TRANSOCEAN OFFSHORE INC, 10-K, 1999-03-19

TRANSOCEAN OFFSHORE INC
10-K, 1999-03-19
DRILLING OIL & GAS WELLS

Previous: MEDITRUST OPERATING CO, PRER14A, 1999-03-19

Next: TIMBERLINE SOFTWARE CORPORATION, DEF 14A, 1999-03-19

<PAGE>

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

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

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

FORM 10-K

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

For the fiscal year ended December 31, 1998

Commission file number 1-7746

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

TRANSOCEAN OFFSHORE INC.
(Exact name of registrant as specified in its charter)

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

Delaware 72-0464968
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

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

Registrant's telephone number, including area code: (713) 871-7500

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

<TABLE>
<CAPTION>
Title of class Exchange on which registered
-------------- ----------------------------
<S> <C>
Common Stock, $0.01 par value New York Stock Exchange, Inc.
</TABLE>

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, 1999, 100,571,816 shares of common stock were
outstanding and the aggregate market value of shares held by non-affiliates
was approximately $2.0 billion (based on the reported closing market price of
the common stock on such date of $20.625 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, 1998,
for its 1999 annual meeting of stockholders are incorporated by reference into
Part III of this Form 10-K.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

TRANSOCEAN OFFSHORE INC.

INDEX TO REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
Item Page
-------- ----
<C> <S> <C>
PART I
Items 1 through 4

Item 1. Business...................................................... 1
Background.................................................... 1
Recent Developments........................................... 1
Drilling Rig Fleet............................................ 2
Drilling Services............................................. 5
Drilling Contracts............................................ 5
Industry Conditions and Competition........................... 6
Operating Risks............................................... 7
International Operations...................................... 8
Regulation.................................................... 8
Employees..................................................... 9
Item 2. Properties.................................................... 10
Item 3. Legal Proceedings............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders........... 11
Executive Officers of the Registrant.......................... 11

PART II
Items 5 through 9

Item 5. Market for Registrant's Common Equity and Related Shareholder 12
Matters......................................................
Item 6. Selected Consolidated Financial Data.......................... 13
Item 7. Management's Discussion and Analysis of Financial Condition 14
and Results of Operations....................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 28
Item 8. Financial Statements and Supplementary Data................... 30
Item 9. Changes In and Disagreements With Accountants on Accounting 60
and Financial Disclosure.....................................

PART III
Items 10 through 13

Item 10. Directors and Executive Officers of the Registrant............ 60
Item 11. Executive Compensation........................................ 60
Item 12. Security Ownership of Certain Beneficial Owners and 60
Management...................................................
Item 13. Certain Relationships and Related Transactions................ 60

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8- 60
K............................................................
</TABLE>
<PAGE>

PART I

ITEM 1. Business

Transocean Offshore Inc. (together with its subsidiaries, unless the
context requires otherwise, the "Company" or "Transocean") is a leading
international provider of deepwater and harsh environment contract drilling
services for oil and gas wells. As of March 1, 1999, the Company owns, has
ownership interests in or operates 31 mobile offshore drilling rigs.
Transocean's fleet consists of seven fourth-generation semisubmersibles,
fourteen second- and third-generation semisubmersibles, four drillships
including one newbuild drillship, the "Discoverer Enterprise," which is
currently in the final stages of construction and testing, and six jackup
rigs. The Company also has under construction two additional Discoverer
Enterprise-class drillships, to be named "Discoverer Spirit" and "Discoverer
Deep Seas." The Company contracts these drilling rigs, related equipment and
work crews primarily on a dayrate basis to drill offshore wells. The Company
also provides additional drilling services, including turnkey drilling, coiled
tubing drilling and well intervention and management of third-party well
service activities.

Transocean Offshore Inc. is a Delaware corporation with its principal
executive offices located at 4 Greenway Plaza, Houston, Texas 77046. Its
telephone number at that address is (713) 871-7500.

Background

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 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 and currently owns no capital stock of the Company. 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 $1,504.8 million in common stock and cash,
including direct transaction costs and costs of purchasing minority shares
completed in 1997 (the "Combination"), and changed its name to "Transocean
Offshore Inc."

Recent Developments

In December 1998, the Company and the operators of the Terra Nova field,
located offshore Newfoundland, Canada, agreed to terminate their two-year
drilling contract for the Transocean Explorer. In connection with the
termination, the Terra Nova group agreed to pay a $40 million cash settlement
to the Company. The net proceeds from the cash settlement were used to repay
debt.

On March 11, 1999, the Company's board of directors approved a corporate
reorganization that will result in the Company becoming a Cayman Islands
corporation rather than a Delaware corporation. The Company believes the
reorganization will give it greater flexibility in seeking to lower its
worldwide effective tax rate and improve worldwide cash management. In
addition, the Company anticipates that the reorganization may increase its
access to international capital markets, broaden its investor base by making
its securities more attractive to non-U.S. investors and give it greater
flexibility in structuring foreign joint ventures and acquisition
opportunities. The Company has entered into an Agreement and Plan of Merger
and Conversion relating to the reorganization. Pursuant to that agreement, the
Company will merge with and into a wholly owned Texas subsidiary, which will
then become a Cayman Islands corporation ("Transocean-Cayman") pursuant to a
conversion and continuation procedure under Texas and Cayman Islands law. In
the reorganization, each share of common stock of the Company held by the
public will automatically be converted into an ordinary share of Transocean-
Cayman. The Company expects the shares of Transocean-Cayman to be listed on
the New York

1
<PAGE>

Stock Exchange under "RIG," the same symbol under which the Company's common
stock is currently listed. The proposed reorganization is subject to certain
conditions to closing, including approval by the Company's stockholders.
Following the reorganization, the name of Transocean-Cayman will be
"Transocean Offshore Inc."

Drilling Rig Fleet

The Company's fleet includes full or partial ownership in seven of the
world's thirteen fourth-generation and full ownership of thirteen second- and
third-generation semisubmersibles, three dynamically positioned drillships and
six jackups. As of March 1, 1999 all but two of the Company's operational
drilling rigs currently are being utilized, with contracts expiring from 1999
through 2004. The Company remains a leader in deepwater and ultra-deepwater
drilling, having drilled as of December 31, 1998 approximately 77 percent of
all wells ever drilled in water depths greater than 5,000 feet and four of the
five wells drilled in water depths exceeding 7,000 feet.

Drilling Rig Types

The Company principally uses three types of drilling rigs--
semisubmersibles, drillships and jackups. Semisubmersibles are floating
vessels that can be submerged such that a substantial portion of the lower
hull is below the water surface during drilling operations. They are well
suited for operations in rough water conditions. Fourth-generation
semisubmersibles are those built after 1984 that have larger physical size
than other semisubmersibles, harsh environment capability, high variable deck
load capability (greater than 4,000 metric tons), 15,000 psi blowout
preventers and superior motion characteristics. Fourth-generation
semisubmersibles are frequently the most suitable units for operations in deep
water and harsh environments or for development drilling that requires larger
variable loads and the ability to handle large pieces of subsea equipment.
Drillships are generally self-propelled and designed to drill in the deepest
water. Shaped like conventional ships, they are the most mobile of the major
rig types. The Company's drillships are dynamically positioned, which allows
them to maintain position without anchors through the use of their onboard
propulsion and station-keeping systems. Jackup rigs stand on the ocean floor
with their hull and drilling equipment elevated above the water on connected
support legs. They are generally suited for water depths of 350 feet or less.

All of the Company's Discoverer Enterprise-class drillships will be
equipped for dual-activity drilling, which is a well-construction technology
developed by Transocean that allows for drilling tasks associated with a
single well to be accomplished in a concurrent rather than sequential manner
by utilizing two complete drilling systems under a single derrick. The Company
has filed an application for a patent for this process with the U.S. Patent
and Trademark Office. The patent remains pending at this time. The dual-
activity well construction process is designed to reduce critical path
activity and improve efficiency in both exploration and development drilling.
When applied in a deepwater environment, the Company estimates that efficiency
improvements of up to 40 percent on development projects and 15 percent on
exploration projects could be obtained. The 100,000 metric-ton displacement
Discoverer Enterprise-class drillships will each possess a large enough
variable deck load (20,000 metric tons) to allow the rigs to carry tubulars
and consumables for the construction of three or more wells.

The Company's drilling equipment is suitable for both exploration and
development drilling, and the Company is normally engaged in both types of
drilling activity. The Company's drilling rigs are mobile and can be moved to
new locations in response to customer demand. All of the Company's offshore
drilling units are designed for operations away from port for extended periods
of time and have living quarters for the crews, a helicopter landing deck and
storage space for pipe and drilling supplies.

Fleet Additions and Upgrades

The Discoverer Enterprise, the first of a new class of advanced, ultra-
deepwater drillships employing the Company's dual-activity drilling system, is
in the final stages of construction, outfitting and testing at the Ingalls

2
<PAGE>

shipyard in Pascagoula, Mississippi, and will commence working for Amoco
Production Company ("Amoco") under a five-year contract upon completion and
acceptance, estimated in the second quarter of 1999. The rig will initially be
outfitted to drill in 8,500 feet of water, but with additional riser will be
capable of exploration and development drilling in water depths up to 10,000
feet. The Company spent $154 million on this project in 1998 and expects to
spend $80 million in 1999.

In the first quarter of 1998, the Company announced plans to construct two
additional Discoverer Enterprise-class drillships, the Discoverer Spirit and
the Discoverer Deep Seas. The Discoverer Spirit will be fully outfitted with
sufficient riser to drill in 10,000 feet of water, while the Discoverer Deep
Seas will initially be outfitted to drill in 8,000 feet of water, but with
additional riser will be capable of drilling in water depths up to 10,000
feet. The Company has received a contract commitment from Spirit Energy 76, a
division of Union Oil Company of California ("Unocal") for a firm period of
five years plus up to five one-year options for the Discoverer Spirit, and has
signed a contract with Chevron USA, Inc. for five years plus three one-year
options for the Discoverer Deep Seas. The hulls and major marine systems are
being constructed at the Astillero y Talleres del Noroeste SA ("Astano")
shipyard in Ferrol, Spain, with the derrick, derrick substructure, BOP and
other modules to be constructed at U.S. Gulf Coast facilities. The Discoverer
Spirit is expected to become operational in the first quarter of 2000 and the
Discoverer Deep Seas in the third quarter of 2000. Approximately $124 million
and $106 million was spent on construction of the Discoverer Spirit and
Discoverer Deep Seas, respectively, in 1998 and the Company expects to spend
$210 million and $230 million, respectively, to complete the projects.

In August 1998, the Company completed the upgrade and conversion of the
Transocean Marianas from a multi-service vessel to a semisubmersible drilling
rig with a water depth capability of 7,000 feet. The rig then commenced a
five-year contract with Shell Deepwater Development. In 1998, the Company
spent approximately $106 million to complete this project.

See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations--Capital Expenditures."

3
<PAGE>

Fleet Status

The following table provides certain information about the Company's
drilling rig fleet as of March 1, 1999:

<TABLE>
<CAPTION>
Year Water Drilling
Entered Depth Depth
Service/ Capability Capability Estimated
Type and Name Upgraded(1) (in feet) (in feet) Location Customer Expiration(2)
------------- ----------- ---------- ---------- ------------------- -------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Fourth-generation
Semisubmersibles
Polar Pioneer........... 1985 1,500 25,000 Norwegian North Sea Norsk Hydro February 2000
Transocean Arctic (3)... 1986 1,650 25,000 Norwegian North Sea Statoil February 2002
Henry Goodrich (4)...... 1985 2,000 30,000 U.K. North Sea British Petroleum August 1999
Paul B. Loyd, Jr. (4)... 1991/1993 2,000 25,000 U.K. North Sea British Petroleum April 2000
Transocean Leader....... 1987/1997 4,500 25,000 Norwegian North Sea Statoil August 1999
Transocean Rather....... 1988 4,500 25,000 U.S. Gulf of Mexico Shell Deepwater Dev. July 1999
Transocean Richardson... 1988 5,000 25,000 U.S. Gulf of Mexico Shell Deepwater Dev. April 1999
Other Semisubmersibles
Transocean Explorer..... 1976 1,250 25,000 U.K. North Sea -- Idle
Transocean Discoverer... 1977/1985 1,250 25,000 U.K. North Sea Talisman February 2000
Transocean Wildcat (3).. 1977/1985 1,300 25,000 Norwegian North Sea Statoil June 2001
Transocean Winner (3)... 1983 1,500 25,000 Norwegian North Sea Statoil July 2003
Transocean Searcher (3). 1983/1988 1,500 25,000 Norwegian North Sea Statoil July 2003
Transocean Prospect (3). 1983/1992 1,500 25,000 Norwegian North Sea Statoil October 2000
Transocean John Shaw.... 1982 1,800 25,000 U.K. North Sea Shell U.K. May 1999
Kan Tan IV (5).......... 1983/1998 2,000 25,000 U.K. North Sea Amerada Hess February 2001
Transocean 96........... 1975/1997 2,300 25,000 U.S. Gulf of Mexico Texaco June 1999
Transocean 97........... 1977/1997 2,300 25,000 Trinidad Conoco May 1999
Transocean Driller...... 1991 3,000 25,000 Brazil Petrobras June 2000
Transocean Legend....... 1983 3,500 25,000 Brazil Petrobras December 1999
Transocean Amirante..... 1978/1997 3,500 25,000 U.S. Gulf of Mexico Amoco September 2002
Transocean Marianas..... 1979/1998 7,000 25,000 U.S. Gulf of Mexico Shell Deepwater Dev. September 2003
Drillships
Discoverer Seven Seas
(6).................... 1976/1997 7,000 25,000 U.S. Gulf of Mexico Exxon July 1999
Discoverer 534 (6)...... 1975/1991 7,000 25,000 U.S. Gulf of Mexico Amoco February 2000
Discoverer Enterprise
(6)(7)................. 1999 10,000 35,000 U.S. Gulf of Mexico Amoco May 2004
Discoverer Spirit
(6)(8)................. 2000 10,000 35,000 Astano Shipyard Unocal (8)
Discoverer Deep Seas
(6)(9)................. 2000 10,000 35,000 Astano Shipyard Chevron (9)
Discoverer 511 (10)..... 1976 2,000 25,000 Mexico Pemex March 1999
Jackup Rigs
Transocean Jupiter...... 1981/1997 170 16,000 UAE -- Idle
Transocean Comet........ 1980 250 20,000 Gulf of Suez, Egypt GUPCO October 2000
Transocean Mercury...... 1969/1998 250 20,000 Gulf of Suez, Egypt GUPCO October 2000
Transocean III.......... 1978/1993 300 20,000 India Enron March 1999
Shelf Explorer.......... 1982 300 25,000 Danish North Sea Maersk May 1999
Transocean Nordic....... 1984 300 25,000 U.K. North Sea Elf March 1999
</TABLE>
- --------
(1) Dates shown are the original service date and the date of the most recent
upgrade, if any.
(2) Expiration dates represent the Company's current estimate of the earliest
date the contract for each rig is likely to expire.
(3) Participating in a cooperation agreement with Statoil. See "Drilling
Contracts."
(4) Owned by Arcade Drilling as, a Norwegian company in which the Company has
a 25% interest and which is controlled by R&B Falcon Corporation.
(5) Operated pursuant to a management contract.
(6) Dynamically positioned.
(7) The Discoverer Enterprise is currently in the final stages of
construction, outfitting and testing in the Ingalls shipyard in
Pascagoula, Mississippi, and is expected to be operational in the second
quarter of 1999. The rig will be equipped with sufficient riser to drill
in 8,500 feet of water, but will be capable of drilling in 10,000 feet of
water with additional riser.
(8) The Company announced plans to build the Discoverer Spirit in January
1998. The rig is being constructed at the Astano shipyard and is expected
to be operational in the first quarter of 2000, working under a five-year
contract for Unocal.
(9) The Company announced plans to build the Discoverer Deep Seas in February
1998. The rig is being constructed at the Astano shipyard and is expected
to be operational in the third quarter of 2000, working under a five-year
contract for Chevron. The rig will initially be equipped with sufficient
riser to drill in 8,000 feet of water, but will be capable of drilling in
10,000 feet of water with additional riser.
(10) Operated under a bareboat charter with the rig's owner.

4
<PAGE>

Upon the expiration of existing contracts, there can be no assurance that
such contracts will be renewed or extended, that new contracts will be
available or, if contracts are available, that they will provide revenues
adequate to cover all fixed and variable costs associated with the rigs.

As of March 1, 1999, the Company's fleet is currently located in the Gulf
of Mexico (8 units), the North Sea (15 units), the Middle East (3 units) and
offshore Brazil (2 units), Trinidad (1 unit), Mexico (1 unit) and India (1
unit). The Company also maintains offices, land bases and other facilities
worldwide, including in Houston, Texas; Metairie and Morgan City, Louisiana;
Macae and Rio de Janeiro, Brazil; Aberdeen, Scotland; Cairo and Ras Shukhair,
Egypt; Bergen, Harstad and Tananger, Norway; Ciudad Del Carmen, Mexico;
Bombay, India; Esbjerg, Denmark; Doha, Qatar; La Coruna, Spain and
Chaguaramas, Trinidad. Most of these facilities are leased by the Company.

Drilling Services

The Company uses its engineering and operating expertise to provide turnkey
drilling and 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 customer needs and may be provided on either a
dayrate or fixed price basis. As of March 1, 1999, the Company was performing
such services under contracts in the U.K. sector of the North Sea and offshore
Mexico.

The Company also provides coiled tubing services to customers in the
Norwegian and U.K. sectors of the North Sea, primarily for well intervention.
Unlike conventional drilling units, which use sections of straight pipe
connected together to form the drillstring, coiled tubing units utilize reels
of flexible steel tubing. The tubing spools off the reel continuously into the
wellbore behind the bottom-hole assembly and drill bit, in contrast to
conventional rotary units, which must cease drilling to add each new section
of pipe. Transocean has also developed and patented proprietary technology to
increase the efficiency of coiled tubing operations by mounting the tubing
reel directly above the wellbore. The reduction in stress on the coil achieved
by this technique increases the life of the coil and thereby reduces the cost
of coiled tubing operations. The Company currently owns one drilling unit
utilizing this technology through a joint venture with an affiliate of Nabors
Industries, Inc. The venture is performing a drilling contract for ARCO
Alaska, Inc. on the North Slope.

In August 1998, the Company sold its directional drilling business to a
subsidiary of Dailey International Inc. for $10 million in cash, resulting in
a pre-tax gain of approximately $8.1 million ($5.3 million after tax or $0.05
per share, diluted).

In December 1998, the Company and subsidiaries of Baker Hughes Incorporated
formed a joint venture, Deepvision, L.L.C. The purpose of the venture is to
research, develop and implement new drilling technologies using coiled tubing
(reeled pipe) with applications in deepwater and ultra-deepwater environments.

Drilling Contracts

The Company's contracts to provide offshore drilling services are
individually negotiated and vary in their terms and provisions. The Company
obtains most of its 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 the control of the Company. The Company also performs
drilling services under turnkey contracts, which provide for payment of a
fixed price per well. Revenues from dayrate contracts have historically
accounted for substantially more of the Company's revenues than turnkey
contracts. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Operating Results."

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 and may be terminated by the customer in the event the drilling

5
<PAGE>

unit is destroyed or lost or if drilling operations are suspended for a
specified period of time as a result of a breakdown of major equipment or, in
some cases, due to other events beyond the control of either party. The
contract term in many instances may be extended by the customer 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, the Company's customers may seek renegotiation of firm drilling
contracts to reduce their obligations.

The Company and Statoil are parties to a cooperation agreement extending
through 2005. Under the cooperation agreement, the Company has committed five
semisubmersibles--the Transocean Arctic, Transocean Prospect, Transocean
Searcher, Transocean Wildcat and Transocean Winner--for varying contract
periods, with Statoil having options to extend the contracts at market rates
in minimum two-year intervals for the remainder of the term of the cooperation
agreement.

Under turnkey contracts, the Company agrees to drill a well to a specified
depth for a fixed price. In general, no payment is received by the Company
unless the well is drilled to the specified depth. The Company must bear the
costs of performing drilling services until the well has been drilled and,
accordingly, such projects may require significant cash commitments by the
Company. In addition, profitability of the contract is dependent upon keeping
expenses within the estimates used by the Company in determining the contract
price. In performing a turnkey project, the Company employs a drilling unit
from its own fleet or from another contractor under a dayrate contract.
Drilling a well under a turnkey contract offers the possibility of financial
gains or losses that are substantially greater than those which would
ordinarily result from drilling such well under a conventional dayrate
contract, since the Company retains any excess of the fixed price over its
expenses (including the drilling unit dayrate) but must pay any excess of
expenses over such price. The financial results of turnkey contracts depend
upon the performance of the drilling unit, drilling conditions and other
factors.

In January 1998, the Company announced that it was discontinuing turnkey
drilling operations in the U.S. Gulf of Mexico after experiencing a period of
unsatisfactory operating performance. The discontinuation did not include the
Company's international turnkey drilling operations, which historically have
been profitable. In January 1999, the Company completed the last well of a
three-well turnkey program in the Bay of Campeche, offshore Mexico, and
expects to recognize a profit on this well in the first quarter of 1999. See
"Item 7. Management's Discussion & Analysis of Financial Condition and Results
of Operations--Operating Results" and "--1998 Compared to 1997."

During the past five years, the Company has 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. During this period, the Company's principal customers have included
the Royal Dutch Shell Group, Statoil, Texaco, BP Amoco, Pemex, Gulf of Suez
Petroleum Company ("GUPCO"), Petrobras and Norsk Hydro. The Company's largest
unaffiliated customers in 1998 were Statoil, Royal Dutch Shell Group and BP
Amoco, accounting for 16 percent, 17 percent and 10 percent, respectively, of
the Company's 1998 consolidated operating revenues.

Industry Conditions and Competition

The Company depends on the levels of activity in offshore oil and gas
exploration, development and production in markets worldwide. This level of
activity is significantly affected by oil and gas prices, market expectations
of potential changes in these prices and a variety of political and economic
factors. 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 of
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 political environment of oil-
producing regions.

6
<PAGE>

Company. 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.

The Company's industry has historically been cyclical. 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. The industry is
currently in a period of low demand, and the Company is unable to predict when
the market will change. In addition, rig availability has increased as a
result of contract expirations and construction by other drilling contractors
of new rigs that are capable of competing with the Company's deepwater and
harsh environment rigs. Periods of excess rig supply intensify the competition
in the industry and often result in rigs being idle for long periods of time.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Market Outlook."

The Company requires highly-skilled personnel to operate and provide
technical services and support for its drilling units. During the industry
downturn in the mid- to late-1980s and early- to mid-1990s, the industry's
ability and need to recruit and train new personnel were severely curtailed.
The increased worldwide demand for offshore drilling services experienced in
1996 and 1997 created a shortage of qualified personnel. Although the shortage
has lessened somewhat due to the declining demand for offshore drilling
services that began in 1998, this shortage may become more acute over the next
several years as a number of new drilling units are expected to become
operational. The Company is continuing its recruitment and training programs
as required to meet its anticipated personnel needs.

As of March 1, 1999, the Company had three new rigs in shipyards under
construction. In 1998, the Company completed one conversion project.
Construction projects are subject to the risks of delay or cost overruns
inherent in large construction projects, including shipyard availability,
shortages of materials or skilled labor, unforeseen engineering problems, work
stoppages, weather interference, unanticipated cost increases and difficulty
in obtaining necessary equipment or the requisite permits or approvals.
Because of the large backlog of orders for new drilling rigs, shipyards
continue to experience some difficulty in hiring qualified workers and in
procuring materials, despite the decline in demand for drilling services that
began in 1998. Shipyards and suppliers continue to operate at or near
capacity, resulting in the delay of ordered materials and equipment. These
factors may contribute to cost variations and delays in the delivery of the
Company's drilling units under construction. Delays in delivery of these units
will result in delays in contract commencements, resulting in a loss of
revenue to the Company.

Operating Risks

The Company's 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, cratering or fires, the occurrence of which
could result in the suspension of drilling operations, damage to or
destruction of the equipment involved and injury or death to rig personnel.
Damage to the environment could also result from the Company's operations,
particularly through oil spillage or extensive uncontrolled fires. In
addition, offshore drilling operations are subject to perils peculiar to
marine operations, including capsizing, grounding, collision and loss or
damage from severe weather.

The Company maintains broad insurance coverage, including insurance against
general and marine public liability. The Company's offshore drilling equipment
is covered by physical damage insurance policies against marine and other
perils, including losses due to capsizing, grounding, collision, fire,
lightning, hurricanes, wind, storms, action of waves, cratering, blowouts and
explosions, and by policies against war risks to its rigs located in foreign
countries. The Company also carries employer's liability and other insurance
customary in the drilling business.

The Company believes it is adequately insured in accordance with industry
standards against normal risks in its operations; however, such insurance
coverage may not in all situations provide sufficient funds to protect

7
<PAGE>

the Company from all liabilities that could result from its drilling
operations. Although the Company's current practice is to insure its drilling
units for at least the net book value of the units, the Company's insurance
would not cover completely the costs that would be required to replace certain
of its units, including certain of its fourth-generation semisubmersibles and
drillships. Moreover, the Company's insurance coverage in most cases does not
protect against loss of revenues. Accordingly, the occurrence of a casualty or
loss against which the Company is not fully insured could have a material
adverse effect on the Company's financial position and results of operations.

The Company is subject to liability under various environmental laws and
regulations. See "--Regulation." The Company has generally been able to obtain
some degree of contractual indemnification pursuant to which the Company's
customer agrees to protect and indemnify the Company from liability for
pollution and environmental damages; however, there is no assurance that the
Company can obtain such indemnities in all of its contracts or that, in the
event of extensive pollution and environmental damages, the customer will have
the financial capability to fulfill its contractual obligation to the Company.
Also, these indemnities may not be enforceable in all instances. No such
indemnification is typically available for turnkey operations.

International Operations

The Company has derived a majority of its revenues from its foreign
operations in each of the past three years. The Company cannot predict whether
foreign operations will increase or decrease as a percentage of its revenues
in future periods.

The Company's foreign operations are subject to certain political and other
uncertainties not encountered in domestic operations, 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 foreign sovereignty over certain areas in
which operations are conducted. The Company is protected to a substantial
extent against capital loss (but generally not loss of revenue) from most of
such risks through insurance, indemnity provisions in its 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 the Company's existing insurance policies is evaluated
on an individual contract basis. As of March 1, 1999, all areas in which the
Company was operating were covered by existing insurance policies.

The Company's operations are also subject to extensive regulation by
foreign governments. Many foreign 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 the Company's ability to
compete. The Company expects to continue to structure its operations through
appropriate means in order to remain competitive in the international markets.

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

Regulation

The Company's 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.

8
<PAGE>

Foreign contract drilling operations are subject to various laws and
regulations in countries in which the Company operates. Such laws and
regulations regulate various aspects of foreign operations, including the
equipping and operation of drilling units, currency conversions and
repatriation, oil exploration and development, taxation of foreign 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 other aspects of
the oil 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 United States, regulations applicable to the Company's 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, the Company, 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 it is held
responsible, subject to certain limitations. Laws and regulations protecting
the environment have become more stringent in recent years, 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. Such laws and regulations may expose the Company to liability for the
conduct of or conditions caused by others, or for acts of the Company 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 the Company's financial
position and results of operations.

The Oil Pollution Act of 1990 ("OPA") and regulations promulgated pursuant
thereto 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 the OPA, and such
liability could be substantial. A 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 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.

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

The Company believes that it has conducted its operations in substantial
compliance with applicable environmental laws and regulations governing its
activities. Although significant capital expenditures may be required to
comply with such governmental laws and regulations, such compliance has not
materially adversely affected the earnings or competitive position of the
Company.

Employees

As of December 31, 1998, the Company had approximately 3,800 employees. The
Company requires highly skilled personnel to operate its drilling units. As a
result, the Company conducts extensive personnel recruiting, training and
safety programs.

9
<PAGE>

On a worldwide basis, the Company had approximately 30 percent of its
employees working under collective bargaining agreements at December 31, 1998.
The majority of these employees are represented by Norwegian unions. Of these
represented employees, a majority are working under agreements that are
subject to salary negotiation in 1999. The Company does not have any other
collective bargaining agreements that are material to the Company and
considers relations with its employees to be good.

ITEM 2. Properties

The description of the Company's property included under "Item 1. Business"
is incorporated by reference herein.

ITEM 3. Legal Proceedings

The Company and Global Marine, Inc. ("Global Marine") were parties to an
agreement pursuant to which the Company participated in the cash flow from
three jackup drilling rigs owned and operated by Global Marine and Global
Marine participated in the cash flow from one of the Company's jackup drilling
rigs, the Transocean Nordic. During April 1997, Global Marine initiated
arbitration proceedings against the Company in the United Kingdom with respect
to various disputed matters under the agreement. In March 1998, the Company
reached a settlement with Global Marine resolving the disputed matters under
the cash flow sharing agreement and terminating such agreement as of February
1, 1998. Pursuant to the settlement, the parties have certain continuing
rights to receive payments if any of the rigs covered by the former agreement
are sold within three years. The Company received $29.8 million cash from
Global Marine, resulting in an after tax gain of approximately $13.8 million,
or $.14 per share, diluted. The net cash proceeds were used to repay debt.

During 1997, Kvaerner Installasjon a.s ("Kvaerner") in Norway performed
modification and refurbishment work on one of the Company's fourth-generation
semisubmersible drilling rigs, the Transocean Leader. The amount owed with
respect to such work is in dispute. The Company has posted a letter of credit
valued at approximately $30 million pending the resolution of the dispute by
agreement between the parties or by final judgment under the Norwegian
judicial process. In September 1998, the Company instituted an action in the
Norwegian courts alleging that it owes no additional amounts and that the
letter of credit should be released. In March 1999, Kvaerner commenced
proceedings in the Norwegian courts seeking judgement for approximately $35
million plus interest. As of March 15, 1999, the Company was in the process of
responding to this claim. Although the Company cannot predict the outcome of
the dispute at this time, the Company believes it will have no material
adverse effect on its operations or financial position.

In 1990 and 1991, two of the Company's subsidiaries were served with
assessments valued at approximately $7.4 million from the municipality of Rio
de Janeiro, Brazil to collect a municipal tax on services ("ISS"). The Company
believes that neither subsidiary is liable for the taxes and has contested the
assessments in the Brazilian administrative and court systems. The proceedings
with respect to the 1991 assessment, which was valued at approximately $6.5
million, reached the first level Brazilian state court, which rejected the
Company's arguments. The Company has appealed that ruling to the second level
court. The August 1990 assessment also had an unfavorable ruling at the first
level, and the ruling has been appealed to the second level. 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 ISS payments required to be paid by them. The
Company believes the outcome of these assessments will have no material
adverse effect on the Company's operations or 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 pending litigation will have a material adverse effect on
its operations or financial position.

10
<PAGE>

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 1998.

Executive Officers of the Registrant

<TABLE>
<CAPTION>
Age as of
Officer Office March 1, 1999
------- ------ -------------
<S> <C> <C>
J. Michael Talbert...... Chairman of the Board and Chief Executive 52
Officer
W. Dennis Heagney....... Director, President and Chief Operating Officer 51
Jon C. Cole............. Senior Vice President 46
Robert L. Long.......... Senior Vice President, Chief Financial Officer 53
and Treasurer
Donald R. Ray........... Senior Vice President 52
Alan A. Broussard....... Vice President 53
Eric B. Brown........... Vice President, General Counsel and Secretary 47
Barbara S. Vice President and Controller 40
Koucouthakis...........
Dennis R. Long.......... Vice President 51
</TABLE>

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 was elected a director and Chairman of the Board and
Chief Executive Officer of the Company effective September 1, 1994 and
currently serves in those capacities. Prior to assuming his current position
with the Company, Mr. Talbert was President and Chief Executive Officer of
Lone Star Gas Company, a division of Enserch Corporation, since May 1993, and
served as President and Chief Operating Officer of Lone Star Gas Company from
January 1991 to May 1993.

W. Dennis Heagney was elected a director of the Company effective June 12,
1997 and President of the Company effective April 1, 1986 and currently serves
in those capacities and as Chief Operating Officer. He has been employed by
the Company since 1969 and was elected Vice President in 1983 and Senior Vice
President in 1984.

Jon C. Cole was elected Senior Vice President of the Company effective
April 1, 1993 and currently serves in that capacity, with responsibility for
European operations. Mr. Cole joined the Company in 1978 and was elected Vice
President in 1990.

Robert L. Long was elected Senior Vice President of the Company effective
May 1, 1990 and Treasurer of the Company effective September 1, 1997 and
currently serves in those capacities and as Chief Financial Officer. Mr. Long
has been employed by the Company since 1976 and was elected Vice President in
1987.

Donald R. Ray was elected Senior Vice President of the Company effective
December 1, 1996 and currently serves in that capacity, with responsibility
for technical services. Mr. Ray has been employed by the Company since 1972
and has served as a Vice President of the Company since 1986.

Alan A. Broussard was elected Vice President of the Company effective
February 12, 1998 and currently serves in that capacity, with responsibility
for worldwide marketing. He has been employed by the Company since 1975.

Eric B. Brown was elected Vice President and General Counsel of the Company
effective February 1, 1995 and Secretary effective September 29, 1995 and
currently serves in those capacities. During the past five years, prior to
assuming his current position with the Company, Mr. Brown served as General
Counsel of Coastal Gas Marketing Company.

11
<PAGE>

Barbara S. Koucouthakis was elected Controller of the Company effective
January 1, 1990 and Vice President effective April 1, 1993 and currently
serves in those capacities. She has been employed by the Company since 1982.

Dennis R. Long was elected Vice President of the Company effective July 1,
1997 and currently serves in that capacity, with responsibility for human
resources and management information systems. Prior to assuming his current
position with the Company, Mr. Long was Senior Vice President, Administration,
since May 1995, of Enserch Corporation, and previously served Lone Star Gas
Company, a division of Enserch Corporation, as Vice President, Human Resources
and Services, from January 1986 to May 1995.

PART II

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

The Company's common stock is listed on the New York Stock Exchange (the
"NYSE") and on the Oslo Stock Exchange under the symbol "RIG." The following
table sets forth the high and low sales prices of the Company's common stock
for the periods indicated as reported on the NYSE Composite Tape.

<TABLE>
<CAPTION>
Price
--------------
High Low
---- ----
<S> <C> <C>
1997
First Quarter...................................... $35 11/16 $26 1/8
Second Quarter..................................... 37 5/16 27 1/8
Third Quarter...................................... 50 1/2 36 5/16
Fourth Quarter..................................... 60 1/2 39 3/8
1998
First Quarter...................................... 54 15/16 35
Second Quarter..................................... 59 15/16 41 11/16
Third Quarter...................................... 46 3/8 23
Fourth Quarter..................................... 41 1/2 23 9/16
1999
First Quarter (through February 26)................ 31 9/16 20
</TABLE>

On February 26, 1999, the last reported sales price of the Company's common
stock on the NYSE Composite Tape was $20 5/8 per share. On such date, there
were approximately 1,000 holders of record of the Company's common stock and
100,571,816 shares of common stock outstanding.

The Company has paid quarterly cash dividends of $0.03 per share of its
common stock since the fourth quarter of 1993. Any future declaration and
payment of dividends will be (i) dependent upon the Company's results of
operations, financial condition, cash requirements and other relevant factors,
(ii) subject to the discretion of the Board of Directors of the Company, (iii)
subject to restrictions contained in the Company's bank credit agreement (see
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources") and (iv) payable only
out of the Company's surplus or current net profits in accordance with
Delaware law.

12
<PAGE>

ITEM 6. Selected Consolidated Financial Data

The selected consolidated financial data as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 has been
derived from the audited consolidated financial statements of the Company
included elsewhere herein. The selected consolidated financial data as of
December 31, 1996, 1995 and 1994 and for each of the two years in the period
ended December 31, 1995 has been derived from audited consolidated financial
statements of the Company 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 Company's consolidated
financial statements and the notes thereto included under "Item 8. Financial
Statements and Supplementary Data." The statement of operations data for the
year ended December 31, 1996 includes the operating results of Transocean ASA
since September 1, 1996, the effective date of the Combination for accounting
purposes.

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ----- -----
(In millions, except per share
data)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Operating Revenues............................ $1,090 $ 892 $ 529 $ 323 $ 243
Operating Income.............................. 460 217 108 52 21
Net Income.................................... 343 142 78 47 13
Net Income Per Share(a)(b)
Basic....................................... 3.43 1.40 1.09 0.83 0.23
Diluted..................................... 3.41 1.38 1.07 0.82 0.23

Other Financial Data
Cash Flows From Operating Activities.......... $ 470 $ 164 $ 126 $ 60 $ 64
EBITDA(c)..................................... 624 331 169 98 45
Cash Dividends Declared Per Share(a).......... 0.12 0.12 0.12 0.12 0.12
Capital Expenditures(d)....................... 573 406 213 19 59

Balance Sheet Data (at end of period)
Total Assets.................................. $3,251 $2,755 $2,443 $ 542 $ 493
Total Debt.................................... 833 733 420 30 30
Stockholders' Equity.......................... 1,979 1,621 1,628 364 321
</TABLE>
- --------
(a) Net Income Per Share and Cash Dividends Declared Per Share have been
retroactively restated to reflect the increased number of shares of common
stock issued and outstanding as a result of a two-for-one stock split
effected in the form of a 100 percent stock dividend, which was paid in
September 1997.
(b) Net Income Per Share amounts prior to 1997 have been restated to comply
with SFAS No. 128, Earnings Per Share (see Note 1 to the Company's
consolidated financial statements).
(c) EBITDA (earnings before interest, taxes, depreciation and amortization) is
presented here because it is a widely accepted financial indication of a
company's ability to incur and service debt. EBITDA is not a measurement
presented in accordance with generally accepted accounting principles
("GAAP") and is not intended to be used in lieu of GAAP presentations of
results of operations and cash provided by operating activities.
(d) Excludes the Combination.

13
<PAGE>

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 Company's consolidated financial statements and
the notes thereto included under "Item 8. Financial Statements and
Supplementary Data" elsewhere in this annual report.

Overview

Transocean Offshore Inc. is a leading international provider of deepwater
and harsh environment contract drilling services for oil and gas wells. As of
March 1, 1999, the Company owns, has ownership interests in or operates 31
mobile offshore drilling rigs. Transocean's fleet consists of seven fourth-
generation semisubmersibles, fourteen second- and third-generation
semisubmersibles, four drillships, including the "Discoverer Enterprise" which
is currently in the final stages of construction and testing, and six jackup
rigs. The Company also has under construction two additional Discoverer
Enterprise-class drillships, to be named "Discoverer Spirit" and "Discoverer
Deep Seas." The Company contracts these drilling rigs, related equipment and
work crews primarily on a dayrate basis to drill offshore wells. The Company
also provides additional drilling services, including turnkey drilling, coiled
tubing drilling and well intervention and management of third-party drilling
service activities.

In September 1997, the Company effected a two-for-one split of its common
stock in the form of a 100 percent stock dividend. All references in this
annual report to number of shares, per share amounts and market prices of the
Company's common stock have been retroactively restated to reflect the
increased number of shares of common stock issued and outstanding as a result
of the dividend.

The Company acquired over 99 percent of the outstanding capital shares of
Transocean ASA, a Norwegian company, pursuant to an exchange offer for Company
common stock and cash completed in September 1996 and subsequent purchases of
Transocean ASA shares in November and December 1996 (the "Combination"). All
remaining outstanding shares were purchased in July 1997. The total purchase
price was approximately $1.5 billion. The Combination was deemed effective for
accounting purposes as of September 1, 1996.

14
<PAGE>

Operating Results

Comparative data relating to the Company's operating revenues and operating
income by segment and geographic area follows. In the table and related
discussion below, the "Mobile Units" segment primarily consists of the results
of operations for drilling rigs operated for customers, primarily at a
contractually determined price per day (dayrate). The "Drilling Services"
segment primarily includes results from providing personnel and equipment
other than rigs for oil and gas exploration and production on either a dayrate
or fixed price basis. The operating results of Transocean ASA are included
from September 1, 1996.

<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1998 1997 1996
---------- -------- --------
(In thousands)
<S> <C> <C> <C>
Operating Revenues
Mobile Units
U.S. Gulf of Mexico.......................... $ 305,582 $222,142 $148,886
Europe....................................... 463,361 361,045 179,865
Other Western Hemisphere..................... 184,265 19,884 29,193
Other Eastern Hemisphere..................... 60,212 84,233 31,035
---------- -------- --------
Total Mobile Units............................. 1,013,420 687,304 388,979
---------- -------- --------
Drilling Services.............................. 76,192 204,658 139,924
---------- -------- --------
Total Operating Revenues....................... $1,089,612 $891,962 $528,903
========== ======== ========
Operating Income (Loss) (a)
Mobile Units
U.S. Gulf of Mexico.......................... $ 182,688 $127,247 $ 76,461
Europe....................................... 164,823 79,589 32,003
Other Western Hemisphere..................... 119,172 5,514 5,981
Other Eastern Hemisphere..................... 31,372 41,606 4,952
Other (b).................................... (13,386) (10,789) (5,632)
---------- -------- --------
Total Mobile Units............................. 484,669 243,167 113,765
---------- -------- --------
Drilling Services.............................. 4,811 (360) 10,079
---------- -------- --------
Total Operating Income for Reportable
Segments...................................... 489,480 242,807 123,844
Corporate Expenses............................. (29,208) (25,331) (16,230)
---------- -------- --------
Total Operating Income......................... 460,272 217,476 107,614
---------- -------- --------
Equity in earnings of joint ventures......... 11,677 10,196 5,168
Interest income.............................. 3,451 1,854 6,228
Interest expense, net of amounts
capitalized................................. (23,892) (22,853) (7,220)
Gain on termination of cash flow sharing
agreement................................... 21,290 -- --
Other, net................................... 14,348 572 9,862
---------- -------- --------
Other Income (Expense), Net.................... 26,874 (10,231) 14,038
---------- -------- --------
Income Before Income Taxes..................... $ 487,146 $207,245 $121,652
========== ======== ========
</TABLE>
- --------
(a) After depreciation and amortization expense.
(b) Other includes operations and engineering overhead expenses not allocated
to geographic areas of operations.

1998 Compared To 1997

Net income for the year ended December 31, 1998 was $343.4 million or $3.41
per share, diluted, compared to $141.9 million or $1.38 per share, diluted,
for 1997, an increase of $201.5 million (142 percent) or $2.03 per

15
<PAGE>

share, diluted. The increase in 1998 resulted primarily from increases in
dayrates and rig utilization and lower operating and maintenance costs,
partially offset by an increase in depreciation and amortization. In the
fourth quarter of 1998, the Company recognized operating revenues of $40
million and operating income of $36.1 million ($23.5 million after tax or
$0.23 per share, diluted) on a cash settlement in connection with the contract
termination for the Transocean Explorer. The Company also recognized a $21.3
million net gain ($13.8 million after tax or $0.14 per share, diluted) on the
termination of a cash flow sharing agreement with Global Marine Inc. ("Global
Marine") and a non-recurring $13.1 million pre-tax gain ($8.5 million after
tax or $0.08 per share, diluted) on the sale of certain non-core assets within
the Company's Drilling Services business segment and sales of surplus drilling
components during the year ended December 31, 1998.

Revenues were $1,089.6 million for the year ended December 31, 1998
compared to $892.0 million for 1997, an increase of $197.6 million or 22
percent. Operating income was $460.3 million in 1998 compared to $217.5
million in 1997, an increase of $242.8 million or 112 percent.

Revenues and operating income from Mobile Units increased significantly for
the year ended December 31, 1998 compared to 1997. Rig utilization increased
to 97 percent in 1998 from 93 percent in 1997, reflecting reduced downtime for
rig repairs and upgrades. The average dayrate for the Company's
semisubmersible drilling rigs and drillships was approximately $120,000 in
1998, compared to approximately $96,100 in 1997, an increase of 25 percent.
The Company's jackup drilling rigs experienced a similar percentage increase
in average dayrates.

In the U.S. Gulf of Mexico, the increase in revenues and operating income
for the year ended December 31, 1998 resulted primarily from higher average
dayrates and the addition of the results of three rigs that had been in the
shipyard undergoing upgrades for a significant portion of the prior year.
These increases were partially offset by the relocation of a rig to Trinidad
during the current year. In Europe, increases resulted from higher average
dayrates and lower downtime for repairs and marine surveys over the prior
period. Operating results in Other Western Hemisphere significantly increased
in the current year due to (i) the net gain associated with the cash
settlement in connection with the contract termination referred to previously,
(ii) higher average dayrates, (iii) the relocation of two rigs from the U.S.
Gulf of Mexico for a portion of the current period, including one that was in
the shipyard during 1997, (iv) the relocation of one rig that had operated in
Other Eastern Hemisphere in 1997, and (v) the inclusion of results from one
rig that had operated in an unconsolidated joint venture in the prior year.
Other Eastern Hemisphere experienced a decrease in operating results from 1997
due primarily to the relocation of a rig to Other Western Hemisphere in the
first quarter of 1998. This decrease was partially offset by increases in
average dayrates for the current period.

Revenues from Drilling Services decreased for the year ended December 31,
1998 compared to 1997, while operating income increased during the same
period. These results primarily reflect the May 1997 divestiture of certain
non-core activities and assets originally acquired in the 1996 combination
with Transocean ASA and the cessation of turnkey drilling services in the U.S.
Gulf of Mexico in the first quarter of 1998.

Depreciation and amortization expense increased by $13.9 million for the
year ended December 31, 1998 compared to 1997. The increase was due primarily
to additional depreciation resulting from the capitalization of equipment
associated with the Company's major upgrade and construction projects.

Corporate expenses increased $3.9 million, from $25.3 million in 1997 to
$29.2 million in the current year, reflecting the increased activities of the
Company. The previously announced fleet expansion projects required expanded
recruiting and training activities for drilling crews. The Company also
upgraded and expanded its communication and data processing systems to manage
more effectively its geographically diversified operations.

Other income, net, increased to $26.9 million for the year ended December
31, 1998 compared to other expense, net, of $10.2 million in the prior year.
During 1998, the Company recognized $34.4 million in pre-tax gains on the
termination of a cash flow sharing agreement with Global Marine, the sale of
certain non-core assets within its Drilling Services business segment and
sales of surplus drilling equipment.

16
<PAGE>

Income tax expense increased by $78.4 million due primarily to higher pre-
tax earnings for the year ended December 31, 1998 compared to the prior year.
The Company's effective tax rate was lower in 1998 compared to 1997 due to an
increase in the permanent reinvestment of earnings of certain foreign
subsidiaries.

1997 Compared to 1996

Net income for the year ended December 31, 1997 was $141.9 million or $1.38
per share, diluted, compared to $78.0 million or $1.07 per share, diluted, for
1996, an increase of $63.9 million (82 percent) or $0.31 per share, diluted.
The increase in 1997 resulted primarily from increased dayrates and the
inclusion of the Transocean ASA results for the entire year, partially offset
by a decrease in other income. The diluted weighted-average number of shares
of common stock was 102.8 million and 73.1 million for the years ended
December 31, 1997 and 1996, respectively. The increase was primarily due to
the shares of common stock issued in the Combination.

Revenues were $892.0 million for the year ended December 31, 1997 compared
to $528.9 million for 1996, an increase of $363.1 million or 69 percent.
Operating income was $217.5 million in 1997 compared to $107.6 million in
1996, an increase of $109.9 million or 102 percent.

Revenues and operating income from Mobile Units increased significantly for
the year ended December 31, 1997, compared to 1996. In the U.S. Gulf of
Mexico, the increases resulted primarily from higher average dayrates and the
inclusion during the third and fourth quarters of operations of a rig that
operated in Other Western Hemisphere in 1996 and a newly upgraded rig that
commenced operations in the third quarter of 1997. In Europe, the increases in
revenues and operating income resulted primarily from the inclusion of the
Transocean ASA results following the Combination. The decreases in revenues
and operating income in Other Western Hemisphere were due to the relocation of
one rig referred to above to the U.S. Gulf of Mexico in early 1997 for an
upgrade and to commence operations, partially offset by operations added
through the Combination. The increases in Other Eastern Hemisphere were due
primarily to the results of a rig added through the Combination, higher
average dayrates in 1997 and full utilization of two rigs that were stacked
during a portion of 1996.

Revenues from Drilling Services increased for the year ended December 31,
1997 compared to 1996, while operating income decreased during the same
period. The increase in revenues resulted primarily from a higher number of
turnkey wells completed during 1997 compared to 1996 and the inclusion of the
Transocean ASA results following the Combination, partially offset by
decreases in revenues and operating income from services provided in Qatar and
Senegal during 1996 that were not performed in 1997. Operating losses
increased in 1997 compared to the prior year primarily due to higher losses
from turnkey drilling services, including an estimated loss on one well in
progress in the U.S. Gulf of Mexico at the end of 1997. In January 1998, the
Company announced that it was closing down the operations of its U.S. Gulf of
Mexico turnkey drilling services.

Depreciation and amortization expense increased by $56.4 million for the
year ended December 31, 1997 compared to 1996. The increase was primarily due
to additional depreciation on property and equipment acquired in the
Combination and amortization of goodwill relating to the Combination.

Corporate expenses increased $9.1 million, from $16.2 million in 1996 to
$25.3 million in 1997 reflecting the increased costs to integrate and manage a
larger organization. The corporate organization expanded to accommodate the
overall growth of the Company as a result of the Combination and the increased
activity in the industry.

Other expense, net, increased to $10.2 million for the year ended December
31, 1997 compared to other income, net, of $14.0 million in 1996. Higher
equity in earnings of joint ventures during 1997 resulted primarily from
higher average dayrates on two rigs partially owned by the Company through
Arcade Drilling. See Note 15 to the Company's consolidated financial
statements. In addition, during 1997 the Company recognized lower interest
income due to lower average cash balances and higher net interest expense as a
result of increased debt

17
<PAGE>

relating to the Combination and the Public Debt Offering. See "--Liquidity and
Capital Resources." Other expense in 1997 included $1.6 million in realized
losses on foreign exchange derivative instruments, while 1996 included a $6.6
million pre-tax gain on the disposal of a jackup rig.

Income tax expense increased by $21.7 million due primarily to higher pre-
tax earnings for the year ended December 31, 1997 compared to 1996, partially
offset by a decrease in earnings of foreign subsidiaries subject to tax. The
Company's effective tax rate was lower in 1997 compared to 1996 due to an
increase in the permanent reinvestment of earnings of certain foreign
subsidiaries.

Market Outlook

Fleet utilization continued at a high level in the fourth quarter of 1998,
with a rate of 95 percent (98 percent, third quarter) fleetwide and 99 percent
(99 percent, third quarter) for the Company's 20 fully owned and active
floating drilling units. The fleetwide utilization decreased slightly,
primarily due to the Transocean Jupiter being idle for the entire fourth
quarter. Average dayrates during the fourth quarter of 1998 improved slightly
from the third quarter, to $114,100 ($109,600, third quarter) fleetwide and
$125,100 ($124,800, third quarter) for the Company's floaters, due primarily
to the Transocean Nordic rolling over to a higher contract rate at the end of
the third quarter and to the Transocean Marianas operating during the entire
fourth quarter. The backlog of contracts in place for the Company's 21 fully
owned and active floaters (including the Discoverer Enterprise, which is
expected to be placed in service during the second quarter of 1999), with 80
percent of active fleet days committed through the end of 1999, is a result of
the Company's strategy over the past two years of lengthening the average
duration of contracts for its fleet.

During the second quarter of 1998, demand for offshore drilling rigs began
to decrease in response to substantial declines in oil prices that began in
late 1997 and continued throughout 1998. As a result, rig utilization and
dayrates have declined as oil and gas companies reduced the level of
exploration and development activity in line with reduced price expectations.
The decline has been most pronounced in the market for jackups and less
capable floaters, but has also had an impact on the market for deepwater and
high-specification floaters. Dayrates and utilization for these units have
decreased from peak levels experienced through the first half of 1998.

The Company believes that further decreases in current oil and gas prices,
or extended periods at current price levels, will further depress the level of
exploration and development activity and result in a corresponding decline in
demand for its services. A number of oil and gas companies have announced
reductions in capital spending for exploration and development; others have
completed or announced consolidation transactions that have or are likely to
continue to result in such reductions. These reductions adversely affect the
demand for the Company's services.

Rig availability has increased as a result of expiring contracts and
construction by drilling contractors of new rigs that are capable of competing
with the Company's deepwater and harsh-environment rigs. Although most of
these new rigs are being built pursuant to long-term contract commitments,
there can be no assurance that such contracts will not be cancelled or
terminated, that the operators of the new rigs will not seek to "farm-out"
such rigs, or that upon the expiration of such contracts and the contracts for
the Company's rigs, the then-current market conditions will be favorable.

The Company anticipates that dayrates for its 12 fully-owned drilling units
becoming available due to contract expirations in 1999 will be adversely
affected by this market weakness. Depending on market conditions at the time
the units become available, the Company may be required to stack some of these
units during 1999. In addition to the loss of revenues associated with
stacking rigs, the Company may be required to incur additional expenses
associated with severance and related payments to rig operating personnel. As
of March 1, 1999, one of the Company's jackups and one second-generation
semisubmersible were stacked with no contract.

18
<PAGE>

Other Factors Affecting Operating Results

The offshore contract drilling industry is highly competitive with numerous
industry participants, none of which has a dominant market share. Some of the
Company's competitors may have greater resources than the Company. 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.

Many of the Company's term drilling contracts may be terminated if the
drilling unit is destroyed or lost or if drilling operations are suspended for
a specified period of time as a result of a breakdown of major equipment or,
in some cases, due to other events beyond the control of either party. In
reaction to depressed market conditions, the Company's customers may also seek
renegotiation of firm drilling contracts to reduce their obligations. The
Company's expectation, however, is that its customers will honor their
contract commitments.

19
<PAGE>

The Company's foreign operations are subject to certain political and other
uncertainties not encountered in domestic operations, 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 foreign sovereignty over certain areas in
which operations are conducted. The Company is protected to a substantial
extent against capital loss (but generally not loss of revenue) from most of
such risks through insurance, indemnity provisions in its 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 the Company's existing insurance policies is evaluated
on an individual contract basis. As of March 1, 1999, all areas in which the
Company is operating are covered by existing insurance policies.

On a worldwide basis, the Company had approximately 30 percent of its
employees working under collective bargaining agreements at December 31, 1998.
Of these represented employees, a majority are working under agreements that
are subject to salary negotiation in 1999. The majority of these employees are
represented by five Norwegian unions, each of which participates in one or
several nationwide agreements concerning salary and other specific terms and
conditions. These nationwide agreements are established as a result of bi-
annual negotiations between the various employers' nationwide associations and
the respective employees' unions.

The general rate of inflation in the United States and the majority of the
foreign countries in which the Company operates has been moderate over the
past several years and has not had a material impact on the Company's results
of operations. The increase in the demand for offshore drilling rigs
experienced in 1996 and 1997 led to higher labor, transportation and other
operating expenses as a result of an increased need for qualified personnel
and services. Because of the decline in demand for offshore drilling services
commencing in 1998, the Company expects that inflationary pressures on these
expenses will decrease.

Liquidity and Capital Resources

Sources and Uses of Cash

Cash flows provided by operations were $469.7 million for the year ended
December 31, 1998, compared to $163.6 million for 1997, an increase of $306.1
million. The increase in cash provided by operations was primarily due to
higher cash flows from net income during the year ended December 31, 1998 and
increases provided by net working capital components.

Cash flows used in investing activities increased $240.7 million from
$305.4 million for the year ended December 31, 1997 to $546.1 million in 1998.
The increase in cash used in investing activities resulted primarily from an
increase in capital expenditures relating to rig construction and upgrade
projects, partially offset by

20
<PAGE>

proceeds from disposal of assets. In addition, during 1997, the Company
received $99.6 million in net proceeds from the divestiture of certain non-
core drilling services activities and assets (net of $5.9 million cash
divested) compared to $10 million in 1998.

Cash flows provided by financing activities decreased $80.3 million from
$171.9 million in the year ended December 31, 1997 to $91.6 million in 1998.
During 1998, the Company increased its net borrowings under its revolving
credit facility. During 1997, the Company increased its borrowings through the
$300 million Public Debt Offering and the Project Financing Agreement (both of
which are defined below). This was partially offset by repayments of amounts
borrowed under the Credit Agreement (which is defined below) and from cash
used to repurchase 3,784,000 shares of the Company's common stock.

Capital Expenditures

The Company's investments in its existing fleet and previously announced
fleet additions continue to require significant capital expenditures. Capital
expenditures totaled $573 million during the year ended December 31, 1998 and
are expected to be approximately $520 million in 1999, including amounts that
will be spent on the construction of the deepwater drillships the Discoverer
Enterprise, the Discoverer Spirit and the Discoverer Deep Seas.

The following table summarizes actual and projected expenditures (including
capitalized interest) for the Company's major construction and conversion
projects.

<TABLE>
<CAPTION>
Transocean Discoverer Discoverer Discoverer
Marianas Enterprise Spirit Deep Seas
---------- ---------- ---------- ----------
(Expenditures in millions)
<S> <C> <C> <C> <C>
Cumulative at December 31,
1997........................ $174 $148 $ -- $ --
Actual for the year ended
December 31, 1998........... 106 154 124 106
---- ---- ---- ----
Cumulative at December 31,
1998........................ 280 302 124 106
Projected--1999.............. -- 80 200 170
Projected--2000.............. -- -- 10 60
---- ---- ---- ----
Projected Total Costs........ $280 $382 $334 $336
==== ==== ==== ====
</TABLE>

The amounts shown for the Discoverer Enterprise include certain costs not
expected to be incurred in connection with the construction of the Discoverer
Spirit and the Discoverer Deep Seas, including: engineering design costs that
will not be repeated because the Discoverer Spirit and the Discoverer Deep
Seas are the same design as the Discoverer Enterprise; lifting and other
construction costs that will be contracted on a lump sum basis rather than
time and materials; and incremental capitalized interest and administrative
costs attributable to project delays, some of which were due to weather and
other factors beyond the control of the Company. The Discoverer Enterprise is
expected to be completed during the second quarter of 1999; the Discoverer
Spirit and the Discoverer Deep Seas are expected to be completed in the first
and third quarters of 2000, respectively.

As with any major construction project that takes place over an extended
period of time, the actual costs, the timing of expenditures, and the project
completion date may vary from estimates based on numerous factors, including
modification of the design, actual terms of awarded contracts, weather,
exchange rates, shipyard labor conditions and the market demand for components
and resources required for drilling unit construction. See "--Other Factors
Affecting Operating Results." The Company intends to fund the cash
requirements relating to these capital commitments through available cash
balances, borrowings under the Credit Agreement referred to below and other
commercial bank or capital market financings, including potential public
offerings under the Company's shelf registration statement (discussed below)
and, in the case of the Discoverer Enterprise, financing under the Project
Financing Agreement referred to below.

21
<PAGE>

Debt

Project Financing Agreement--In connection with the on-going construction
of the Discoverer Enterprise and completed upgrade of the Transocean Amirante,
the Company's wholly owned subsidiary, Transocean Enterprise Inc., entered
into a project financing agreement effective December 27, 1996 with a group of
banks led by ABN AMRO Bank, N.V., as agent ("Project Financing Agreement").
Approximately $323 million is available for drawdowns during the construction
period in two tranches. The first tranche of approximately $62.9 million is to
be repaid upon completion of construction and acceptance of the two rigs by
Amoco Production Company ("Amoco"). It bears an interest rate of LIBOR plus
0.35 percent. The Company expects to lend Transocean Enterprise Inc. the
necessary funds to repay the $62.9 million through borrowings under the
Revolving Credit Facility. The second tranche of approximately $259.9 million
(of which $124.1 million in borrowings were outstanding as of December 31,
1998) bears an interest rate of LIBOR plus 0.85 percent during the
construction period and is convertible to term financing upon completion of
construction and acceptance of the two rigs by Amoco. The term financing,
which is to be paid out of cash flows from the two rigs, matures over a period
of five years. Amoco has contracted the Transocean Amirante for a period of up
to five years and the Discoverer Enterprise for a period of five years
following their respective acceptance dates. The Company expects the term
financing to consist of borrowings under a lease securitization facility
provided by the agent at a floating interest rate (which has been converted to
a fixed rate by the interest rate swaps transaction described below) plus a
margin of 0.36 percent for amounts fully amortized by cash flows from the
Amoco contracts and a margin of 0.62 percent for the remaining amounts, if
any.

The Project Financing Agreement originally required acceptance of the two
drilling units by Amoco, repayment of the first tranche and conversion of the
second tranche to term financing no later than December 31, 1998. Although the
Transocean Amirante was accepted by Amoco and commenced operations in July
1997, the Discoverer Enterprise is not expected to be completed until the
second quarter of 1999 due to construction delays. As a result, during
December 1998, Transocean Enterprise Inc. amended the Project Financing
Agreement to extend the outside date for acceptance of the Discoverer
Enterprise, repayment of the first tranche and conversion of the second
tranche to term financing from December 31, 1998 to August 31, 1999.

During the third quarter of 1998, Transocean Enterprise Inc. amended the
terms of its two interest rate swap transactions, which effectively lock in a
fixed interest rate for the term financing under the Project Financing
Agreement, to adjust the payment schedule for the anticipated construction
delays. In connection with the amendment, the fixed rate Transocean Enterprise
Inc. will pay increased from an average of 6.4 percent to 6.545 percent. The
estimated variable interest rates Transocean Enterprise Inc. will receive in
the swap transactions has decreased from December 31, 1997 to December 31,
1998. The net unrealized loss on the interest rate swaps is $9.3 million as of
December 31, 1998. See "Item 7A. Quantitative and Qualitative Disclosures
about Market Risk."

Credit Agreement--In connection with the 1996 combination with Transocean
ASA, the Company entered into a credit agreement dated as of July 30, 1996
with a group of banks led by ABN AMRO Bank, N.V. (the "Credit Agreement"). The
Credit Agreement, as subsequently amended, provides for borrowing by the
Company under a revolving credit facility in the amount of $540 million (the
"Revolving Credit Facility"). Loans under the Credit Agreement bear interest,
at the option of the Company, at a base rate or LIBOR plus a margin (0.25
percent at December 31, 1998) that varies depending on the Company's funded
debt to total capital ratio or its public senior unsecured debt rating. The
Credit Agreement requires compliance with various restrictive covenants,
including an interest coverage ratio, which could limit the Company's ability
to pay dividends in the future. The Credit Agreement has a maturity date of
July 2002.

22
<PAGE>

at any time after April 15, 2007, and the Debentures, at any time, may be
redeemed at the option of the Company at 100 percent of the principal amount
plus a make-whole premium, if any, equal to the excess of the present value of
future payments due under the Notes and Debentures using a discount rate equal
to the then-prevailing yield of U.S. treasury notes for a corresponding
remaining term plus 20 basis points over the principal amount of the security
being redeemed. Interest is payable on April 15 and October 15 of each year,
commencing October 15, 1997. The indenture and supplemental indenture relating
to the Notes and the Debentures place limitations on the Company's ability to
(i) incur indebtedness secured by certain liens, (ii) engage in certain
sale/leaseback transactions and (iii) engage in certain merger, consolidation
or reorganization transactions. The net proceeds were used to repay amounts
outstanding under the Credit Agreement.

Notes Payable--In February 1994, the Company issued $30 million aggregate
principal amount of unsecured 6.90% notes due February 15, 2004 in a private
placement. The note purchase agreement underlying the notes requires
compliance with various restrictive covenants substantially the same as those
under the Credit Agreement including an interest coverage ratio that could
limit the Company's ability to pay dividends in the future. In September 1996,
the note purchase agreement was amended to conform the covenant section
generally to the terms in the Credit Agreement discussed previously. In
December 1997, the note purchase agreement was amended to remove the
restrictions on repurchase of capital stock and the covenant regarding
maintenance of a minimum consolidated net worth.

Letters of Credit--The Company had letters of credit outstanding at
December 31, 1998 totaling $36.7 million, including $29.3 million relating to
the legal dispute with Kvaerner Installasjon a.s. See Note 11 to the Company's
consolidated financial statements. The remaining $7.4 million guarantees
various insurance and contract bidding activities.

Shelf Registration

In July 1998, the Company filed with the Securities and Exchange Commission
(the "SEC") a $450 million shelf registration statement on Form S-3 for the
proposed offering from time to time of senior or subordinated debt securities,
preferred stock, common stock and warrants to purchase debt securities,
preferred stock, common stock or other securities. The registration statement
was declared effective by the SEC on July 20, 1998. The new registration
statement effectively amends and carries forward the unused portion of the
Company's prior registration statement on Form S-3 without registering any
additional amount of securities.

Authorized Stock Repurchase

In May 1997, the Company's Board of Directors authorized the repurchase of
up to $200 million worth of shares of the Company's common stock from time to
time on the open market or in privately negotiated transactions. After
purchases made during 1997, approximately $105 million remains available under
this authority. The Board of Directors, from time to time, reviews the
possibility of repurchasing common stock in light of prevailing stock prices
and the financial position of the Company.

Derivative Instruments

The Company enters into a variety of derivative financial instruments in
connection with the management of its exposure to fluctuations in foreign
exchange rates and interest rates. The Company does 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, which qualify
as accounting hedges, are deferred 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, 1998, the Company did not have any foreign
exchange derivative instruments not qualifying as hedges.

23
<PAGE>

The Company uses interest rate swap agreements to effectively convert a
portion of its floating rate debt to a fixed rate basis, reducing the impact
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 on the swaps is recognized over the lives
of the swaps as an adjustment to interest expense. At December 31, 1998, the
net unrealized loss on open interest rate swaps was $9.3 million. See
"--Liquidity and Capital Resources--Debt--Project Financing Agreement."

Acquisitions

The Company, from time to time, reviews 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 the
Company of a substantial amount of cash and the issuance of a substantial
number of shares of common stock. The Company would expect to fund the cash
portion of any such acquisition through cash balances on hand, the incurrence
of additional debt, sales of assets or common stock, or a combination thereof.

Proceeds from Termination of Drilling Contract

In December 1998, the Company and the operators of the Terra Nova field,
located offshore Newfoundland, Canada, agreed to terminate their two-year
drilling contract for the Transocean Explorer. In connection with the
termination, the Company received a cash settlement of $40 million. The net
proceeds were used to repay debt.

Termination of Cash Flow Sharing Agreement

The Company and Global Marine were parties to an agreement pursuant to
which the Company participated in the cash flow from three jackup drilling
rigs owned and operated by Global Marine and Global Marine participated in the
cash flow from one of the Company's jackup drilling rigs, the Transocean
Nordic. In April 1997, Global Marine initiated arbitration proceedings against
the Company in the United Kingdom with respect to various disputed matters
under the agreement. In March 1998, the Company reached an agreement with
Global Marine that terminated the cash flow sharing agreement, effective
February 1, 1998, with certain continuing rights if any of the rigs are sold
within three years, and settled all disputed matters. Under the terms of this
agreement, the Company received $29.8 million in cash to settle outstanding
accounts receivable and to terminate the cash flow sharing agreement,
resulting in a pre-tax gain of $21.3 million ($13.8 million after tax or $0.14
per share, diluted). The net proceeds were used to repay debt.

Asset Divestitures

In August 1998, the Company sold certain non-core assets within its
Drilling Services business segment to a subsidiary of Dailey International
Inc. for $10.0 million in cash, resulting in a pre-tax gain of approximately
$8.1 million ($5.3 million after tax or $0.05 per share, diluted). In
addition, the Company sold surplus drilling components for $6.6 million in
proceeds, resulting in a non-recurring pre-tax gain of approximately $5.0
million ($3.2 million after tax or $0.03 per share, diluted). The net proceeds
were used to repay debt.

In May 1997, the Company divested certain non-core activities and
associated assets within its Drilling Services business segment originally
acquired in the Combination by selling the shares of a new corporate entity,
Procon Offshore ASA, to investors in Norway. The net proceeds from the sale
were approximately $106 million, goodwill was reduced by approximately $69
million and no gain or loss was recognized on the sale.

Sources of Liquidity

The Company believes that its cash and cash equivalents, cash generated
from operations, borrowings available under its Credit Agreement and Project
Financing Agreement, and access to other financing sources will be adequate to
meet its anticipated short-term and long-term liquidity requirements,
including scheduled debt repayments and capital expenditures for new rig
construction and upgrade projects.

24
<PAGE>

New Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in fiscal
years beginning after June 15, 1999. Because of the Company's limited use of
derivatives to manage its exposure to fluctuations in foreign exchange rates
and interest rates, management does not anticipate that the adoption of the
new statement will have a material effect on the results of operations or the
financial position of the Company.

In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This statement provides
guidance on accounting for the costs of software developed or obtained for
internal use and is effective for fiscal years beginning after December 15,
1998. The Company will adopt this standard in the first quarter of 1999. Its
adoption is not expected to have a material effect on the results of
operations or the financial position of the Company.

Proposed Corporate Reorganization

On March 11, 1999, the Company's board of directors approved a corporate
reorganization that will result in the Company becoming a Cayman Islands
corporation ("Transocean-Cayman") rather than a Delaware corporation. The
Company believes the reorganization will give it greater flexibility in
seeking to lower its worldwide effective tax rate and improve worldwide cash
management. In addition, the Company anticipates that the reorganization may
increase its access to international capital markets, broaden its investor
base by making its securities more attractive to non-U.S. investors and give
it greater flexibility in structuring foreign joint ventures and acquisition
opportunities. In the reorganization, each share of the Company's common stock
will be converted into one ordinary share of Transocean-Cayman. The Company
expects the shares of Transocean-Cayman to be listed on the New York Stock
Exchange under "RIG," the same symbol under which the Company's common stock
is currently listed. The proposed reorganization is subject to certain
conditions to closing, including approval by the Company's stockholders.
Following the reorganization, the name of Transocean-Cayman will be
"Transocean Offshore Inc."

Year 2000 Issue

The Company has instituted a plan to address the Year 2000 issue for its
computer systems, microprocessors, operational and control systems and other
significant computer-based devices and applications. It is possible that
certain of these systems will not be able to process dates beginning in the
year 2000, as many such systems are based on storing two digits to identify a
particular year rather than a full four digits and are not designed to take
into account the start of a new century. In addition, like every other
business enterprise, the Company is at risk from year 2000 failures on the
part of its major business counterparts, including suppliers and service
providers, as well as potential failures in public and private infrastructure
services, including electricity, water, gas, transportation and
communications.

The Company's Year 2000 plan focuses on Year 2000 compliance in two
distinct areas--(i) rig-based operational systems and control devices and (ii)
all other business, financial and engineering systems, including third-party
systems upon which the Company may rely. The Company's efforts are directed
towards areas that are reasonably within its control. The plan is being
implemented under the direction of senior management by the Company's
information systems and technology personnel and operations personnel with
appropriate expertise. The five phases of the Company's plan--inventory,
assessment, remediation, testing and certification, and contingency planning--
are in varying stages of completion, and ultimate completion of the plan is
expected by October 31, 1999.

Inventory--The Company conducted a survey of computer systems, computer-
controlled equipment, control systems, and electronic devices, including
equipment with embedded microprocessors, onboard each rig to identify those
systems and devices to be reviewed for Year 2000 compliance. With respect to
business, financial

25
<PAGE>

and engineering systems, the Company surveyed all of its internal hardware and
software systems worldwide. Key third-party businesses whose year 2000
failures would most significantly impact the Company were identified. The
inventory phase is substantially complete.

Assessment--Once each at-risk system or device is identified, users are
asked to assess how critical the system or device is to the safety and
operations of the Company. For rig-based systems, the Company has requested
letters of compliance from its third-party vendors and suppliers for all at-
risk items identified in the survey and, in addition, is conducting its own
tests where possible to verify compliance. The assessment phase for rig-based
systems, applications and devices is more than 75 percent complete. With
respect to business, financial and engineering systems, letters of compliance
are being sought from all vendors of standard systems, and the Company plans
to conduct tests of selected systems to provide an enhanced degree of
confidence for Year 2000 compliance. The assessment phase for these systems is
approximately 95 percent complete. The Company's assessment phase is expected
to be completed by mid-1999.

Remediation--Critical systems and devices identified by the survey that are
likely to be affected by the Year 2000 issue are in the process of being
modified or replaced. A number of these systems and devices had already been
identified for renewal or replacement in connection with the Company's ongoing
maintenance programs. In some cases, systems or equipment may be covered by
warranties, while other vendors are providing software upgrades at minimal
costs. The Company believes its Year 2000 compliance plan has adequately
identified and addressed Year 2000 issues with respect to critical operational
and safety systems and devices. With respect to business, financial and
engineering systems, replacement or modification of known non-compliant
systems has commenced. The remediation phase is approximately 50 percent
complete with respect to rig-based systems, applications and devices and is
more than 50 percent complete with respect to business, financial and
engineering systems. The Company's remediation phase is expected to be
completed by October 31, 1999.

Testing and Certification--The testing and certification phase includes
establishing a test environment, performing systems testing (with third
parties if necessary) and certifying the results. The certification process
entails having experienced personnel review test results, computer screens and
printouts against pre-established criteria to ensure system or device
compliance. In the case of program logic chips, access to internal programs is
frequently not possible; however, a review of program diagrams is completed to
determine if any date or time dependency exists. All internal systems and
devices identified as critical operational and safety systems and devices,
along with critical business hardware and software systems will be tested.
With respect to rig-based systems, the Company has instituted an ongoing
compliance procedure that starts with the results of the initial survey
followed by analysis, vendor participation, corrective action, testing and
continuous reappraisal. Testing and certification is currently underway and is
expected to continue throughout 1999. The Company has initiated written and
telephonic communications with key third-party businesses as well as public
and private providers of infrastructure services, to ascertain and evaluate
their efforts in addressing Year 2000 compliance.

Contingency Planning--The Company is in the process of evaluating where
specific contingency plans may be required in the event of Year 2000-related
disruptions. The Company's rig-based operations manuals include documented
policies and procedures in the event of an emergency or equipment failure.
Additional consideration will be given to the effect of significant Year 2000
disruptions with direct suppliers of materials and supplies needed for ongoing
rig operations.

The Company believes that the reasonably likely worst case scenario is that
there will be some localized disruptions of systems that will affect
individual business and operations processes, facilities or suppliers for a
short time rather than systemic or long-term problems affecting its business
operations as a whole. The Company's drilling units are composed of many
stand-alone systems provided by a wide diversity of manufacturers. As such,
the Company believes the risk of a failure that would affect the functionality
or safety of the fleet is minimal, and the Company does not believe that the
Year 2000 issue will have a significant effect on the operations of its
drilling units.

26
<PAGE>

The Company's contingency planning efforts are being designed to identify
systems or other aspects of its business or that of its suppliers that it
believes would be most likely to experience Year 2000 problems, as well as
those business operations in which a localized disruption could have the
potential for causing a wider problem by interrupting the flow of materials or
data. Because there is uncertainty as to which activities may be affected and
the exact nature of the problems that may arise, the contingency planning
efforts will focus on minimizing the scope and duration of any disruptions by
having sufficient personnel and other resources in place to permit a flexible
response to specific problems as they may arise. The Company estimates that
its contingency plans will be in place by October 31, 1999.

Costs--The Company has incurred approximately $0.6 million through December
31, 1998 and expects additional expenditures of approximately $3 million to
complete implementation of its Year 2000 plan.

Although the Company's failure to implement fully its Year 2000 compliance
plan or the occurrence of an unexpected Year 2000 problem could result in the
disruption of normal business activities or operations and have a material
adverse effect on the Company's results of operations, liquidity or financial
condition, based upon the work performed to date and the anticipated
completion of the plan during October 1999, the Company does not believe that
such matters will have a material adverse effect. During 1999, the Company
will continue and expand its efforts to address potential disruptions in areas
where the Company's operations rely on third parties. In addition, the
Company's international operations may be adversely affected by failures of
businesses in other parts of the world to take adequate steps to address the
Year 2000 problem. While such failures could affect the operations of the
Company, either directly or indirectly, in a significant manner, the Company
cannot estimate either the likelihood or the potential cost of such failures.

The nature and focus of the Company's efforts to address the Year 2000
problem may be revised periodically as interim goals are achieved or new
issues are identified.

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," "estimates," "expects," "intends," "plans,"
"predicts," or "projects" a particular result or course of events, or that
such result or course of events "may" 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 expected capital expenditures, the timing and cost of
completion of capital projects, the Company's plans and expectations with
regard to Year 2000 issues and the Company's expectations with regard to
market outlook. Such statements are subject to numerous risks, uncertainties
and assumptions, including but not limited to, uncertainties relating to the
level of activity in offshore oil and gas exploration, development and
production (particularly in deepwater and harsh-environment regions),
exploration success by producers, oil and gas prices, work stoppages by
Spanish shipyard workers, competition and market conditions in the contract
drilling industry, delays or cost overruns on construction projects, the
ability to enter into and the terms of future contracts, risks inherent in
turnkey contracts, the availability of qualified personnel, the outcome of
annual wage negotiations with unions representing certain Norwegian offshore
workers, operating hazards, political and other uncertainties inherent in
foreign operations (including exchange and currency fluctuations), the impact
of governmental laws and regulations, the adequacy of sources of liquidity,
the effect of litigation and contingencies, the success of the Company in
implementing its Year 2000 compliance plan, the failure of financial and other
service providers to be Year 2000 compliant on a timely basis and other
factors discussed in this annual report and in the Company's other filings
with the Securities and Exchange Commission. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated.

27
<PAGE>

ITEM 7A. Quantitative And Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's long-term debt obligations and interest rate swaps.
The tables below provide information about the Company's derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates as of December 31, 1998 and 1997. For debt obligations, the
tables present expected cash flows and related weighted-average interest rates
expected by maturity dates. Weighted-average variable rates are based on
estimated LIBOR and commercial paper rates as of December 31, 1998 and 1997,
as applicable, 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, 1998 and 1997, as applicable.

As of December 31, 1998:

<TABLE>
<CAPTION>
Expected Maturity Date
-------------------------------------------------------------------- Fair Value
1999 2000 2001 2002 2003 Thereafter Total 12/31/98
------- ------- ------- ------- ------- ---------- -------- ----------
(In millions, except interest rate percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt
Fixed Rate............. $ 4.8 $ 4.8 $ 4.8 $ 4.8 $ 4.8 $ 302.3(b) $ 326.3 $344.3
Average interest
rate................ 6.9% 6.9% 6.9% 6.9% 6.9% 7.8% 7.7%
Variable Rate.......... $ 13.9(a) $ 28.5 $ 23.0 $ 405.1 $ 23.9 $ 12.6 $ 507.0 $507.0
Average interest
rate................ 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% 5.3%
- --------
(a) Assumes $62.9 million in scheduled maturities are funded with other
variable rate debt with a maturity of 2002.
(b) Includes $0.8 million of unaccreted discount to be paid at maturity.

As of December 31, 1997:

<CAPTION>
Expected Maturity Date
-------------------------------------------------------------------- Fair Value
1998 1999 2000 2001 2002 Thereafter Total 12/31/97
------- ------- ------- ------- ------- ---------- -------- ----------
(In millions, except interest rate percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt
Fixed Rate............. $ 4.8 $ 4.8 $ 4.8 $ 4.8 $ 4.8 $ 307.3(b) $ 331.3 $371.5
Average interest
rate................ 6.9% 6.9% 6.9% 6.9% 6.9% 7.8% 7.7%
Variable Rate.......... $ --(a) $ 26.0 $ 26.0 $ 26.0 $ 298.4 $ 26.2 $ 402.6 $402.6
Average interest
rate................ -- 6.0% 6.0% 6.0% 6.2% 6.0% 6.2%
- --------
(a) Assumes $66 million in scheduled maturities are funded with other variable
rate debt with a maturity of 2002.
(b) Includes $0.8 million of unaccreted discount to be paid at maturity.

For interest rate swaps, the tables below present notional amounts and
weighted-average interest rates by contractual maturity dates as of December
31, 1998 and 1997. Notional amounts are used to calculate the contractual
payments to be exchanged under the interest rate swaps. The average receive
rate under the interest rate swaps is based on estimated commercial paper
rates. The fair value of the interest rate swaps is based on the market value
of similar swap arrangements as of December 31, 1998 and 1997, as applicable.

As of December 31, 1998:

<CAPTION>
Expected Maturity Date
-------------------------------------------------------------------- Fair Value
1999 2000 2001 2002 2003 Thereafter Total 12/31/98
------- ------- ------- ------- ------- ---------- -------- ----------
(In millions, except interest rate percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Pay fixed/receive
variable.............. $36.1 $64.7 $51.6 $47.0 $50.2 $21.9 $271.5 $ (9.3)
Average pay rate..... 6.545% 6.545% 6.545% 6.545% 6.545% 6.545% 6.545%
Average receive
rate................ 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9%
</TABLE>

28
<PAGE>

As of December 31, 1997:

<TABLE>
<CAPTION>
Expected Maturity Date
---------------------------------------------------- Fair Value
1998 1999 2000 2001 2002 Thereafter Total 12/31/97
----- ----- ----- ----- ----- ---------- ------ ----------
(In millions, except interest rate percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Pay fixed/receive
variable.............. $15.1 $59.4 $58.7 $47.2 $50.6 $40.2 $271.2 $(3.5)
Average pay rate..... 6.4% 6.4% 6.4% 6.4% 6.4% 6.4% 6.4%
Average receive
rate................ 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7%
</TABLE>

Foreign Exchange Risk

The Company operates internationally, resulting in exposure to foreign
exchange risk. The Company uses a variety of techniques to minimize the
exposure to foreign exchange risk, including customer contract terms and the
use of foreign exchange derivative instruments or spot purchases. The Company
does not enter into derivative transactions for speculative purposes. At
December 31, 1998 the Company had no material open foreign exchange contracts.

29
<PAGE>

ITEM 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors
Transocean Offshore Inc.

We have audited the accompanying consolidated balance sheets of Transocean
Offshore Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Transocean Offshore Inc. and Subsidiaries at December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP

Houston, Texas
January 26, 1999

30
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1998 1997 1996
---------- -------- --------
(In thousands, except per
share data)
<S> <C> <C> <C>
Operating Revenues............................. $1,089,612 $891,962 $528,903
---------- -------- --------
Costs and Expenses
Operating and maintenance.................... 484,439 547,416 359,304
Depreciation and amortization................ 116,867 103,017 46,587
General and administrative................... 28,034 24,053 15,398
---------- -------- --------
629,340 674,486 421,289
---------- -------- --------
Operating Income............................... 460,272 217,476 107,614
---------- -------- --------
Other Income (Expense), Net
Equity in earnings of joint ventures......... 11,677 10,196 5,168
Interest income.............................. 3,451 1,854 6,228
Interest expense, net of amounts
capitalized................................. (23,892) (22,853) (7,220)
Gain on termination of cash flow sharing
agreement................................... 21,290 -- --
Other, net................................... 14,348 572 9,862
---------- -------- --------
26,874 (10,231) 14,038
---------- -------- --------
Income Before Income Taxes..................... 487,146 207,245 121,652

Income Taxes................................... 143,730 65,312 43,607
---------- -------- --------
Net Income..................................... $ 343,416 $141,933 $ 78,045
========== ======== ========
Earnings Per Share
Basic........................................ $ 3.43 $ 1.40 $ 1.09
---------- -------- --------
Diluted...................................... $ 3.41 $ 1.38 $ 1.07
---------- -------- --------
Weighted-average Shares Outstanding
Basic........................................ 100,083 101,234 71,678
Diluted...................................... 100,848 102,784 73,119

Dividends Paid Per Share....................... $ 0.12 $ 0.12 $ 0.12
========== ======== ========
</TABLE>

See accompanying notes.

31
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
ASSETS ---------- ----------
(In thousands,
except share data)
<S> <C> <C>
Cash and Cash Equivalents.............................. $ 69,453 $ 54,225
Accounts Receivable
Trade................................................ 197,400 175,486
Other................................................ 20,094 24,230
Deferred Income Taxes.................................. -- 4,418
Materials and Supplies................................. 33,928 30,917
Prepayments............................................ 9,596 9,389
Costs Incurred on Drilling Services Projects in
Progress.............................................. 31,161 8,425
---------- ----------
Total Current Assets............................... 361,632 307,090
---------- ----------
Property and Equipment................................. 2,659,020 2,113,462
Less Accumulated Depreciation.......................... 530,949 445,488
---------- ----------
Property and Equipment, net.......................... 2,128,071 1,667,974
---------- ----------
Goodwill, net.......................................... 675,243 693,154
Investments in and Advances to Joint Ventures.......... 55,544 45,869
Other Assets........................................... 30,453 41,001
---------- ----------
Total Assets....................................... $3,250,943 $2,755,088
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable....................................... $ 40,939 $ 62,997
Accrued Income Taxes................................... 58,711 47,002
Current Portion of Long-Term Debt...................... 18,672 4,812
Deferred Income Taxes.................................. 1,420 --
Other Current Liabilities.............................. 72,679 70,381
---------- ----------
Total Current Liabilities.......................... 192,421 185,192
---------- ----------
Long-Term Debt......................................... 813,953 728,282
Deferred Income Taxes.................................. 229,979 171,306
Other Long-Term Liabilities............................ 35,947 49,130
---------- ----------
Total Long-Term Liabilities........................ 1,079,879 948,718
---------- ----------
Commitments and Contingencies
Preferred Stock, $0.10 par value; 50,000,000 shares
authorized, none issued and outstanding............... -- --
Common Stock, $0.01 par value; 150,000,000 shares
authorized, 104,335,127 shares issued, including
shares in treasury, and 100,551,127 shares outstanding
at December 31, 1998 and 103,700,638 shares issued,
including shares in treasury, and 99,916,638 shares
outstanding at December 31, 1997...................... 1,043 1,037
Less Common Stock in Treasury, at cost; 3,784,000
shares at December 31, 1998 and 1997.................. (144,297) (144,297)
Additional Paid-in Capital............................. 1,535,201 1,509,110
Retained Earnings...................................... 586,696 255,328
---------- ----------
Total Stockholders' Equity......................... 1,978,643 1,621,178
---------- ----------
Total Liabilities and Stockholders' Equity......... $3,250,943 $2,755,088
========== ==========
</TABLE>

See accompanying notes.

32
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Common Stock Treasury Stock Additional Total
--------------- ----------------- Paid-in Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
------- ------ ------ --------- ---------- -------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 56,830 $ 284 -- $ -- $ 307,093 $ 56,196 $ 363,573
Net income............ -- -- -- -- -- 78,045 78,045
Exercise of stock
options.............. 362 2 -- -- 3,479 -- 3,481
Restricted stock
grants, net of
forfeitures.......... 56 -- -- -- 491 -- 491
Reverse unrealized
gain on marketable
security sold during
the period........... -- -- -- -- (570) -- (570)
Stock issued for
Combination, net..... 45,842 229 -- -- 1,191,958 -- 1,192,187
Purchase and
cancellation of
common stock......... (44) -- -- -- (1,292) -- (1,292)
Cash dividends ($0.12
per share)........... -- -- -- -- -- (8,206) (8,206)
------- ------ ------ --------- ---------- -------- ----------
Balance at December 31,
1996................... 103,046 515 -- -- 1,501,159 126,035 1,627,709
------- ------ ------ --------- ---------- -------- ----------
Net income............ -- -- -- -- -- 141,933 141,933
Exercise of stock
options.............. 617 4 -- -- 7,177 -- 7,181
Restricted stock
grants, net of
forfeitures.......... 38 -- -- -- 774 -- 774
Stock split........... -- 518 -- -- -- (518) --
Treasury shares
purchased............ -- -- (3,784) (144,297) -- -- (144,297)
Cash dividends ($0.12
per share)........... -- -- -- -- -- (12,122) (12,122)
------- ------ ------ --------- ---------- -------- ----------
Balance at December 31,
1997................... 103,701 1,037 (3,784) (144,297) 1,509,110 255,328 1,621,178
------- ------ ------ --------- ---------- -------- ----------
Net income............ -- -- -- -- -- 343,416 343,416
Exercise of stock
options.............. 607 6 -- -- 6,672 -- 6,678
Restricted stock
grants, net of
forfeitures.......... 27 -- -- -- 1,069 -- 1,069
Tax benefit from
exercise of stock
options.............. -- -- -- -- 18,350 -- 18,350
Cash dividends ($0.12
per share)........... -- -- -- -- -- (12,048) (12,048)
------- ------ ------ --------- ---------- -------- ----------
Balance at December 31,
1998................... 104,335 $1,043 (3,784) $(144,297) $1,535,201 $586,696 $1,978,643
======= ====== ====== ========= ========== ======== ==========
</TABLE>

See accompanying notes.

33
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income..................................... $343,416 $141,933 $ 78,045
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................ 116,867 103,017 46,587
Deferred income taxes........................ 64,511 24,215 6,528
Equity in earnings of joint ventures......... (11,677) (10,196) (5,168)
Gain on disposal of assets................... (13,521) (1,506) (8,441)
Deferred income, net......................... (9,421) 9,750 2,136
Deferred expenses, net....................... 5,386 (12,986) 1,160
Other, net................................... 6,886 (5,814) (408)
Changes in operating assets and liabilities,
net of effects from Combination with
Transocean ASA and divestiture
Accounts receivable.......................... (19,198) (68,489) (15,477)
Accounts payable............................. (20,326) 9,021 16,045
Income taxes receivable/payable, net......... 30,058 (10,616) 3,366
Other current assets......................... (26,330) (7,022) (419)
Other current liabilities.................... 3,081 (7,743) 1,567
-------- -------- --------
Net cash provided by operating activities...... 469,732 163,564 125,521
-------- -------- --------
Cash Flows from Investing Activities
Capital expenditures........................... (573,331) (406,466) (212,959)
Proceeds from disposal of assets, net.......... 13,354 3,728 12,964
Divestiture of non-core drilling services
activities and assets, net.................... 10,000 99,595 --
Joint ventures and other investments........... 3,891 (1,499) 3,210
Combination with Transocean ASA................ -- (756) (305,548)
Cash acquired in Transocean ASA Combination,
net........................................... -- -- 48,752
-------- -------- --------
Net cash used in investing activities.......... (546,086) (305,398) (453,581)
-------- -------- --------
Cash Flows from Financing Activities
Net borrowings on revolving credit facility.... 113,600 12,639 193,761
Exercise of stock options...................... 6,678 7,181 3,481
Dividends paid................................. (12,048) (12,122) (8,206)
Proceeds from (repayments on) project financing
agreement..................................... (9,220) 196,210 --
Repayment of notes payable..................... (4,616) -- --
Proceeds from (repayments on) term loan
facility...................................... -- (193,250) 200,000
Repayment of debt assumed in Transocean ASA
Combination................................... -- -- (139,307)
Proceeds of public debt offering, net.......... -- 299,216 --
Treasury shares purchased...................... -- (144,297) --
Financing costs................................ -- (5,287) (8,789)
Sale of note receivable........................ -- 11,000 --
Other, net..................................... (2,812) 615 (1,698)
-------- -------- --------
Net cash provided by financing activities...... 91,582 171,905 239,242
-------- -------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents..................................... 15,228 30,071 (88,818)
-------- -------- --------
Cash and Cash Equivalents at Beginning of
Period.......................................... 54,225 24,154 112,972
-------- -------- --------
Cash and Cash Equivalents at End of Period....... $ 69,453 $ 54,225 $ 24,154
======== ======== ========
</TABLE>

See accompanying notes.

34
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations--Transocean Offshore Inc. and its consolidated
subsidiaries (the "Company") provides contract drilling services for oil and
gas wells located in offshore areas throughout the world through its two
business segments--Mobile Units and Drilling Services. At December 31, 1998,
the Company owned, had ownership interests in, or operated a total of 31
mobile offshore drilling rigs, including one newbuild drillship, the
"Discoverer Enterprise", which is not yet in service. The Company also has
under construction two additional Discoverer Enterprise-class drillships, to
be named "Discoverer Spirit" and "Discoverer Deep Seas" (see Note 4). The
Mobile Units segment primarily operates drilling rigs for customers,
principally at a contractually determined price per day (dayrate). Drilling
Services primarily involves providing personnel and equipment other than rigs
for oil and gas exploration and production on either a dayrate or fixed price
basis. Prior to September 1996, the Company was known as Sonat Offshore
Drilling Inc. As part of the combination with Transocean ASA (see Note 2) the
Company changed its name.

Principles of Consolidation--The consolidated financial statements include
the accounts of Transocean Offshore Inc. and its majority owned subsidiaries.
Intercompany transactions and accounts have been eliminated in consolidation.
The equity method of accounting is used for investments in joint ventures
owned 50 percent or less.

Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.

Earnings Per Share--In 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 128,
Earnings per Share. SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is similar to fully diluted earnings per share which was previously not
required to be reported if the effect of the dilution was less than three
percent. Earnings per share amounts for all periods have been presented, and
where appropriate restated, to conform to the SFAS No. 128 requirements.

Stock Split--In August 1997, the Board of Directors declared a two-for-one
stock split to be effected in the form of a 100 percent stock dividend. The
dividend was paid September 19, 1997 to stockholders of record on September 5,
1997. All references in the financial statements to number of shares, per
share amounts and market prices of the Company's common stock have been
retroactively restated to reflect the increased number of shares of common
stock issued and outstanding as a result of the dividend.

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 in
the United States, United Kingdom, Cayman Islands and Norway. The Company may
invest excess funds in a no-load, open-end, management investment trust
("mutual fund"). The mutual fund invests exclusively in high quality money
market instruments. Generally, the maturity date of the Company's investments
is the next day of business.

Materials and Supplies--Materials and supplies are carried at average cost
less an allowance for obsolescence.

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 combination with Transocean ASA (see

35
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 2) were recorded at fair value. The Company generally provides for
depreciation on the straight-line method after allowing for salvage values.
The estimated useful life of drilling units ranges from 20 to 33 years and 3
to 12 years for other drilling equipment. Effective July 1, 1996, the Company
extended the useful lives of nine of its existing rigs by an average of five
years, in light of the continued improvements in the market. The effect of
this change in accounting estimate for the year ended December 31, 1996 on
depreciation expense and net income was $4.1 million and $2.7 million ($0.04
per share, basic and diluted), respectively. Major renewals and upgrades to
existing Company assets are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. When assets are retired or otherwise
disposed of, related costs and accumulated depreciation are removed from the
accounts. Depreciation expense was $98.8 million, $84.5 million and $40.2
million in 1998, 1997 and 1996, respectively.

Goodwill--The excess of the purchase price over the estimated fair value of
net assets acquired is accounted for as goodwill and is amortized on a
straight-line basis over 40 years (the period when benefits are expected to be
derived). Accumulated amortization as of December 31, 1998 and 1997 totaled
$42.7 million and $24.8 million, respectively.

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. The determination of
recoverability is made based upon the estimated undiscounted future net cash
flows of the related asset.

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 on completion of the well and acceptance by the
customer; however, provisions for losses are made on contracts in progress
when losses are anticipated. In connection with drilling contracts, the
Company may receive lump sum fees for the mobilization of equipment and
personnel or for capital improvements to rigs. In connection with contracted
mobilizations, to the extent expenses exceed fees received, the net costs are
deferred and amortized over the appropriate periods of benefit, generally the
term of the contract. Profits are recognized based on contractual daily rates
or percentage of completion, depending upon the contract terms. 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 fees received from the client are deferred and
recognized as revenue over the period 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 systematically
accrued as a liability prior to the actual survey and drydock.

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 $33.5 million, $18.2 million and $3.5 million
for the years ended December 31, 1998, 1997 and 1996, respectively.

Derivative Instruments--The Company enters into a variety of derivative
financial instruments in connection with the management of its exposure to
fluctuations in foreign exchange rates and interest rates. The Company does
not enter into derivative transactions for speculative purposes; however, for
accounting purposes certain transactions may not meet the criteria for hedge
accounting (see Note 6).

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) amounted to $0.7 million, $(1.2) million and $2.1 million for the
years ended December 31, 1998, 1997 and 1996, respectively.

36
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Income Taxes--Taxable income (loss) of the Company and its domestic
subsidiaries for taxable periods ended prior to June 5, 1993 is included in
the consolidated U.S. federal income tax return of Sonat Inc., the Company's
former parent ("Sonat"). Thereafter, the taxable income (loss) of the Company
and its domestic subsidiaries is included in the consolidated U.S. federal
income tax return of the Company and its affiliated group. The Company's
foreign income tax liabilities are based upon the results of operations of the
various companies in those foreign jurisdictions in which they are subject to
tax.

Stock-Based Compensation--In accordance with the provisions of the FASB's
Accounting for Stock-Based Compensation, SFAS No. 123, the Company has elected
to follow the Accounting Principles Board's Opinion No. 25, Accounting for
Stock Issued to Employees and related interpretations ("APB 25") in accounting
for its employee stock-based compensation plans. Under APB 25, if the exercise
price of the Company's employee stock options equals or exceeds the fair value
of the underlying stock on the date of grant as determined by the Company's
Board of Directors, no compensation expense is recognized (see Note 12).

Comprehensive Income--In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income. The statement requires that all items that are
recognized under accounting standards as components of comprehensive income be
displayed in a financial statement with the same prominence as other financial
statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. The Company adopted SFAS No. 130 in the first quarter of
1998. There were no significant items of comprehensive income for the years
ended December 31, 1998, 1997 or 1996.

New Accounting Pronouncements--In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in fiscal years beginning after June 15, 1999. Because
of the Company's limited use of derivatives to manage its exposure to
fluctuations in foreign exchange rates and interest rates, management does not
anticipate that the adoption of the new statement will have a material effect
on the results of operations or the financial position of the Company.

In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This statement provides
guidance on accounting for the costs of software developed or obtained for
internal use and is effective for fiscal years beginning after December 15,
1998. The Company will adopt this standard in the first quarter of 1999.
Management does not believe its adoption will have a material effect on the
results of operations or the financial position of the Company.

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

Note 2--Business Combination and Divestiture

The Company acquired over 99 percent of the outstanding capital shares of
Transocean ASA, a Norwegian company, pursuant to an exchange offer for the
Company's common stock and cash completed on September 3, 1996 and subsequent
purchases of Transocean ASA shares in November and December 1996 (the
"Combination"). All remaining outstanding shares were purchased in July 1997.
The Combination was deemed effective for accounting purposes as of September
1, 1996; the financial activity of the intervening period was not material to
the financial statements. Transocean ASA is an offshore drilling company
which, at the time of the Combination, owned or managed thirteen mobile
offshore drilling rigs and provided a variety of drilling services.

In September 1996, Transocean ASA shares were acquired from the public
shareholders of Transocean ASA pursuant to an exchange offer (the "Exchange
Offer") providing for consideration of 1.06 shares of Company

37
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

common stock for each of 43,248,358 Transocean ASA shares (subject to payment
of cash in lieu of fractional shares) and $27.25 for each remaining Transocean
ASA share. A total of 45,841,680 shares of Company common stock and $207.4
million in cash was delivered by the Company in exchange for the tendered
Transocean ASA shares pursuant to the Exchange Offer. In November 1996, the
Company acquired 3,114,506 Transocean ASA shares at $28.74 per share or $89.5
million in accordance with a mandatory offer (the "Mandatory Offer") pursuant
to the requirements of Norwegian law. The Company then commenced a compulsory
offer (the "Compulsory Offer") to acquire the remaining publicly-held shares
not previously tendered to the Company. All remaining outstanding shares were
purchased at an average price of approximately $25 per share in July 1997 upon
the conclusion of a judicial hearing whereby a Norwegian court determined the
price that the Company was obligated to pay to purchase such shares.

The purchase price consisted of the following:

<TABLE>
<CAPTION>
(In millions)
<S> <C>
Company common stock issued to Transocean ASA
stockholders............................................ $1,198.2
Cash consideration paid to Transocean ASA stockholders... 299.5
Direct transaction costs................................. 7.1
--------
Total Purchase Price................................... $1,504.8
========
</TABLE>

The value of the common stock issued to Transocean ASA stockholders was
calculated based on the average of the closing prices of Company common stock
over the five-day period commencing two days before May 20, 1996, the date on
which the revised offering price for the Combination was announced.

The acquisition of Transocean ASA was accounted for as a purchase. The
purchase price included, at estimated fair value, current assets of $166.5
million, drilling and other property and equipment of $895.9 million, other
assets of $24.0 million and the assumption of current liabilities of $169.7
million, other net long-term liabilities of $18.1 million and long-term debt
of $98.6 million. In addition, a deferred tax liability of $79.8 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 amounted to $784.6
million, which has been accounted for as goodwill.

In May 1997, the Company divested certain non-core activities and
associated assets within its drilling services business segment originally
acquired in the Combination by selling the shares of a new corporate entity,
Procon Offshore ASA, to investors in Norway. The divestiture had no material
effect on the financial results of the Company. The net proceeds from the sale
were approximately $106 million, goodwill was reduced by $68.7 million and no
gain or loss was recognized on the sale.

38
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The accompanying Consolidated Statements of Operations include the
operating results of Transocean ASA since the effective date of the
Combination. Unaudited pro forma consolidated operating results of the Company
and Transocean ASA for the year ended December 31, 1996, assuming the
acquisition had been made as of January 1, 1996, are summarized as follows:

<TABLE>
<CAPTION>
Year ended
December 31, 1996
---------------------
(In thousands, except
per share data)
<S> <C>
Operating revenues........................................ $785,254
========
Income from continuing operations......................... 51,934
Income from discontinued operations....................... 32,936
--------
Net income.............................................. $ 84,870
========
Basic earnings per share:
Income from continuing operations....................... $ 0.51
Income from discontinued operations..................... 0.32
--------
Net income.............................................. $ 0.83
========
Diluted earnings per share:
Income from continuing operations....................... $ 0.50
Income from discontinued operations..................... 0.32
--------
Net income.............................................. $ 0.82
========
</TABLE>

The pro forma information for the year ended December 31, 1996 includes
adjustments for additional depreciation based on the fair market value of the
drilling and other property and equipment acquired, the amortization of
goodwill arising from the transaction, increased interest expense for
additional borrowings under the Credit Agreement (see Note 5) as if they were
incurred at the beginning of the period and related adjustments for income
taxes. Pro forma net income from discontinued operations for the twelve months
ended December 31, 1996 includes a $51 million pre-tax gain on the sale of a
Transocean ASA discontinued business segment, which was disposed of in June
1996 prior to the Combination. 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 3--Termination of Cash Flow Sharing Agreement

The Company and Global Marine Inc. ("Global Marine") were parties to an
agreement pursuant to which the Company participated in the cash flow from
three jackup drilling rigs owned and operated by Global Marine and Global
Marine participated in the cash flow from one of the Company's jackup drilling
rigs, the Transocean Nordic. In April 1997, Global Marine initiated
arbitration proceedings against the Company in the United Kingdom with respect
to various disputed matters under the agreement. In March 1998, the Company
reached an agreement with Global Marine that terminated the cash flow sharing
agreement, effective February 1, 1998, with certain continuing rights if any
of the rigs are sold within three years, and settled all disputed matters.
Under the terms of this agreement, the Company received $29.8 million in cash
to settle outstanding accounts receivable and to terminate the cash flow
sharing agreement, resulting in an after tax gain of $13.8 million, or $0.14
per share, diluted.

39
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 4--Upgrade and Expansion of Drilling Fleet

In February 1996, the Company purchased a semisubmersible multi-service
vessel that was renamed the Transocean Marianas and converted to a deepwater
drilling rig. The rig was damaged by a fire during the third quarter of 1997
while it was in the shipyard undergoing conversion. As a result of the fire,
the completion of the conversion project was significantly delayed. The
Transocean Marianas conversion project was completed during the third quarter
of 1998 and the rig is currently operating in the U.S. Gulf of Mexico.

In May 1996, the Company announced plans to construct an ultra-deepwater
mobile offshore drilling rig, the Discoverer Enterprise, which is being
initially outfitted to drill in 8,500 feet of water but will be capable of
drilling in water depths up to 10,000 feet. The Company and Amoco Production
Company ("Amoco") entered into an agreement under which the Company will
provide the Discoverer Enterprise to Amoco for a period of five years from the
date of acceptance by Amoco. The drillship is expected to be operational in
the second quarter of 1999.

In January 1998, the Company announced plans to construct a Discoverer
Enterprise-class ultra-deepwater drillship, the Discoverer Spirit, which will
be capable of drilling in water depths up to 10,000 feet. The Company received
a contract commitment from Spirit Energy 76, a business unit of Union Oil
Company of California, for a period of five years plus up to five one-year
options. The drillship's hull and major marine systems will be constructed at
the Astano shipyard in Spain, with the derrick, derrick substructure, BOP and
other modules to be constructed at U.S. Gulf Coast facilities. The drillship
is expected to be operational in the first quarter of 2000.

In February 1998, the Company announced plans to construct a third
Discoverer Enterprise-class ultra-deepwater drillship, the Discoverer Deep
Seas, which will initially be outfitted to drill in 8,000 feet of water but
will be capable of drilling in water depths up to 10,000 feet. The Company
received a contract commitment from Chevron USA, Inc. for a period of five
years plus three one-year options. The drillship's hull and major marine
systems will be constructed at the Astano shipyard in Spain, with the derrick,
derrick substructure, BOP and other modules to be constructed at U.S. Gulf
Coast facilities. Initial operations in the U.S. Gulf of Mexico are expected
to commence in the third quarter of 2000.

The following table summarizes actual and projected expenditures (including
capitalized interest) for the Company's major construction and conversion
projects.

<TABLE>
<CAPTION>
Transocean Discoverer Discoverer Discoverer
Marianas Enterprise Spirit Deep Seas
---------- ---------- ---------- ----------
(Expenditures in millions)
<S> <C> <C> <C> <C>
Cumulative at December 31, 1997... $174 $148 $ -- $ --
Actual for the year ended December
31, 1998......................... 106 154 124 106
---- ---- ---- ----
Cumulative at December 31, 1998... 280 302 124 106
Projected--1999 through
completion....................... -- 80 210 230
---- ---- ---- ----
Projected Total Costs........... $280 $382 $334 $336
==== ==== ==== ====
</TABLE>

40
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 5--Debt

Debt is comprised of the following:

<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Revolving Credit Facility.............................. $320,000 $206,400
Project Financing Agreement............................ 186,990 196,210
8.00% Debentures, net of discount...................... 199,243 199,216
7.45% Notes............................................ 100,000 100,000
6.90% Notes Payable.................................... 25,384 30,000
Other.................................................. 1,008 1,268
-------- --------
Total Debt........................................... 832,625 733,094
Less Current Maturities................................ 18,672 4,812
-------- --------
Total Long-Term Debt................................. $813,953 $728,282
======== ========
</TABLE>

Project Financing Agreement--In connection with the ongoing construction of
the Discoverer Enterprise and the completed upgrade of the Transocean
Amirante, the Company's wholly owned subsidiary, Transocean Enterprise Inc.,
entered into a project financing agreement effective December 27, 1996 with a
group of banks led by ABN AMRO Bank, N.V., as agent, ("Project Financing
Agreement"). Approximately $323 million is available for drawdowns during the
construction period and is available in two tranches. The first tranche of
approximately $62.9 million is to be repaid upon completion of construction
and acceptance of the two rigs by Amoco, which has contracted the Transocean
Amirante for a period of up to five years and the Discoverer Enterprise for a
period of five years following their respective acceptance dates. It bears an
interest rate of LIBOR plus 0.35 percent. The Company expects to lend
Transocean Enterprise Inc. the necessary funds to repay the $62.9 million
through funds borrowed under the Revolving Credit Facility; accordingly, the
$62.9 million due in 1999 was not classified as current because it is the
intent of management to refinance on a long-term basis. The second tranche of
approximately $259.9 million (of which $124.1 million in borrowings were
outstanding as of December 31, 1998) bears an interest rate of LIBOR plus 0.85
percent during the construction period and is convertible to term financing
upon completion of construction and acceptance of the two rigs by Amoco. The
term financing, which is to be repaid out of cash flows from the two rigs,
matures over a period of five years. The term financing would also be divided
into two tranches, the relative amounts of which would depend on various
factors. One tranche of the term financing would be sized based upon and
repaid from the net cash flows generated from the Amoco contracts (the "Amoco
Cash Flows"). Transocean Enterprise Inc. has the option to accept term
financing for the Amoco Cash Flows at LIBOR plus 0.65 percent or to enter into
a lease securitization program at commercial paper rates plus approximately
0.36 percent. The second tranche of the term facility would be repaid from
Company cash flows to the extent the Amoco Cash Flows do not cover scheduled
repayments. Transocean Enterprise Inc. has the option to accept term financing
for the Company cash flows at LIBOR plus 1.125 percent for a period of three
years and LIBOR plus 1.25 percent thereafter or to enter into a lease
securitization program at commercial paper rates plus approximately 0.62
percent (as long as the Company's credit rating is BBB- or Baa3 or better). In
the lease securitization program, bank liquidity facilities would act as
backup lines of credit for the commercial paper program. The carrying amount
of borrowings under the Project Financing Agreement approximates fair value.

Transocean Enterprise Inc. has pledged all of its assets, consisting
primarily of the two rigs with a net book value of approximately $400.2
million at December 31, 1998, to the banks for the Project Financing
Agreement, the lease securitization facility (if entered into) and the
interest rate swap transactions described below. In addition, during the
construction period, the Company has entered into a completion guarantee so
that if for any

41
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

reason the vessels are not completed and accepted by Amoco, the Company will
repay the indebtedness under the construction financing facility, has
guaranteed the obligations of Transocean Enterprise Inc. with respect to the
$62.9 million tranche of the Project Financing Agreement, and has guaranteed
certain other obligations of Transocean Enterprise Inc. The Company has also
entered into operations and maintenance agreements with Transocean Enterprise
Inc. pursuant to which it will operate and maintain the Discoverer Enterprise
and the Transocean Amirante for a fixed fee while they are subject to the
Project Financing Agreement or the lease securitization facility.

Transocean Enterprise Inc. entered into two interest rate swap transactions
in connection with its Project Financing Agreement for an initial notional
amount of approximately $271 million with the agent of the Project Financing
Agreement. During the third quarter of 1998, Transocean Enterprise Inc.
amended the terms of its two interest rate swap transactions, which
effectively lock in a fixed interest rate for the term financing under the
Project Financing Agreement, to adjust the payment schedule for the
anticipated construction delays discussed below. In connection with the
amendment, the fixed rate that Transocean Enterprise Inc. will pay increased
from an average of 6.4 percent to 6.545 percent. Transocean Enterprise Inc.
will receive interest payments at the one month commercial paper rate
beginning in 1999 when the related construction financing converts to term
financing.

Credit Agreement--In connection with the Combination, the Company entered
into a credit agreement dated as of July 30, 1996 with a group of banks led by
ABN AMRO Bank, N.V. (the "Credit Agreement"). Prior to the amendment discussed
below, the Credit Agreement provided for borrowing by the Company under a six-
year term loan facility in the amount of $200 million (the "Term Loan
Facility") and a six-year revolving credit facility in the amount of $400
million (the "Revolving Credit Facility"). Loans under the Credit Agreement
bear interest, at the option of the Company, at a base rate or LIBOR plus a
margin (0.25 percent at December 31, 1998) that varies depending on the
Company's funded debt to total capital ratio or its public senior unsecured
debt rating. The Credit Agreement requires compliance with various restrictive
covenants and an interest coverage ratio which could limit the Company's
ability to pay dividends in the future. The Credit Agreement has a maturity
date of July 30, 2002. The carrying amount of borrowings under the Credit
Agreement approximates fair value. As of December 31, 1998, $220 million was
available under the Revolving Credit Facility.

In connection with the public offering of the debt securities discussed
below, the Credit Agreement was amended to, among other things, release all
security, convert $140 million of the term loans into revolving loans, and
change the applicable margins over LIBOR and the applicable commitment fees.
Following the amendment, the Credit Agreement provides for a $540 million
Revolving Credit Facility, with no Term Loan Facility. In December 1997, a
second amendment to the Credit Agreement was obtained which removed
restrictions on the repurchase of capital stock and eliminated the covenant
regarding maintenance of a minimum consolidated net worth. In May 1998, a
third amendment to the Credit Agreement was obtained to remove certain
restrictions that affected borrowing capability, provide for additional
indebtedness subject to financial covenants, and allow the Company to grant
liens on new assets to secure additional indebtedness.

42
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Public Debt Offering--In April 1997, the Company completed the public
offering and sale of $300 million aggregate principal amount of senior,
unsecured debt securities. The securities sold consisted of $100 million
aggregate principal amount of 7.45% Notes due April 15, 2027 (the "Notes") and
$200 million aggregate principal amount of 8.00% Debentures due April 15, 2027
(the "Debentures"). Holders of Notes may elect to have all or any portion of
the Notes repaid on April 15, 2007 at 100 percent of the principal amount. The
Notes, at any time after April 15, 2007, and the Debentures, at any time, may
be redeemed at the option of the Company at 100 percent of the principal
amount plus a make-whole premium, if any, equal to the excess of the present
value of future payments due under the Notes and Debentures using a discount
rate equal to the then-prevailing yield of U.S. treasury notes for a
corresponding remaining term plus 20 basis points over the principal amount of
the security being redeemed. Interest is payable on April 15 and October 15 of
each year, commencing October 15, 1997. The indenture and supplemental
indenture relating to the Notes and the Debentures place limitations on the
Company's ability to (i) incur indebtedness secured by certain liens, (ii)
engage in certain sale/leaseback transactions and (iii) engage in certain
merger, consolidation or reorganization transactions. The net proceeds were
used to repay amounts outstanding under the Credit Agreement. The estimated
fair value of the Notes and Debentures as of December 31, 1998 was $102
million and $215 million, respectively, based on the estimated yield to
maturity for each issue as of December 31, 1998.

Expected maturity of the Company's debt is as follows:

<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
------- ------- ------- -------- ------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revolving Credit
Facility............... $ -- $ -- $ -- $320,000 $ -- $ -- $320,000
Project Financing
Agreement.............. 13,860 28,539 23,044 85,145 23,858 12,544 186,990
8.00% Debentures, net of
discount............... -- -- -- -- -- 199,243 199,243
7.45% Notes............. -- -- -- -- -- 100,000 100,000
6.90% Notes Payable..... 4,615 4,615 4,615 4,615 4,615 2,309 25,384
Other................... 197 210 210 210 181 -- 1,008
------- ------- ------- -------- ------- -------- --------
Total Debt............ $18,672 $33,364 $27,869 $409,970 $28,654 $314,096 $832,625
======= ======= ======= ======== ======= ======== ========
</TABLE>

Letters of Credit--The Company had letters of credit outstanding at
December 31, 1998 totaling $36.7 million, including $29.3 million relating to
the legal dispute with Kvaerner Installasjon a.s (see Note 11). The remaining
$7.4 million guarantees various insurance and contract bidding activities.

43
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 6--Financial Instruments and Risk Concentration

Foreign Exchange Risk--The Company operates internationally, resulting in
exposure 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 the exposure to foreign exchange risk, including
customer contract payment terms and the use of 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 and recognized when the underlying foreign
exchange exposure is realized. At December 31, 1998 and 1997, there were no
material unrealized gains or losses on open foreign exchange derivative
hedges. 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,
1996, the net market value of open foreign exchange derivative instruments not
qualifying as accounting hedges was approximately $1.6 million. As of December
31, 1998 and 1997, the Company had no foreign exchange derivative instruments
not qualifying as accounting hedges. The Company recognized a net pre-tax loss
of $1.6 million and a net pre-tax gain of $1.0 million on such instruments
recorded as exchange gains/losses for the years ended December 31, 1997 and
1996, respectively.

Interest Rate Risk--The Company uses interest rate swap agreements to
effectively convert a portion of its floating rate debt to a fixed rate basis,
reducing the impact of interest rate changes on future income. Interest rate
swaps are designated as hedges of underlying future payments. These agreements
involve the exchange of amounts based on variable interest rates for 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 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 fair
value of the interest rate swap agreements and option contracts obtained in
connection with the Transocean ASA Combination was recorded as of the
effective date of the Combination. At December 31, 1998, 1997 and 1996, the
net unrealized losses on open interest rate swaps totaling $9.3 million, $3.5
million and $0.9 million, respectively, have been deferred because the Company
intends to maintain the underlying debt through its maturity (see Note 5).

Credit Risk--Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents and
trade receivables. 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.

44
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company derives the majority of its revenue from services to
international oil companies and government-owned and government-controlled oil
companies. There are concentrations of receivables in the United States,
Norway and the United Kingdom (see Note 16). The Company had no significant
credit losses in any of the years in the three-year period ended December 31,
1998. 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 30
percent of its employees working under collective bargaining agreements at
December 31, 1998. Of these represented employees, a majority are working
under agreements that are subject to salary negotiation in 1999. The majority
of these employees are represented by five Norwegian unions, each of which
participates in one or several nationwide agreements concerning salary and
other specific terms and conditions. These nationwide agreements are
established as a result of bi-annual negotiations between the various
employers' nationwide associations and the respective employees' unions.

Note 7--Other Current Liabilities

Other current liabilities are comprised of the following:

<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Accrued Payroll.......................................... $14,419 $13,393
Accrued Drydock.......................................... 13,065 14,498
Incentive Compensation and Bonus Accruals................ 10,811 5,799
Accrued Taxes, Other Than Income......................... 10,528 8,176
Accrued Interest......................................... 8,593 7,839
Accrued Workers' Insurance............................... 4,610 8,526
Accrued Losses on Turnkey Wells in Progress.............. -- 5,787
Other.................................................... 10,653 6,363
------- -------
$72,679 $70,381
======= =======
</TABLE>

Note 8--Other Long-Term Liabilities

Other long-term liabilities are comprised of the following:

<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Accrued Retiree Life Insurance and Medical Benefits..... $12,413 $12,276
Long-Term Portion of Accrued Workers' Insurance......... 6,466 3,524
Accrued Pension and Early Retirement.................... 6,071 4,931
Deferred Income......................................... 6,067 15,488
Minority Interest....................................... 2,299 4,637
Other................................................... 2,631 8,274
------- -------
$35,947 $49,130
======= =======
</TABLE>

45
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 9--Supplemental Cash Flow Information

Non-cash operating activities for the year ended December 31, 1998 included
an $18.4 million adjustment related to the tax benefit from stock option
exercises. The adjustment has been reflected in the consolidated balance
sheets as a decrease in Accrued Income Taxes and an increase in Additional
Paid-in-Capital.

Non-cash financing activities for the year ended December 31, 1996 included
$1.198 billion for the issuance of 45.8 million shares of common stock in
connection with the Combination between the Company and Transocean ASA. Non-
cash investing activities for the year ended December 31, 1996 included $1.439
billion of net assets acquired in the Combination with Transocean ASA (see
Note 2).

Cash payments for interest were $56.6 million, $35.1 million and $10.6
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Cash payments for income taxes, net, were $49.2 million, $51.9 million and
$34.4 million for the years ended December 31, 1998, 1997 and 1996,
respectively.

Note 10--Income Taxes

The Company carries out its operations through both domestic and foreign
corporations. Income before income taxes for these corporations is as follows:

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Domestic...................................... $230,008 $118,046 $108,222
Foreign....................................... 257,138 89,199 13,430
-------- -------- --------
Income Before Income Taxes.................... $487,146 $207,245 $121,652
-------- -------- --------
</TABLE>

The Company is subject to both U.S. and foreign income taxes. Provisions
for income taxes represent estimates of expense which will ultimately be paid.
An analysis of the Company's income taxes is as follows:

<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1998 1997 1996
-------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current:
Federal....................................... $ 45,654 $30,727 $30,400
Foreign....................................... 33,458 10,995 6,619
State......................................... 107 (625) 60
-------- ------- -------
79,219 41,097 37,079
-------- ------- -------
Deferred:
Federal....................................... 41,189 3,426 2,873
Foreign....................................... 23,322 20,789 3,655
-------- ------- -------
64,511 24,215 6,528
-------- ------- -------
Income Taxes.................................... $143,730 $65,312 $43,607
======== ======= =======
</TABLE>

Unremitted earnings of foreign subsidiaries of the Company, before
provision for income taxes, as of December 31, 1998, 1997 and 1996 aggregated
approximately $329.2 million, $88.0 million and $17.6 million, respectively.
Foreign and federal income taxes aggregating approximately $78.6 million have
been paid or accrued on such earnings as of December 31, 1998 as compared to
$28.4 and $6.2 million as of December 31, 1997 and 1996, respectively. A
portion of the accumulated unremitted earnings of foreign subsidiaries is

46
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

considered indefinitely reinvested in foreign operations and, accordingly, no
federal tax has been provided on such unremitted earnings.

Deferred tax assets and liabilities are comprised of the following:

<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Deferred Tax Assets--Current
Accrued drydock.......................................... $ 2,806 $ 3,235
Accrued personnel taxes.................................. 1,306 1,415
Accrued workers' compensation insurance.................. 1,088 1,899
Other accruals........................................... 3,861 3,924
Retirement and benefit plan accruals..................... 1,100 1,260
Insurance accruals....................................... 555 1,145
Other.................................................... 961 961
--------- ---------
Total Current Deferred Tax Assets...................... 11,677 13,839
--------- ---------
Deferred Tax Liabilities--Current
Deferred turnkey costs................................... (10,906) (6,769)
Other.................................................... (2,191) (2,652)
--------- ---------
Total Current Deferred Tax Liabilities................. (13,097) (9,421)
--------- ---------
Net Current Deferred Tax Assets (Liabilities).......... $ (1,420) $ 4,418
========= =========
Deferred Tax Assets--Noncurrent
Net operating loss carry forward......................... $ 18,191 $ 45,897
Retirement and benefit plan accruals..................... 1,113 1,264
Other accruals........................................... 7,289 6,154
Deferred income.......................................... 1,802 5,303
Net deferred foreign tax credits......................... 3,272 3,677
Other.................................................... 2,786 1,060
--------- ---------
Total Noncurrent Deferred Tax Assets................... 34,453 63,355
--------- ---------
Deferred Tax Liabilities--Noncurrent
Depreciation and amortization............................ (190,893) (154,795)
Deferred gains........................................... (68,071) (74,885)
Deferred mobilization.................................... (2,466) (3,564)
Other.................................................... (3,002) (1,417)
--------- ---------
Total Noncurrent Deferred Tax Liabilities.............. (264,432) (234,661)
--------- ---------
Net Noncurrent Deferred Tax Liabilities................ $(229,979) $(171,306)
========= =========
</TABLE>

The Company has not provided a valuation allowance to offset the deferred
tax assets because, in the opinion of management, it is more likely than not
that all deferred tax assets will be realized. The Company has net loss carry
forwards relating to foreign tax jurisdictions resulting from the Combination
with Transocean ASA totaling $65.0 million. These net loss carry forwards
expire in the year 2004 and thereafter.

47
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Income taxes differ from the amount computed by applying the U.S. federal
income tax rate to the income before income taxes. The reasons for these
differences are as follows:

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1998 1997 1996
-------- ------- -------
(In thousands)
<S> <C> <C> <C>
Income Taxes at Statutory Federal Income Tax Rate... $170,501 $72,536 $42,578
Increases (Decreases) in Tax Resulting From
Foreign income taxed at rates different from the
U.S. statutory rate.............................. (34,301) (3,839) --
Other............................................. 7,530 (3,385) 1,029
-------- ------- -------
Income Taxes........................................ $143,730 $65,312 $43,607
======== ======= =======
</TABLE>

The Company has been included in the consolidated federal income tax
returns filed by Sonat during all periods in which Sonat ownership was greater
than or equal to 80 percent ("Affiliation Years"). The Company and Sonat have
entered into a Tax Sharing Agreement providing for the manner of determining
payments with respect to federal income tax liabilities and benefits arising
in 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 utilization by Sonat 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.

During December 1998, Sonat received notification from the IRS that the
settlement proposed in connection with the examination of its consolidated
federal income tax returns for the years 1989 through 1992 was accepted. The
final settlement pursuant to the Tax Sharing Agreement between Sonat and the
Company for these years will have no material effect on the Company's
financial statements.

The Company has been notified that the IRS will commence an examination of
the last Affiliation Year, the Company's short taxable year ended June 4,
1993. In addition, certain foreign 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 consolidated financial statements.

Note 11--Commitments and Contingencies

Leases--The Company has operating lease commitments expiring at various
dates, principally for office space and office equipment. In addition to
rental payments, some leases provide that the Company pay a pro rata share of
operating costs applicable to the leased property. The Company had no
significant capital leases as of December 31, 1998 or 1997. At December 31,
1998, future minimum payments for noncancellable operating leases are as
follows:

<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1999....................................................... $ 6,181
2000....................................................... 3,290
2001....................................................... 2,296
2002....................................................... 1,968
2003....................................................... 1,834
Thereafter................................................. 12,740
-------
Total.................................................... $28,309
=======
</TABLE>

48
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Rental expense for all operating leases, including leases with terms of
less than one year, was $15.3 million, $12.8 million and $3.1 million for the
years ended December 31, 1998, 1997 and 1996, respectively.

Upgrade and Expansion of Drilling Fleet--The Company's investments in its
previously announced fleet additions continue to require significant capital
expenditures. At December 31, 1998, the Company had firm commitments related
to the construction of the Discoverer Enterprise, the Discoverer Spirit and
the Discoverer Deep Seas (see Note 4) totaling $30.7 million, $108.8 million
and $118.5 million, respectively.

Legal Proceedings--During 1997, Kvaerner Installasjon a.s ("Kvaerner") in
Norway performed modification and refurbishment work on one of the Company's
fourth-generation semisubmersible drilling rigs, the Transocean Leader. The
amount owed with respect to such work is in dispute, and the disputed amount
is approximately $40 million. The Company has posted a letter of credit valued
at approximately $30 million pending the resolution of the dispute by
agreement between the parties or by final judgment under the Norwegian
judicial process. In September 1998, the Company instituted an action in the
Norwegian courts alleging that it owes no additional amounts and that the
letter of credit should be released. Kvaerner has sought to dismiss the
action. Although the Company cannot predict the outcome of the dispute or the
court action at this time, the Company believes it will have no material
adverse effect on its results of operations or financial position.

In 1990 and 1991, two of the Company's subsidiaries were served with
assessments valued at approximately $7.4 million from the municipality of Rio
de Janeiro, Brazil to collect a municipal tax on services ("ISS"). The Company
believes that neither subsidiary is liable for the taxes and has contested the
assessments in the Brazilian administrative and court systems. The proceedings
with respect to the 1991 assessment, which was valued at approximately $6.5
million, reached the first level Brazilian state court, which rejected the
Company's arguments. The Company appealed that ruling to the second level
court. The August 1990 assessment also had an unfavorable ruling at the first
level, and the ruling has been appealed to the second level. 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 ISS payments required to be paid by them. The
Company believes the outcome of these assessments will have no material
adverse effect on the Company's results of operations or financial position.

Other--The Company has other contingent liabilities resulting from
litigation, claims and commitments incidental to the ordinary course of
business. Management believes that the probable resolution of such
contingencies will not materially affect the financial position or results of
operations of the Company.

Note 12--Stock-Based Compensation Plans

Long-Term Incentive Plan--In 1993, the Company adopted an incentive plan
for key employees and outside directors which was amended and restated during
1998 (the "Incentive Plan"). Under the Incentive Plan, awards can be granted
in the form of stock options, restricted stock, stock appreciation rights
("SARs"), cash performance awards and tax-offset supplemental payments in
connection with the exercise of options or SARs or the vesting of restricted
stock. The Incentive Plan is authorized to grant up to (i) 6.1 million shares
of common stock with respect to awards to employees; (ii) 200,000 shares of
common stock with respect to outside directors; and (iii) 100,000 shares
subject to awards of freestanding SARs to employees or directors. Options
issued under the Incentive Plan have a ten-year term and become exercisable in
three equal annual installments after the date of grant. At December 31, 1998,
there were 2.3 million total shares available for future grants.

49
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table summarizes option activities of the Incentive Plan:

<TABLE>
<CAPTION>
Weighted-
Number of Average
Shares Exercise
Under Option Price
------------ ---------
<S> <C> <C>
Outstanding at December 31, 1995......................... 2,050,472 $ 9.59
Granted.................................................. 587,400 23.58
Exercised................................................ (362,074) 9.62
Forfeited................................................ (9,012) 9.85
--------- ------
Outstanding at December 31, 1996......................... 2,266,786 13.21
Granted.................................................. 422,800 28.86
Exercised................................................ (617,162) 10.99
Forfeited................................................ (27,140) 24.47
--------- ------
Outstanding at December 31, 1997......................... 2,045,284 16.96
Granted.................................................. 520,236 43.37
Exercised................................................ (607,323) 11.01
Forfeited................................................ (24,070) 31.31
--------- ------
Outstanding at December 31, 1998......................... 1,934,127 $25.75
========= ======
Exercisable at December 31, 1996......................... 1,150,560 $ 9.55
Exercisable at December 31, 1997......................... 1,080,794 $11.13
Exercisable at December 31, 1998......................... 1,029,276 $17.86
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Weighted-Average ---------------------------- ----------------------------
Exercise Remaining Number Weighted-Average Number Weighted-Average
Prices Contractual Life Outstanding Exercise Price Outstanding Exercise Price
- -------- ---------------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 8.38--$13.50 5.70 years 583,737 $ 9.87 583,737 $ 9.87
$23.44--$31.25 7.62 years 828,954 $25.90 397,437 $25.20
$36.94--$56.31 8.42 years 521,436 $43.29 48,102 $54.07
</TABLE>

During 1998, 35,400 restricted shares were granted at a weighted-average
fair value of $41.74 per share. The Company granted 40,600 and 57,200
restricted shares at a weighted-average fair value of $31.22 and $23.45 per
share in 1997 and 1996, respectively. The Company granted 25,785 and 18,000
stock appreciation rights at a weighted-average exercise price of $45.46 and
$28.85 per share in 1998 and 1997, respectively. On December 31, 1998, there
were 267,260 restricted shares and 36,285 stock appreciation rights
outstanding under the Incentive Plan.

Employee Stock Purchase Plan--In 1998, the Company established an employee
stock purchase plan ("Stock Purchase Plan") for certain full-time employees of
the Company. Under the terms of the Stock Purchase Plan, employees can choose
each year to have between two and twenty percent of their annual base earnings
withheld to purchase up to $25,000 of the Company's common stock. The purchase
price of the stock is 85 percent of the lower of its beginning-of-year or end-
of-year market price. The plan is authorized to purchase up to 250,000 shares
of common stock.

As discussed in Note 1, the Company applies APB 25 and related
interpretations in accounting for its stock-based compensation plans. Expenses
related to restricted stock, stock appreciation rights and stock options
recognized during the years ended December 31, 1998, 1997 and 1996 were $1.6
million, $2.3 million and $1.2 million, respectively. If compensation expense
for stock options granted under the Incentive Plan and employees'

50
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

purchase rights under the Stock Purchase Plan were recognized using the
alternative fair value method of accounting under SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1998 1997 1996
-------- -------- -------
(In thousands, except per
share data)
<S> <C> <C> <C>
Net Income:
As Reported........................................ $343,416 $141,933 $78,045
Pro Forma.......................................... 339,880 140,806 77,089
Basic earnings per share:
As Reported........................................ $ 3.43 $ 1.40 $ 1.09
Pro Forma.......................................... 3.40 1.39 1.08
Diluted earnings per share:
As Reported........................................ $ 3.41 $ 1.38 $ 1.07
Pro Forma.......................................... 3.37 1.37 1.05
</TABLE>

The above pro forma information is not indicative of future pro forma
amounts. SFAS No. 123 does not apply to awards prior to 1995 and additional
awards in future years are anticipated. The fair value of each option grant
under the Incentive Plan is estimated on the date of grant using the Black-
Scholes model with the following weighted-average assumptions used for grants
in 1998, 1997 and 1996, respectively: dividend yields of 0.30, 0.19 and 0.34
percent; expected volatility of 31.1, 30.8 and 29.4 percent; risk-free
interest rates of 5.4, 6.3 and 5.6 percent; and expected lives of four years
for all three years. The weighted-average fair value of options granted was
$12.73, $9.98 and $7.30 for the years ended December 31, 1998, 1997 and 1996,
respectively. The fair value of the employees' purchase rights under the Stock
Purchase Plan is estimated using the Black-Scholes model with the following
assumptions for 1998: dividend yield of 0.33 percent; expected volatility of
41.9 percent; risk-free interest rate of 5.2 percent and an expected life of
one year. The weighted-average fair value of those purchase rights granted in
1998 was $16.28.

Note 13--Earnings Per Share

The reconciliation of the numerator and denominator used for the
computation of basic and diluted earnings per share is as follows:

<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1998 1997 1996
-------- -------- -------
(In thousands, except per
share data)
<S> <C> <C> <C>
Net Income for basic and diluted earnings per share.. $343,416 $141,933 $78,045
======== ======== =======
Weighted-average shares for basic earnings per
share............................................... 100,083 101,234 71,678
Effect of dilutive securities:
Employee stock options and unvested stock grants... 765 1,550 1,441
-------- -------- -------
Adjusted weighted-average shares and assumed
conversions for diluted earnings per share.......... 100,848 102,784 73,119
======== ======== =======
Basic earnings per share............................. $ 3.43 $ 1.40 $ 1.09
======== ======== =======
Diluted earnings per share........................... $ 3.41 $ 1.38 $ 1.07
======== ======== =======
</TABLE>

51
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 14--Retirement Plans and Other Postemployment Benefits

Qualified Defined Benefit Pension Plans--The Company has a qualified
defined benefit pension plan (the "Retirement Plan") which covers
substantially all domestic employees of the Company. The Company has also
adopted a plan (the "Supplemental Benefit Plan") to provide its eligible
participants with benefits in excess of those allowed under the Retirement
Plan (together the "Domestic Plans"). Annual retirement benefits under the
Domestic Plans are based on a combination of participants' years of service
and compensation. The Company determines the amount of funding to the
Retirement Plan on a year-to-year basis, with amounts consistent with minimum
and maximum funding requirements established by various governmental bodies.
The Company does not fund the Supplemental Benefit Plan.

As a result of the Combination, the Company has assumed the assets and
obligations of various retirement plans of Transocean ASA and its subsidiaries
(the "Foreign Plans"). These include several defined benefit plans, primarily
group pension schemes with life insurance companies. These plans apply to a
majority of Transocean ASA's onshore and offshore personnel. Benefits are
based on compensation once eligibility is reached. Certain of the pension
schemes are financed in part by contributions from employees. Company
contributions are determined primarily by the respective life insurance
companies based upon plan terms. In addition to pension obligations covered
through the insurance schemes, Transocean ASA has pension obligations to
several employees and former employees, which are financed directly from
operations. Employer's social security tax is included in the obligation for
unfunded schemes. For insurance-based schemes, annual premium payments are
considered to represent a reasonable approximation of the service costs of
benefits earned during the period, and the amounts owed for the employer's
portion of the social security tax are expensed in the period of payment. The
results of the Foreign Plans are included from September 1, 1996. The pension
obligations and assets of certain plans relating to Procon Offshore ASA (see
Note 2) were divested in May 1997.

Postretirement Benefits Other Than Pensions--The Company has plans that
provide for non-contractual limited health care and life insurance benefits to
domestic office employees and certain other domestic field employees when they
retire from the Company.

52
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
December 31,
------------------------------------
Pension
Benefits Other Benefits
---------------- ------------------
1998 1997 1998 1997
------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of
year................................... $84,989 $97,615 $ 11,509 $ 11,127
Service cost............................ 6,287 4,063 278 256
Interest cost........................... 6,047 5,350 705 766
Plan participants' contributions........ 141 123 56 56
Actuarial gains and (losses)............ 7,003 4,358 (1,829) (170)
Divestitures............................ -- (22,358) -- --
Benefits paid........................... (3,993) (4,162) (762) (526)
Plan amendments......................... 2,252 -- -- --
------- ------- -------- --------
Benefit obligation at end of year..... 102,726 84,989 9,957 11,509
------- ------- -------- --------
Change in plan assets
Fair value of plan assets at beginning
of year................................ 111,555 111,708 1,070 1,149
Actual return on plan assets............ 15,287 19,710 (211) 83
Company contributions................... 1,365 2,240 541 308
Plan participants' contributions........ 141 123 56 56
Divestitures............................ -- (18,064) -- --
Benefits paid........................... (3,993) (4,162) (762) (526)
------- ------- -------- --------
Fair value of plan assets at end of
year................................. 124,355 111,555 694 1,070
------- ------- -------- --------

Funded status........................... 21,629 26,566 (9,263) (10,439)
Unrecognized net transition asset....... (767) (6,063) -- --
Unrecognized net actuarial gain......... (15,635) (10,668) (3,124) (1,805)
Unrecognized prior service cost......... 810 (1,410) (26) (32)
------- ------- -------- --------
Net amount recognized................. $ 6,037 $ 8,425 $(12,413) $(12,276)
======= ======= ======== ========
Amounts recognized in the balance sheet
consist of:
Prepaid benefit cost.................... $12,108 $13,356 $ -- $ --
Accrued benefit liability............... (6,071) (4,931) (12,413) (12,276)
------- ------- -------- --------
Net amount recognized................. $ 6,037 $ 8,425 $(12,413) $(12,276)
======= ======= ======== ========
</TABLE>

The aggregate projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated benefit
obligations in excess of plan assets were $10.9 million, $7.2 million and $3.4
million, respectively, at December 31, 1998 and $5.7 million, $3.3 million and
$0.9 million, respectively, at December 31, 1997.

<TABLE>
<CAPTION>
December 31,
----------------------
Pension Other
Benefits Benefits
---------- ----------
Weighted-average assumptions 1998 1997 1998 1997
---------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate..................................... 6.41% 6.74% 6.75% 7.00%
Expected return on plan assets.................... 8.47% 8.60% 7.00% 7.00%
Rate of compensation increase..................... 4.73% 4.81% 5.50% 5.50%
</TABLE>

53
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For measurement purposes, the rate of increase in the per capita costs of
covered health care benefits is assumed to be 8.05 percent in 1999, decreasing
gradually to 5.25 percent by the year 2003.

<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
Pension Benefits Other Benefits
---------------------- ----------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit
Cost
Service cost........................ $6,287 $4,063 $3,791 $278 $256 $250
Interest cost....................... 6,047 5,350 4,843 705 767 764
Expected return on plan assets...... (8,089) (7,531) (6,969) (70) (76) (79)
Amortization of transition
obligation......................... (914) (1,218) (1,103) -- -- --
Amortization of prior service cost.. (68) (180) (146) (5) (5) (6)
Recognized net actuarial gain....... (31) (49) (280) (229) (130) (14)
------ ------ ------ ---- ---- ----
Benefit cost...................... $3,232 $ 435 $ 136 $679 $812 $915
====== ====== ====== ==== ==== ====
</TABLE>

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

<TABLE>
<CAPTION>
1-Percentage 1-Percentage
Point Point
Increase Decrease
------------ ------------
(In thousands)
<S> <C> <C>
Effect on total of service and interest cost
components in 1998................................. $ 128 $(112)
------ -----
Effect on postretirement benefit obligations as of
December 31, 1998.................................. $1,089 $(954)
------ -----
</TABLE>

Defined Contribution Plans--The Company sponsors defined contribution
pension and savings plans covering senior non-American 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. The Company also sponsors a defined contribution savings plan
covering domestic employees. Contributions by the Company are limited to no
more than 4.5 percent of each covered employee's salary, based on the
employee's contribution. As a result of the Combination, the Company also
assumed various defined contribution plans of Transocean ASA and its
subsidiaries. Costs of these plans have been included from September 1, 1996.
Costs for the Company's defined contribution plans were $5.5 million, $5.7
million and $3.5 million in 1998, 1997 and 1996, respectively.

Deferred Compensation Plan--The Company established the Transocean Offshore
Inc. Deferred Compensation Plan ("the Plan") on July 1, 1998. The Plan's
primary purpose is to provide tax-advantage 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% of base salary, 100% of any future performance awards, 100% of
any special payments and 100% of directors meeting fees and annual retainers;
however, the Administrative Committee (three individuals appointed by the
Compensation 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 Compensation Committee may authorize
employer contributions to participants, and the Chief Executive Officer of the
Company (with Compensation Committee approval) may enter into "Deferred
Compensation Award Agreements" with such participants. There were no employer
contributions for the year ended December 31, 1998.

54
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 15--Investments in and Advances to Joint Ventures

The Company holds a 24.89 percent interest in Arcade Drilling as
("Arcade"), a Norwegian offshore drilling company. Arcade owns two fourth-
generation semisubmersible rigs, the Henry Goodrich and the Paul B. Loyd, Jr.
At December 31, 1998, the Company's net investment in Arcade was $52.2
million. The Company's equity in undistributed earnings of Arcade through
December 31, 1998 was $22.5 million.

In December 1990, the Company contributed the Henry Goodrich to Arcade. The
Company received $70.0 million in cash and common stock representing a 21.75
percent interest in Arcade. This sale resulted in a pre-tax gain of $28.8
million of which $18.8 million was recognized as other income in 1990. The
remaining $10.0 million of the gain was deferred and is being amortized to
income over the remaining depreciable life of the Henry Goodrich. The deferred
income has been offset against the Company's investment in Arcade. The net
unamortized balance of the deferred gain was $6.1 million at December 31,
1998.

Note 16--Segments, Geographical Analysis and Major Customers

The Company has two reportable segments: Mobile Units and Drilling
Services. The Mobile Units segment primarily operates drilling rigs for
customers, principally at a contractually determined price per day (dayrate).
Drilling Services primarily involves providing personnel and equipment other
than rigs for oil and gas exploration and production on either a dayrate or
fixed price basis. For both segments, performance is evaluated based on
operating income before general and administrative expenses. The accounting
policies used to determine the segment information are the same as those
described in Note 1.

<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
---------- -------- --------
(In thousands)
<S> <C> <C> <C>
Operating Revenues
Mobile Units
U.S. Gulf of Mexico............................. $ 305,582 $222,142 $148,886
Europe.......................................... 463,361 361,045 179,865
Other Western Hemisphere........................ 184,265 19,884 29,193
Other Eastern Hemisphere........................ 60,212 84,233 31,035
---------- -------- --------
Total Mobile Units............................ 1,013,420 687,304 388,979
---------- -------- --------
Drilling Services................................. 76,192 204,658 139,924
---------- -------- --------
Total Operating Revenues.......................... $1,089,612 $891,962 $528,903
========== ======== ========
Operating and Maintenance Expenses
Mobile Units
U.S. Gulf of Mexico............................. $ 101,505 $ 82,241 $ 62,609
Europe.......................................... 224,559 210,712 121,083
Other Western Hemisphere........................ 53,641 9,147 20,474
Other Eastern Hemisphere........................ 25,331 36,098 22,688
Other (a)....................................... 13,386 10,789 5,632
---------- -------- --------
Total Mobile Units............................ 418,422 348,987 232,486
---------- -------- --------
Drilling Services................................. 66,017 198,429 126,818
---------- -------- --------
Total Operating and Maintenance Expenses.......... $ 484,439 $547,416 $359,304
========== ======== ========
</TABLE>

55
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Depreciation and Amortization
Mobile Units
U.S. Gulf of Mexico........................... $ 21,389 $ 12,654 $ 9,816
Europe........................................ 73,979 70,744 26,779
Other Western Hemisphere...................... 11,452 5,223 2,738
Other Eastern Hemisphere...................... 3,509 6,529 3,395
-------- -------- --------
Total Mobile Units.......................... 110,329 95,150 42,728
-------- -------- --------
Drilling Services............................... 5,364 6,589 3,027
-------- -------- --------
Total Depreciation and Amortization for
Reportable Segments............................ 115,693 101,739 45,755
Depreciation on Corporate Assets................ 1,174 1,278 832
-------- -------- --------
Total Depreciation and Amortization............. $116,867 $103,017 $ 46,587
======== ======== ========
Operating Income (Loss)
Mobile Units
U.S. Gulf of Mexico........................... $182,688 $127,247 $ 76,461
Europe........................................ 164,823 79,589 32,003
Other Western Hemisphere...................... 119,172 5,514 5,981
Other Eastern Hemisphere...................... 31,372 41,606 4,952
Other (a)..................................... (13,386) (10,789) (5,632)
-------- -------- --------
Total Mobile Units.......................... 484,669 243,167 113,765
-------- -------- --------
Drilling Services............................... 4,811 (360) 10,079
-------- -------- --------
Total Operating Income for Reportable Segments.. 489,480 242,807 123,844
Corporate Expenses.............................. (29,208) (25,331) (16,230)
-------- -------- --------
Total Operating Income.......................... 460,272 217,476 107,614
-------- -------- --------
Equity in earnings of joint ventures.......... 11,677 10,196 5,168
Interest income............................... 3,451 1,854 6,228
Interest expense, net of amounts capitalized.. (23,892) (22,853) (7,220)
Gain on termination of cash flow sharing
agreement.................................... 21,290 -- --
Other, net.................................... 14,348 572 9,862
-------- -------- --------
Other Income (Expense), Net..................... 26,874 (10,231) 14,038
-------- -------- --------
Income Before Income Taxes...................... $487,146 $207,245 $121,652
======== ======== ========
</TABLE>
- --------
(a) Other includes operations and engineering overhead expenses not allocated
to geographic areas of operations.

56
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Assets
Mobile Units
U.S. Gulf of Mexico........................ $ 963,906 $ 566,925 $ 294,114
Europe..................................... 1,783,598 1,770,814 1,640,691
Other Western Hemisphere................... 197,598 83,568 129,786
Other Eastern Hemisphere................... 42,439 125,476 119,338
---------- ---------- ----------
Total Mobile Units....................... 2,987,541 2,546,783 2,183,929
---------- ---------- ----------
Drilling Services............................ 91,337 77,975 161,272
---------- ---------- ----------
Total Assets for Reportable Segments......... 3,078,878 2,624,758 2,345,201
---------- ---------- ----------
Investments In and Advances to Joint
Ventures.................................... 55,544 45,869 35,608
Other Assets (Corporate)..................... 116,521 84,461 62,405
---------- ---------- ----------
Total Assets................................. $3,250,943 $2,755,088 $2,443,214
========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Capital Expenditures (a)
Mobile Units........................................ $555,202 $397,074 $196,129
Drilling Services................................... 14,455 6,271 10,814
-------- -------- --------
Total Capital Expenditures for Segment Assets....... 569,657 403,345 206,943
-------- -------- --------
Capital Expenditures for Corporate Assets........... 3,674 3,121 6,016
-------- -------- --------
Total Capital Expenditures.......................... $573,331 $406,466 $212,959
======== ======== ========
</TABLE>
- --------
(a) Excludes the Combination (see Note 2).

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
Arcade joint venture operates in Europe. General Corporate assets are
principally cash and cash equivalents and other nonoperating assets.

Additional Geographic Information
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
---------- -------- --------
(In thousands)
<S> <C> <C> <C>
Operating Revenues
United States..................................... $ 308,189 $270,753 $178,777
Norway............................................ 323,130 289,507 140,453
United Kingdom.................................... 159,210 170,453 95,830
Brazil............................................ 95,355 16,508 27,644
Other............................................. 203,728 144,741 86,199
---------- -------- --------
Total Operating Revenues by Country............... $1,089,612 $891,962 $528,903
========== ======== ========
</TABLE>

57
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Long-Lived Assets
United States............................... $ 918,047 $ 527,992 $ 290,087
Norway...................................... 654,012 750,320 596,974
United Kingdom.............................. 165,604 93,680 242,433
Spain....................................... 229,309 148,200 36,554
Goodwill-Europe (a)......................... 675,243 693,154 763,173
Other....................................... 247,096 234,652 261,747
---------- ---------- ----------
Total Long-Lived Assets by Country............ $2,889,311 $2,447,998 $2,190,968
========== ========== ==========
</TABLE>
- --------
(a) Goodwill resulting from the Combination has not been allocated to
individual countries.

Major Customers

Revenues from the following major unaffiliated customers of the Company
exceeded 10% or more of operating revenues:

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Statoil (a)................................... $169,830 $167,162 $ 67,968
Royal Dutch Shell Group (a)................... 182,817 153,824 146,769
BP Amoco (a).................................. 109,401 90,933 (b)
</TABLE>
- --------
(a) Revenues earned by both business segments.
(b) Amount was below 10% for the years indicated.

The loss of significant customers could have a materially adverse effect on
the Company's results of operations.

Note 17--Sale of Assets

In August 1998, the Company sold certain non-core assets within its
drilling services business segment to a subsidiary of Dailey International
Inc. for $10.0 million in cash, resulting in a pre-tax gain of approximately
$8.1 million ($5.3 million after tax or $0.05 per share, diluted).

In 1996, the Offshore Bahram sank while under tow offshore Egypt. The
Company disposed of the rig and recognized a net pre-tax gain of approximately
$6.6 million ($4.3 million after tax or $0.06 per share, basic and diluted).

58
<PAGE>

TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 18--Quarterly Results (Unaudited)

Shown below are selected unaudited quarterly data:

<TABLE>
<CAPTION>
Quarter
-----------------------------------
First Second Third Fourth
-------- -------- -------- --------
(In thousands, except per share
data)
<S> <C> <C> <C> <C>
1998
Operating Revenues........................ $258,313 $251,577 $269,002 $310,720
Operating Income (a)...................... 91,319 101,202 120,291 147,460
Net Income (a)............................ 77,560 69,661 92,929 103,266
Net Income Per Share (a)
Basic................................... $ 0.78 $ 0.70 $ 0.93 $ 1.03
Diluted................................. 0.77 0.69 0.92 1.02
Weighted-average number of shares
Basic................................... 99,673 100,082 100,283 100,284
Diluted................................. 100,683 101,006 100,869 100,780
1997
Operating Revenues........................ $219,616 $208,093 $223,201 $241,052
Operating Income (b)...................... 44,583 42,106 60,939 69,848
Net Income (b)............................ 27,709 27,916 39,119 47,189
Net Income Per Share (b)(c)
Basic................................... $ 0.27 $ 0.28 $ 0.39 $ 0.47
Diluted................................. 0.27 0.27 0.38 0.46
Weighted-average number of shares (c)
Basic................................... 102,188 101,167 101,280 100,323
Diluted................................. 103,610 102,640 102,807 101,888
</TABLE>
- --------
(a) Fourth quarter 1998 included operating revenues of $40 million and
operating income of $36.4 million ($23.7 million after taxes) on a cash
settlement in connection with the contract termination for the Transocean
Explorer. The effect of this settlement on earnings per share was $0.24,
basic and diluted.
(b) Fourth quarter 1997 included losses from turnkey drilling services of
$10.8 million ($7.0 million after taxes). The effect of these losses on
earnings per share was $0.07, basic and diluted.
(c) 1997 earnings per share amounts and weighted-average number of shares have
been restated to comply with SFAS No. 128, Earnings Per Share, and to
reflect the increased number of shares issued and outstanding as a result
of the stock split.

59
<PAGE>

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 twenty-four 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 1999 annual
meeting of stockholders, 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, 1998. 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

<TABLE>
<CAPTION>
Page
----
<S> <C>
Included in Part II of this report:
Report of Independent Auditors..................................... 30
Consolidated Statements of Operations.............................. 31
Consolidated Balance Sheets........................................ 32
Consolidated Statements of Stockholders' Equity.................... 33
Consolidated Statements of Cash Flows.............................. 34
Notes to Consolidated Financial Statements......................... 35
</TABLE>

Financial statements of 50 percent or less owned joint ventures are not
presented herein because such joint ventures do not meet the significance
test.

(2) Financial Statement Schedules

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.

60
<PAGE>

(3) Exhibits

The following exhibits are filed in connection with this Report:

<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company, including
amendments dated September 3, 1996 (filed as Exhibit 4(a) to the
Company's Registration Statement on Form S-8 Registration No. 333-12475
dated September 20, 1996)

3.2 Amendment dated September 3, 1996 to Restated Certificate of
Incorporation of the Company to change the Company's name (filed as
Exhibit 4(b) to the Company's Registration Statement on Form S-8
Registration No. 333-12475 dated September 20, 1996)

3.3 Amendment dated September 3, 1996 to Restated Certificate of
Incorporation of the Company to increase authorized shares of common
stock (filed as Exhibit 4(c) to the Company's Registration Statement on
Form S-8 Registration No. 333-12475 dated September 20, 1996)

3.4 By-Laws of the Company (filed as Exhibit 3-(2) to the Company's Form
10-K for the year ending December 31, 1993)

4.1 Secured Credit Agreement dated as of January 17, 1997 among Transocean
Enterprise Inc., the Lenders party thereto, ABN AMRO Bank, as Agent,
and the Co-Agents listed therein (filed as Exhibit 4-(1) to the
Company's Form 10-K for the year ending December 31, 1996)

+4.2 First Amendment to Secured Credit Agreement dated as of December 21,
1998.

4.3 Credit Agreement dated as of July 30, 1996 among Sonat Offshore
Drilling Inc., the Lenders party thereto, ABN AMRO Bank, as Agent, and
the Co-Agents listed therein (filed as Exhibit 10-(1) to the Company's
Form 10-Q for the quarter ending June 30, 1996)

4.4 First Amendment to Credit Agreement dated as of April 24, 1997 (filed
as Exhibit 4.1 to the Company's Form 10-Q for the quarter ending March
31, 1997)

4.5 Second Amendment to Credit Agreement dated as of December 19, 1997
(filed as Exhibit 4.4 to the Company's Form 10-K for the year ending
December 31, 1997)

4.6 Third Amendment to Credit Agreement dated May 22, 1998 (filed as
Exhibit 4.9 to the Company's Form 10-Q for the quarter ending June 30,
1998).

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

4.8 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 (filed as
Exhibit 4.2 to the Company's Form 8-K dated April 29, 1997)

4.9 Form of Note (filed as Exhibit 4.3 to the Company's Form 8-K dated
April 29, 1997).

4.10 Form of Debenture (filed as Exhibit 4.4 to the Company's Form 8-K dated
April 19, 1997).

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

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

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

10.4 Purchase Agreement dated as of April 1, 1987 among Sonat Offshore
Drilling Inc., Sonat Offshore Ventures Inc., Dixilyn-Field Drilling
Company and Panhandle Eastern Corporation (filed as Exhibit 10-(9) to
the Company's Form S-1 Registration No. 33-60992 dated April 13, 1993)

</TABLE>

61
<PAGE>

<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.5 Agreement dated as of June 14, 1995, among Sonat Offshore Ventures
Inc., Sonat Offshore Drilling Inc., Dixilyn-Field Drilling Company and
Panhandle Eastern Corporation (filed as Exhibit 10-(8) to the Company's
Form 10-K for the year ending December 31, 1995)

*10.6 Employee Stock Purchase Plan of Transocean Offshore Inc. effective May
14, 1998 (filed as Exhibit 4.5 to the Company's Form S-8 Registration
No. 333-24457 filed June 30, 1998)

*10.7 Employment Agreements between J. Michael Talbert, W. Dennis Heagney,
Robert L. Long, Jon C. Cole, Donald R. Ray, Eric B. Brown and Barbara
S. Koucouthakis, individually, and Transocean Offshore Inc. dated
December 6, 1995 (filed as Exhibit 10-(18) to the Company's Form 10-K
for the year ending December 31, 1995)

*10.8 Long-Term Incentive Plan of Transocean Offshore Inc., as amended and
restated effective March 12, 1998 (filed as Exhibit 4.5 to the
Company's Form S-8 Registration No. 333-58211 filed June 30, 1998)

*10.9 Employment Agreement dated as of August 14, 1997 between Dennis R. Long
and Transocean Offshore Inc. (filed as Exhibit 10.1 to the Company's
Form 10-Q for the quarter ending September 30, 1997)

*10.10 Employment Agreement dated as of August 12, 1998 between Alan A.
Broussard and Transocean Offshore Inc. (filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ending September 30, 1998)

*10.11 Deferred Compensation Plan of Transocean Offshore Inc. effective July
1, 1998 (filed as Exhibit 10.2 to the Company's Form 10-Q for the
quarter ending September 30, 1998)

+21 Subsidiaries of the Company

+23 Consent of Ernst & Young LLP

+24 Powers of Attorney

+27(1) Financial Data Schedule
</TABLE>
- --------
* 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.

(b) Reports on Form 8-K

There were no reports on Form 8-K filed during the quarter ending December
31, 1998.

62
<PAGE>

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 19, 1999.

TRANSOCEAN OFFSHORE INC.

/s/Robert L. Long
By:__________________________________
Robert L. Long
Senior Vice President

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 19, 1999.

<TABLE>
<S> <C>
Signature Title

/s/ J. Michael Talbert Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
- -----------------------------------
J. Michael Talbert

/s/ Robert L. Long Senior Vice President, Chief Financial
Officer and Treasurer (Principal
- ----------------------------------- Financial Officer)
Robert L. Long

/s/Barbara S. Koucouthakis Vice President and Controller
(Principal Accounting Officer)
- -----------------------------------
Barbara S. Koucouthakis

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

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

* Director
- -----------------------------------
Robert J. Lanigan

* Director
- -----------------------------------
Max L. Lukens

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

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

* Director
- -----------------------------------
Fridtjof Lorentzen

* Director, President and Chief Operating
Officer
- -----------------------------------
W. Dennis Heagney

*By:/s/ Barbara S. Koucouthakis
--------------------------------
Barbara S. Koucouthakis
(Attorney-in-Fact)
</TABLE>

<PAGE>

EXHIBIT 4.2

FIRST AMENDMENT TO SECURED CREDIT AGREEMENT

THIS FIRST AMENDMENT TO SECURED CREDIT AGREEMENT (this "Amendment") dated
as of December 21, 1998, is by and among Transocean Enterprise Inc., a Delaware
corporation (the "Borrower"), the lenders from time to time parties hereto (each
a "Lender" and collectively, the "Lenders"), ABN AMRO Bank N.V. ("ABN AMRO"), a
Netherlands chartered bank, as agent for the Lenders (in such capacity, the
"Agent"), and Australia and New Zealand Banking Group Limited, Bank of Montreal,
The Bank of Nova Scotia, Atlanta Agency, The Bank of Tokyo-Mitsubishi, Ltd.,
Houston Agency and Westdeutsche Landesbank Girozentrale, as co-agents for the
Lenders (in such capacity, collectively, the "Co-Agents").

WITNESSETH

WHEREAS, the Borrower, the Lenders, the Agent and the Co-Agents have
entered into that certain Secured Credit Agreement dated as of January 17, 1997
(the "Credit Agreement"), pursuant to which the Lenders have made and agreed to
make Loans to the Borrower; and

WHEREAS, the Borrower, the Lenders, the Agent and the Co-Agents desire to
amend the Credit Agreement as hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Borrower, the Lenders, the Agent and the Co-Agents hereby
agree as follows:

1. Amendments to Credit Agreement.

(a) Section 1.1 of the Credit Agreement is hereby amended as follows:

(i) The definition "Transocean Drillship Differential" is hereby
deleted in its entirety.

(ii) The definitions of "Acceptance Date" and "Conversion Date"
are each hereby amended by deleting the date "December 31, 1998" in the last
line thereof, respectively, and inserting in its place the date "August 31,
1999".

(iii) The definition of "Amoco" is hereby amended by adding the
following sentence at the end of such definition:

"Should Amoco be succeeded by merger or consolidation, references in
this Agreement to Amoco shall be deemed to be to the successor
corporation or other entity."

(iv) The definition of "Commitment" is hereby amended to add
the clause ", including any Replacement Commitment" before the period at the end
thereof.
<PAGE>

(v) The definition of "Construction Credit Commitment Amount"
is hereby amended and restated in its entirety as follows:

"'Construction Credit Commitment Amount' means an amount equal to
$259,900,183.57 plus the Replacement Construction Credit Commitment
Amount, if any, as such amount may be reduced from time to time
pursuant to this Agreement."

(vi) The definition of "Excess Cash Flow" is hereby amended by
deleting the amount "$181,500" in the seventh line thereof and inserting in its
place the amount "$181,000" and by deleting the clause "or to the extent the
Borrower or the Guarantor funds the Transocean Drillship Differential
(including, without limitation, pursuant to Section 1.4 of the Transocean
Performance Guaranty)," in the twenty-seventh line thereof.

(vii) The definition of "Maturity Date" is hereby amended and
restated in its entirety as follows:

"'Maturity Date' means (i) for the Tranche A Loans, August 31,
1999, or if earlier, the Conversion Date; (ii) for the portion of the
Construction Loans (if any) which are not converted to Term Loans pursuant
to the terms and conditions hereof, August 31, 1999, or if earlier, the
Conversion Date; and (iii) for the Term Loans, the date five (5) years
after the Conversion Date."

(viii) The definition of "Percentage" is hereby amended and
restated in its entirety as follows:

"'Percentage' means, for each Lender at any time, a percentage
(i) the numerator of which is the aggregate principal amount of the Loans
held by such Lender at such time, subject to any assignments by such Lender
of Loans pursuant to Section 10.10, and (ii) the denominator of which is
the aggregate principal amount of all outstanding Loans made by the
Lenders."

(ix) The following definitions of "Replacement Commitment",
"Replacement Construction Credit Commitment Amount", "Replacement
Lender", "Replacement Tranche A Loan Amount" and "Substitution Date" are hereby
added in the correct alphabetical order:

"'Replacement Commitment' means the Commitment of any Lender
(including any Replacement Lender) to make an additional Tranche A Loan and
additional Construction Loans pursuant to Sections 2.1 and 2.2."

"'Replacement Construction Credit Commitment Amount' means an amount
up to $12,814,801.04 of Construction Loans committed to be made subject to
the terms and conditions hereof (i) by a Lender in addition to its existing
Construction Credit

-2-
<PAGE>

Commitment set forth in Column C (Existing Construction Credit Commitments)
in the attached Schedule 2.1 or (ii) by a Replacement Lender, if any;
provided that if any portion of the Construction Loans is prepaid prior to
the full amount of such commitment being made by one or more such Lenders
or Replacement Lenders, as the case may be, such amount shall be reduced by
a percentage (i) the numerator of which is the aggregate Construction Loans
prepaid from and after December 21, 1998, and (ii) the denominator of which
is the then existing Construction Credit Commitment Amount.

'Replacement Lender' means a commercial banking institution not
subject to Regulation T of the Board of Governors of the Federal Reserve
System which has a short-term rating of A-1 from S&P and P-1 from Moody's
(unless otherwise agreed by the Agent, the Borrower and the Guarantor) and
selected by the Borrower and the Guarantor with the prior written consent
of the Agent (which shall not be unreasonably withheld or delayed) that
becomes a party to this Agreement after December 21, 1998 (other than
pursuant to Section 10.10), but before the Conversion Date and that makes a
Tranche A Loan and a Construction Loan to the Borrower pursuant to Sections
2.1 and 2.2 that aggregate at least $5,000,000. Upon selection of a
Replacement Lender by the Borrower and the Guarantor and its approval by
the Agent and the execution of a writing among such parties setting forth
the Replacement Commitment of a Replacement Lender, such Replacement Lender
shall have the rights and obligations of a Lender hereunder and shall be a
party to this Agreement without any further action by any other Person
party hereto.

'Replacement Tranche A Loan Amount" means an amount up to
$3,101,321.59 of Tranche A Loans committed to be made subject to the terms
and conditions hereof (i) by a Lender in addition to its existing Tranche A
Loan set forth in Column A (Existing Tranche A Loans) in the attached
Schedule 2.1 or (ii) by a Replacement Lender, if any; provided that if any
portion of the Tranche A Loans is prepaid prior to the full amount of such
commitment being made by one or more such Lenders or Replacement Lenders,
as the case may be, such amount shall be reduced by a percentage (i) the
numerator of which is the aggregate Tranche A Loans prepaid from and after
December 21, 1998, and (ii) the denominator of which is the aggregate
principal amount of all outstanding Tranche A Loans made by the Lenders.

The definition of 'Substitution Date' shall have the meaning ascribed
to such term in the definition of Applicable Margin."

(x) The definition of "Tranche A Credit Commitment Amount" is hereby
amended and restated in its entirety as follows:

"'Tranche A Credit Commitment Amount' means an amount equal to
$62,898,678.42 plus the Replacement Tranche A Loan Amount, if any."

(b) Section 2.1 of the Credit Agreement is hereby amended and restated
in its entirety as follows:

-3-
<PAGE>

"Section 2.1 Borrowings of Tranche A Loans. As of December 21, 1998,
each existing Lender has severally and not jointly made to the Borrower a
loan in the principal amount set forth in Column A (Existing Tranche A
Loans) in the attached Schedule 2.1 (each a "Tranche A Loan"). Any such
Lender may make, and following the execution of a writing among the
Borrower, the Guarantor, the Agent and any such Lender setting forth a
Replacement Commitment shall make, on the date of such Replacement
Commitment, and any Replacement Lender shall make on the date it becomes a
party to this Agreement, an additional Tranche A Loan to the Borrower in an
amount agreed with the Borrower but not to exceed in the aggregate for all
such additional Tranche A Loans the Replacement Tranche A Loan Amount, in
each case (i) so long as such Lender or Replacement Lender, as applicable,
makes a contemporaneous Construction Loan to the Borrower pursuant to
Section 2.2 in an amount such that its Percentage of outstanding Tranche A
Loans is equal to its Percentage of outstanding Construction Loans
following such additional Tranche A Loan and such contemporaneous
Construction Loan, and (ii) so long as any such additional Tranche A Loans
are made before the Conversion Date."

"Section 2.2 Borrowings of Construction Loans. As of December 21,
1998, each existing Lender has severally and not jointly made to the
Borrower loans in the aggregate principal amount set forth opposite its
name in Column B (Existing Construction Loans) in the attached Schedule 2.1
(each a "Construction Loan"). Any such Lender which makes an additional
Tranche A Loan pursuant to Section 2.1 and any Replacement Lender shall
make on the date it makes such additional Tranche A Loan, a Construction
Loan to the Borrower in proportion to its additional Tranche A Loan made
pursuant to Section 2.1, such that its Percentage of outstanding
Construction Loans following such additional Construction Loan is equal to
its Percentage of all outstanding Tranche A Loans following such additional
Tranche A Loan, but not to exceed in the aggregate for all such additional
Construction Loans the Replacement Construction Credit Commitment Amount,
in each case so long as any such additional Construction Loans are made
before the Sizing Date. Prior to the Sizing Date, and subject to the other
terms and conditions hereof, each Lender (including any Replacement Lender)
severally and not jointly agrees to make one or more additional loans (also
a "Construction Loan") to the Borrower from time to time in an aggregate
amount not to exceed at any time outstanding an amount equal to its
Percentage of the Construction Credit Commitment Amount (for each Lender,
its "Construction Credit Commitment"). By way of illustration only, if a
Replacement Lender made a Replacement Commitment on December 21, 1998, to
make an additional Tranche A Loan in the amount of $3,101,321.59 and to
make Construction Loans in an aggregate amount of up to $12,814,801.04, it
would make a Tranche A Loan of $3,101,321.59 and a Construction Loan of
$6,118,517.83 (its Percentage of the Construction Credit Commitment Amount
on such date) and it would have a Percentage of 4.6989720999% and a
Construction Credit Commitment of $12,814,801.04 on such date. No Lender
shall be permitted or required to make any Construction Loan if, after
giving effect thereto, (i) the aggregate principal

-4-
<PAGE>

amount of the Construction Loans of all Lenders would thereby exceed the
Construction Credit Commitment Amount, or (ii) all Construction Loans of
such Lender would thereby exceed the Percentage of such Lender of the
Construction Credit Commitment Amount. Except as set forth above in this
Section 2.2 with respect to the Replacement Construction Credit Commitment
Amount, each Borrowing of Construction Loans shall be made ratably from the
Lenders in proportion to their respective Percentages. Any portion of the
Construction Credit Commitment not borrowed before the Sizing Date shall
terminate and not be available for borrowing."

(d) Section 2.3 of the Credit Agreement is hereby amended (i) by
deleting the clause "depending upon the Amoco Contract Selection" in the sixth
line thereof; (ii) by deleting the clause "less than all" in the eleventh line
thereof and inserting in its place the clause "all or any portion"; and (iii) by
adding the following sentence at the end thereof: "The Borrower may not convert
all or any portion of the Construction Loans into Term Loans if the Borrower
enters into a Lease Securitization Facility."

(e) Section 2.7 of the Credit Agreement is hereby amended as follows:

(i) Section 2.7(c)(i) of the Credit Agreement is hereby amended
and restated in its entirety as follows:

"(c) Term Loans.

(i) Initial Determination of Sizing of Term Loans and
Amortization Dates. The Borrower shall repay a portion of the Tranche B
Term Loans and a portion of the Tranche C Term Loans no later than the last
Business Day of each calendar month, commencing (x) with respect to the
Tranche B Term Loans, no later than the last Business Day of the first full
calendar month after the Conversion Date, and (y) with respect to the
Tranche C Term Loans, no later than the last Business Day of the calendar
month as determined pursuant to the Sizing Methodology (as hereinafter
defined) (each an "Amortization Date"). The Borrower shall repay in full
the unpaid principal amount of the Tranche B Term Loans and the Tranche C
Term Loans on the applicable Maturity Date for such Loans. By ten (10)
Business Days before the Conversion Date (and/or the anticipated date of
refinancing the Construction Loans (in whole or in part) by an anticipated
Lease Securitization Facility) (the "Sizing Date"), the Agent shall, after
consultation with the Borrower and the Guarantor, reasonably determine the
relative size of each of the Tranche B Term Loans and the Tranche C Term
Loans and the principal amount of each required payment of each of the
Tranche B Term Loans and the Tranche C Term Loans on each Amortization
Date, in each case using substantially the same methodology as used in
preparing the model attached as Exhibit 2.7 (the "Sizing Methodology"),
taking into account (without limitation and to the extent applicable) (w)
any change in the date of Acceptance of the Drillship from June 30, 1999,
(x) the outstanding principal balance of the Term Loans at the Conversion
Date (limited to a maximum of $271,500,000), (y) the actual all-in interest
rates under the Interest Rate

-5-
<PAGE>

Protection Agreement entered into by the Borrower and the true-up costs
determined pursuant to Section 6.10 after giving effect for the pre-
Conversion Date true-up required therein, plus the appropriate Applicable
Margins, and (z) any change in the Conversion Date from August 31, 1999.
The required amortization payments for the Tranche B Term Loans shall be
such that the Tranche B Term Loans (after taking into account the Fixed
Operating Expenses attributable to each of the Rig and the Drillship) are
fully amortized to $0 on the date five (5) years after the Conversion
Date."

(ii) Section 2.7(c)(ii) of the Credit Agreement is hereby amended
by deleting the clause "and disregarding the portion of the Tranche C Term Loans
attributable to the Transocean Drillship Differential" in the sixth line
thereof.

(iii) Section 2.7(c)(iii) of the Credit Agreement is hereby
amended by deleting the clause "plus the Transocean Drillship Differential" in
the eighth line thereof.

(iv) Section 2.7(c)(iv) of the Credit Agreement is hereby amended
and restated in its entirety as follows:

"(iv) Reset of Sizing of Term Loans, Amortization Payments,
Transocean Contract Payments and Allocation of Amortization Payments
between Rig and Drillship. The Agent shall, after consultation with the
Borrower and the Guarantor, reset the sizing of the Tranche B Term Loans
and the Tranche C Term Loans (keeping the aggregate principal amount of the
Term Loans outstanding the same), the amortization payments for the Tranche
B Term Loans and the Tranche C Term Loans, the rent payable under the
Transocean Contracts, to the extent any such contract remains effective
pursuant to the terms hereof, and the allocation of payments required on
each Amortization Date between the Rig and the Drillship (all in accordance
with the Sizing Methodology) within ten (10) Business Days from when (i)
the Substitution Date with respect to a Substitute Contract shall have
occurred, (ii) the Borrower provides evidence reasonably satisfactory to
the Agent that Amoco is then required to pay under the terms and provisions
of the applicable Amoco Contract the stated operating dayrate contained
therein as opposed to any cancellation fee for the remaining term of such
contract (or, if earlier, until the Maturity Date for the Term Loans), or
(iii) if Amoco does not cancel the entire fourth year, the entire fifth
year or the entire last eighteen (18) months, respectively, of the term of
the Amoco Rig Contract (pursuant to the right to do so with no obligation
to pay a cancellation fee (the "Free Cancellation Right")) prior to the
commencement of the fourth year, fifth year or such last eighteen (18)
month period, respectively, of the term of the Amoco Rig Contract. The
Borrower shall provide written notice to the Agent of any event described
in (iii) above, and the Agent shall promptly provide any such notice to all
Lenders. The Agent shall, after consultation with the Borrower and the
Guarantor, also reset downwards the rent payable under the Transocean
Contracts, to the extent any such contract remains effective pursuant to
the terms hereof, within ten (10) Business Days from any prepayment of the
Tranche C Term Loans pursuant to Section 2.10 or 2.11, all in accordance
with the Sizing Methodology and the principles set forth in Section
2.7(c)(ii)."

-6-
<PAGE>

(v) Section 2.7(c)(v) of the Credit Agreement is hereby amended
by deleting the second sentence thereof in its entirety and by deleting the
clause "(labeled as Schedule 2.7A, Schedule 2.7B or amended Schedule 2.7B, as
the case may be)" in the eleventh and twelfth lines thereof.

(f) Section 2.10 and Section 2.11 of the Credit Agreement are hereby
amended as follows:

(i) Section 2.10(a), Section 2.10(b)(ii), Section 2.11(c) and
Section 2.11(d) of the Credit Agreement are hereby amended to delete the
sentence "The Borrower shall also pay any "true-up" costs and expenses payable
to any Swap Parties as a result of such prepayment under the Interest Rate
Protection Agreement as required pursuant to Section 6.10." in each of such
Sections.

(ii) Section 2.10(b)(ii)(x) of the Credit Agreement is hereby
amended and restated in its entirety as follows:

"(x) make a principal prepayment of either (I) the Construction Loans in an
amount equal to the aggregate of the Construction Loans hereunder used to
construct the Drillship plus the portion of the Construction Loans that
would otherwise be converted into Tranche C Loans on the Conversion Date if
the Vessel Financing Termination is with respect to the Drillship, or in an
amount equal to the aggregate of the Construction Loans hereunder used to
purchase and upgrade the Rig if the Vessel Financing Termination is with
respect to the Rig (the "Financed Amount"), as demonstrated to the
reasonable satisfaction of the Agent, or (II) the Term Loans in an amount
equal to the sum of the then unpaid portion of each remaining Drillship
amortization payment or each remaining Rig amortization payment, as the
case may be, as reflected on the schedule set or reset pursuant to Section
2.7(c)(v), plus in the event the Vessel Financing Termination is with
respect to the Drillship, any remaining principal balance of the Tranche C
Loans (such payments, as applicable, the "Vessel Amortization Payments").

(iii) Section 2.10(b)(iii) of the Credit Agreement is hereby
amended by deleting the clause "(or, if the Amoco Contract Selection has not yet
been made, ratably according to the relative sizes of such Financed Amounts at
the time)" in the seventh line thereof.

(iv) Section 2.11(g) of the Credit Agreement is hereby amended
to add the following sentence at the end thereof: "Notwithstanding anything to
the contrary contained in this Section 2.11(g), the applicable vessel and any
related Collateral shall not be released from any Lien thereon under any
Security Documents unless and until the Borrower shall have effected a "true-up"
of the financial terms of the Interest Rate Protection Agreement or Agreements
in effect at such time to the extent necessary to eliminate any over-hedged
position at such time as a result of any such prepayments or, if no Default or
Event of Default shall have occurred and be continuing under the Transocean
Parent Credit Facility, the Borrower shall have assigned its rights

-7-
<PAGE>

and obligations under such Interest Rate Protection Agreement or Agreements to
the Guarantor to the extent of such prepayment pursuant to documentation in form
and substance reasonably satisfactory to the affected Swap Party."

(v) A new Section 2.11(h) of the Credit Agreement is hereby added
in the correct numerical order:

"(h) Drillship Dayrate Differential. If the stated operating dayrate
(excluding any incentive or bonus rates) to be paid by Amoco pursuant to
the terms of the Amoco Drillship Contract is less than $181,000 per day as
a result of one or more agreements of the parties thereto to an incentive
program, then the Borrower shall give prompt written notice thereof to the
Agent (which the Agent will in turn forward promptly to the Lenders) and
the Agent shall on or prior to the date ten (10) days after any such
agreement becomes effective so as to reduce the operating day rate
thereunder, after consultation with the Borrower and the Guarantor,
reasonably determine the reduced size of the Tranche B Term Loans and the
principal amount of each required payment of each Tranche B Loan on each
remaining Amortization Date, in each case using the Sizing Methodology.
The remaining required amortization payments for the Tranche B Term Loans
shall be such that the Tranche B Term Loans (after taking into account the
Fixed Operating Expenses attributable to each of the Rig and the Drillship)
are fully amortized to $0 by the Maturity Date for the Tranche B Loans. The
Borrower will, on or prior to the date fifteen (15) days after any such
agreement becomes effective so as to reduce the operating dayrate
thereunder, prepay the principal amount of the Tranche B Term Loans in an
amount equal to the difference between the outstanding principal balance of
the Tranche B Term Loans and such reduced size of the Tranche B Term Loans.
Such mandatory prepayment shall be accompanied by a payment of all accrued
and unpaid interest on the principal amount of the Tranche B Term Loans so
prepaid and any applicable breakage fees and funding losses pursuant to
Section 2.13."

(g) Section 4.2 of the Credit Agreement is hereby amended as follows:

(i) Section 4.2(i) of the Credit Agreement is hereby deleted in
its entirety.

(ii) Section 4.2(ii) of the Credit Agreement is hereby amended by
deleting the date "December 31, 1998" in the third line thereof and inserting in
its place the date "August 31, 1999".

(h) Section 4.3(iv) of the Credit Agreement is hereby amended by
deleting the letter "G" in the first and second lines thereof.

(i) Section 4.4(iv)(D) of the Credit Agreement is hereby amended and
restated in its entirety as follows:

-8-
<PAGE>

"(D) (x) neither the Borrower nor the Guarantor has received written
notice from or on behalf of Amoco that (x) any default or event of default
(in each case, as defined in the relevant Amoco Contract) under either of
the Amoco Contracts has occurred and any such alleged default or event of
default is continuing (it being understood and agreed that such default or
event of default shall cease to be "continuing" for the purposes of this
Agreement when it shall cease to constitute a continuing default or event
of default under the applicable Amoco Contract for any reason (including,
without limitation, as a result of the curing thereof or any waiver or
modification thereunder)), (y) Amoco intends to take or has taken any steps
to cancel or terminate either of the Amoco Contracts (other than, with
respect to the Amoco Rig Contract, if a cancellation fee or termination fee
is to be paid pursuant to the terms thereof or other than the free
cancellation provided in such contract), or (z) either of the Amoco
Contracts is otherwise no longer in full force and effect; and (y) the
Borrower is not aware, of any default or event of default under either of
the Amoco Contracts that has occurred and is continuing (it being
understood and agreed that such default or event of default shall cease to
be "continuing" for the purposes of this Agreement when it shall cease to
constitute a continuing default or event of default under the applicable
Amoco Contract for any reason (including, without limitation, as a result
of the curing thereof or any waiver or modification thereunder)); and"

(j) Section 5.5(b) of the Credit Agreement is hereby amended by
deleting the letter "G" in the third line thereof.

(k) A new Section 5.20 of the Credit Agreement is hereby added in the
correct numerical order:

"Section 5.20 Year 2000. The Borrower has reviewed the areas within
its business and operations which could reasonably be expected to be
materially and adversely affected by, and the Guarantor has developed or is
developing a program to address on a timely basis, the "Year 2000 Problem"
(that is, the risk that computer applications used by the Guarantor and the
Borrower may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date on or after
December 31, 1999), has made or is making related inquiry of material
suppliers and vendors, and based on such review and program, the Borrower
believes that the "Year 2000 Problem" will not have a Material Adverse
Effect. The foregoing statement constitutes "year 2000 readiness
disclosure" as such term is defined in the Year 2000 Information and
Readiness Disclosure Act."

(l) Section 6.6 of the Credit Agreement is hereby amended as follows:

(i) Section 6.6(a) of the Credit Agreement is hereby amended by adding
the clause "shall be reasonably acceptable to the Agent and" after the word
"policies" in the third to last line thereof.

-9-
<PAGE>

(ii) Section 6.6(b) of the Credit Agreement is hereby amended
and restated in its entirety as follows:

"(b) Loss of Hire. From and after the Conversion Date and during the
term of the Amoco Contract or any Substitute Contract with respect to the
Drillship and the Rig, respectively, the Borrower shall maintain loss of
hire insurance for a period of at least eighteen (18) months (or, if less,
for the then remaining scheduled term of such Amoco Contract or Substitute
Contract, as the case may be) and in an amount equal to at least $137,000
(reduced by the amount of any reduction in the stated operating dayrate to
be paid by Amoco under the Amoco Drillship Contract to the extent the
Borrower, as a result of such reduction, is required to make a prepayment
of the Tranche B Term Loans pursuant to Section 2.11(h)) per day with
respect to the Drillship and $68,600 (or $50,000, if the operating dayrate
is reduced to $75,000 per day pursuant to the terms of the Amoco Rig
Contract) per day with respect to the Rig for such period (subject to a
maximum ninety (90) day deductible). If the Borrower shall make a
mandatory prepayment of its Obligations of the Financed Amount or the
remaining Vessel Amortization Payments for either the Drillship or the Rig
as provided in Section 2.10(b) or 2.11(c), as applicable, together with all
other amounts required to be paid therein, the Borrower shall no longer be
required to maintain loss of hire insurance with respect to the affected
vessel. Such loss of hire policy shall be reasonably acceptable to the
Agent, shall name the Collateral Agent as a named assured and a loss payee
and shall provide it shall not terminate without at least thirty (30) days'
advance written notice to the Collateral Agent."

(iii) The second and third sentences of Section 6.6(c) of the
Credit Agreement are hereby amended and restated in their entirety as follows:

"As used herein, the term "Insurance Reserve Required Amount" shall
mean, at any date of computation, an amount equal to the aggregate of
$137,000 (reduced by the amount of any reduction in the stated operating
dayrate to be paid by Amoco under the Amoco Drillship Contract to the
extent the Borrower, as a result of such reduction, is required to make a
prepayment of the Tranche B Term Loans pursuant to Section 2.11(h)) with
respect to the Drillship and $68,600 (or $50,000, if the operating dayrate
is reduced to $75,000 per day pursuant to the terms of the Amoco Rig
Contract) with respect to the Rig times the number of days in the period
of any deductible under the applicable loss of hire policy or policies
maintained by the Borrower pursuant to Section 6.6(b), subject to reduction
as set forth herein. If the Borrower shall make a mandatory prepayment of
its Obligations of the Financed Amount or the remaining Vessel Amortization
Payments for either the Drillship or the Rig as provided in Section 2.10(b)
or 2.11(c), as applicable, together with all other amounts required to be
paid therein, the Insurance Reserve Required Amount shall permanently be
reduced by a percentage, the numerator of which is the product of (i)
either $137,000 (reduced by the amount of any reduction in the stated
operating dayrate to be paid by Amoco under the Amoco Drillship Contract to
the extent the Borrower, as a result of such reduction, is required to make
a prepayment of the Tranche B Term Loans pursuant to Section 2.11(h)) with
respect to the Drillship or $68,600 (or $50,000, if the

-10-
<PAGE>

operating dayrate is reduced to $75,000 per day pursuant to the terms of
the Amoco Rig Contract) with respect to the Rig, whichever is applicable,
times (ii) the number of days in the period of any deductible under the
loss of hire policy then in effect for the applicable vessel, and the
denominator of which is the Insurance Reserve Required Amount immediately
in effect before such prepayment (provided that if neither an Amoco
Contract nor a Substitute Contract is then in effect with respect to the
applicable vessel, all of the foregoing shall be determined, on a pro forma
basis, if necessary, as of the Conversion Date) (the "Vessel Percentage")."

(m) Section 6.7 of the Credit Agreement is hereby amended as follows:

(i) Section 6.7(b) of the Credit Agreement is hereby amended by
deleting the word "and" in the sixth line thereof and inserting in its
place a ";" and by inserting the clause "; and (iii) stating that the
Year 2000 remediation efforts of the Borrower are proceeding as
scheduled" at the end thereof.

(ii) Section 6.7(c) of the Credit Agreement is hereby amended by
adding the clause "and each 'management letter' submitted to the Borrower
by its independent accountants or auditors and any report by any regulator
regarding the Year 2000 exposure, program or progress of the Guarantor and
its Subsidiaries" at the end thereof.

(n) Section 6.10 of the Credit Agreement is hereby amended by deleting
the second to the last sentence thereof and inserting the following sentence in
its place: "If an Event of Default shall have occurred and be continuing and the
Majority Lenders shall have elected to take action with respect thereto (unless
not required hereunder because of an insolvency event), the Borrower shall also
in the same manner effect a "true-up" of the financial terms of the Interest
Rate Protection Agreement or Agreements in effect at such time to the extent
necessary to eliminate any over-hedged position at such time as a result of any
prior optional or mandatory prepayment of the Obligations."

(o) Section 6.13 of the Credit Agreement is hereby amended by deleting
the clause "$8,300,000, subject to reduction as set forth herein" in the fourth
line thereof and inserting in its place the clause "(i) $20,630,000 during the
ninety (90) day period immediately following the Conversion Date, and (ii)
$8,300,000 thereafter, in each case subject to reduction as set forth herein;
provided, however, that for purposes of the calculation in the proviso to the
next sentence, any amounts deposited by the Borrower into the Cash Flow Reserve
up to $12,330,000 in the aggregate during the period that the Cash Flow Reserve
Amount is $20,630,000 shall not be counted as having been previously so
deposited once the Cash Flow Reserve Amount is reset to $8,300,000".

(p) Section 6.15(d) of the Credit Agreement is hereby amended by
deleting the clause "or to fund the Transocean Drillship Differential" in the
twelfth line thereof.

-11-
<PAGE>

(q) Section 6.18 of the Credit Agreement is hereby amended as follows:

(i) Section 6.18(b) of the Credit Agreement is hereby amended by
deleting the letter "(x)" in the twelfth line thereof and by deleting the clause
"and (y) the anticipated increases in the aggregate construction cost of the
Drillship and the Rig (excluding capitalized interest) as a result of all such
amendments, modifications or changes of the Functional Requirements after the
date hereof shall not exceed $66,000,000" in the thirteenth line thereof.

(ii) Section 6.18(c) of the Credit Agreement is hereby amended
by deleting the date "December 31, 1998" in the eighth line thereof and
inserting in its place the date "August 31, 1999" and by deleting the clause
"(x) aggregate less than $66,000,000 in the aggregate for the Drillship and the
Rig (excluding capitalized interests and (y) does" in the eighth line thereof
and inserting in its place the word "do".

(r) Section 7.1(o) of the Credit Agreement is hereby amended by adding
the letter "(i)" after the word "as" in the sixth line thereof and by adding the
clause ", (ii) the Borrower has effected a "true-up" of the financial terms of
the Interest Rate Protection Agreement or Agreements in effect at such time to
the extent necessary to eliminate any over-hedged position at such time as a
result of any prior optional or mandatory prepayment of the Obligations and
(iii) the stated operating dayrate reduction described in Section 2.11(h) shall
not have occurred, or if such event shall have occurred, the Borrower or the
Guarantor shall have made the mandatory prepayment required in Section 2.11(h)
as a result thereof" before the semicolon in the last line thereof.

(s) The new Exhibit 2.7 attached hereto is hereby substituted for the
Exhibit 2.7 previously attached to the Credit Agreement. Schedule 2.7
previously attached to the Credit Agreement is hereby deleted in its entirety.

2. Percentages and Commitments of Lenders. On the date hereof, (i) the
Borrower shall make a non-pro rata repayment of the outstanding aggregate
principal amount of the Tranche A Loan of $3,101,321.59 and the Construction
Loan of $6,118,517.83 made by Societe Generale, Southwest Agency ("SocGen"),
together with all accrued and unpaid interest thereon and any applicable
breakage fees and funding losses pursuant to Section 2.13, such that SocGen
shall no longer be a Lender under the Credit Agreement; (ii) Chase Bank of
Texas, National Association shall purchase the rights and obligations of, and
the Loans made by, The Sumitomo Bank Limited ("Sumitomo") under the Credit
Agreement pursuant to an Assignment Agreement and Section 10.10 of the Credit
Agreement, and the Borrower shall pay to Sumitomo any breakage fees and funding
losses pursuant to Section 2.13 in connection therewith; and (iii) the
Construction Credit Commitments and the Percentages of the Lenders as of
December 21, 1998 (after giving effect to the events described in (i) and (ii)
above) are as set forth in Columns C and D of Schedule 2.1. The Percentage of
each Lender shall change to the extent any existing Lender or any Replacement
Lender makes a Replacement Commitment. By way of illustration only, the
Percentage of each existing Lender shall be as set forth in Column E of Schedule
2.1 if the full amount of the

-12-
<PAGE>

Replacement Tranche A Loan Amount and the Replacement Construction Credit
Commitment Amount is committed to be funded by any such Lender and/or any
Replacement Lender.

3. Reaffirmation of Representations and Warranties. To induce the
Lenders, the Agent and the Co-Agents to enter into this Amendment, the Borrower
hereby reaffirms, as of the date hereof, that its representations and warranties
contained in the Credit Agreement are true and correct in all material respects
(except to the extent such representations and warranties are not so true and
correct in all material respects as a result of the transactions expressly
permitted under the Credit Agreement or under the other Credit Documents, or
relate solely to an earlier date) and additionally represents and warrants as
follows:

(i) The execution and delivery by the Borrower of this Amendment and
the performance by the Borrower of its obligations under this Amendment and the
Credit Agreement, as amended hereby, are within the Borrower's corporate powers,
have been duly authorized by all necessary corporate action of the Borrower and
do not and will not contravene in any material respect any provision of
applicable law or contravene or conflict with any provision of the certificate
of incorporation, bylaws or any material agreements binding upon the Borrower,
and the execution and delivery by the Borrower of this Amendment have received
all necessary governmental approvals or other consents (if any shall be
required);

(ii) This Amendment and the Credit Agreement, as amended hereby, are
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their terms, subject as to enforcement only to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and equitable
principles;

(iii) There are no actions, suits, proceedings or counterclaims
(including, without limitation, derivative or injunctive actions) pending or, to
the knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries which purports to affect the legality, validity or enforceability
of this Amendment, the Credit Agreement, as amended hereby, or any other Credit
Document; and

(iv) No Default or Event of Default has occurred and is continuing
(after giving effect to this Amendment).

4. Reaffirmation of Credit Agreement. This Amendment shall be deemed to
be an amendment to the Credit Agreement, and the Credit Agreement, as amended
hereby, is hereby ratified, approved and confirmed in each and every respect.
All references to the Credit Agreement in the Credit Agreement and the other
Credit Documents (excluding this Amendment) shall hereafter be deemed to refer
to the Credit Agreement, as amended hereby. The parties hereto hereby
undertake, in good faith, to amend any other Credit Documents necessary so as to
reflect the agreements of the parties set forth in this Amendment.

-13-
<PAGE>

5. Defined Terms. Terms used but not defined herein when defined in the
Credit Agreement shall have the same meanings herein unless the context
otherwise requires.

6. Conditions Precedent to Effectiveness of Amendment. The effectiveness
of this Amendment is subject to receipt by the Agent of the following documents,
all in form and substance satisfactory to the Agent:

(i) Transocean Performance Guaranty. The duly executed Second Amended
and Restated Transocean Performance Guaranty in substantially the form of
Exhibit A (the "Guaranty");

(ii) Certificates. A certificate of the Secretary or Assistant
Secretary and the President or Vice President of the Borrower and the Guarantor
containing specimen signatures of the Persons authorized to execute this
Amendment or the Guaranty, as applicable, on such Person's behalf, together with
(i) a copy of resolutions of the Board of Directors of such Person authorizing
the execution and delivery of this Amendment or the Guaranty, as applicable, and
all other legal documents or proceedings taken by such Person in connection
herewith or therewith, and (ii) copies of any amendments to the certificate of
incorporation or bylaws of the Borrower or the Guarantor, as applicable, after
August 5, 1998;

(iii) Opinion of Counsel. The opinion of Eric B. Brown, Esq., General
Counsel to the Guarantor, with respect to this Amendment, the Amoco Contracts
and the Transocean Contracts; and

(iv) Other Documents. Such other documents as the Agent may
reasonably request.

7. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

(a) This Amendment and the other Credit Documents, and the rights and
duties of the parties hereto and thereto, shall be construed in accordance with
and governed by the internal laws of the state of New York.

(B) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES
HERETO AGREE THAT ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AMENDMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE AGENT, THE CO-AGENTS, THE LENDERS OR THE BORROWER MAY BE BROUGHT AND
MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF
MANHATTAN OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE

-14-
<PAGE>

OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH SUCH LITIGATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, BY REGISTERED
MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW
YORK. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE
BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AMENDMENT
AND THE OTHER CREDIT DOCUMENTS.

(C) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AMENDMENT, THE CREDIT AGREEMENT, ANY
OTHER CREDIT DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AMENDMENT, THE CREDIT AGREEMENT, ANY OTHER CREDIT DOCUMENT OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

8. Counterparts. This Amendment may be executed in any number of
counterparts, and by the different parties on different counterpart signature
pages, each of which when executed shall be deemed an original, but all such
counterparts taken together shall constitute one and the same agreement.

9. Severability. Any provision of this Amendment that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition

-15-
<PAGE>

or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

10. Headings. Section headings used in this Amendment are for reference
only and shall not affect the construction of this Amendment.

11. Notice of Entire Agreement. This Amendment, together with the other
Credit Documents, constitute the entire understanding among the Borrower, the
Lenders, the Agent and the Co-Agents and supersede all earlier or
contemporaneous agreements, whether written or oral, concerning the subject
matter of the Credit Documents. THIS WRITTEN AMENDMENT, TOGETHER WITH THE OTHER
CREDIT DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

-16-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have entered into this First
Amendment to Secured Credit Agreement as of the date first written above.

BORROWER:

TRANSOCEAN ENTERPRISE INC.,
a Delaware corporation

By: /s/ Robert L. Long
---------------------------------
Name: Robert L. Long
-------------------------------
Title: Senior Vice President
------------------------------

LENDERS:

ABN AMRO BANK N.V., as Agent, Collateral Agent
and as a Lender

By: /s/ Stuart Murray
---------------------------------
Name: Stuart Murray
-------------------------------
Title: Vice President
------------------------------

By: /s/ W. Bryan Chapman
---------------------------------
Name: W. Bryan Chapman
-------------------------------
Title: Group Vice President
------------------------------

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED,
as Co-Agent and as a Lender

By: /s/ P. Couch
---------------------------------
Name: P. Couch
-------------------------------
Title: Vice President
------------------------------

-17-
<PAGE>

BANK OF MONTREAL, as Co-Agent and as a Lender

By: /s/ Mary Lee Latta
-------------------------------------
Name: Mary Lee Latta
-----------------------------------
Title: Director
----------------------------------

THE BANK OF NOVA SCOTIA, ATLANTA AGENCY,
as Co-Agent and as a Lender

By: /s/ F.C.H Ashby
-------------------------------------
Name: F.C.H Ashby
-----------------------------------
Title: Senior Manager Loan Operations
----------------------------------

THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY, as Co-Agent and as a Lender

By: /s/ Michael G. Weiss
-------------------------------------
Name: Michael G. Weiss
-----------------------------------
Title: VP and Manager
----------------------------------

WESTDEUTSCHE LANDESBANK GIROZENTRALE,
as Co-Agent and as a Lender

By: /s/ Richard R. Newman
-------------------------------------
Name: Richard R. Newman
-----------------------------------
Title: Director
----------------------------------

By: /s/ J. Bernan
-------------------------------------
Name: J. Berman
-----------------------------------
Title: Director
----------------------------------

-18-
<PAGE>

BAYERISCHE HYPO- UND VEREINSBANK AG,
New York Branch, as a Lender

By: /s/ Yoaam Dankner
---------------------------------
Name: Yoaam Dankner
-------------------------------
Title: Managing Director
------------------------------

By: /s/ Steven Atwell
---------------------------------
Name: Steven Atwell
-------------------------------
Title: Director
------------------------------

CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as a Lender

By: /s/ Ki Allen
---------------------------------
Name: Ki Allen
-------------------------------
Title: Vice President
------------------------------

SUNTRUST BANK, ATLANTA, as a Lender

By: /s/ John A. Fields Jr.
---------------------------------
Name: John A. Fields Jr.
-------------------------------
Title: First Vice President
------------------------------

By: /s/ Steven J. Newby
---------------------------------
Name: Steven J. Newby
-------------------------------
Title: Corporate Banking Officer
------------------------------

-19-
<PAGE>

DEUTSCHE BANK AG IN HAMBURG, as a Lender

By: /s/ Wagner
---------------------------------
Name: Wagner
-------------------------------
Title: Senior Vice President
------------------------------

By: /s/ Ehrhardt
---------------------------------
Title: Ehrhardt
------------------------------
Senior Vice President
------------------------------

THE FIRST NATIONAL BANK OF CHICAGO, as a Lender

By: /s/ Helen A. Carr
---------------------------------
Name: Helen A. Carr
-------------------------------
Title: Vice President
------------------------------

THE BANK OF NEW YORK, as a Lender

By: /s/ Ian K. Stewart
---------------------------------
Name: Ian K. Stewart
-------------------------------
Title: Senior Vice President
------------------------------

DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, CAYMAN ISLAND
BRANCH, as a Lender

By: /s/ William G. Roos
---------------------------------
Name: William G. Roos
-------------------------------
Title: Senior Vice President
------------------------------

By: /s/ Karen A. Birnkman
---------------------------------
Name: Karen A. Birnkman
-------------------------------
Title: Vice President
------------------------------

-20-
<PAGE>

ROYAL BANK OF CANADA, as a Lender

By: /s/ Gil J. Benard
---------------------------------
Name: Gil J. Benard
-------------------------------
Title: Senior Manager
------------------------------

KBC BANK, N.V., as a Lender

By: /s/ Robert Snauffer
---------------------------------
Name: Robert Snauffer
-------------------------------
Title: First Vice President
------------------------------

By: /s/ Marcel Claes
---------------------------------
Name: Marcel Claes
-------------------------------
Title: Deputy General Manager
------------------------------

THE ROYAL BANK OF SCOTLAND plc, as a Lender

By: /s/ Scott Barton
---------------------------------
Name: Scott Barton
-------------------------------
Title: Vice President
------------------------------

-21-
<PAGE>

SCHEDULE 2.1
TO SECURED CREDIT AGREEMENT

(A)* (B)* (C)* (D)* (E)
EXISTING EXISTING EXISTING EXISTING PERCENTAGE IF FULL
LENDERS TRANCHE A CONSTRUCTION CONSTRUCTION PERCENTAGE AMOUNT OF POTENTIAL
LOANS LOANS CREDIT REPLACEMENT COMMITMENT
COMMITMENTS COMMITTED TO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ABN AMRO Bank N.V. $ 7,656,387.66 $ 15,105,090.88 $ 31,636,540.06 12.1725731861% 11.6005873657%
- ----------------------------------------------------------------------------------------------------------------------------
Bayerische Hypo- und Vereinsbank $ 7,773,733.78 $ 15,336,600.03 $ 32,121,419.50 12.3591369045% 11.7783845100%
AG, New York Branch
- ----------------------------------------------------------------------------------------------------------------------------
Australia and New Zealand Banking $ 4,845,814.98 $ 9,560,184.11 $ 20,023,126.62 7.7041602463% 7.3421439061%
Group Limited
- ----------------------------------------------------------------------------------------------------------------------------
Bank of Montreal $ 4,845,814.98 $ 9,560,184.11 $ 20,023,126.62 7.7041602463% 7.3421439061%
- ----------------------------------------------------------------------------------------------------------------------------
The Bank of Nova Scotia, Atlanta $ 4,845,814.98 $ 9,560,184.11 $ 20,023,126.62 7.7041602463% 7.3421439061%
Agency
- ----------------------------------------------------------------------------------------------------------------------------
The Bank of Tokyo-Mitsubishi, Ltd. $ 4,845,814.98 $ 9,560,184.11 $ 20,023,126.62 7.7041602463% 7.3421439061%
- ----------------------------------------------------------------------------------------------------------------------------
Westdeutsche Landesbank $ 4,845,814.98 $ 9,560,184.11 $ 20,023,126.62 7.7041602463% 7.3421439061%
Girozentrale
- ----------------------------------------------------------------------------------------------------------------------------
KBC Bank, N.V. $ 3,886,866.89 $ 7,668,300.02 $ 16,060,709.75 6.1795684523% 5.8891922550%
- ----------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG in Hamburg $ 3,101,321.59 $ 6,118,517.83 $ 12,814,801.04 4.9306625577% 4.6989720999%
- ----------------------------------------------------------------------------------------------------------------------------
The First National Bank of Chicago $ 3,101,321.59 $ 6,118,517.83 $ 12,814,801.04 4.9306625577% 4.6989720999%
- ----------------------------------------------------------------------------------------------------------------------------
Suntrust Bank, Atlanta $ 3,101,321.59 $ 6,118,517.83 $ 12,814,801.04 4.9306625577% 4.6989720999%
- ----------------------------------------------------------------------------------------------------------------------------
Chase Bank of Texas, National $ 2,295,346.48 $ 4,528,430.22 $ 9,484,475.43 3.6492761583% 3.4777976899%
Association
- ----------------------------------------------------------------------------------------------------------------------------
The Bank of New York $ 1,938,325.99 $ 3,824,073.64 $ 8,009,250.65 3.0816640985% 2.9368575624%
- ----------------------------------------------------------------------------------------------------------------------------
DG Bank Deutsche
Genossenschaftsbank, Cayman
Island Branch $ 1,938,325.99 $ 3,824,073.64 $ 8,009,250.65 3.0816640985% 2.9368575624%
- ----------------------------------------------------------------------------------------------------------------------------
Royal Bank of Canada $ 1,938,325.99 $ 3,824,073.64 $ 8,009,250.65 3.0816640985% 2.9368575624%
- ----------------------------------------------------------------------------------------------------------------------------
Royal Bank of Scotland plc $ 1,938,325.99 $ 3,824,073.64 $ 8,009,250.65 3.0816640985% 2.9368575624%
- ----------------------------------------------------------------------------------------------------------------------------
Replacement Lender 0 0 0 0 4.6989720999%
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $62,898,678.42 $124,091,189.78 $259,900,183.57 100% 100%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

*As of December 18, 1998

-22-

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF TRANSOCEAN OFFSHORE INC.

JANUARY 31, 1999

<TABLE>
<CAPTION>
NAME* JURISDICTION
- ---- ------------
<S> <C>
Offshore Petroleum Services LDC Cayman Islands
Sonat Offshore Far East LDC Cayman Islands
Sonat Offshore International LDC Cayman Islands
Transocean Offshore Limited Cayman Islands
Transocean Offshore International Limited Cayman Islands
Transocean Offshore (North Sea) Limited Cayman Islands
Transocean Offshore Services Ltd. Cayman Islands
Transocean Alaskan Ventures Inc. Delaware
Transocean-Nabors Drilling Technology LLC (50%) Delaware
Transocean Drilling Services Inc. Delaware
EPN-Sonat, S.A. de C.V. (50%) Mexico
Offshore Turnkey Ventures (partnership) (50%) Texas
Offshore Turnkey Ventures L.L.C. (50%) Delaware
Transocean Enterprise Inc. Delaware
Transocean Offshore Drilling International Inc. Delaware
Transocean Offshore Drilling Services Inc. Delaware
Transocean Offshore D.V. Inc Delaware
DeepVision L.L.C. (50%) Delaware
Transocean Offshore Norway Inc. Delaware
Transocean Offshore USA Inc. Delaware
Transocean Offshore Ventures Inc. Delaware
Transocean Offshore (U.K.) Inc. Delaware
Transocean Offshore Caribbean Sea, L.L.C. Delaware
Transocean Hull No. 276 S. de R. L. Panama
Transocean Hull No. 277 S. de R. L. Panama
Sonat Offshore S.A. Panama
Asie Sonat Offshore Sdn. Bhd. Malaysia
Sonat Brasocean Servicos de Perfuracoes Ltda. Brazil
Sonat Offshore do Brasil Perfuracoes Maritimos Ltda. Brazil
Transocean Brasil Ltda. Brazil
Transocean Offshore Nigeria Ltd. Nigeria
Transhav AS Norway
(see page 2 for subsidiaries of Transhav AS)
</TABLE>

_____________________________
* Subsidiaries (50% or greater ownership) are owned 100% unless otherwise
indicated.

1
<PAGE>

SUBSIDIARIES OF TRANSOCEAN OFFSHORE INC.

JANUARY 31, 1999

<TABLE>
<CAPTION>
NAME JURISDICTION
- ---- ------------
<S> <C>
Transhav AS Norway
Transocean ASA Norway
Transocean Petroleum Technology AS Norway
Transocean Petroleum Technology Ltd. U.K.
Transocean I AS Norway
Transocean Drilling (U.S.A.) Inc. (formerly Wilrig (U.S.A.) Inc.) Texas
Transocean Drilling Co. Inc. Panama
Transocean Drilling ApS Denmark
Transocean Drilling Netherlands Ltd. Bahamas
Transocean Drilling (Nigeria) Ltd. Nigeria
Transnor Rig Ltd. U.K.
SDS Offshore Ltd. U.K.
Transocean Drilling Ltd. U.K.
Shelf Drilling Ltd. U.K.
Transocean Kan Tan Ltd. U.K.
Transocean Sino Ltd. U.K.
Wilrig Offshore (UK) Ltd. U.K.
Wilrig Holdings (UK) Ltd. U.K.
Wilrig (UK) Ltd. U.K.
Wilrig Drilling (Canada) Inc. Canada
SDS Offshore AS Norway
Wilrig Offshore Bahamas Inc. Bahamas
Transocean Drilling GmbH Germany
Pelerin Drilling AS Norway
Dynamic Drilling (partnership) (80%) Marshall Isl.
</TABLE>

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 333-59001 and Form S-3 No. 333-24457) of Transocean Offshore
Inc. and in the related Prospectus and to the incorporation by reference in
the Registration Statements (Form S-8 No. 333-58211, Form S-8 No. 33-64776 and
Form S-8 No. 333-12475) pertaining to the Long Term Incentive Plan of
Transocean Offshore Inc. (formerly Sonat Offshore Drilling Inc.), the
Registration Statement (Form S-8 No. 33-66036) pertaining to the Savings Plan
of Transocean Offshore Inc. (formerly Sonat Offshore Drilling Inc.) and the
Registration Statement (Form S-8 No. 333-24457) pertaining to the Employee
Stock Purchase Plan of Transocean Offshore Drilling Inc. of our report dated
January 26, 1999, with respect to the consolidated financial statements of
Transocean Offshore Inc. included in the Form 10-K for the year ended December
31, 1998.

/s/ Ernst & Young LLP

Houston, Texas
March 18, 1999

<PAGE>

EXHIBIT 24

1998 Form 10-K

TRANSOCEAN OFFSHORE INC.

Power of Attorney
-----------------

WHEREAS, TRANSOCEAN OFFSHORE INC., a Delaware corporation (the "Company"),
intends to file with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission promulgated thereunder, an annual report on Form
10-K for the fiscal year ended December 31, 1998, together with any and all
exhibits and other instruments and documents necessary, advisable or appropriate
in connection therewith (the "Form 10-K");

NOW, THEREFORE, the undersigned, in his capacity as a director or officer
or both, as the case may be, of the Company, does hereby appoint Robert L. Long,
Eric B. Brown, Barbara S. Koucouthakis and Nicolas J. Evanoff, and each of them
severally, his true and lawful attorney or attorneys with power to act with or
without the other, and with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as director, officer or
both, as the case may be, of the Company, the Form 10-K and any and all
amendments thereto, including any and all exhibits and other instruments and
documents said attorney or attorneys shall deem necessary, appropriate or
advisable in connection therewith, and to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys shall have full power and authority to do and perform in
the name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or desirable to be done in the premises, as fully and to
all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts that said attorneys and each
of them, or their or his substitutes or substitute, may lawfully do or cause to
be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this power of attorney as
of the 4th day of February, 1999.

/s/ W. Dennis Heagney
<PAGE>

1998 Form 10-K

TRANSOCEAN OFFSHORE INC.

Power of Attorney
-----------------

NOW, THEREFORE, the undersigned, in his capacity as a director or officer
or both, as the case may be, of the Company, does hereby appoint J. Michael
Talbert, Robert L. Long, Eric B. Brown and Barbara S. Koucouthakis, and each of
them severally, his true and lawful attorney or attorneys with power to act with
or without the other, and with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as director, officer or
both, as the case may be, of the Company, the Form 10-K and any and all
amendments thereto, including any and all exhibits and other instruments and
documents said attorney or attorneys shall deem necessary, appropriate or
advisable in connection therewith, and to file the same with the Commission and
to appear before the Commission in connection with any matter relating thereto.
Each of said attorneys shall have full power and authority to do and perform in
the name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or desirable to be done in the premises, as fully and to
all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts that said attorneys and each
of them, or their or his substitutes or substitute, may lawfully do or cause to
be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this power of attorney as
of the 11th day of February, 1999.

/s/ Richard D. Kinder
<PAGE>

1998 Form 10-K

TRANSOCEAN OFFSHORE INC.

Power of Attorney
-----------------

IN WITNESS WHEREOF, the undersigned has executed this power of attorney as
of the 11th day of February, 1999.

/s/ Ronald L. Kuehn Jr.
<PAGE>

1998 Form 10-K

TRANSOCEAN OFFSHORE INC.

Power of Attorney
-----------------

IN WITNESS WHEREOF, the undersigned has executed this power of attorney as
of the 11th day of February, 1999.

/s/ Robert J. Lanigan
<PAGE>

1998 Form 10-K

TRANSOCEAN OFFSHORE INC.

Power of Attorney
-----------------

IN WITNESS WHEREOF, the undersigned has executed this power of attorney as
of the 11th day of February, 1999.

/s/ Fridtjof Lorentzen
<PAGE>

1998 Form 10-K

TRANSOCEAN OFFSHORE INC.

Power of Attorney
-----------------

IN WITNESS WHEREOF, the undersigned has executed this power of attorney as
of the 11th day of February, 1999.

/s/ Max L. Lukens
<PAGE>

1998 Form 10-K

TRANSOCEAN OFFSHORE INC.

Power of Attorney
-----------------

IN WITNESS WHEREOF, the undersigned has executed this power of attorney as
of the 11th day of February, 1999.

/s/ Martin B. McNamara
<PAGE>

1998 Form 10-K

TRANSOCEAN OFFSHORE INC.

Power of Attorney
-----------------

IN WITNESS WHEREOF, the undersigned has executed this power of attorney as
of the 10th day of February, 1999.

/s/ Kristian Siem

<PAGE>

<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 69,453 54,225
<SECURITIES> 0 0
<RECEIVABLES> 217,494 199,716
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 361,632 307,090
<PP&E> 2,659,020 2,113,462
<DEPRECIATION> 530,949 445,488
<TOTAL-ASSETS> 3,250,943 2,755,088
<CURRENT-LIABILITIES> 192,421 185,192
<BONDS> 813,953 728,282
0 0
0 0
<COMMON> 1,043 1,037
<OTHER-SE> 1,977,600 1,620,141
<TOTAL-LIABILITY-AND-EQUITY> 3,250,943 2,755,088
<SALES> 0 0
<TOTAL-REVENUES> 1,089,612 891,962
<CGS> 0 0
<TOTAL-COSTS> 629,340 674,486
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 23,892 22,853
<INCOME-PRETAX> 487,146 207,245
<INCOME-TAX> 143,730 65,312
<INCOME-CONTINUING> 343,416 141,933
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 343,416 141,933
<EPS-PRIMARY> 3.43 1.40
<EPS-DILUTED> 3.41 1.38

</TABLE>