk relative to the success of the wells.

       Financial operating results in the offshore contract drilling industry have historically been very cyclical and are primarily related to the demand for drilling rigs and the available supply of rigs. Demand for rigs is directly related to the regional and worldwide levels of offshore exploration and development spending by oil and gas companies, which is beyond the control of the Company. Offshore exploration and development spending may fluctuate substantially from year to year and from region to region. Such spending fluctuations result from many factors, including:
 

       The supply of drilling rigs is limited and new rigs require a substantial capital investment and a long period of time to construct. In addition, it is time consuming to move rigs between markets. Accordingly, as demand changes in a particular market, the supply of rigs may not adjust quickly and, therefore, the utilization and day rates of rigs could fluctuate significantly. Certain events, such as hurricanes, may impact the supply and demand of rigs in a particular market and cause rapid fluctuations in utilization and day rates.

       Since factors that affect offshore exploration and development spending are beyond the control of the Company and because rig demand can change rapidly, it is difficult for the Company to predict industry conditions or trends in operating results. Periods of low demand result in excess rig supply, which generally reduces rig utilization levels and day rates; periods of high demand tighten rig supply, which generally results in increased rig utilization levels and day rates.

22

Table of Contents

       The Company's drilling rigs are deployed throughout the world, with drilling operations concentrated in the major geographic regions of North and South America, Europe/Africa and Asia Pacific (which includes Asia, the Middle East, Australia and New Zealand). The Company competes with other offshore drilling contractors on the basis of price, quality of service, operational and safety performance, equipment suitability and availability, reputation and technical expertise. Competition is usually on a regional basis, but offshore drilling rigs are mobile and may be moved from one region to another in response to demand.

       During the first nine months of 2006, the offshore drilling industry generally continued to experience strong demand and increasing day rates and utilization for all drilling rig types on a global basis. Leading day rates currently are at record levels for most rig classes. Recently executed contracts generally have more favorable terms and conditions for drilling companies and are of greater duration than the historical averages. However, during the third quarter, the industry has experienced some moderation in the demand for jackup rigs in the Gulf of Mexico due to the apparent deferral of drilling activity until after the hurricane season and the recent decrease in the price of natural gas. It is currently anticipated that the recent softness in the Gulf of Mexico market will reverse as additional jackup rigs depart for contracted international work and deferred Gulf of Mexico projects resume following the hurricane season.

       At present, the supply of available drilling rigs is unable to meet the growing demand of oil and gas companies on a global basis. In some regions, this unavailability has led oil and gas companies to postpone or cancel projects. As a result of the global supply imbalance and other commercial considerations, various industry participants have ordered construction of approximately ninety new offshore rigs, which are scheduled for delivery over the next several years. Furthermore, competition for skilled and other labor will continue to intensify as these new rigs enter the market in future periods.

BUSINESS ENVIRONMENT

       The Company's North and South America offshore drilling operations are mainly conducted in the Gulf of Mexico. The U.S. natural gas market and trends in oil and gas company spending largely determine offshore drilling industry conditions and demand for rigs in this region. Gulf of Mexico jackup rig contracts are normally entered into for relatively short durations and day rates are adjusted to current market rates upon contract renewal. Some Gulf of Mexico rigs remain contracted with the same customer for several years, but the contractual day rates are periodically renegotiated by reference to prevailing market day rates and adjusted accordingly.

       During 2005, day rates of Gulf of Mexico jackup rigs continued to increase from prior year levels as a result of a further reduction in the supply of available rigs in the region and increased demand. The supply of jackup rigs began to tighten in mid-2005 after several of the Company's competitors announced the planned departure of rigs contracted outside the region. These rigs became unavailable during the latter half of 2005 to prepare for mobilization to other regions. Additionally, Hurricane Katrina and Hurricane Rita disrupted drilling operations and severely damaged or destroyed several rigs operating in the region thereby reducing the number of available rigs even further. The demand for Gulf of Mexico jackup rigs continued to strengthen during late 2005 as oil and gas companies increased spending due to an increasing demand for natural gas.

       During the first nine months of 2006, day rates of Gulf of Mexico jackup rigs have experienced an overall increase from 2005; however, the upward movement in day rates began to level off late in the second quarter and have experienced a slight reduction over the last three months. The region experienced a fairly rapid increase in jackup rig day rates over most of the first and second quarters due to the decreased supply of available rigs in the region and the announcement by the Company and several of its competitors regarding the planned departure of additional rigs contracted to work in international waters during the second half of 2006 and the first quarter of 2007. Drilling contractors continue to move jackup rigs out of the Gulf of Mexico to take advantage of increasing international demand and day rates, coupled with contracts that are typically of a longer duration than Gulf of Mexico contracts. In addition to a recent decrease in the price of natural gas, increased insurance costs, limited availability of insurance coverage and resulting uninsured exposure, and the expectation of an active hurricane season in 2006 made this region less attractive to drilling contractors during the first nine months of 2006.

23

Table of Contents

       The impact of the decreased supply of available jackup rigs in the Gulf of Mexico has been offset by a corresponding decrease in demand that began late in the second quarter as oil and gas companies were reluctant to start new projects in view of the hurricane season and due to the recent decrease in natural gas prices. Therefore, jackup rig day rates in the Gulf of Mexico began to moderate late in the second quarter of 2006 and have experienced a slight reduction during the third quarter.

       The Company's Europe/Africa offshore drilling operations are mainly conducted in northern Europe. Jackup rig contracts in the Europe/Africa region are generally of a longer duration than those in the Gulf of Mexico. During 2005 and the first nine months of 2006, day rates continued to improve from prior year levels as the outlook for favorable oil and natural gas prices has resulted in increased spending by oil and gas companies in this region. Furthermore, a strong backlog of firm commitments and options in northern Europe has resulted in little or no availability of jackup rigs for the remainder of 2006 and 2007, which has significantly contributed to the increase in day rates from prior year levels.

       Demand for jackup rigs in most Asia Pacific region markets has strengthened during 2005 and the first nine months of 2006 and continues to exceed the supply of rigs, despite the addition of several rigs to the Asia Pacific region during the previous seven quarters. As a result, jackup rig utilization levels remain high and day rates continue to improve. Jackup rig drilling contracts in the Asia Pacific region have historically been for substantially longer durations than those in other geographical regions. Since day rates for such contracts generally are fixed, or fixed subject to adjustment for variations in the contractor's costs, the Company's Asia Pacific operations generally are not subject to the same level of day rate volatility as regions such as the Gulf of Mexico where shorter term contracts are prevalent.

       A significant portion of the Company's jackup rig contracts in the Europe/Africa and Asia Pacific regions contain cost adjustment provisions. These provisions are designed to protect the Company's operating margin during times when contract drilling expenses are increasing. The cost adjustment provisions usually result in an increase in contract day rates to offset operating costs that have increased since the inception of a contract, and may also include rate adjustment provisions addressing rate reductions in the event of a decrease in operating costs. A minor portion of the Company's average day rate increases experienced in the Europe/Africa and Asia Pacific regions are attributable to contractual cost adjustment provisions.

RESULTS OF OPERATIONS

       In recent years, the Company has disposed of several assets, including the sale of six barge rigs and a platform rig in 2005, and the loss of two rigs as a result of damage caused by hurricanes, a jackup rig in 2004 and a platform rig in 2005. The operating results of these assets have been reclassified as discontinued operations in the consolidated statements of income for the three-month and nine-month periods ended September 30, 2006 and 2005. (See "Discontinued Operations" below for further information regarding the operating results and disposal of these assets.)

24

Table of Contents

       The following analysis highlights the Company's consolidated operating results for the three-month and nine-month periods ended September 30, 2006 and 2005 (in millions):

       For the three-month period ended September 30, 2006, revenues increased by $214.8 million, or 78%, and operating income increased by $170.2 million, or 153%, from the prior year quarter. The increases are primarily due to improved average day rates in all operating areas and improved utilization of Asia Pacific jackup rigs, as compared to the prior year quarter.

       For the nine-month period ended September 30, 2006, revenues increased by $621.8 million, or 85%, and operating income increased by $500.7 million, or 194%, from the prior year period. The increases are primarily due to improved average day rates in all operating areas and improved utilization of Europe/Africa and Asia Pacific jackup rigs, as compared to the prior year period. Detailed explanations of the Company's operating results for the three-month and nine-month periods ended September 30, 2006 and 2005, including discussions of revenues and contract drilling expense based on geographical location and type of rig, are set forth below.

25

Table of Contents

Revenue and Contract Drilling Expense

       The following is an analysis of the Company's revenues, contract drilling expense, rig utilization and average day rates from continuing operations for the three-month and nine-month periods ended September 30, 2006 and 2005 (in millions, except utilization and day rates):

26

Table of Contents

27

Table of Contents

       The following is a summary of the Company's offshore drilling rigs at September 30, 2006 and 2005:

28

Table of Contents

   North and South America Jackup Rigs

       Third quarter 2006 revenues for the North and South America jackup rigs increased by $90.0 million, or 100%, compared to the prior year quarter. The increase in revenues is due primarily to an 83% increase in average day rates. The significant increase in average day rates is primarily attributable to a decreased supply of available rigs as the Company and several of its competitors continue to mobilize rigs contracted for work in international markets out of the Gulf of Mexico. Though the duration of recently executed contracts is longer than the historical average, shorter duration contracts prevalent in the Gulf of Mexico allow for day rates to increase or decrease at a faster pace than those of regions with predominantly longer duration contracts. Therefore, the increase in day rates for Gulf of Mexico jackup rigs has typically exceeded the day rate increases experienced in international regions during periods of increasing rig demand. Third quarter 2006 contract drilling expense increased by $10.0 million, or 29%, compared to the prior year quarter. The increase in contract drilling expense is primarily attributable to an increase in utilization to 93% in the current year quarter from 82% in the prior year quarter, and increased personnel costs, insurance costs and rig mobilization expense.

       For the nine months ended September 30, 2006, revenues for the North and South America jackup rigs increased by $268.3 million, or 107%, compared to the prior year period. The increase in revenues is due primarily to a 103% increase in average day rates attributable to the reduced supply of Gulf of Mexico jackup rigs, as discussed above. For the nine months ended September 30, 2006, contract drilling expense increased by $25.5 million, or 25%, compared to the prior year period. The increase in contract drilling expense is primarily attributable to increased personnel costs and rig mobilization expense as compared to the prior year period.

   Europe/Africa Jackup Rigs

       Third quarter 2006 revenues for the Europe/Africa jackup rigs increased by $63.3 million, or 88%, from the prior year quarter. The increase in revenues is primarily due to a 67% increase in the average day rates and to a lesser extent, the addition of ENSCO 102 to the Europe/Africa jackup fleet in February 2006, which provided $17.1 million of revenue in the current quarter. The improvement in day rates is primarily attributable to improved demand resulting from increased spending by oil and gas companies. Contract drilling expense increased by $12.7 million, or 45%, from the prior year quarter due primarily to the aforementioned addition of ENSCO 102 and to increased personnel, repair and maintenance expense.

       For the nine months ended September 30, 2006, revenues for the Europe/Africa jackup rigs increased by $195.7 million, or 118%, from the prior year period. The increase in revenues is primarily attributable to a 84% increase in the average day rates and to a lesser extent, the addition of ENSCO 102 to the Europe/Africa jackup fleet in February 2006, which provided $39.9 million of revenue in the current year period. The improvement in day rates and utilization is primarily attributable to increased spending by oil and gas companies. Contract drilling expense increased by $34.4 million, or 43%, from the prior year period due primarily to the aforementioned addition of ENSCO 102 and to increased personnel, repair and maintenance expense.

29

Table of Contents

   Asia Pacific Jackup Rigs

       Third quarter 2006 revenues for the Asia Pacific jackup rigs increased by $61.4 million, or 71%, as compared to the prior year quarter. The increase in revenues is primarily due to a 28% increase in average day rates and an increase in utilization to 100% in the current year quarter from 82% in the prior year quarter as a result of increased demand due primarily to higher levels of spending by oil and gas companies. Contract drilling expense increased by $9.5 million, or 21%, as compared to the prior year quarter due to increased utilization and to increases in personnel costs and mobilization expense.

       For the nine months ended September 30, 2006, revenues for the Asia Pacific jackup rigs increased by $148.5 million, or 58%, as compared to the prior year period. The increase in revenues is due primarily to a 29% increase in average day rates and an increase in utilization to 98% in the current year period from 84% in the prior year period as a result of increased demand as noted above. Contract drilling expense increased by $28.5 million, or 23%, as compared to the prior year period due primarily to increased utilization, increased personnel, maintenance and repair expense and a $2.7 million estimated loss related to damage sustained by ENSCO 107 as a result of a punchthrough that occurred while pre-loading on a drilling location offshore Vietnam in June 2006.

   North America Semisubmersible Rig

       Third quarter 2006 revenues for ENSCO 7500 decreased by $600,000, or 3%, as compared to the prior year third quarter due primarily to a credit in the third quarter of 2005 resulting from the favorable resolution of a prior period contractual issue. Third quarter 2006 contract drilling expense increased by $2.2 million or 45%, as compared to the prior year third quarter primarily due to increased personnel costs.

       For the nine months ended September 30, 2006, revenues for ENSCO 7500 increased $6.0 million, or 16%, and contract drilling expense increased $3.3 million, or 20%, from the prior year period. The increase in revenues is primarily due to a 23% increase in the average day rate and the increase in contract drilling expense is mainly attributable to increased personnel costs.

30

Table of Contents

Depreciation and Amortization

       Depreciation and amortization expense for the three-month and nine-month periods ended September 30, 2006 increased by $5.6 million, or 14%, and $17.7 million, or 16%, respectively, as compared to the corresponding prior year periods. The increases are primarily attributable to depreciation associated with capital enhancement projects completed subsequent to the third quarter of 2005 and depreciation on ENSCO 107, which was placed into service in March of 2006.

General and Administrative

       General and administrative expense for the three-month and nine-month periods ended September 30, 2006 increased by $3.2 million, or 40%, and $8.3 million, or 35%, respectively, as compared to the corresponding prior year periods. The increase for the three-month period is primarily attributable to an increase in personnel costs. The increase for the nine-month period is primarily attributable to an increase in personnel costs and professional fees.

Other Income (Expense)

       Other income (expense) for the three-month and nine-month periods ended September 30, 2006 and 2005 is as follows (in millions):
 

       Interest income for the three-month and nine-month periods ended September 30, 2006 increased as compared to the corresponding prior year periods due to higher average interest rates and an increase in cash balances invested. Interest expense decreased during the same periods due primarily to a decrease in outstanding debt. Capitalized interest for the three-month and nine-month periods ended September 30, 2006 increased as compared to the corresponding prior year periods due to an increase in the amount invested in new rig construction projects, primarily ENSCO 108, ENSCO 8500 and ENSCO 8501 construction projects.

       Other, net, for the nine-month period ended September 30, 2006 consists primarily of a $1.3 million net loss recognized in connection with ENSCO 7500 repair work resulting from damage the rig sustained during Hurricane Katrina in September 2005 and foreign currency translation losses of $1.2 million. Other, net for the nine-month period ended September 30, 2005 consists primarily of a $3.1 million net gain related to the resolution of insurance claims associated with two rigs damaged by Hurricane Ivan in September 2004 and foreign currency translation gains of $1.1 million, partially offset by a $2.4 million expense incurred upon the redemption of the Company's 5.63% bonds in June 2005 and a $500,000 loss for the insurance deductible related to damage sustained on the Company's rigs located in the Gulf of Mexico during Hurricane Katrina in September 2005.

31

Table of Contents

Provision for Income Taxes

       The provisions for income taxes for the three-month and nine-month periods ended September 30, 2006 increased in comparison to the corresponding periods of the prior year by $36.7 million and $127.6 million, respectively. The increases are attributable to increased profitability and reduced effective income tax rates.

       The income tax rates imposed in the tax jurisdictions in which the Company's foreign subsidiaries conduct operations vary, as does the tax base to which the rates are applied. In some cases, tax rates may be applicable to gross revenue, statutory or negotiated deemed profits, or other bases utilized under local tax laws, rather than to net income. In addition, the Company's drilling rigs are frequently moved from one tax jurisdiction to another. As a result, the Company's consolidated effective income tax rate may vary substantially from one reporting period to another, depending on the relative components of the Company's earnings generated in tax jurisdictions with higher tax rates or lower tax rates.

       The Company's effective income tax rates for the three-month periods ended September 30, 2006 and 2005 were 23.2% and 26.7%, respectively. The income tax provision for the three-month period ended September 30, 2006 includes a $6.6 million net benefit that results primarily from the resolution of various issues in connection with the completion of audits by tax authorities of certain foreign tax returns and release of certain tax liabilities recognized in prior years that were determined to no longer be necessary. The income tax provision for the three-month period ended September 30, 2005 includes a $5.4 million net benefit that results primarily from the resolution of various issues relating to an audit by tax authorities of the Company's 2002 U.S. tax return and release of certain tax liabilities recognized in prior years that were determined to no longer be necessary. Excluding the impact of the aforementioned net benefits, the Company's effective income tax rates for the three-month periods ended September 30, 2006 and 2005 would have been 25.5% and 31.8%, respectively.

       The Company's effective income tax rates for the nine-month periods ended September 30, 2006 and 2005 were 26.1% and 28.3%, respectively. The income tax provision for the nine-month period ended September 30, 2006 includes a $2.3 million net benefit that results primarily from the resolution of various issues relating to prior periods. The income tax provision for the nine-month period ended September 30, 2005 includes a $5.4 million net benefit that results primarily from the resolution of issues relating to an audit by tax authorities of the Company's 2002 U.S. tax return and release of certain tax liabilities recognized in prior years that were determined to no longer be necessary. Excluding the impact of the aforementioned net benefits, the Company's effective income tax rates for the nine-month periods ended September 30, 2006 and 2005 would have been 26.4% and 30.5%, respectively.

       Upon filing its 2005 U.S. tax return, the Company elected to defer recognition of a taxable gain, pursuant to Section 1033 of the Internal Revenue Code, associated with the receipt of insurance proceeds for ENSCO 64, which was severely damaged by Hurricane Ivan in 2004. This election resulted in a $19.4 million increase in deferred income tax expense and a corresponding $19.4 million decrease in current income tax expense during the three-month period ended September 30, 2006.

32

Table of Contents

Discontinued Operations

       The ENSCO 29 platform rig sustained substantial damage as a consequence of Hurricane Katrina in September 2005. On January 5, 2006, beneficial ownership of ENSCO 29 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company received the rig's net insured value of $10.0 million and recognized a pre-tax gain of $7.5 million, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the nine-month period ended September 30, 2006. The $7.5 million carrying value of the rig is classified in "Property and equipment, net" on the December 31, 2005 consolidated balance sheet. During the three-month period ended September 30, 2006, the Company recognized a $1.2 million provision ($800,000 net of tax) relating to issues involving ENSCO 29 wreckage and debris removal insurance coverage (see Note 8 to the Company's Consolidated Financial Statements). The operating results of ENSCO 29 have been reclassified as discontinued operations in the consolidated statements of income for the three-month and nine-month periods ended September 30, 2006 and 2005.

       On October 20, 2005, the Company sold the ENSCO 26 platform rig for $12.0 million and recognized a minimal gain. The operating results of ENSCO 26 have been reclassified as discontinued operations in the consolidated statements of income for the three-month and nine-month periods ended September 30, 2005.

       On June 30, 2005, the Company sold its six South America/Caribbean barge rigs for $59.6 million and recognized a pre-tax gain of $9.6 million, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the nine-month period ended September 30, 2005. The net book value of the rigs was $45.1 million on the date of sale. The operating results of these rigs have been reclassified as discontinued operations in the consolidated statement of income for the nine-month period ended September 30, 2005.

33

Table of Contents

       The ENSCO 64 jackup rig sustained substantial damage during Hurricane Ivan in September 2004. On April 15, 2005, beneficial ownership of ENSCO 64 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company transferred beneficial ownership of ENSCO 64 to insurance underwriters and received the rig's insured value of $65.0 million. On the date of transfer, the net book value of the rig was $52.8 million. The Company recognized a pre-tax gain of $11.7 million upon receipt of the insurance proceeds, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the nine-month period ended September 30, 2005.The operating results of ENSCO 64 have been reclassified as discontinued operations in the consolidated statement of income for the nine-month period ended September 30, 2005.

       Following is a summary of income (loss) from discontinued operations for the three-month and nine-month periods ended September 30, 2006 and 2005 (in millions):