CLIFFS DRILLING CO, 10-K405, 1999-03-26

CLIFFS DRILLING CO
10-K405, 1999-03-26
DRILLING OIL & GAS WELLS

Previous: TOWER PARK MARINA INVESTORS LP, NT 10-K, 1999-03-26

Next: BLACKROCK INCOME TRUST INC, DEF 14A, 1999-03-26

<PAGE> 1

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

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 001-12797

CLIFFS DRILLING COMPANY
(Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S> <C>
DELAWARE 76-0248934
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

1200 SMITH STREET, SUITE 300 77002
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>

Registrant's telephone number, including area code: (713) 651-9426

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: NONE

The registrant meets the conditions set forth in General Instructions
(I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with a
reduced disclosure format.

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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

(Exhibit Index Located on Pages 51 to 55)

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

TABLE OF CONTENTS TO FORM 10-K

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
1. and 2. Business and Properties..................................... 2
General................................................... 2
Industry Conditions and Company Strategy.................. 2
Contract Drilling and MOPU Operations..................... 3
Oil and Gas Operations.................................... 8
Environmental Controls.................................... 8
Government Regulation..................................... 8
Risks and Insurance....................................... 9
Risks Inherent in Foreign Operations...................... 10
Employees................................................. 10
Other Properties.......................................... 10
3. Legal Proceedings........................................... 10
4. Submission of Matters to a Vote of Security-Holders......... 11

PART II
5. Market For Registrant's Common Equity and Related
Stockholder Matters....................................... 11
6. Selected Financial Data..................................... 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 14
7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 22
8. Financial Statements and Supplementary Data................. 23
9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 23

PART III
10. Directors and Executive Officers of the Registrant.......... 23
11. Executive Compensation...................................... 23
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 23
13. Certain Relationships and Related Transactions.............. 23

PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 23

SIGNATURES....................................................................... 26
</TABLE>

1
<PAGE> 3

PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

GENERAL

Cliffs Drilling Company, a Delaware corporation (the "Company"), is an
international contract drilling and engineering company. Effective December 1,
1998, a change in control of the Company occurred as a result of the merger of
RBF Cliffs Acquisition Corp. ("Merger Sub"), a wholly-owned subsidiary of R&B
Falcon Corporation ("R&B Falcon"), with and into the Company (the "Merger"). The
Merger was effected pursuant to an Agreement and Plan of Merger dated August 21,
1998 (the "Merger Agreement") among R&B Falcon, Merger Sub and the Company,
which was approved by the stockholders of the Company at a special meeting held
November 20, 1998. As a result of the Merger, each outstanding share of common
stock, $0.01 par value ("Common Stock") of the Company was converted into 1.7
shares of R&B Falcon common stock and cash in lieu of fractional shares, as
provided for in the Merger Agreement. The Company is now a wholly-owned
subsidiary of R&B Falcon.

The Company is primarily engaged in daywork drilling, engineering services,
and to a lesser extent, the development and operation of mobile offshore
production units ("MOPUs"). The Company has historically deployed its assets in
areas where it can achieve long-term growth and generate stable cash flows and
net income. This strategy has led to seven consecutive years of positive net
income. The Company's domestic operations are concentrated in the
Texas/Louisiana Gulf Coast region and its foreign operations are concentrated in
Venezuela, Trinidad and the Middle East. The Company currently owns 16 jack-up
drilling rigs, 11 land rigs, 3 platform rigs and 4 MOPUs.

The Company and its predecessors have been in the contract drilling
business since 1978. The Company entered the turnkey drilling business in 1982
in an effort to more fully utilize its existing fleet of rigs and complement its
daywork drilling operations. In response to the economic conditions which
adversely affected the domestic contract drilling business during the 1980s, the
Company undertook a strategic plan in 1989 to further diversify its scope of
operations and geographic concentration beyond the traditional domestic daywork
drilling market. The Company's management implemented a proactive approach to
identify, develop and exploit several market segments which provided higher
margins and more reliable operating income and cash flow. To achieve its
strategic objectives, the Company continued to emphasize its turnkey drilling
operations, expanded its well engineering and management services, became a
leader in the development and operation of MOPUs and deployed its drilling rigs
into selected international markets. With the implementation of this strategy,
the Company has positioned itself to benefit from increases in drilling and
production activities in several markets worldwide.

This Form 10-K includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-K regarding the
Company's financial position, business strategy, budgets and plans and
objectives of management for future operations are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations ("Cautionary
Statements") are within "ITEMS 1. and 2. Business and Properties," "ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Form 10-K.

INDUSTRY CONDITIONS AND COMPANY STRATEGY

Activity in the contract drilling industry and related oil service
businesses improved through 1997 and early 1998 due to increased worldwide
demand for drilling rigs and related services. The supply of offshore drilling
rigs declined while the demand for such rigs increased, resulting in increases
in worldwide utilization rates during this period. In addition, oil and gas
companies experienced decreases in exploration and production costs from
technological advances such as increased use of 3-D seismic surveys, advances in
drill bits and completion technologies and use of new production techniques such
as MOPUs and subsea completions. More recently, however, there has been a
significant decline in both dayrates and utilization of most classes of drilling
rigs due to a substantial decline in crude oil prices. The financial condition
and results of operations of the Company and other drilling contractors are
dependent upon the price of oil and

2
<PAGE> 4

natural gas, as demand for their services is primarily dependent upon the level
of spending by oil and gas companies for exploration, development and production
activities. Crude oil and natural gas prices have continued to fluctuate over
the last several years. If crude oil prices decline further or the current
weakness in crude oil prices continues for an extended period, there could be a
further deterioration in both rig utilization and dayrates.

As part of its business strategy, the Company has sought to identify
business opportunities that would expand its asset base, increase profitability
and enhance shareholder value. The Company's acquisition criteria include, among
others, transactions designed to increase operating leverage and diversify
geographically.

Acquisitions and Dispositions of Assets

Effective December 1, 1998, the Company became a wholly-owned subsidiary of
R&B Falcon. As a result of the Merger, each outstanding share of Common Stock
was converted into 1.7 shares of R&B Falcon common stock and cash in lieu of
fractional shares, as provided for in the Merger Agreement.

On December 29, 1997, the Company completed the acquisition of 2 offshore
platform drilling rigs, one self-propelled jack-up drilling/workover rig and
substantially all of the assets used in the offshore contract drilling business
in Trinidad previously operated by Well Services (Marine) Ltd. ("Well
Services"). The purchase price totaled $44.0 million, consisting of cash of
$23.5 million and the issuance by the Company of 437,939 shares of Common Stock.

Effective October 1, 1997, the Company exercised an option to purchase a
platform drilling rig which is currently operating in Brazil. The cash purchase
price was $4.3 million.

On August 1, 1997, the Company acquired an additional 49% interest in the
West Indies Drilling Joint Venture (the "WINDJV") from Well Services. The
purchase price was $8.4 million consisting of $6.0 million of cash and $2.4
million of debt assumed, net of various working capital amounts acquired. On
December 29, 1997, the Company acquired the remaining 1% interest in the WINDJV
from Well Services.

On January 24, 1997, the Company completed the acquisition of the stock of
a subsidiary of Andrade Gutierrez Perfuracao Ltda., which owned the jack-up
drilling rig ATENA, four 1500 HP land drilling rigs, miscellaneous drilling
equipment and a contract to operate a platform rig in Brazil. The purchase price
was $28.5 million in cash.

On September 30, 1996, the Company acquired a land rig from Quarles
Drilling Corp. for $2.9 million.

On June 19, 1996, Cliffs Drilling No. 11 completed its two-year bareboat
charter as a workover rig in the U.S. Gulf of Mexico, and the charterer
exercised its option to purchase the unit for $5.4 million, resulting in a gain
of $2.7 million.

On May 23, 1996, the Company completed the acquisition of 9 jack-up
drilling rigs and a 50% interest in the WINDJV, which owned an additional
jack-up drilling rig, and their related assets (collectively referred to as the
"Southwestern Rigs") operated by Southwestern Offshore Corporation
("Southwestern"). The purchase price of the Southwestern Rigs was (a) $103.8
million in cash (after reductions of $6.2 million for required refurbishments of
certain Southwestern Rigs not made prior to closing) plus (b) issuance of 1.2
million shares (pre-split basis) of the Company's Common Stock and (c)
assumption of certain contractual liabilities, including the Company's guarantee
of $4.25 million in indebtedness of the WINDJV to Citibank N.A. related to the
refurbishment of the jack-up drilling rig owned by it (together with accrued but
unpaid interest thereon and costs of collection). The 50% interest in the WINDJV
acquired by the Company was actually the interest held by Cliffs Drilling
Trinidad Limited, which the Company acquired on the same day.

On May 10, 1996, the Company acquired the jack-up drilling rig OCEAN
MAGALLANES from Diamond Offshore Southern Company for $4.5 million. The Company
renamed this unit Cliffs Drilling 155.

CONTRACT DRILLING AND MOPU OPERATIONS

Management has adopted a proactive approach to identify, develop and
exploit 3 market segments which the Company believes provide higher margins and
reliable operating income and cash flow. The

3
<PAGE> 5

Company's major business segments are daywork drilling, engineering services and
MOPU operations. See Note 13 of Notes to Consolidated Financial Statements.

Daywork Drilling

The Company began operations as a daywork contract driller in the Gulf of
Mexico and the Texas/ Louisiana Gulf Coast region. Because of depressed
conditions in the domestic oil and gas industry during the 1980s and early
1990s, the Company sold certain drilling rigs and deployed its remaining rigs
into selected international markets. These strategic decisions were made to
enable the Company to stabilize cash flows during an extended market downturn.
The Company currently has an established base of term contracts in both drilling
and production operations.

Under daywork drilling contracts, the Company provides a drilling rig with
required personnel to the operator, who supervises the drilling of the
contracted well. Compensation to the Company is based on a negotiated rate per
day that the rig is utilized. Daywork drilling contracts generally specify the
type of equipment to be used, the size of the hole and the depth of the proposed
well. Under a daywork drilling contract, the Company generally bears no part of
the costs due to downhole losses (such as time delays for various reasons,
including stuck drill stem and blowout).

Most of the Company's drilling contracts are obtained through competitive
bids. Generally, domestic drilling contracts are for a single well or multiple
wells, while foreign drilling contracts are generally for a period of one to
three years, with the terms and rates varying depending upon the nature and
duration of the work, the equipment and services supplied and other matters. The
contracts typically obligate the Company to pay certain operating expenses,
including wages of drilling personnel, maintenance expenses, incidental rig
supplies, equipment and local office facilities. Domestic drilling contracts are
typically subject to termination by the customer on short notice. Foreign
drilling contracts generally require longer notice periods for termination and
also may require that the customer pay mobilization and demobilization expenses.

As of March 26, 1999, the Company owned and operated 30 drilling rigs,
including 16 jack-up drilling rigs, 11 land drilling rigs and 3 platform
drilling rigs. Of the 16 jack-up drilling rigs owned by the Company, 15 are
cantilevered, 7 have top drives and substantially all have been refurbished in
the last five years. The Company operates 10 jack-up rigs in the Gulf of Mexico,
2 jack-up rigs in each of Qatar and Trinidad, and one jack-up rig in each of
Venezuela and Mexico. The Company also operates 11 land rigs in Venezuela, 2
platform rigs in Trinidad and one platform rig in Brazil. Of the 30 drilling
rigs owned and operated by the Company, 8 jack-up rigs, one land rig and one
platform rig are stacked without contracts.

Engineering Services

The Company has been active in drilling wells on a turnkey basis since
1982. The Company believes that its downhole engineering expertise, extensive
operating experience, veteran personnel and risk management capabilities have
allowed the Company to reduce the risks inherent in turnkey drilling operations.

Under a turnkey drilling contract, the Company contracts to drill a well to
a contract depth under specified conditions for a fixed price. In addition, the
Company provides technical expertise and engineering services, as well as most
of the equipment required for the well, and is compensated when the contract
terms have been satisfied. On a turnkey well, the Company from time to time
operates rigs subcontracted from other drilling contractors on a dayrate basis.
The Company also subcontracts substantially all of the related services and
manages the drilling process. The risks to the Company on a turnkey drilling
contract are substantially greater than on a well drilled on a daywork basis
because the Company assumes most of the risks associated with drilling
operations generally assumed by the operator in a daywork contract, including
risk of blowout, loss of hole, stuck drill stem, machinery breakdowns, abnormal
drilling conditions and risks associated with subcontractors' services, supplies
and personnel. The Company employs a technically proficient and experienced
engineering staff that examines the available seismic, geologic and drilling
data to identify and minimize many of the drilling risks assumed by the Company.
The Company believes that the application of this expertise allows it to
evaluate the risks of a proposed contract and bid accordingly. When possible,
the Company seeks fixed price contracts from its subcontractors to minimize or
eliminate cost fluctuations. The Company also maintains insurance coverage
against certain drilling hazards. See "Business and Properties -- Risks and
Insurance."
4
<PAGE> 6

In recent years, the domestic turnkey drilling market has become more
competitive as more companies entered the market. Domestic turnkey operators
have been very aggressive in pricing Gulf of Mexico turnkeys, and margins have
been reduced. The Company has shifted its emphasis toward drilling more
international turnkeys, principally in Venezuela, where margins have been
greater. International turnkeys have achieved greater acceptance, and the
Company believes that expansion opportunities exist in this market. The Company
believes its expertise has enabled it to be more selective in its turnkey
drilling operations and to achieve profitable turnkey drilling operating
results.

From 1982 through December 31, 1998, the Company completed 301 turnkeys
with aggregate revenues of $914.7 million, direct income before depreciation and
allocated overhead of $147.3 million and operating income of $117.4 million. The
Company completed 17 turnkey drilling contracts during 1998 and 14 turnkey
drilling contracts during 1997, with revenues of $133.4 million and $91.2
million, respectively. The increase in revenues was primarily attributable to
the mix of turnkey wells drilled during 1998 and 1997, respectively, with more
international turnkeys drilled during 1998. Four turnkey drilling contracts were
completed from January 1, 1999 to February 28, 1999 with contract revenues of
$30.4 million. As of February 28, 1999, the Company had one domestic and 7
Venezuelan turnkey drilling contracts in progress with aggregate expected
contract revenues of approximately $54.2 million.

In April, 1998, the Company was awarded a contract from PDVSA Exploration
and Production, the Venezuelan government-owned oil company ("PDVSA"), to drill
60 turnkey wells in Venezuela. Aggregate revenues for the 60 wells are expected
to range from approximately $450 million to $500 million depending upon, among
other things, various options to be elected by PDVSA. The Company commenced
drilling under the program in March, 1998. The program is expected to extend
over approximately three and one-half years and is expected to utilize 7 of the
Company's land drilling rigs in Venezuela. During 1998, the Company completed 9
of the 60 wells, with revenues realized in the amount of $74.6 million. No
assurance can be given that the remaining wells will ultimately be drilled, or
that the program can be completed within the intended time frame.

MOPU Operations

Since 1989, the Company has pioneered the development and operation of
MOPUs, which allow the Company to participate in the more stable oil and gas
production market. MOPUs are offshore production systems, usually converted
jack-up rigs, from which the drilling equipment is removed and production
equipment is installed. MOPUs are generally contracted on a dayrate basis for a
period of years or a period of time sufficient to obtain the economic production
from an offshore oil and gas field or wells within such field. These contracts
are characterized by relatively high operating margins, with most of the
operating costs assumed by the customer. Under such contracts, the Company is
generally responsible for maintenance, operation and repair of the MOPU hull
structure. The Company is generally not responsible for risk of pollution or for
damage to or replacement of the customer's production equipment, although the
Company generally is responsible for damage to its own production equipment. The
Company maintains insurance coverage against risk of damage to or loss of the
MOPUs and related equipment as is customary in the industry. See "Business and
Properties -- Risks and Insurance." Such contracts sometimes contain renewal
provisions at the option of the customer.

The Company owns 4 MOPUs capable of operating in both domestic and foreign
waters. Two MOPUs are currently operating in the Gulf of Mexico. Two MOPUs are
in international locations, with one of the units currently stacked without a
contract. The contract on the international MOPU, which is currently operating,
includes buy-out options.

5
<PAGE> 7

Drilling Rigs and MOPUs

The following table provides the status of and information about the
drilling rigs and MOPUs owned and operated by the Company as of March 26, 1999.
Most of these assets are pledged to secure the Company's revolving credit
facility (the "Revolving Credit Facility") with ING (U.S.) Capital Corporation
("ING"), formerly International Nederlanden (U.S.) Capital Corporation.

<TABLE>
<CAPTION>
RATED DEPTH
YEAR DELIVERED/ ---------------- TYPE OF EXPIRATION
EQUIPMENT TYPE(A) REFURBISHED WATER DRILLING LOCATION CONTRACT DATE
--------- ------- --------------- ----- -------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
JACK-UP DRILLING RIGS
Domestic(10)
Cliffs Drilling 100........... MC 1982 / 1993 100' 25,000' Gulf of Mexico N/A Stacked
Cliffs Drilling 150........... IC 1979 / 1998 150' 20,000' Gulf of Mexico Multiple Wells March, 1999
Cliffs Drilling 151........... IC 1981 / 1993 150' 25,000' Gulf of Mexico N/A Stacked
Cliffs Drilling 152........... MC 1980 / 1993 150' 25,000' Gulf of Mexico N/A Stacked
Cliffs Drilling 153........... MC 1980 / 1994 150' 25,000' Gulf of Mexico Multiple Wells March, 1999
Cliffs Drilling 154........... IC 1979 / 1996 150' 20,000' Gulf of Mexico N/A Stacked
Cliffs Drilling 155........... IC 1980 / 1998 150' 22,000' Gulf of Mexico N/A Stacked
Cliffs Drilling 156........... IC 1983 / 1998 150' 25,000' Gulf of Mexico N/A Stacked
Cliffs Drilling 180........... MS 1978 / 1997 184' 25,000' Gulf of Mexico N/A Stacked
Cliffs Drilling 200........... MC 1979 / 1998 200' 25,000' Gulf of Mexico Multiple Wells March, 1999
International(6)
LASALLE....................... IC 1982 / 1997 190' 25,000' Qatar Term Daywork March, 1999
Cliffs Drilling 101........... MC 1973 / 1991 100' N/A Trinidad Term Daywork March, 1999
Cliffs Drilling 110........... MC 1982 / 1996 110' 25,000' Trinidad Term Daywork July, 1999
Cliffs Drilling 160........... IC 1980 / 1998 160' 20,000' Qatar Multiple Wells April, 1998
Cliffs Drilling 201........... MC 1980 / 1996 200' 20,000' Mexico N/A Stacked
Cliffs Drilling 202........... MC 1980 / 1998 200' 25,000' Venezuela Term Daywork July, 1999
PLATFORM DRILLING RIGS
International(3)
Cliffs Drilling 1............. -- 1988 / 1998 -- 18,000' Trinidad N/A Stacked
Cliffs Drilling 3............. -- 1993 / 1998 -- 25,000' Trinidad Term Daywork March, 1999
Cliffs Drilling 17............ -- 1996 -- 12,000' Brazil Term Daywork November, 2000
LAND DRILLING RIGS
International(11)
Cliffs Drilling 28(b)......... -- 1977 / 1994 -- 25,000' Venezuela Term Daywork June, 2001
Cliffs Drilling 34............ -- 1980 / 1998 -- 18,000' Venezuela Term Daywork November, 2000
Cliffs Drilling 35............ -- 1980 / 1997 -- 18,000' Venezuela Term Daywork June, 1999
Cliffs Drilling 36(b)......... -- 1982 / 1998 -- 18,000' Venezuela Term Daywork June, 2001
Cliffs Drilling 37(b)......... -- 1982 / 1998 -- 18,000' Venezuela Term Daywork June, 2001
Cliffs Drilling 40(b)......... -- 1980 / 1998 -- 25,000' Venezuela Term Daywork June, 2001
Cliffs Drilling 41(b)......... -- 1981 / 1994 -- 25,000' Venezuela Term Daywork June, 2001
Cliffs Drilling 42(b)......... -- 1981 / 1994 -- 25,000' Venezuela Term Daywork June, 2001
Cliffs Drilling 43(b)......... -- 1981 / 1991 -- 25,000' Venezuela Term Daywork June, 2001
Cliffs Drilling 54............ -- 1981 / 1995 -- 30,000' Venezuela Term Daywork December, 1999
Cliffs Drilling 55............ -- 1983 / 1997 -- 35,000' Venezuela N/A Stacked
MOBILE OFFSHORE PRODUCTION UNITS
Domestic(2)
Cliffs Drilling 4............. -- 1967 / 1995 150' -- Gulf of Mexico Month-to-Month N/A
Cliffs Drilling 8............. -- 1977 / 1993 250' -- Gulf of Mexico Term Daywork April, 1999
International(2)
Cliffs Drilling 10............ -- 1979 / 1993 250' -- Qatar N/A Stacked
LANGLEY....................... -- 1965 / 1996 150' -- Nigeria Term Daywork December, 2001
</TABLE>

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

(a) Abbreviations:

MC = mat supported cantilever jack-up mobile offshore drilling unit

IC = independent leg cantilever jack-up mobile offshore drilling unit

MS = mat supported slot jack-up mobile offshore drilling unit

(b) Committed to the Company's Engineering Services business segment for
turnkey drilling activities.

Utilization

The Company's rigs are inactive from time to time. The Company believes
that its stacking procedures minimize stacking and maintenance costs, and that
the stacked rigs could be placed in service with minimal cost and delay should
it become economically attractive to do so. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

6
<PAGE> 8

Foreign Operations

For the fiscal years ended December 31, 1998, 1997 and 1996, 67%, 63% and
55%, respectively, of the Company's consolidated revenues were derived from
foreign operations, principally in Venezuela, Trinidad and the Middle East. See
Note 14 of Notes to Consolidated Financial Statements.

As of March 26, 1999, the Company operated 6 jack-up drilling rigs in
international locations, including 2 jack-up rigs in each of Qatar and Trinidad,
and one jack-up rig in each of Venezuela and Mexico. The Company operated 11
land drilling rigs in Venezuela, 2 platform rigs in Trinidad and one platform
rig in Brazil. In addition, the Company had one MOPU in each of Qatar and
Nigeria. Of the drilling rigs and MOPUs operating in foreign locations, 3 rigs
and one MOPU were stacked without a contract.

On May 23, 1996, the Company acquired the stock of Viking Trinidad Limited
(renamed Cliffs Drilling Trinidad Limited), which owned a 50% interest in the
WINDJV. The WINDJV was a joint venture between Cliffs Drilling Trinidad Limited
and Well Services, which owned a jack-up drilling rig. On August 1, 1997, Cliffs
Drilling Trinidad Limited acquired an additional 49% interest in the WINDJV from
Well Services. On December 29, 1997, the Company acquired the remaining 1%
interest in the WINDJV from Well Services.

In 1996, the Company became a 50% joint venture partner with Perforadora
Central, S.A. de C.V. by forming Cliffs Central Drilling International ("CCDI")
for the marketing of drilling services in Mexico.

In 1996, the Company became a 1/3 (33 1/3%) owner of Servicios Integrados
Petroleros C.C.I., S.A. ("CCI"). CCI is a joint venture company among the
Company, Inelectra S.A. and Cementaciones Petroleras Venezolanas C.A. which
markets drilling services in Venezuela.

Operations of the Company which are conducted in foreign countries are
subject to certain political, economic and other uncertainties. See "Business
and Properties -- Risks Inherent in Foreign Operations."

Customers

The Company's largest customer for the years ended December 31, 1998, 1997
and 1996 was PDVSA (and its predecessors). Revenues from PDVSA and its
predecessors accounted for approximately 33%, 31% and 31%, respectively, of the
Company's consolidated revenues during each year. The loss of any significant
customer could, at least on a short-term basis, have a material adverse impact
on the Company's results of operations. See Note 13 of Notes to Consolidated
Financial Statements.

Equipment and Supplies

The Company obtains required supplies, services and equipment from a
variety of sources. The Company has not in the past experienced significant
shortages of such materials necessary to conduct the Company's business.
However, equipment availability has been reduced and shortages could occur in
the future which could have a material adverse effect on the Company's
operations. There may be additional delays or shortages associated with
obtaining supplies, services and equipment, particularly with respect to the
Company's foreign operations.

Competition

Demand for offshore drilling rigs and utilization have deteriorated
significantly in recent months. The drilling industry remains highly
competitive, and no one or few drilling contractors is dominant. The Company
competes with numerous other drilling contractors, some of which are
substantially larger than the Company and possess appreciably greater financial
and other resources. During the last several years, there have been several
business consolidations which have reduced the fragmented nature of the drilling
industry. Although this has decreased the total number of competitors, the
Company believes that competition for drilling contracts will continue to be
intense in the foreseeable future.

Price competition is generally the major competitive factor in the energy
service industry, but the technical capability of specialized drilling equipment
and personnel at the time and place required by customers is also important.
Other competitive factors include technical and engineering expertise, work
force experience, rig suitability, safety record, efficiency, condition of
equipment, reputation and customer relations. The Company believes that it
competes favorably with respect to all of these factors. If demand for drilling
rigs increases in the future, rig availability may also become a competitive
factor. Competition is usually regional. However, drilling rigs are mobile and
can be moved from one region to another in
7
<PAGE> 9

response to increased demand, and an oversupply of rigs in any region may
result. The Company's domestic drilling operations are concentrated in the
Texas/Louisiana Gulf Coast area, and its foreign drilling operations are
primarily in Venezuela, Trinidad and the Middle East. In foreign markets, the
Company competes with many of the same competitors under the same factors as in
the domestic markets. Demand for onshore and offshore drilling and production
equipment is also dependent on the exploration and development programs of oil
and gas companies, which are in turn influenced by the financial condition of
such companies, general economic conditions, prices of oil and gas and political
considerations and policies. Improved technologies such as 3-D seismic, subsea
completions, floating production systems and directional drilling have reduced
the number of wells necessary to maintain or even increase supplies of oil and
gas, and have therefore improved overall industry fundamentals.

Historically, there have been few drilling contractors specializing in
turnkey drilling contracts because of the extent of engineering and technical
expertise required to manage the risks inherent in turnkey drilling operations,
the magnitude of management commitment and the financial resources required. In
recent years, the turnkey drilling market has become more competitive as more
companies entered the market and margins were reduced. Domestic turnkey
contractors have been very aggressive in pricing Gulf of Mexico turnkey
contracts, and margins have been reduced.

In order to remain competitive in the current environment, the Company has
enhanced its geographical diversification, participated in turnkey drilling
contracts, developed and marketed well engineering and management services and
become active in the development and operation of MOPUs. The Company believes
that MOPUs offer several economic advantages to oil and gas operators, namely,
optimizing the use of exploration budgets by avoiding the high capital costs of
production platforms, providing more flexibility than conventional fixed
platforms in producing oil and gas and allowing for the economic development of
smaller reserves. Although the Company believes there is a market for additional
MOPUs, the Company can give no assurance that there will be sufficient demand
for MOPUs at rates which are profitable, particularly given the increased
capital costs of rigs which are suitable for conversion. Moreover, MOPUs are not
widely utilized, and most companies that do utilize MOPUs own and operate their
own units. The Company believes that its experience in MOPU operations enables
it to compete favorably in the MOPU market.

OIL AND GAS OPERATIONS

Since 1987, the Company has engaged in oil and gas exploration and
production activities in conjunction with marketing the Company's contract
drilling services, primarily turnkey, under the Company's contract drilling
support ("CDS") program. Under this program, the Company has taken working
interests in oil and gas properties in connection with the award to the Company
of a drilling contract. The Company's policy has been that its working interest
in such CDS wells would generally not exceed 25%. In 1993, the Company began to
de-emphasize its CDS program due to marginal financial performance of the
segment. The Company's oil and gas operations are not significant; therefore,
applicable disclosures are not required at December 31, 1998 and 1997 or for
each of the three years in the period ended December 31, 1998.

ENVIRONMENTAL CONTROLS

The Company believes it is in substantial compliance with applicable
federal, state, local and foreign laws and regulations relating to environmental
controls. Also, the existence of such laws and regulations has not had, nor at
this time is expected to have, any materially restrictive effect on the Company.
To date, the Company has not accounted for costs or capital expenditures
incurred for environmental control facilities separately from other costs
incurred in the operation of its businesses. The Company does not believe,
however, that any such costs or expenditures have been material, and the Company
does not expect that under present conditions such costs or expenditures will
become material in the foreseeable future.

GOVERNMENT REGULATION

The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of domestic offshore facilities, may be liable for the costs of removal
and damages arising out of a pollution incident to the extent set forth in the
Federal Water

8
<PAGE> 10

Pollution Control Act, as amended by the Oil Pollution Act of 1990 and the Outer
Continental Shelf Lands Act. In addition, the Company may also be subject to
other civil claims arising out of any such incident. Certain of the Company's
facilities are also subject to regulations of the Environmental Protection
Agency ("EPA") that require the preparation and implementation of spill
prevention control and countermeasure plans relating to possible discharge of
oil into navigable waters. The Company supplements its activities in this regard
by membership in the Clean Gulf Association, which provides pollution control
facilities to its members. Other regulations of the EPA may require the Company
to take certain precautions in storing, handling and transporting certain
hazardous wastes. State statutory provisions relating to oil and natural gas
generally include requirements as to well spacing, waste prevention, production
limitations, pollution prevention and clean-up, obtaining drilling permits and
similar matters. The Company believes that it is in compliance in all material
respects with such laws, rules and regulations and that such compliance has not
had any material adverse effect on its operations or financial condition.

The drilling industry is dependent on the demand for services from the oil
and gas exploration industry and, accordingly, is affected by changing tax laws,
price controls and other laws relating to the energy business. The Company's
business is affected generally by political developments and by federal, state,
local and foreign laws, rules and regulations which may relate directly to the
oil and gas industry. The adoption of laws, rules and regulations, both domestic
and foreign, which curtail exploration and development drilling for oil and gas
for economic, environmental and other policy reasons may adversely affect the
Company's operations by limiting available drilling and production
opportunities. The Company's foreign operations are subject to political,
economic and other uncertainties associated with foreign operations generally,
as well as the additional risks of fluctuating currency values and exchange
controls. Governments may from time to time suspend or curtail drilling
operations or leasing activities when such operations are considered to be
detrimental to the environment or to jeopardize public safety.

MOPUs and MOPU operations are subject to certain federal, state, local and
foreign laws, rules and regulations relating to engineering, design, structural,
safety, operational and inspection standards or requirements, and changes in
such standards or requirements could adversely affect the Company's MOPU
operations.

RISKS AND INSURANCE

The Company's operations are subject to the many hazards inherent in the
drilling business, including, for example, blowouts, cratering, fires,
explosions and adverse weather and seas. These hazards could cause personal
injury, suspend drilling operations or seriously damage or destroy the equipment
involved and could cause substantial damage to producing formations and
surrounding areas. Damage to the environment could also result from the
Company's operations, particularly through oil spillage and extensive,
uncontrolled fires. As a protection against operating hazards, the Company
maintains broad insurance coverage, including all risks physical damage,
employer's liability, comprehensive general liability or commercial contract
indemnity and workers' compensation insurance. The Company's third party
liability insurance coverage is approximately $400 million per occurrence. The
Company believes that it is adequately insured for public liability and property
damage to others with respect to its operations. However, such insurance may not
be sufficient to protect the Company against liability for all consequences of
well disasters, extensive fire damage or damage to the environment. The Company
also carries insurance to cover physical damage to or loss of its drilling rigs
and MOPUs and loss of hire insurance coverage. In view of difficulties that may
be encountered in renewing such insurance at reasonable rates, no assurance can
be given that the Company will be able to maintain the type and amount of
coverage that it considers adequate. The occurrence of a significant event for
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 also maintains insurance coverage to protect against certain
hazards inherent in its turnkey contract drilling and oil and gas operations.
This insurance was most recently renewed on October 1, 1997, and is scheduled
for renewal on October 1, 1999. This insurance, which is principally through
Underwriters at Lloyd's and Institute of London Underwriters Companies, covers
"control of well" (including blowouts above and below the surface); cratering;
seepage and pollution; and care, custody and control. The Company believes that
it maintains insurance in accordance with industry standards. The Company's
current insurance program provides $500,000 coverage per occurrence for care,
custody and control, and $75 million or $25 million, depending on the well
project, coverage per occurrence for control of well, cratering and seepage and
pollution associated with foreign operations. The amount of coverage per

9
<PAGE> 11

occurrence provided by the Company's current insurance program for domestic
land, coastal and inland water, and offshore operations is $10 million, $20
million and $30 million, respectively, for control of well, cratering and
seepage and pollution. Each form of coverage provides for a retention amount for
the account of the Company, as well as a maximum limit of liability. Each
casualty is an occurrence, and there may be more than one such occurrence on a
well, each of which would be subject to a separate retention amount. No
assurance can be given that the Company will be able to maintain the types and
amounts of coverage that it considers adequate with respect to its turnkey
drilling and oil and gas operations. If the Company were unable to insure
against certain of these risks, either because such insurance was no longer
available or because the premium costs became too great in relation to the
coverage afforded, the Company's insurance might not be adequate to protect the
Company against liability from all consequences of well disasters, downhole
problems, extensive fire damage or damage to the environment. 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.

RISKS INHERENT IN FOREIGN OPERATIONS

For the fiscal year ended December 31, 1998, 67% of the Company's
consolidated revenues was derived from foreign sources or from services
performed abroad, principally in Venezuela, Trinidad and the Middle East.
Foreign operations and export sales are subject in varying degrees to risks
inherent in doing business abroad. Such risks include the possibility of
unfavorable changes in tax or other laws; partial or total expropriation;
currency exchange rate fluctuations and restrictions on currency repatriation;
the disruption of operations from labor and political disturbances, insurrection
or war; and the requirements of partial local ownership of operations in certain
countries. Foreign governments may from time to time suspend or curtail drilling
operations or leasing activities when such operations are considered to be
detrimental to the environment or to jeopardize public safety. Generally, the
Company purchases insurance to protect against some or all losses due to events
of political risks, such as nationalization, expropriation, war, confiscation
and deprivation. Occasionally, customers will indemnify the Company against such
losses. See "Business and Properties -- Government Regulation."

EMPLOYEES

The Company employs both domestic and foreign personnel. The Company has
not in the past experienced significant shortages of qualified labor necessary
to conduct the Company's business. However, labor shortages could occur in the
future which could have a material adverse effect on the Company's operations.

At December 31, 1998, the Company employed 1,572 persons as follows:

<TABLE>
<CAPTION>
SALARIED HOURLY
EMPLOYEES EMPLOYEES
--------- ---------
<S> <C> <C>
Domestic.................................................... 166 554
Venezuela................................................... 224 311
Trinidad.................................................... 77 172
Other....................................................... 48 20
</TABLE>

There were no collective bargaining contracts covering the Company's
domestic employees or employees in foreign locations in effect as of December
31, 1998, except for employees in Venezuela who are covered by the Collective
Labor Contract of the Venezuelan Petroleum Industry.

OTHER PROPERTIES

The Company owns an office building and warehouse on a 2.5 acre tract of
land in Lafayette Parish, Louisiana. The Company leases additional properties,
including its executive offices in Houston, Texas, a yard in Lafayette,
Louisiana, and several field offices in international locations.

ITEM 3. LEGAL PROCEEDINGS

On August 26, 1998, the Company received notice that a class action
complaint against the Company and each member of the Board of Directors was
filed by a stockholder, on behalf of all of the stockholders of the Company, on
August 12, 1998 in the Court of Chancery of the State of Delaware. The complaint
alleges

10
<PAGE> 12

that the directors of the Company did not act in accordance with their fiduciary
duties to protect the interests of the stockholders in connection with the
Merger. The plaintiff seeks damages as well as injunctive relief. The Company
believes the allegations in the complaint are wholly without merit and intends
to vigorously defend the lawsuit.

The Company is party to a number of other lawsuits which are ordinary,
routine litigation incidental to the Company's business, the outcome of which,
individually, or in the aggregate, is not expected to have a material adverse
effect on the Company's financial condition or results of operations.

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

Under the reduced disclosure format permitted by General Instruction
I(2)(c) of Form 10-K, the information otherwise required by this item may be
omitted.

PART II

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

The Common Stock of the Company was traded on the New York Stock Exchange
under the symbol "CDG" from April 3, 1997 through November 30, 1998. Prior to
April 3, 1997, the Common Stock of the Company was traded on the NASDAQ stock
market under the symbol "CLDR." The following table sets forth the range of high
and low sales prices per share of Common Stock for each calendar quarter, as
reported by the NASDAQ stock market for the periods through April 2, 1997, and
as reported by the New York Stock Exchange for periods from April 3, 1997
through November 30, 1998, the last trading date for the Common Stock. As a
result of the Merger, R&B Falcon owns all of the outstanding Common Stock of the
Company, and the Company's Common Stock is no longer publicly traded.

<TABLE>
<CAPTION>
SALES PRICE
---------------
HIGH LOW
------ ------
<S> <C> <C>
1998
1st Quarter............................................... $51.81 $32.38
2nd Quarter............................................... 57.31 31.75
3rd Quarter............................................... 33.38 13.25
4th Quarter(a)............................................ 27.94 13.75
1997
1st Quarter(b)............................................ $39.75 $20.63
2nd Quarter(b)............................................ 37.13 26.94
3rd Quarter............................................... 70.50 36.38
4th Quarter............................................... 82.00 42.00
</TABLE>

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

(a) For the period through November 30, 1998, the last trading date for the
Common Stock.

(b) Retroactively adjusted to reflect a two-for-one stock split effected in the
form of a 100% stock dividend effective May 22, 1997.

The Company never paid cash dividends on its Common Stock. Under the
Company's 10.25% Senior Notes due 2003 (the "Senior Notes") and Revolving Credit
Facility with ING, the Company is restricted from declaring, making or paying
cash dividends on the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 9 of Notes to
Consolidated Financial Statements.

During 1998, 39,437 shares of the Company's Common Stock held by the
Company as treasury shares were contributed to the Cliffs Drilling Company
Savings Plan in satisfaction of the Company's matching obligations under the
Savings Plan. The shares had an aggregate value of $1,089,000 based on market
prices on the various dates of transfer ranging from $17.75 to $55.75 per share.
These transactions either (i) do not constitute "sales" and therefore are not
subject to the registration requirements of the Securities Act of 1933, as
amended, or (ii) were made in reliance on an exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended, as transactions by the
issuer not involving a public offering.

11
<PAGE> 13

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected consolidated financial
information of the Company. The amounts as of and for each of the five years in
the period ended December 31, 1998 have been derived from audited consolidated
financial statements of the Company. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere herein. The selected consolidated financial data
provided below are not necessarily indicative of the future results of
operations or financial performance of the Company.

The Merger was effective on December 1, 1998 and was accounted for using
the purchase method of accounting. The purchase price was "pushed down" and
recorded in the consolidated financial statements, which affects the
comparability of the post-acquisition and pre-acquisition financial position.
See Note 2 of Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues....................................... $335,824 $263,632 $133,109 $ 83,289 $ 83,693
Costs and Expenses:
Operating Expenses.......................... 196,918 148,158 91,984 67,713 50,907
Depreciation, Depletion and Amortization.... 28,701 20,443 10,388 7,271 14,008
Contract Termination Provision.............. -- -- -- -- 5,193
General and Administrative Expense(1)....... 12,455 8,731 6,300 5,289 5,114
-------- -------- -------- -------- --------
Operating Income............................... 97,750 86,300 24,437 3,016 8,471
Interest Expense(2)............................ (20,443) (17,838) (9,265) (199) (826)
Income Tax Expense............................. (26,545) (25,124) (6,996) (2,406) (790)
Other Income (Expense)(3)...................... 327 3,321 6,246 5,035 (799)
-------- -------- -------- -------- --------
Net Income..................................... 51,089 46,659 14,422 5,446 6,056
Dividends Applicable to Preferred Stock(4)..... -- -- (31) (2,659) (2,659)
-------- -------- -------- -------- --------
Net Income Applicable to Common and Common
Equivalent Shares........................... $ 51,089 $ 46,659 $ 14,391 $ 2,787 $ 3,397
======== ======== ======== ======== ========
Net Income Per Common Share(5):
Basic....................................... N/A $ 3.06 $ 1.05 $ 0.34 $ 0.40
======== ======== ======== ======== ========
Diluted..................................... N/A $ 3.01 $ 1.02 $ 0.34 $ 0.40
======== ======== ======== ======== ========
Weighted Average Number of Common and Common
Equivalent Shares Outstanding(4)(5)(6)(7):
Basic....................................... N/A 15,237 13,736 8,192 8,428
======== ======== ======== ======== ========
Diluted..................................... N/A 15,493 14,083 8,213 8,447
======== ======== ======== ======== ========
SUMMARY BALANCE SHEET DATA:
Working Capital................................ $ 70,668 $ 57,816 $ 68,221 $ 33,859 $ 19,331
Property and Equipment, Net.................... 505,841 369,227 216,474 65,950 71,248
Total Assets................................... 717,256 500,151 339,546 128,962 120,167
10.25% Senior Notes(2)......................... 202,935 203,606 150,000 -- --
Redeemable Preferred Stock(4).................. -- -- -- 28,750 28,750
Total Shareholders' Equity(4)(6)(7)(8)......... $404,489 $215,929 $142,168 $ 74,015 $ 70,881
</TABLE>

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

(1) Included in 1998 General and Administrative Expense are merger costs of $1.5
million and incremental restricted stock amortization of $1.8 million
related to the accelerated vesting of restricted stock due to the execution
of the Merger Agreement with R&B Falcon.

(2) In part to finance the acquisition of the Southwestern Rigs, the Company
sold $150 million of Senior Notes on May 23, 1996. On August 7, 1997, the
Company sold an additional $50 million of Senior Notes at a premium for
various rig acquisitions and upgrades.

12
<PAGE> 14

(3) The following summarizes items of "Other Income (Expense)":

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gain on Disposition of Assets............... $ 257 $ 3,150 $3,694 $ 2,666 $ 665
Interest Income............................. 2,080 1,941 2,725 1,065 815
Exchange Rate Gain (Loss)................... (1,426) (174) -- 2,554 (1,168)
Other, net.................................. (584) (1,596) (173) (1,250) (1,111)
------- ------- ------ ------- -------
Other Income (Expense)............... $ 327 $ 3,321 $6,246 $ 5,035 $ (799)
======= ======= ====== ======= =======
</TABLE>

(4) On January 17, 1996, the Company issued 2,113,557 shares (pre-split basis)
of Common Stock upon conversion of 1,115,988 shares of its 1,150,000 issued
and outstanding shares of Preferred Stock. The remaining 34,012 shares of
Preferred Stock were redeemed for cash in the amount of $25.69 per share
plus $0.22 per share in accrued dividends thereon at a cost to the Company
of approximately $.9 million.

(5) The net income per common share amounts and weighted average number of
common and common equivalent shares outstanding prior to 1997 have been
restated as required to comply with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). For further
discussion of earnings per share and the impact of SFAS No. 128, see Note 1
of Notes to Consolidated Financial Statements. In addition, net income per
common share and weighted average number of common and common equivalent
shares outstanding have been retroactively adjusted to reflect a two-
for-one stock split effected in the form of a 100% stock dividend effective
May 22, 1997.

(6) The Company issued 1,200,000 shares (pre-split basis) of Common Stock on May
23, 1996 in connection with the acquisition of the Southwestern Rigs and
437,939 shares of Common Stock on December 29, 1997 in connection with the
Well Services Acquisition.

(7) As a result of the Merger, each outstanding share of Common Stock of the
Company was converted into 1.7 shares of R&B Falcon common stock and cash in
lieu of fractional shares, as provided for in the Merger Agreement. The
Company is now a wholly-owned subsidiary of R&B Falcon.

(8) The Company has not paid any cash dividends on its Common Stock.

13
<PAGE> 15

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

GENERAL

Effective December 1, 1998, a change in control of the Company occurred as
a result of the Merger. The Company is now a wholly-owned subsidiary of R&B
Falcon.

Activity in the contract drilling industry and related oil service
businesses has deteriorated significantly in recent months due to decreased
worldwide demand for drilling rigs and related services resulting from a
substantial decline in crude oil prices. The financial condition and results of
operations of the Company and other drilling contractors are dependent upon the
price of oil and natural gas, as demand for their services is primarily
dependent upon the level of spending by oil and gas companies for exploration,
development and production activities. Crude oil and natural gas prices have
continued to fluctuate over the last several years. If crude oil prices decline
further or the current weakness in crude oil prices continues for an extended
period, there could be a further deterioration in both rig utilization and
dayrates.

The Company's daywork drilling operations benefited during 1997 and early
1998 from the tight supply of jack-up drilling rigs both in the U.S. Gulf of
Mexico and internationally. Increased exploration activity coupled with a
reduction in rig availability resulted in increased dayrates and utilization of
the Company's drilling rigs. The same factors both positively and negatively
affected the Company's engineering services business segment during 1997 and
early 1998, in that increased exploration activity caused an increase in demand
for the Company's engineering services; however, reduced rig availability made
it more difficult for the Company to contract drilling rigs required for
performance of turnkey drilling operations. Currently, lower crude oil prices
are affecting exploration and production spending, which is creating
significantly lower dayrates and utilization for offshore drilling companies,
particularly in the U.S. Gulf of Mexico.

The oil and gas industry has experienced extreme market cycles over the
past decade. The Company has endeavored to mitigate the effect of this
volatility by diversifying its scope of operations. To achieve its strategic
objective, the Company established separate but related lines of business in
daywork drilling, engineering services and mobile offshore production unit
operations. The Company also has pursued foreign drilling and production
opportunities in order to expand geographically. Each of the Company's business
segments will continue to be affected, however, by the unsettled energy markets,
which are influenced by a variety of factors, including general economic
conditions, the extent of worldwide oil and gas production and demand therefor,
government regulations and environmental concerns.

RESULTS OF OPERATIONS

Year 1998 Versus 1997

The Company recognized net income of $51.1 million in 1998 compared to net
income of $46.7 million in 1997. Revenues increased $72.2 million and operating
income increased $11.5 million from 1997 to 1998. These increases were partially
offset by $2.9 million of decreased gains on disposition of assets and $2.6
million of increased interest expense associated with the Senior Notes. Improved
operating results from the engineering services business segment contributed to
the increase in operating income.

<TABLE>
<CAPTION>
INCREASE
1998 1997 (DECREASE)
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling.......................................... $222,055 $173,602 $ 48,453
Engineering Services...................................... 133,366 91,723 41,643
MOPU Operations........................................... 8,676 8,663 13
Oil and Gas............................................... 272 410 (138)
Eliminations.............................................. (28,545) (10,766) (17,779)
-------- -------- --------
Consolidated...................................... $335,824 $263,632 $ 72,192
======== ======== ========
</TABLE>

14
<PAGE> 16

<TABLE>
<CAPTION>
INCREASE
1998 1997 (DECREASE)
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Income (Loss):
Daywork Drilling.......................................... $ 71,823 $ 71,623 $ 200
Engineering Services...................................... 35,919 20,446 15,473
MOPU Operations........................................... 3,331 3,582 (251)
Oil and Gas............................................... (215) (330) 115
Corporate Office.......................................... (13,108) (9,021) (4,087)
-------- -------- --------
Consolidated...................................... $ 97,750 $ 86,300 $ 11,450
======== ======== ========
</TABLE>

Daywork Drilling

Daywork drilling revenues increased $48.5 million and operating income
increased $.2 million in 1998 compared to 1997. The increase in revenues was
primarily due to an expansion of the Company's operating rig fleet, in addition
to improved dayrates on several rigs. The decrease in operating margins was
primarily due to reduced dayrates and utilization experienced during the second
half of 1998, in addition to costs associated with stacking certain rigs.

The Company completed the conversion of one of the Company's MOPUs into a
drilling rig and mobilized the rig to offshore Venezuela. The rig commenced
operations under a one-year drilling contract during the third quarter of 1998.

The Company operates its drilling rigs on both a term and a spot
(well-to-well) basis. Drilling rigs contracted on a term basis generally work in
various international locations, while drilling rigs contracted on a spot basis
generally work in the U.S. Gulf of Mexico. The following table summarizes
revenues, utilization and average dayrates for significant classes of the
Company's drilling rigs:

<TABLE>
<CAPTION>
INCREASE
1998 1997 (DECREASE)
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Daywork Drilling Revenues(1):
Jack-up Rigs:
International.......................................... $ 55,368 $ 49,866 $ 5,502
Domestic............................................... 93,023 77,849 15,174
Land Rigs................................................. 48,619 32,812 15,807
Platform/Workover Rigs.................................... 24,040 5,604 18,436
Other(2).................................................. 1,005 7,471 (6,466)
-------- -------- --------
Total.................................................. $222,055 $173,602 $ 48,453
======== ======== ========
Average Rig Utilization(3):
Jack-up Rigs:
International.......................................... 94% 100%
Domestic............................................... 90% 98%
Land Rigs................................................. 93% 95%
Platform/Workover Rigs.................................... 96% 98%

Average Dayrates(4):
Jack-up Rigs:
International.......................................... $ 33,342 $ 29,609
Domestic............................................... 33,074 29,793
Land Rigs................................................. 16,449 12,750
Platform/Workover Rigs.................................... 13,739 12,304
</TABLE>

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

(1) Includes revenues earned from affiliates.

(2) Includes WINDJV operations in Trinidad prior to August 1, 1997,
Brazilian operations prior to October 1, 1997, CCDI joint venture
operations in Mexico, CCI joint venture operations in Venezuela
and labor maintenance contracts in Venezuela and Trinidad.

(3) Utilization rates are based upon the number of actively marketed
rigs in the fleet and exclude rigs which are unavailable for
operations during periods of refurbishment and upgrade.

(4) Daywork drilling revenues, less non-recurring revenues, divided by
aggregate contract days, adjusted to exclude days under contract
at zero dayrate.

15
<PAGE> 17

Engineering Services

Engineering services revenues increased $41.6 million and operating income
increased $15.5 million in 1998 compared to 1997. The Company completed 17
turnkey contracts in 1998 compared to 14 turnkey contracts in 1997. Thirteen of
the 17 contracts completed during 1998 were international contracts in
Venezuela, while 10 international contracts in Venezuela were completed during
1997. International operating margins are currently stronger than domestic
margins due to improved drilling efficiencies and a reduction in lost time well
activities. Domestic turnkey contractors continue to bid wells very
aggressively, resulting in intense competition which has adversely affected the
Company's domestic turnkey margins.

The Company had 8 turnkey wells in progress at December 31, 1998, 4 of
which were completed by February 28, 1999.

In April, 1998, the Company was awarded a contract from PDVSA to drill 60
turnkey wells in Venezuela. Aggregate revenues for the 60 wells are expected to
range from approximately $450 million to $500 million depending upon, among
other things, various options to be elected by PDVSA. The Company commenced
drilling under the program in March, 1998. The program is expected to extend
over approximately three and one-half years and is expected to utilize 7 of the
Company's land drilling rigs in Venezuela. During 1998, the Company completed 9
of the 60 wells, with revenues realized in the amount of $74.6 million. No
assurance can be given that the remaining wells will ultimately be drilled, or
that the program can be completed within the intended time frame.

MOPU Operations

MOPU revenues increased slightly and operating income decreased $.3 million
in 1998 compared to 1997. The decrease in operating income was primarily due to
the loss of earnings from a MOPU which was converted to a jack-up drilling rig
during 1998.

The Company currently owns 4 MOPUs. Three of the MOPUs are under contract
and currently operating, and one MOPU is stacked.

Oil and Gas

Oil and gas revenues decreased $.1 million and operating losses decreased
$.1 million in 1998 compared to 1997. The Company does not expect any
significant activity related to oil and gas exploration and production
activities during 1999.

Corporate Overhead

Corporate overhead increased $4.1 million in 1998 compared to 1997. The
increase was primarily related to costs associated with the Merger.

Other Income (Expense) and Income Taxes

The Company recognized $46.7 million of other expense in 1998 compared to
$39.6 million of other expense in 1997. The net increase in other expense
resulted primarily from a $2.9 million decrease in gains on disposition of
assets, a $2.6 million increase in interest expense associated with the Senior
Notes, a $1.3 million increase in exchange rate losses and an increase in income
taxes of $1.4 million. See "Liquidity and Capital Resources."

The increase in income taxes relates primarily to the overall increase in
income from 1997 to 1998. The effective tax rates were 34% and 35% in 1998 and
1997, respectively, with 75% and 63%, respectively, of the recorded expense
constituting current taxes. See Note 6 of Notes to Consolidated Financial
Statements.

16
<PAGE> 18

Year 1997 Versus 1996

The Company recognized net income of $46.7 million in 1997 compared to net
income of $14.4 million in 1996. Revenues increased $130.5 million and operating
income increased $61.9 million from 1996 to 1997. These increases were partially
offset by $8.6 million of increased interest expense associated with the Senior
Notes and $18.1 million of increased income taxes. Improved operating results
from the Company's daywork drilling and engineering services business segments
contributed to the increases in revenues and operating income.

<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling.......................................... $173,602 $ 77,882 $ 95,720
Engineering Services...................................... 91,723 60,517 31,206
MOPU Operations........................................... 8,663 4,329 4,334
Oil and Gas............................................... 410 1,156 (746)
Eliminations.............................................. (10,766) (10,775) 9
-------- -------- --------
Consolidated...................................... $263,632 $133,109 $130,523
======== ======== ========
Operating Income (Loss):
Daywork Drilling.......................................... $ 71,623 $ 23,048 $ 48,575
Engineering Services...................................... 20,446 8,036 12,410
MOPU Operations........................................... 3,582 2,872 710
Oil and Gas............................................... (330) (3,108) 2,778
Corporate Office.......................................... (9,021) (6,411) (2,610)
-------- -------- --------
Consolidated...................................... $ 86,300 $ 24,437 $ 61,863
======== ======== ========
</TABLE>

Daywork Drilling

Daywork drilling revenues increased $95.7 million and operating income
increased $48.6 million in 1997 compared to 1996. From May, 1996 through
December, 1997, the Company acquired 12 jack-up drilling rigs, 5 land rigs, 3
platform rigs and a 100% interest in the WINDJV, which owns an additional jack-
up drilling rig. Of the $48.6 million increase in operating income, $38.9
million was generated from these rig acquisitions. See "Business and
Properties -- Industry Conditions and Company Strategy," "Business and
Properties -- Contract Drilling and MOPU Operations" and "Liquidity and Capital
Resources." Operating income also increased due to improved dayrates for the
Company's drilling rigs.

17
<PAGE> 19

<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
-------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Daywork Drilling Revenues(1):
Jack-up Rigs:
International.......................................... $ 49,866 $17,989 $31,877
Domestic............................................... 77,849 33,984 43,865
Land Rigs................................................. 32,812 20,403 12,409
Platform/Workover Rigs.................................... 5,604 1,251 4,353
Other(2).................................................. 7,471 4,255 3,216
-------- ------- -------
Total............................................. $173,602 $77,882 $95,720
======== ======= =======
Average Rig Utilization(3):
Jack-up Rigs:
International.......................................... 100% 100%
Domestic............................................... 98% 96%
Land Rigs................................................. 95% 100%
Platform/Workover Rigs.................................... 98% 87%

Average Dayrates(4):
Jack-up Rigs:
International.......................................... $ 29,609 $25,724
Domestic............................................... 29,793 22,667
Land Rigs................................................. 12,750 9,085
Platform/Workover Rigs.................................... 12,304 5,259
</TABLE>

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

(1) Includes revenues earned from affiliates.

(2) Includes WINDJV operations in Trinidad prior to August 1, 1997, Brazilian
operations prior to October 1, 1997, CCDI joint venture operations in
Mexico, CCI joint venture operations in Venezuela during 1997 and 2 labor
maintenance contracts in Venezuela.

(3) Utilization rates are based upon the number of actively marketed rigs in the
fleet and exclude rigs which are unavailable for operations during periods
of refurbishment and upgrade.

(4) Daywork drilling revenues, less non-recurring revenues, divided by aggregate
contract days, adjusted to exclude days under contract at zero dayrate.

Engineering Services

Engineering services revenues increased $31.2 million and operating income
increased $12.4 million in 1997 compared to 1996. The Company completed 14
turnkey contracts in 1997 compared to 13 turnkey contracts in 1996. Ten of the
14 contracts completed during 1997 were international contracts in Venezuela,
while only 5 international contracts were completed during 1996. International
operating margins are stronger than domestic margins and increased during 1997
due to improved drilling efficiencies and a reduction in lost time well
activities. Domestic turnkey contractors continue to bid wells very
aggressively, resulting in intense competition which has adversely affected the
Company's domestic turnkey margins.

The Company had 5 turnkey wells in progress at December 31, 1997.

MOPU Operations

MOPU revenues increased $4.3 million and operating income increased $.7
million in 1997 compared to 1996. The increases in revenues and operating income
were primarily due to operations associated with 2 MOPUs, neither of which
operated during 1996.

18
<PAGE> 20

Oil and Gas

Oil and gas revenues decreased $.7 million and operating losses decreased
$2.8 million in 1997 compared to 1996. Revenues decreased primarily due to
declines in production of both oil and gas. Operating losses in 1996 were
primarily due to approximately $2.9 million in costs associated with an
unsuccessful well drilled during the fourth quarter of 1996.

Corporate Overhead

Corporate overhead increased $2.6 million in 1997 compared to 1996. The
increase was primarily due to increased costs associated with the Southwestern
operations and other employment-related costs.

Other Income (Expense) and Income Taxes

The Company recognized $39.6 million of other expense in 1997 compared to
$10.0 million of other expense in 1996. The net increase resulted primarily from
an $8.6 million increase in interest expense associated with the Senior Notes
and an increase in income taxes of $18.1 million. See "Liquidity and Capital
Resources."

The increase in income taxes relates primarily to the overall increase in
income from 1996 to 1997. The effective tax rates were 35% and 33% in 1997 and
1996, respectively, with 63% and 26%, respectively, of the recorded expense
constituting current taxes. The Company has utilized all foreign tax credit
carryforwards and current year foreign tax credits as a reduction of 1997
domestic income taxes and accordingly, has eliminated the related valuation
allowance of $1.6 million provided in prior years. See Note 6 of Notes to
Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased $8.2 million from $28.1 million at
December 31, 1997 to $36.3 million at December 31, 1998. The increase resulted
from $76.0 million provided by operating activities and $.2 million provided by
financing activities, offset in part by $68.0 million used in investing
activities.

Operating Activities

Net cash of $76.0 million provided by operating activities included $14.6
million used in working capital and other activities. "Accounts Receivable"
decreased from December 31, 1997 to December 31, 1998 due primarily to the
timing of turnkey completions and the timing of cash receipts related to
domestic and international daywork drilling and engineering services operations.
"Drilling Contracts in Progress" increased due to additional turnkey wells in
progress at December 31, 1998 and timing of turnkey completions. "Accounts
Payable and Other Accrued Expenses" decreased primarily due to fewer rig
refurbishment projects in process at December 31, 1998 compared to December 31,
1997.

Investing Activities

Net cash of $68.0 million used in investing activities included capital
expenditures totaling $69.9 million. Of that total, $9.3 million was used to
fund the reactivation of 2 land drilling rigs acquired in January, 1997 for
operations on Venezuelan turnkeys, and $12.3 million was used for the conversion
of a MOPU to a drilling rig. The remaining $48.3 million was spent primarily on
upgrade and renovation activities on other drilling rigs and MOPUs.

On December 29, 1997, the Company completed the acquisition of 2 offshore
platform drilling rigs, one self-propelled jack-up drilling/workover rig and
substantially all of the assets used in the offshore contract drilling business
in Trinidad previously operated by Well Services. The purchase price totaled
$44.0 million, consisting of cash of $23.5 million and the issuance by the
Company of 437,939 shares of Common Stock, $0.01 par value per share. One
platform rig and the jack-up drilling/workover rig are currently operating under
contracts in Trinidad. The contract on the other platform rig was recently
terminated by the operator.

The Company's capital expenditures in 1999 are expected to total
approximately $7.0 million, related primarily to rig upgrades and drill pipe
purchases. The Company intends to fund these capital expenditures with available
cash and internally generated cash flow. The Company's projection of 1999
capital

19
<PAGE> 21

expenditures is based upon a continuation of the Company's program to upgrade
rigs and related equipment. The actual level of capital expenditures may be
higher due to contract requirements or in the event of unforeseen breakdown of
equipment that was not scheduled for replacement, or lower in the event of
inadequate cash flow from operations.

Financing Activities

Long-term debt at December 31, 1998 consists solely of Senior Notes in the
aggregate principal amount of $200.0 million and debt premium, net of
amortization, of $2.9 million. In addition to the $150.0 million of Senior Notes
sold during 1996, the Company sold $50.0 million of Senior Notes on August 7,
1997 at a premium of $3.9 million. Considering the premium, the effective
interest rate on the $50.0 million Senior Notes is 9.5%. Interest on the Senior
Notes is payable semi-annually during each May and November. The Senior Notes do
not require any payments of principal prior to their stated maturity on May 15,
2003, but the Company is required to make offers to purchase Senior Notes upon
the occurrence of certain events as defined in the indenture, such as asset
sales or a change of control of the Company. See Note 5 of Notes to Consolidated
Financial Statements.

Upon consummation of the Merger, the Company was required to offer to
purchase for cash all of the outstanding Senior Notes at a purchase price equal
to 101% of the principal amount of each Senior Note, plus accrued and unpaid
interest to the change of control payment date within 60 days following the
Merger (the "Change of Control Offer"). The Change of Control Offer expired on
January 21, 1999. A total of $.3 million principal amount of Senior Notes were
tendered.

On or after May 15, 2000, the Senior Notes are redeemable at the option of
the Company, in whole or in part, at a price of 105% of principal if redeemed
during the twelve months beginning May 15, 2000, at a price of 102.5% of
principal if redeemed during the twelve months beginning May 15, 2001, or at a
price of 100% of principal if redeemed after May 15, 2002, in each case together
with interest accrued to the redemption date. Notwithstanding the foregoing, the
Company may at its option use all or a portion of the proceeds from a public
equity offering consummated on or prior to May 15, 1999, to redeem up to $50.0
million principal amount of the Senior Notes at a redemption price equal to 110%
of the principal amount, provided that at least $150.0 million in aggregate
principal amount of the Senior Notes remain outstanding immediately after such
redemption.

The Senior Notes are senior unsecured obligations of the Company, ranking
pari passu in right of payment with all senior indebtedness and senior to all
subordinated indebtedness. The Senior Notes are unconditionally guaranteed on a
senior unsecured basis by the Subsidiary Guarantors, and the Subsidiary
Guarantees rank pari passu in right of payment with all senior indebtedness of
the Subsidiary Guarantors and senior to all subordinated indebtedness of the
Subsidiary Guarantors. The Subsidiary Guarantees may be released under certain
circumstances. The Senior Notes and the Subsidiary Guarantees are effectively
subordinated to all secured indebtedness, including amounts outstanding under
the Revolving Credit Facility. The Subsidiary Guarantees provide that each
Subsidiary Guarantor will unconditionally guarantee, jointly and severally, the
full and prompt performance of the Company's obligations under the indenture and
the Senior Notes. Each Subsidiary Guarantor is 100% owned by the Company. R&B
Falcon is not a guarantor of the Senior Notes.

The indenture under which the Senior Notes are issued imposes significant
operating and financial restrictions on the Company. Such restrictions affect,
and in many respects limit or prohibit, among other things, the ability of the
Company to incur additional indebtedness, make capital expenditures, create
liens, sell assets and make dividends or other payments. These restrictions
could limit the Company's ability to integrate its operations with its parent,
R&B Falcon.

The Company currently maintains a $35.0 million Revolving Credit Facility
with ING which matures May 31, 2000. At December 31, 1998, the Company had no
indebtedness outstanding under the Revolving Credit Facility, but had $.4
million in letters of credit outstanding, thereby leaving $34.6 million
available under the credit facility.

Exchange Rate Gains and Losses

Approximately 67% of the Company's revenues and a substantial portion of
its operating income were sourced from its foreign operations during 1998. These
operations are subject to customary political and

20
<PAGE> 22

foreign currency risks in addition to operational risks. The Company has
attempted to reduce these risks through insurance and the structure of its
contracts. The Company may be exposed to the risk of foreign currency losses in
connection with its foreign operations. Such losses are the result of holding
net monetary assets (cash and receivables in excess of payables) denominated in
foreign currencies during periods of a strengthening U.S. dollar. The Company's
foreign exchange gains and losses are primarily attributable to the Venezuelan
Bolivar. The effects of these transactions are reported as "Exchange Rate Loss"
in the Consolidated Statements of Operations. The Company does not speculate in
foreign currencies or maintain significant foreign currency cash balances. The
Company will continue to be exposed to future foreign currency gains and losses
if the currency continues to be volatile. Despite the political and economic
risks in Venezuela, the Company believes that the country continues to be a
favorable market for its services.

Cautionary Statements

The Company's operations are materially dependent upon the level of
activity in offshore oil and gas exploration and production. The level of such
activity is affected by both short-term and long-term trends in oil and gas
prices. Oil and gas prices and, therefore, the level of drilling, exploration
and production activity, can be volatile. Any prolonged reduction in oil and gas
prices will depress the level of exploration and production activity and result
in a corresponding decline in the demand for the Company's services and,
therefore, may have a material adverse effect on the Company's revenues, cash
flows and profitability.

The ability of the Company to fund working capital, capital expenditures
and debt service in excess of cash on hand will depend upon the success of the
Company's domestic and foreign operations. To the extent that internal sources
are insufficient to meet those cash requirements, the Company can draw on its
available credit facility or seek other debt or equity financing; however, the
Company can give no assurance that such other debt or equity financing would be
available on terms acceptable to the Company.

In any case, the satisfaction of long-term capital requirements will depend
upon successful implementation by the Company of its business strategy and
future results of operations. Management believes it has successfully
implemented the strategy to achieve results of operations commensurate with its
immediate and near-term liquidity requirements.

IMPACT OF YEAR 2000

General Description of the Year 2000 Issue

The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, many
computer programs recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in similar normal business activities.

Year 2000 Issue Evaluations and Assessments

Based upon preliminary equipment analyses and evaluations, the Company does
not believe that operational equipment programming modifications are necessary.
The Company is currently communicating with vendors, suppliers and shippers
(collectively referred to as "third party vendors") regarding Year 2000
compliance and will work with them to minimize disruption in the Company's
operations as a result of their Year 2000 problems. To date, the Company is not
aware of any third party vendors with a Year 2000 issue that would materially
impact the Company's results of operations, liquidity or capital resources.
Based upon internal assessments, the Company determined that it was necessary to
modify or replace portions of its accounting software so that its computer
systems would function properly with respect to dates in the year 2000 and
thereafter. The Company elected to replace certain accounting software rather
than invest in modifications of existing programs. The Company presently
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue will not pose significant operational problems for
its computer systems.

21
<PAGE> 23

Costs

The replacement software and related installation costs were approximately
$2.0 million, the majority of which was capitalized as of December 31, 1998. The
software conversions were substantially completed as of December 31, 1998. The
Company expects to incur approximately $.5 million during 1999 for other
modifications and conversions.

Risks

Management of the Company believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. The Company has not yet
completed all necessary phases of the Year 2000 program. In the event that the
Company does not complete any additional phases, modifications or conversions,
disruptions generally resulting from Year 2000 issues could materially adversely
affect the Company. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time.

The Company has no means of ensuring that third party vendors will be Year
2000 ready. The inability of third party vendors to complete their Year 2000
resolution process in a timely fashion could materially impact the Company. The
effect of non-compliance by third party vendors is not determinable.

The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there is no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, the cost and extent of training
associated with needed conversions and similar uncertainties.

Contingency Plans

The Company has contingency plans for certain critical applications and is
evaluating such plans for others. These contingency plans involve manual
workarounds and replacement equipment.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

The Company's earnings and cash flow are subject to fluctuations due to
changes in foreign currency exchange rates. The Company has attempted to reduce
these risks through insurance and the structure of its contracts. The Company
does not speculate in foreign currencies or maintain significant foreign
currency cash balances.

Interest Rate Risk

The Company is exposed to changes in interest rates. Changes in U.S.
interest rates affect the interest earned on the Company's cash and cash
equivalents and the interest rate paid on any Revolving Credit Facility
borrowings. Under its current policies, the Company does not use interest rate
derivative instruments to manage exposure to interest rate changes. The Company
has long-term debt at a fixed rate of 10.25% with a carrying value of $202.9
million which approximates fair market value. See "Liquidity and Capital
Resources."

Commodity Price Risk

The financial condition and results of operations of the Company are
dependent upon the price of oil and natural gas, as demand for its services is
primarily dependent upon the level of spending by oil and gas companies for
exploration, development and production activities. Crude oil and natural gas
prices have continued to fluctuate over the last several years. If crude oil
prices decline further or the current weakness in crude oil prices continues for
an extended period, there could be a further deterioration in both rig
utilization and dayrates.

22
<PAGE> 24

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and supplementary data of the Company
appear on pages 27 through 50 hereof and are incorporated by reference into this
Item 8. Selected quarterly financial data is set forth in Note 15 of Notes to
Consolidated Financial Statements, which is incorporated herein by reference.

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

There have been no changes in or disagreements with the Company's
accountants regarding accounting principles or practices for financial statement
disclosures.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Under the reduced disclosure format permitted by General Instruction
I(2)(c) of Form 10-K, the information otherwise required by this item may be
omitted.

ITEM 11. EXECUTIVE COMPENSATION

Under the reduced disclosure format permitted by General Instruction
I(2)(c) of Form 10-K, the information otherwise required by this item may be
omitted.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Under the reduced disclosure format permitted by General Instruction
I(2)(c) of Form 10-K, the information otherwise required by this item may be
omitted.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Under the reduced disclosure format permitted by General Instruction
I(2)(c) of Form 10-K, the information otherwise required by this item may be
omitted.

PART IV

ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements

(1) and (2) Financial Statements and Schedules

See "Index to Consolidated Financial Statements and Schedules" on page
27.

(3) Exhibits

See "Exhibit Index" on pages 51 to 55.

The management contracts and compensatory plans or arrangements
required to be filed as Exhibits to this report are as follows:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 -- Cliffs Drilling Company 1988 Incentive Equity Plan
(incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1,
Registration No. 33-23508, filed under the Securities
Act).
10.1.1 -- Amendment No. 1 dated May 17, 1990 to the Cliffs Drilling
Company 1988 Incentive Equity Plan (incorporated by
reference to Exhibit 10.7.1 to the Company's Form 10-K
for the year ended December 31, 1993).
10.1.2 -- Amendment No. 2 dated May 20, 1993 to the Cliffs Drilling
Company 1988 Incentive Equity Plan (incorporated by
reference to Exhibit 10.7.2 to the Company's Form 10-K
for the year ended December 31, 1993).
10.1.3 -- Amendment No. 3 dated May 22, 1996 to the Cliffs Drilling
Company 1988 Incentive Equity Plan (incorporated by
reference to Exhibit 10.7.3 to the Company's Form 10-K
for the year ended December 31, 1996).
</TABLE>

23
<PAGE> 25

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.2 -- Cliffs Drilling Company Incentive Bonus Plan
(incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-1,
Registration No. 33-23508, filed under the Securities
Act).
10.3 -- Cliffs Drilling Company Retention Plan for Salaried
Employees (incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement on Form S-1,
Registration No. 33-23508, filed under the Securities
Act).
10.3.1 -- Amendment No. 1 dated May 17, 1990 to the Cliffs Drilling
Company Retention Plan for Salaried Employees
(incorporated by reference to Exhibit 10.9.1 to the
Company's Form 10-K for the year ended December 31,
1993).
10.3.2 -- Amendment No. 2 dated May 21, 1992 to the Cliffs Drilling
Company Retention Plan for Salaried Employees
(incorporated by reference to Exhibit 10.9.2 to the
Company's Form 10-K for the year ended December 31,
1993).
10.4 -- Form of Indemnification Agreement between the Company and
its officers and directors (incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement on
Form S-1, Registration No. 33-23508, filed under the
Securities Act).
10.5 -- Form of Restricted Stock Award Agreement entered into
between the Company and certain key executive officers
(incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1,
Registration No. 33-23508, filed under the Securities
Act).
10.8 -- Form of Executive Agreement dated as of July 20, 1994
(incorporated by reference to Exhibit 10.20 to the
Company's Form 10-Q for the quarter ended June 30, 1994).
10.14 -- Cliffs Drilling Company Compensation Deferral Plan
(incorporated by reference to Exhibit 10.23 to the
Company's Form 10-K for the year ended December 31,
1997).
10.14.1 -- Amendment No. 1 to Cliffs Drilling Company Compensation
Deferral Plan dated as of August 20, 1998 (incorporated
by reference from Exhibit 10.23.1 to the Company's Form
8-K dated August 20, 1998).
10.14.2 -- Amendment No. 2 to Cliffs Drilling Company Compensation
Deferral Plan dated as of November 20, 1998 (incorporated
by reference from Exhibit 10.23.2 to the Company's Form
8-K dated December 1, 1998).
10.14.3 -- Amendment No. 3 to Cliffs Drilling Company Compensation
Deferral Plan dated as of February 22, 1999.
10.15 -- Cliffs Drilling Company 1998 Incentive Equity Plan
(incorporated by reference to Exhibit 10.24 to the
Company's Form 10-Q for the quarter ended June 30, 1998).
10.15.1 -- Amendment No. 1 dated May 13, 1998 to the Cliffs Drilling
Company 1998 Incentive Equity Plan (incorporated by
reference to Exhibit 10.24.1 to the Company's Form 10-Q
for the quarter ended June 30, 1998).
10.16 -- Form of Non-Qualified Stock Option Agreement for
non-employee members of the Board of Directors
(incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarter ended June 30, 1998).
10.17 -- Form of Non-Qualified Stock Option Agreement for key
employees and officers (incorporated by reference to
Exhibit 10.26 to the Company's Form 10-Q for the quarter
ended June 30, 1998).
10.18 -- Cliffs Drilling Company Savings Plan (As Amended and
Restated Effective June 21, 1988) (incorporated by
reference to Exhibit 10.27 to the Company's Form 10-Q for
the quarter ended June 30, 1998).
10.18.1 -- Amendment No. 1 to the Cliffs Drilling Company Savings
Plan (As Amended and Restated Effective June 21, 1988)
(incorporated by reference to Exhibit 10.27.1 to the
Company's Form 10-Q for the quarter ended June 30, 1998).
10.19 -- Cliffs Drilling Company Savings Trust (As Amended and
Restated Effective January 1, 1998) (incorporated by
reference to Exhibit 10.28 to the Company's Form 10-Q for
the quarter ended June 30, 1998).
10.21 -- Employment Agreement dated December 1, 1998 between the
Company and Douglas E. Swanson.
10.22 -- Employment Agreement dated December 1, 1998 between the
Company and Charles M. McCall.
</TABLE>

24
<PAGE> 26

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.23 -- Employment Agreement dated December 1, 1998 between the
Company and Edward A. Guthrie.
10.24 -- Employment Agreement dated December 1, 1998 between the
Company and James P. Mitchen.
10.25 -- Employment Agreement dated December 1, 1998 between the
Company and Gary W. Owen.
10.26 -- Employment Agreement dated December 1, 1998 between the
Company and Cindy B. Taylor.
10.27 -- Employment Agreement dated December 1, 1998 between the
Company and Jim R. Wise.
</TABLE>

(b) Reports on Form 8-K

One report dated December 1, 1998 was filed by the Company on Form 8-K
during the three months ended December 31, 1998. The following information
was included in the report:

Effective December 1, 1998, a change in control of the Company
occurred as a result of the Merger of Merger Sub, a wholly-owned subsidiary
of R&B Falcon, with and into the Company. The Merger was effected pursuant
to the Merger Agreement among R&B Falcon, Merger Sub and the Company, which
was approved by the stockholders of the Company at a special meeting held
November 20, 1998. As a result of the Merger, each outstanding share of
Common Stock of the Company was converted into 1.7 shares of R&B Falcon
common stock and cash in lieu of fractional shares, as provided for in the
Merger Agreement, and the Company is now a wholly-owned subsidiary of R&B
Falcon.

As required by the Merger Agreement, the Company executed Amendment
No. 2 to the Cliffs Drilling Company Compensation Deferral Plan dated as of
November 20, 1998.

25
<PAGE> 27

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.

March 26, 1999 CLIFFS DRILLING COMPANY

By: /s/ DOUGLAS E. SWANSON
--------------------------------
Douglas E. Swanson
Chairman of the Board, President
and Chief Executive Officer
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following on behalf of the Registrant and in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ DOUGLAS E. SWANSON Chairman of the Board, President and March 26, 1999
- ----------------------------------------------------- Chief Executive Officer
Douglas E. Swanson (Principal Executive Officer)

/s/ PAUL B. LOYD, JR. Director March 26, 1999
- -----------------------------------------------------
Paul B. Loyd, Jr.

/s/ STEVEN A. WEBSTER Director March 26, 1999
- -----------------------------------------------------
Steven A. Webster

/s/ EDWARD A. GUTHRIE Vice President -- Finance and March 26, 1999
- ----------------------------------------------------- Chief Financial Officer
Edward A. Guthrie (Principal Financial Officer)

/s/ CINDY B. TAYLOR Vice President -- Controller March 26, 1999
- ----------------------------------------------------- and Secretary
Cindy B. Taylor (Principal Accounting Officer)
</TABLE>

26
<PAGE> 28

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<CAPTION>
PAGES
-----
<S> <C>

Report of Independent Auditors.............................. 28

Consolidated Statements of Operations for Each of the Three
Years in the Period Ended December 31, 1998............... 29

Consolidated Balance Sheets, December 31, 1998 and 1997..... 30

Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1998............... 31

Consolidated Statements of Changes in Shareholders' Equity
for Each of the Three Years in the Period Ended December
31, 1998.................................................. 32

Notes to Consolidated Financial Statements.................. 33
</TABLE>

All schedules for which provision is made in the applicable rules and
regulations of the Securities and Exchange Commission have been omitted as the
schedules are not required under the related instructions, are not applicable or
the information required thereby is set forth in the Consolidated Financial
Statements or the Notes thereto.

27
<PAGE> 29

REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Cliffs Drilling Company

We have audited the accompanying consolidated balance sheets of Cliffs
Drilling Company as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' 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
Cliffs Drilling Company 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.

ERNST & YOUNG LLP

Houston, Texas
February 17, 1999

28
<PAGE> 30

CLIFFS DRILLING COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Revenues.................................................. $335,239 $261,887 $132,341
Income from Equity Investments............................ 585 1,745 768
-------- -------- --------
335,824 263,632 133,109
COSTS AND EXPENSES:
Operating Expenses........................................ 196,918 148,158 91,984
Depreciation, Depletion and Amortization.................. 28,701 20,443 10,388
General and Administrative Expense........................ 12,455 8,731 6,300
-------- -------- --------
238,074 177,332 108,672
-------- -------- --------
OPERATING INCOME............................................ 97,750 86,300 24,437
OTHER INCOME (EXPENSE):
Gain on Disposition of Assets............................. 257 3,150 3,694
Interest Income........................................... 2,080 1,941 2,725
Interest Expense.......................................... (20,443) (17,838) (9,265)
Exchange Rate Loss........................................ (1,426) (174) --
Other, net................................................ (584) (1,596) (173)
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 77,634 71,783 21,418
INCOME TAX EXPENSE.......................................... 26,545 25,124 6,996
-------- -------- --------
NET INCOME.................................................. 51,089 46,659 14,422
DIVIDENDS APPLICABLE TO PREFERRED STOCK..................... -- -- (31)
-------- -------- --------
NET INCOME APPLICABLE TO COMMON AND COMMON EQUIVALENT
SHARES.................................................... $ 51,089 $ 46,659 $ 14,391
======== ======== ========
NET INCOME PER COMMON SHARE:
Basic..................................................... N/A $ 3.06 $ 1.05
======== ======== ========
Diluted................................................... N/A $ 3.01 $ 1.02
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Basic..................................................... N/A 15,237 13,736
======== ======== ========
Diluted................................................... N/A 15,493 14,083
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

29
<PAGE> 31

CLIFFS DRILLING COMPANY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
(IN THOUSANDS, EXCEPT
SHARE INFORMATION)
POST- PRE-
ACQUISITION ACQUISITION
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents................................. $ 36,276 $ 28,122
Accounts Receivable, net of allowance for doubtful
accounts of $472 and $352 at December 31, 1998 and
1997, respectively..................................... 35,670 53,341
Notes and Other Receivables, Current...................... 6,704 10,190
Inventories............................................... 10,335 7,551
Drilling Contracts in Progress............................ 29,483 16,503
Prepaid Insurance......................................... 2,248 1,772
Other Prepaid Expenses.................................... 2,893 6,595
-------- ---------
Total Current Assets.............................. 123,609 124,074
PROPERTY AND EQUIPMENT, AT COST:
Rigs and Related Equipment................................ 504,189 453,915
Other..................................................... 4,550 15,373
-------- ---------
508,739 469,288
Less: Accumulated Depreciation, Depletion and
Amortization........................................... (2,898) (100,061)
-------- ---------
Net Property and Equipment........................ 505,841 369,227
DEFERRED CHARGES AND OTHER ASSETS:
Goodwill, net of accumulated amortization of $150 at
December 31, 1998...................................... 70,579 --
Debt Issue Costs and Other................................ 4,139 5,022
Investments in and Advances to Unconsolidated
Affiliates............................................. 2,580 1,828
Due from Parent........................................... 10,508 --
-------- ---------
TOTAL ASSETS...................................... $717,256 $ 500,151
======== =========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable.......................................... $ 28,843 $ 33,171
Accrued Interest.......................................... 2,672 2,673
Other Accrued Expenses.................................... 21,426 30,414
-------- ---------
Total Current Liabilities......................... 52,941 66,258
10.25% SENIOR NOTES......................................... 202,935 203,606
DEFERRED INCOME TAXES....................................... 55,094 14,335
OTHER LIABILITIES........................................... 1,797 23
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value, 30,000,000 shares authorized
and 1,000 shares issued and outstanding at December 31,
1998 and 30,000,000 shares authorized, 16,321,932
shares issued and 15,906,880 shares outstanding at
December 31, 1997...................................... -- 163
Paid-in Capital........................................... 405,069 182,420
Retained Earnings (Deficit)............................... (580) 40,942
Less: Restricted Stock.................................... -- (2,467)
Treasury Stock, at cost, 415,052 shares at December
31, 1997........................................ -- (5,129)
-------- ---------
Total Shareholders' Equity........................ 404,489 215,929
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $717,256 $ 500,151
======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

The merger of RBF Cliffs Acquisition Corp., a wholly-owned subsidiary of
R&B Falcon Corporation, with and into Cliffs Drilling Company was effective on
December 1, 1998 and was accounted for using the purchase method of accounting.
The purchase price adjustments were "pushed down" and recorded in the
consolidated financial statements of Cliffs Drilling Company, which affects the
comparability of the post-acquisition and pre-acquisition financial position.
See Note 2.

30
<PAGE> 32

CLIFFS DRILLING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income................................................ $ 51,089 $ 46,659 $ 14,422
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES:
Depreciation, Depletion and Amortization............... 28,701 20,443 10,388
Deferred Income Tax Expense............................ 6,621 9,307 5,184
Impairment of Oil and Gas Leasehold Cost............... -- -- 1,017
Mobilization Expense Amortization...................... 770 447 314
Gain on Disposition of Assets.......................... (257) (3,150) (3,694)
Amortization of Debt Issue Costs....................... 927 822 462
Amortization of Restricted Stock....................... 2,212 430 28
Amortization of Debt Premium........................... (671) (269) --
Tax Benefit Associated with Exercise of Stock
Options............................................... 214 2,930 1,603
Other.................................................. 1,055 1,465 (1,352)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable.................................. 21,157 (29,743) (19,907)
Inventories.......................................... (2,498) (1,744) (1,667)
Drilling Contracts in Progress....................... (12,960) 1,169 (6,324)
Prepaid Insurance and Other Prepaid Expenses......... 2,456 4,943 (10,688)
Investments in and Advances to Unconsolidated
Affiliates.......................................... (752) (1,392) (928)
Due from Parent...................................... (10,508) -- --
Accounts Payable and Other Accrued Expenses.......... (11,535) 24,277 18,256
-------- --------- ---------
Net Cash Provided By Operating Activities......... 76,021 76,594 7,114
INVESTING ACTIVITIES:
Capital Expenditures...................................... (69,882) (84,535) (36,027)
Acquisition of Rigs and Related Equipment................. -- (61,969) (108,477)
Acquisition of Equity Interest in Rig and Related
Equipment.............................................. -- -- (3,237)
Proceeds from Sale of Property and Equipment.............. 1,836 5,627 6,856
Insurance Proceeds from Loss of Rig and Related
Equipment.............................................. -- -- 292
Collection of Notes Receivable............................ -- 3,696 977
-------- --------- ---------
Net Cash Used In Investing Activities............. (68,046) (137,181) (139,616)
FINANCING ACTIVITIES:
Proceeds from Borrowings.................................. -- 60,375 150,000
Payments on Borrowings.................................... -- (12,184) --
Proceeds from Exercise of Stock Options................... 211 2,260 2,129
Debt Issue Costs.......................................... (32) (923) (5,309)
Acquisition of Treasury Stock............................. -- -- (661)
Payments for Redemption of Preferred Stock................ -- -- (850)
Preferred Stock Dividends................................. -- -- (31)
-------- --------- ---------
Net Cash Provided By Financing Activities......... 179 49,528 145,278
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 8,154 (11,059) 12,776
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 28,122 39,181 26,405
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 36,276 $ 28,122 $ 39,181
======== ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

31
<PAGE> 33

CLIFFS DRILLING COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
NOTES
RECEIVABLE
COMMON STOCK FROM
------------------- RETAINED OFFICERS FOR
PAR PAID-IN EARNINGS RESTRICTED RESTRICTED TREASURY
SHARES VALUE CAPITAL (DEFICIT) STOCK STOCK STOCK
----------- ----- -------- --------- ------------ ---------- --------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995
(PRE-ACQUISITION)........................... 8,226,134 $ 45 $ 99,186 $(20,108) $(232) $ (32) $(4,844)
Net Income.................................. -- -- -- 14,422 -- -- --
Preferred Stock Conversion.................. 4,227,114 21 27,879 -- -- -- --
Preferred Stock Dividends Declared.......... -- -- -- (31) -- -- --
Common Stock Issued in Connection with
Offshore Rig Acquisition.................. 2,400,000 12 22,203 -- -- -- --
Restricted Stock Issuances.................. 13,500 -- 220 -- -- (220) --
Acquisition of Treasury Stock............... (86,000) -- -- -- -- -- (661)
Collection of Officers' Notes Receivable.... -- -- -- -- 46 -- --
Amortization of Restricted Stock............ -- -- -- -- -- 29 --
Exercise of Stock Options................... 316,050 2 2,127 -- -- -- --
Tax Benefit Associated with Exercise of
Stock Options............................. -- -- 1,603 -- -- -- --
Employer Contributions to 401(k) Savings
Plan...................................... 36,210 -- 295 -- -- -- 206
----------- ----- -------- -------- ----- ------- -------
BALANCE AT DECEMBER 31, 1996
(PRE-ACQUISITION)........................... 15,133,008 80 153,513 (5,717) (186) (223) (5,299)
=========== ===== ======== ======== ===== ======= =======
Net Income.................................. -- -- -- 46,659 -- -- --
Stock Split................................. -- 76 (76) -- -- -- --
Common Stock Issued in Connection with
Offshore Rig Acquisition.................. 437,939 4 20,496 -- -- -- --
Restricted Stock Issuances.................. 90,600 1 3,165 -- -- (3,166) --
Restricted Stock Cancellations.............. (17,800) -- (492) -- -- 492 --
Collection of Officers' Notes Receivable.... -- -- -- -- 186 -- --
Amortization of Restricted Stock............ -- -- -- -- -- 430 --
Exercise of Stock Options................... 243,900 2 2,258 -- -- -- --
Tax Benefit Associated with Exercise of
Stock Options............................. -- -- 2,930 -- -- -- --
Employer Contributions to 401(k) Savings
Plan...................................... 19,233 -- 626 -- -- -- 170
----------- ----- -------- -------- ----- ------- -------
BALANCE AT DECEMBER 31, 1997
(PRE-ACQUISITION)........................... 15,906,880 163 182,420 40,942 -- (2,467) (5,129)
=========== ===== ======== ======== ===== ======= =======
Net Income.................................. -- -- -- 51,089 -- -- --
Deferred Stock Issuances.................... 4,200 -- 172 -- -- -- --
Restricted Stock Cancellations.............. (30,193) -- (809) -- -- 255 --
Amortization of Restricted Stock............ -- -- -- -- -- 2,212 --
Exercise of Stock Options................... 26,550 -- 210 -- -- -- --
Tax Benefit Associated with Exercise of
Stock Options............................. -- -- 214 -- -- -- --
Employer Contributions to 401(k) Savings
Plan...................................... 39,437 -- 611 -- -- -- 478
Common Stock Issued in Connection with
Merger.................................... 1,000 -- -- -- -- -- --
Merger Adjustments.......................... (15,946,874) (163) 222,251 (92,611) -- -- 4,651
----------- ----- -------- -------- ----- ------- -------
BALANCE AT DECEMBER 31, 1998
(POST-ACQUISITION).......................... 1,000 $ -- $405,069 $ (580) $ -- $ -- $ --
=========== ===== ======== ======== ===== ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

32
<PAGE> 34

CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Corporate Structure and Principles of Consolidation

Effective December 1, 1998, a change in control of the Company occurred.
The Company is now a wholly-owned subsidiary of R&B Falcon Corporation ("R&B
Falcon"). See Note 2.

The accompanying consolidated financial statements include the activities
and accounts of Cliffs Drilling Company (the "Company"), all wholly-owned
subsidiaries of the Company and the Company's international activities which are
organized as foreign branches. All significant intercompany transactions and
balances are eliminated in consolidation.

The Company uses the equity method to account for affiliates in which it
does not have control. On May 23, 1996, the Company acquired the stock of Viking
Trinidad Limited (renamed Cliffs Drilling Trinidad Limited), which owned a 50%
interest in the West Indies Drilling Joint Venture (the "WINDJV"). The WINDJV
was a joint venture between Cliffs Drilling Trinidad Limited and Well Services
(Marine) Limited ("Well Services"), which owned a jack-up drilling rig. On
August 1, 1997, Cliffs Drilling Trinidad Limited acquired an additional 49%
interest in the WINDJV from Well Services. On December 29, 1997, the Company
acquired the remaining 1% interest in the WINDJV from Well Services. In 1996,
the Company became a 50% joint venture partner with Perforadora Central, S.A. de
C.V. by forming Cliffs Central Drilling International ("CCDI") for the marketing
of drilling services in Mexico. In 1996, the Company became a 1/3 (33 1/3%)
owner of Servicios Integrados Petroleros C.C.I., S.A. ("CCI"). CCI is a joint
venture company among the Company, Inelectra S.A. and Cementaciones Petroleras
Venezolanas C.A. which markets drilling services in Venezuela.

Use of Estimates

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

Cash and Cash Equivalents

The Company's policy is to invest cash in short-term investments.
Uninvested cash balances are kept at minimum levels. Investments are valued at
cost, which approximates market. The Company considers all highly liquid cash
investments with a maturity date of three months or less when purchased to be
cash equivalents.

Concentration of Credit Risk

The market for the Company's services is the oil and gas industry, and the
Company's customers consist primarily of integrated and government-owned
international oil companies and independent oil and gas producers. Financial
instruments which potentially subject the Company to concentrations of credit
risk consist primarily of trade receivables. The Company has in place insurance
to cover certain exposure in its foreign operations and provides allowances for
potential credit losses when necessary. Accordingly, management considers such
credit risk to be limited.

Inventories

Inventories, consisting principally of tubular goods consumed in turnkey
drilling operations and spare drilling parts, are carried at cost, specific
identification method.

Drilling Contracts in Progress

The Company recognizes revenues and expenses related to its turnkey
drilling contracts when all terms and conditions of the contract have been
fulfilled. Consequently, the costs related to in-progress turnkey drilling
contracts are deferred as drilling contracts in progress until the contract is
completed and revenue is

33
<PAGE> 35
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

realized. The amount of drilling contracts in progress is dependent on the
volume of contracts, the duration of the contract at the end of the reporting
period and the contract amount. Provision for losses on incomplete contracts is
made when such losses are anticipated.

The Company's Daywork Drilling business segment frequently leases its
jack-up and land drilling rigs to the Engineering Services business segment for
turnkey drilling operations. Revenues, expenses and profits generated by the
drilling rigs operating under turnkey contracts are deferred until the contract
is completed. While the turnkey contract is in progress, the rig operating
profit is offset against drilling contracts in progress. Rig operating losses
are recognized when incurred and are not deferred.

Rig Mobilization and Demobilization Costs

The Company defers costs of moving a drilling unit or MOPU under contract
to a new area of operation. The deferred mobilization costs are amortized on a
straight-line basis over the term of the applicable drilling contract.
Unamortized mobilization costs were $0 and $2,770,000 at December 31, 1998 and
1997, respectively.

Demobilization charges, in general, are reimbursed by the customer based
upon contract terms. In situations where demobilization charges are not
reimbursed and are expected to be material, estimated demobilization costs are
accrued over the term of the applicable contract. Unanticipated demobilization
costs are expensed as incurred at the completion of the contract.

Property and Equipment

Property and equipment are carried at original cost or at adjusted net
realizable value, as applicable. Major renewals and betterments are capitalized
in the property accounts, while the cost of repairs and maintenance is charged
to operating expenses in the period incurred.

Acquisitions of rigs and related equipment have been accounted for under
the purchase method of accounting and therefore, the results of the acquired
assets are combined with the Company's results only from the acquisition date
forward.

Interest on funds borrowed for construction of qualifying assets is
capitalized during the construction period. Amortization of capitalized interest
is included in "Depreciation, Depletion and Amortization" in the Consolidated
Statements of Operations.

Cost and accumulated depreciation, depletion and amortization are removed
from the accounts when assets are sold or retired, and the resulting gains or
losses are included in the Consolidated Statements of Operations.

Prior to November 30, 1998, depreciation of property and equipment was
provided on the straight-line basis at rates based upon expected useful lives of
the various classes of assets as follows:

<TABLE>
<S> <C>
Rigs and Related Equipment:
Jack-Up Drilling Rigs..................................... 15 Years
Platform Drilling Rigs.................................... 15 Years
Land Drilling Rigs........................................ 16 Years
MOPUs..................................................... 10 Years
Drill Pipe................................................ 5 Years
Other (excluding oil and gas properties).................... 3 - 5 Years
</TABLE>

Prior to November 30, 1998, no depreciation expense was recorded during
periods of construction or refurbishment. To provide for any deterioration that
may occur while the rigs are not operating for an extended period of time, a
minimum depreciation charge is provided at a reduced rate of 25% of the normal
depreciation rate.

34
<PAGE> 36
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Effective December 1, 1998, depreciation of property and equipment is
provided on the straight-line basis at rates based upon expected useful lives of
the various classes of assets as follows:

<TABLE>
<S> <C>
Rigs and Related Equipment:
Jack-Up Drilling Rigs..................................... 17 Years
Platform Drilling Rigs.................................... 17 - 26 Years
Land Drilling Rigs........................................ 15 Years
MOPUs..................................................... 8 - 17 Years
Drill Pipe................................................ 3 Years
</TABLE>

Effective December 1, 1998, depreciation expense is recorded during
construction, refurbishment and stacked periods.

Costs related to the exploration and development of oil and gas properties
are accounted for under the "Successful Efforts" method of accounting. Lease
acquisition costs related to oil, gas and mineral properties are capitalized
when incurred. The acquisition costs of unproved properties, which are
individually significant, are assessed on a property-by-property basis, and a
loss is recognized by provision of a valuation allowance when the assessment
indicates an impairment in value. Exploration costs, excluding exploratory
wells, are charged to expense as incurred. Costs of drilling exploratory wells
are capitalized pending determination as to whether the wells have proved
reserves which justify commercial development. If commercial reserves are not
found, the drilling costs are charged to dry hole expense. Tangible and
intangible drilling costs applicable to productive exploratory wells and to the
development of oil and gas reserves are capitalized.

The cost of productive leaseholds is amortized by field on the unit of
production basis by applying the ratio of produced oil and gas to estimated
proved reserves. Lease and well equipment and intangible drilling costs
associated with productive wells are amortized based on proved developed
reserves.

Goodwill

Goodwill was created in the Merger which was effective on December 1, 1998.
The purchase price adjustments have been "pushed down" to the consolidated
financial statements of the Company. 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 was
$150,000.

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.

Income Taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." Deferred
income taxes are provided on items recognized in different periods for financial
and tax reporting purposes. Taxable income (loss) of the Company for taxable
periods ended prior to December 1, 1998 will be included in the consolidated
U.S. federal income tax return of the Company. Thereafter, the taxable income
(loss) of the Company will be included in the consolidated U.S. federal income
tax return of R&B Falcon. See Note 6 of Notes to Consolidated Financial
Statements.

35
<PAGE> 37
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock Options

The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations. Under APB 25, generally, no compensation
expense is recognized for an employee stock option when the exercise price
equals the market price of the underlying stock on the date of grant. Effective
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). As provided in
the statement, the Company elected to continue to measure compensation expense
using the guidelines of APB 25 and to include disclosures of net income and
earnings per share as if the fair value based method of accounting were
utilized. See Note 9 of Notes to Consolidated Financial Statements.

Revenue Recognition

The Company recognizes revenues from its daywork drilling and MOPU
operations as services are rendered, based upon the contracted daily rate
multiplied by the number of operating days in the period. Turnkey drilling
contract revenues are recognized when all terms and conditions of the contract
have been fulfilled. The Company recognizes oil and gas revenues from its
interests in producing wells based upon the sales method.

Foreign Currency Translation

The U.S. dollar is the functional currency for all of the Company's
operations. Foreign currency gains and losses are included in the Consolidated
Statements of Operations during the period incurred.

Earnings Per Share

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share," ("SFAS No. 128"). 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 the previously reported fully diluted earnings
per share. The earnings per share amounts and weighted average number of common
and common equivalent shares outstanding prior to 1997 have been restated as
required to comply with SFAS No. 128. See Note 11 of Notes to Consolidated
Financial Statements.

Earnings per share and weighted average shares have been retroactively
adjusted to reflect a two-for-one stock split effected in the form of a 100%
stock dividend effective May 22, 1997 (the "Stock Split").

The Company issued 2,113,557 shares (pre-split basis) of Common Stock, $.01
par value ("Common Stock") upon conversion of 1,115,988 shares of its 1,150,000
issued and outstanding shares of $2.3125 Convertible Exchangeable Preferred
Stock ("Preferred Stock") on January 17, 1996. See Note 10 of Notes to
Consolidated Financial Statements.

Comprehensive Income

During the first quarter of 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income," ("SFAS No.
130"). SFAS No. 130 establishes new rules for the reporting and disclosure of
comprehensive income and its components in a full set of financial statements.
To the extent the Company has comprehensive income, it would present these items
in a statement of changes in shareholders' equity. However, the Company had no
items of comprehensive income during the years ended December 31, 1998 and 1997
and therefore, comprehensive income is equal to net income for each period.

36
<PAGE> 38
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Segment Reporting

Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," ("SFAS
No. 131"). SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The adoption of SFAS No. 131 did not affect the results of
operations or financial position, but did affect the disclosure of segment
information. See Notes 13 and 14.

Change in Presentation

Certain financial statement items have been reclassified in prior years to
conform with the current year presentation.

2. BUSINESS COMBINATION

Effective December 1, 1998, a change in control of the Company occurred as
a result of the merger of RBF Cliffs Acquisition Corp. ("Merger Sub"), a
wholly-owned subsidiary of R&B Falcon, with and into the Company (the "Merger").
The Merger was effected pursuant to an Agreement and Plan of Merger dated August
21, 1998 (the "Merger Agreement") among R&B Falcon, Merger Sub and the Company,
which was approved by the stockholders of the Company at a special meeting held
November 20, 1998. The Company is now a wholly-owned subsidiary of R&B Falcon.

The purchase price consisted of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
R&B Falcon common stock issued to Company shareholders...... $385,296
Value given to outstanding Company stock options............ 6,215
Direct transaction costs.................................... 13,558
--------
Total Purchase Price.............................. $405,069
========
</TABLE>

The value of the common stock issued to Company shareholders was calculated
based on the average of the closing prices of R&B Falcon common stock from
August 4, 1998 through August 17, 1998. The combination was announced on August
10, 1998.

In connection with the Merger, the Company recorded merger costs of
$1,512,000 associated with waiver and release payments, in addition to
incremental restricted stock amortization of $1,806,000 related to the
accelerated vesting of restricted stock. These costs are reported as "General
and Administrative Expense" in the Company's Consolidated Statements of
Operations during 1998.

The Merger was accounted for using the purchase method of accounting.
Accordingly, an allocation of the purchase price was assigned to the assets and
liabilities of the Company based on their estimated fair values. The purchase
price adjustments were "pushed down" to the consolidated financial statements of
the Company. The purchase price allocation to the Company consisted of an
increase to property and equipment of $97,537,000 and an increase in the
deferred tax liability of $34,138,000, which reflects the increase in the
difference in the basis for tax and financial reporting purposes of property and
equipment. The excess of the purchase price over the estimated fair value of net
assets acquired was $70,729,000 and has been accounted for as goodwill.

The accompanying Consolidated Statements of Operations include the effects
of the Merger from December 1, 1998 to December 31, 1998. Unaudited pro forma
consolidated operating results of the

37
<PAGE> 39
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company for the year ended December 31, 1998, assuming the Merger was effective
as of January 1, 1998, are summarized as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Revenues.................................................... $335,824
Operating Income............................................ 90,979
Net Income.................................................. 46,633
</TABLE>

The pro forma information for the year ended December 31, 1998 includes
adjustments for additional depreciation of $5,122,000 based on the fair market
values of the drilling rigs and other property and equipment, goodwill
amortization of $1,649,000 and a reduction in income taxes of $2,315,000. The
pro forma information is not necessarily indicative of the results of operations
had the Merger occurred on the assumed dates or the results of operations for
any future period.

3. NOTES AND OTHER RECEIVABLES, LONG-TERM

Effective January 1, 1993, the Company sold its 4 inland posted barge
drilling rigs and rights to certain oil and gas production payment proceeds
generated from a proceeds-of-production drilling program for an aggregate sales
price of $13,500,000, consisting of $5,000,000 in cash and $8,500,000 in notes.
The first note had a face amount of $1,000,000 and was repaid in March, 1995.
The second note had a face amount of $7,500,000, with interest calculated at the
base rate on corporate loans as quoted by the Wall Street Journal plus one and
one-half percent (1 1/2%). Principal and interest on the $7,500,000 note was
payable on a monthly basis solely from the proceeds of the oil and gas
production payment on which the note was based. The note was scheduled to mature
on January 1, 1998; however, it was repaid in May, 1997 in connection with the
Company's disposition of the various oil and gas related interests underlying
the long-term note receivable. In 1997, the Company recorded a net gain of
$2,718,000 related to the disposition of the oil and gas related interests.

4. PROPERTY AND EQUIPMENT

On December 29, 1997, the Company completed the acquisition of 2 offshore
platform drilling rigs, one self propelled jack-up drilling/workover rig and
substantially all of the assets used in the offshore contract drilling business
in Trinidad previously operated by Well Services. The purchase price totaled
$44,000,000, consisting of cash of $23,500,000 and the issuance by the Company
of 437,939 shares of Common Stock.

Effective October 1, 1997, the Company exercised an option to purchase a
platform drilling rig for $4,250,000.

On August 1, 1997, the Company acquired an additional 49% interest in the
WINDJV. The purchase price was $8,371,000 consisting of $6,000,000 of cash and
$2,371,000 of debt assumed, net of various working capital amounts acquired. On
December 29, 1997, the Company acquired the remaining 1% interest in the WINDJV
from Well Services.

On January 24, 1997, the Company completed the acquisition of the stock of
a subsidiary of Andrade Gutierrez Perfuracao Ltda., which owned the jack-up
drilling rig ATENA, four 1,500 HP land drilling rigs, miscellaneous drilling
equipment and a contract to operate a platform rig in Brazil. The purchase price
was $28,500,000 in cash.

On September 30, 1996, the Company acquired a land rig from Quarles
Drilling Corp. for $2,850,000.

On June 19, 1996, Cliffs Drilling No. 11 completed its two-year bareboat
charter as a workover rig in the U.S. Gulf of Mexico and the charterer exercised
its option to purchase the unit for $5,392,000, resulting in a gain of
$2,684,000.

38
<PAGE> 40
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

required refurbishments of certain Southwestern Rigs not made prior to closing)
plus (b) issuance of 1,200,000 shares (pre-split basis) of the Company's Common
Stock, and (c) assumption of certain contractual liabilities, including the
Company's guarantee of $4,250,000 in indebtedness of the WINDJV to Citibank N.A.
related to the refurbishment of the jack-up drilling rig owned by it (together
with accrued but unpaid interest thereon and costs of collection).

On May 10, 1996, the Company acquired the jack-up drilling rig OCEAN
MAGALLANES from Diamond Offshore Southern Company for $4,500,000. The Company
renamed this unit Cliffs Drilling 155.

Interest capitalization associated with rig refurbishments during the years
ended December 31, 1998, 1997 and 1996 was $501,000, $629,000 and $730,000,
respectively.

5. NOTES PAYABLE

Long-term debt at December 31, 1998 consists solely of 10.25% Senior Notes
due 2003 (the "Senior Notes") in the aggregate principal amount of $200,000,000
and debt premium, net of amortization, of $2,935,000. In addition to the
$150,000,000 of Senior Notes sold during 1996, the Company sold $50,000,000 of
Senior Notes on August 7, 1997 at a premium of $3,875,000. Considering the
premium, the effective interest rate on the $50,000,000 Senior Notes is 9.5%.
Interest on the Senior Notes is payable semi-annually during each May and
November. The Senior Notes do not require any payments of principal prior to
their stated maturity on May 15, 2003, but the Company is required to make
offers to purchase Senior Notes upon the occurrence of certain events as defined
in the indenture, such as asset sales or a change of control of the Company.

Upon consummation of the Merger, the Company offered to purchase for cash
all of the outstanding Senior Notes at a purchase price equal to 101% of the
principal amount, plus accrued and unpaid interest to the change of control
payment date, as required by the indenture governing the Senior Notes (the
"Change of Control Offer"). On January 28, 1999, the Company purchased all of
the $328,000 principal amount of Senior Notes tendered pursuant to the Change of
Control Offer.

On or after May 15, 2000, the Senior Notes are redeemable at the option of
the Company, in whole or in part, at a price of 105% of principal if redeemed
during the twelve months beginning May 15, 2000, at a price of 102.5% of
principal if redeemed during the twelve months beginning May 15, 2001, or at a
price of 100% of principal if redeemed after May 15, 2002, in each case together
with interest accrued to the redemption date. Notwithstanding the foregoing, the
Company may at its option use all or a portion of the proceeds from a public
equity offering consummated on or prior to May 15, 1999, to redeem up to
$50,000,000 principal amount of the Senior Notes at a redemption price equal to
110% of the principal amount, provided that at least $150,000,000 in aggregate
principal amount of the Senior Notes remain outstanding immediately after such
redemption.

The Senior Notes are senior unsecured obligations of the Company, ranking
pari passu in right of payment with all senior indebtedness and senior to all
subordinated indebtedness. The Senior Notes are unconditionally guaranteed (the
"Subsidiary Guarantees") on a senior unsecured basis by the Company's principal
subsidiaries (the "Subsidiary Guarantors"), and the Subsidiary Guarantees rank
pari passu in right of payment with all senior indebtedness of the Subsidiary
Guarantors and senior to all subordinated indebtedness of the Subsidiary
Guarantors. The Subsidiary Guarantees may be released under certain
circumstances. The Senior Notes and the Subsidiary Guarantees are effectively
subordinated to all secured indebtedness, including amounts outstanding under
the Revolving Credit Facility. The Subsidiary Guarantees provide that each
Subsidiary Guarantor will unconditionally guarantee, jointly and severally, the
full and prompt performance of the Company's obligations under the indenture and
the Senior Notes. Each Subsidiary Guarantor is 100% owned by the Company. R&B
Falcon is not a guarantor of the Senior Notes.

39
<PAGE> 41
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Separate financial statements and other disclosures concerning the
Subsidiary Guarantors are not presented because management has determined such
financial statements and other disclosures are not material to investors. The
assets, equity, income and cash flows of the non-guarantor subsidiaries on an
individual and combined basis are less than 1% of the consolidated assets,
equity, income and cash flows, respectively, of the Company and are
inconsequential. The combined condensed financial information of the Company's
Subsidiary Guarantors is as follows:

<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1998 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Current Assets.............................................. $ 7,133 $ 31,872
Non-Current Assets.......................................... 68,766 214,462
------- --------
Total Assets...................................... $75,899 $246,334
======= ========
Current Liabilities......................................... $ 3,794 $ 21,417
Non-Current Liabilities..................................... 63,089 189,004
Equity...................................................... 9,016 35,913
------- --------
Total Liabilities and Equity...................... $75,899 $246,334
======= ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues.................................................... $24,650 $96,166 $51,081
Operating Income............................................ $ 5,969 $41,400 $14,224
Net Income.................................................. $ 3,593 $19,650 $ 5,264
</TABLE>

Effective May 31, 1998, three Subsidiary Guarantors were merged into the
Company.

The Senior Notes had a fair value of approximately $205,000,000 at December
31, 1998, or a 2 1/2% premium to carrying value, based upon the quoted market
price of the debt.

The Company currently maintains a $35,000,000 revolving line of credit
("Revolving Credit Facility") with ING (U.S.) Capital Corporation ("ING"). The
Revolving Credit Facility is subject to certain borrowing base limitations. All
advances to the Company from the Revolving Credit Facility bear interest at the
greater of the prevailing Federal Funds Rate plus one-half percent ( 1/2%) or a
referenced average prime rate; or at the adjusted LlBOR rate plus a margin
ranging from one percent (1%) to one and five-eighths percent (1 5/8%) per
annum, based on certain financial ratios. The Company is also obligated to pay
ING (i) a commitment fee ranging from three-eighths percent ( 3/8%) to one-half
percent ( 1/2%) per annum, based on certain financial ratios, on the average
daily unadvanced portion of the commitments and (ii) a letter of credit fee
ranging from one percent (1%) to one and five-eighths percent (1 5/8%) per
annum, based on certain financial ratios, on the average daily undrawn and
unexpired amount of each letter of credit during the period that sum remains
outstanding. The Revolving Credit Facility matures on May 31, 2000.

The Revolving Credit Facility is secured by accounts receivable, certain
rig inventory and equipment, and the stock of certain subsidiaries of the
Company. Under the Third Restated Credit Agreement with ING, the Company is
required to comply with various covenants including, but not limited to, the
maintenance of various financial ratios, and is restricted from declaring,
making or paying any dividends on the Common Stock. Availability and borrowings
under the Revolving Credit Facility are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Line of credit available.................................... $34,583 $32,583
Short-term borrowings outstanding........................... -- --
Letters of credit outstanding............................... 417 2,417
</TABLE>

40
<PAGE> 42
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest payments on all indebtedness amounted to $20,689,000, $17,035,000
and $7,527,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.

6. INCOME TAXES

The Company provided for $26,545,000 and $25,124,000 of income taxes for
the years ended December 31, 1998 and 1997, respectively. This represents an
effective tax rate of 34% and 35% for the years 1998 and 1997, respectively.
Current taxes consist of Federal income taxes and taxes paid in foreign
jurisdictions.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. The significant components of
deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation................................ $55,741 $11,886
Certain prepaid expenses.................................. 787 620
Mobilization.............................................. -- 970
Foreign income taxes...................................... 1,026 1,399
------- -------
Total deferred tax liabilities.................... 57,554 14,875
Deferred tax assets:
Accounts receivable reserves.............................. 165 123
Deferred compensation..................................... 624 --
Foreign tax credits....................................... 643 --
Restricted stock.......................................... -- 76
Other, net................................................ 1,028 341
------- -------
Total deferred tax assets......................... 2,460 540
------- -------
Net deferred tax liabilities...................... $55,094 $14,335
======= =======
</TABLE>

The Merger was accounted for using the purchase method of accounting.
Accordingly, an allocation of the purchase price was assigned to the assets and
liabilities of the Company based on their estimated fair values. The purchase
price adjustments were "pushed down" to the consolidated financial statements of
the Company. The purchase price allocation to the Company consisted of an
increase to property and equipment of $97,537,000 and a resulting increase in
the deferred tax liability of $34,138,000, which reflects the increase in the
difference in the basis for tax and financial reporting purposes of property and
equipment.

Tax benefits of $214,000 and $2,930,000 associated with the exercise of
non-qualified stock options during the years ended December 31, 1998 and 1997,
respectively, were reflected as a component of shareholders' equity prior to the
Merger.

For financial reporting purposes, income before income taxes includes the
following components:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes:
United States............................................. $14,099 $15,778 $ 992
Foreign................................................... 63,535 56,005 20,426
------- ------- -------
Total............................................. $77,634 $71,783 $21,418
======= ======= =======
</TABLE>

41
<PAGE> 43
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Significant components of the provision for income taxes attributable to
continuing operations are as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................... $12,109 $10,907 $ 144
Foreign................................................... 7,815 4,910 1,668
------- ------- ------
Total Current..................................... 19,924 15,817 1,812
Deferred:
Federal................................................... 6,994 7,908 5,184
Foreign................................................... (373) 1,399 --
------- ------- ------
Total Deferred.................................... 6,621 9,307 5,184
------- ------- ------
$26,545 $25,124 $6,996
======= ======= ======
</TABLE>

The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rates................................. $27,172 $25,124 $ 7,496
Foreign tax provision....................................... 7,442 6,308 1,668
Foreign tax credits available............................... (7,442) (4,909) (1,361)
Merger costs deductible for tax purposes.................... (1,173) -- --
Other non-deductible items.................................. 228 176 101
Alternative minimum tax provision........................... -- -- 144
Alternative minimum credits available....................... -- -- (144)
Change in valuation allowance............................... -- (1,589) (720)
Other, net.................................................. 318 14 (188)
------- ------- -------
Income tax expense................................ $26,545 $25,124 $ 6,996
======= ======= =======
</TABLE>

Income tax payments amounted to $18,688,000, $11,508,000 and $1,854,000 for
the years ended December 31, 1998, 1997 and 1996.

7. PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information gives effect to the
acquisition of the Southwestern Rigs using the purchase method of accounting
given the related assumptions and adjustments, the offering of $150,000,000 of
Senior Notes and the issuance of 1,200,000 shares (pre-split basis) of the
Company's Common Stock valued at an average price of $18.51 per share (pre-split
basis) in connection with the acquisition of the Southwestern Rigs.

The pro forma financial information is based upon the historical
consolidated financial statements of the Company and Southwestern for the year
ended December 31, 1996. The historical financial statements of Southwestern
include the operating results of the Southwestern Rigs during the periods
indicated to the date of acquisition, May 23, 1996. However, the financial
statements of Southwestern exclude depreciation expense related to the
Southwestern Rigs because Southwestern managed, rather than owned, the rigs. The
historical results of Southwestern include the results of operations of the rigs
that were available for service during the indicated periods.

The pro forma financial information was prepared assuming that the
transactions described above were consummated as of January 1, 1996. The pro
forma financial information has been prepared based upon assumptions deemed
appropriate by the Company and may not be indicative of actual results. The
historical results of Southwestern's operations are included with the Company's
results beginning May 23,

42
<PAGE> 44
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1996. The unaudited Pro Forma Consolidating Statement of Operations for the year
ended December 31, 1996 is included in the Company's Form 8-K dated September
19, 1997. The pro forma financial information for the year ended December 31,
1996 was as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
(UNAUDITED)
<S> <C>
Revenues.................................................... $147,672
Net Income (Loss)........................................... $ 10,273
Net Income Per Common Share:
Basic..................................................... $ 0.70
Diluted................................................... $ 0.68
</TABLE>

8. DEFINED CONTRIBUTION PLAN

The Company has a defined contribution plan ("401(k) Plan"). Under the
401(k) Plan, an employee who has reached age 18 and completed 90 days of service
is eligible to participate in the plan through contributions that range in one
percent multiples up to 16% of salary, with a 1998 dollar maximum of $10,000.
Through November 30, 1998, the Company contributed (or "matched") on behalf of
each participant shares of Common Stock equal to 100% of the portion of each
participant's contribution which does not exceed 6% of the participant's annual
salary. Effective December 1, 1998, employer contributions were made in cash.
Employer contributions for certain highly compensated employees may be further
limited through the operation of the non-discrimination requirements found in
Sections 401(k) and 401(m) of the Internal Revenue Code.

Employee contributions can be invested in any or all of 6 investment
options in multiples of 5%. Employee contributions are 100% vested and
non-forfeitable. Employer contributions are subject to a graded vesting
schedule, with participants becoming fully vested upon completion of five years
employment service with the Company. Distributions from the 401(k) Plan are made
upon retirement, death, disability or separation of service. Participants may
borrow up to one-half ( 1/2) of their vested interest in the plan, limited to a
maximum of $50,000. Contributions to the 401(k) Plan and earnings on
contributions are not included in a participant's gross income until distributed
to the participant. Contributions to the 401(k) Plan by the Company were
$1,160,000, $737,000 and $499,000 for the years 1998, 1997 and 1996,
respectively.

9. CAPITAL STOCK

The Company's Revolving Credit Facility and the indenture governing the
Senior Notes of the Company restrict payment of dividends on the Common Stock.
Specifically, the indenture restricts the payment of dividends based on (i)
availability of funds under a formula based on previously unapplied cumulative
net income since April 1, 1996 plus certain stock sale proceeds raised after May
15, 1996 plus $10,000,000 and (ii) satisfaction of the then applicable minimum
interest coverage ratio for debt incurrence. Cumulative net income for purposes
of the test excludes gains or losses on asset sales and certain other
non-recurring charges or credits as specified in the indenture. No dividends
have been paid on the Common Stock.

The Company had a 1988 Incentive Equity Plan under which stock options,
stock appreciation rights, restricted stock and deferred stock awards for up to
650,000 shares (pre-split basis) of the Company's Common Stock were available
for award to officers, directors and key employees. During 1998, shareholders
approved the 1998 Incentive Equity Plan, thereby authorizing the Company to make
stock awards for up to 1,000,000 shares of the Company's Common Stock. The
Company's incentive equity plans were designed to attract and reward key
executive personnel.

43
<PAGE> 45
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock Options

Stock options granted pursuant to the 1988 and 1998 Incentive Equity Plans
expire not more than ten years from the date of grant and typically vest over
three years, with 50% vesting after one year and 25% vesting in each of the
succeeding two years. All of the options granted by the Company were granted at
an option price equal to the fair market value of the Common Stock at the date
of grant. All outstanding stock options vested on August 21, 1998, the date the
Company signed the Merger Agreement, pursuant to change of control provisions in
the related incentive equity plans.

Changes in the number of outstanding options on the Company's Common Stock
through December 31, 1998 are summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES UNDER EXERCISE PRICE
OPTION (PER SHARE)
------------ --------------
<S> <C> <C>
Outstanding Options at December 31, 1995.................... 520,000 $ 6.68
Granted................................................... 368,000 $13.82
Exercised................................................. (316,050) $ 6.74
Canceled.................................................. (500) $ 6.44
--------
Outstanding Options at December 31, 1996.................... 571,450 $11.24
========
Granted................................................... 86,500 $33.39
Exercised................................................. (243,900) $ 9.27
Canceled.................................................. (80,000) $14.00
--------
Outstanding Options at December 31, 1997.................... 334,050 $17.76
========
Granted................................................... 312,000 $50.50
Exercised................................................. (26,550) $ 7.90
Canceled.................................................. (500) $14.00
Converted into R&B Falcon options......................... (619,000) $34.69
--------
Outstanding Options at December 31, 1998.................... -- --
========
Exercisable, December 31,
1996...................................................... 199,700 $ 6.60
1997...................................................... 103,550 $10.27
1998...................................................... -- --
</TABLE>

Pro forma information regarding net income and earnings per share is
required by SFAS 123, and was determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Weighted average risk-free interest rate.................... 6.5% 6.3%
Dividend yield.............................................. 0.0% 0.0%
Weighted average stock price volatility factor.............. 60.1% 41.7%
Expected life of the options (years)........................ 4 4
</TABLE>

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair

44
<PAGE> 46
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

value of its employee stock options. The calculated weighted average fair values
of options granted during 1997 and 1996 were $17.41 and $5.67, respectively.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' expected life. This pro forma
financial information is calculated in accordance with SFAS 123, but is not
likely to be representative of the effects on reported net income in future
years. The Company's pro forma information follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Pro Forma Net Income........................................ $45,965 $13,973
Pro Forma Net Income Per Common Share:
Basic..................................................... $ 3.02 $ 1.02
Diluted................................................... $ 2.95 $ 0.99
</TABLE>

Restricted Stock

The Company's Board of Directors awarded restricted stock to the Company's
officers and key employees from time to time. Awards totaling 90,600 shares and
one award of 5,000 shares (pre-split) were made during 1997 and 1996,
respectively. Restrictions on awards lapsed with respect to either 33 1/3% of
the entire award after one year and after each of the succeeding two years or
25% of the entire award after one year and after each of the succeeding three
years. The 1996 award of 5,000 shares (pre-split) was forfeited during 1997. All
restricted stock vested on August 21, 1998, the date the Company signed the
Merger Agreement, pursuant to change of control provisions in the incentive
equity plans. Expense related to amortization of restricted stock was
$2,212,000, $430,000 and $29,000 for the years 1998, 1997 and 1996,
respectively. Prior to August 21, 1998, deferred compensation expense relative
to non-vested shares of restricted stock, measured by the market value of the
stock on the date of grant, was amortized on a straight-line basis over the
restriction period. The unamortized deferred compensation expense, which was
deducted from equity in the Consolidated Balance Sheets at December 31, 1997 was
$2,467,000.

Effective December 31, 1992, the Company's Board of Directors approved the
sale of 35,000 shares of restricted Common Stock to certain key executives. The
price paid for the restricted stock was $6.63 per share. The Company extended
full recourse, interest-bearing loans to the key executives in the aggregate
amount of $232,000. Interest was calculated at seven and one-half percent
(7 1/2%) per annum payable quarterly and accrued on the last day of March, June,
September and December until the notes were due on December 31, 1997. All such
loans were paid by December 31, 1997. In connection with the restricted stock
sale, the Company executed deferred stock agreements with the executives which
provided for a share match in the event certain performance criteria were
achieved over the five-year period ending December 31, 1997. The performance
measures were attained by the Company, resulting in an award of 14,400
additional shares of Common Stock on February 18, 1998. Compensation expense of
$590,000 related to the deferred stock awards was accrued during 1997 when it
became probable that the Company performance criteria would be met. No such
compensation expense was accrued during the year ended December 31, 1996.

10. REDEEMABLE PREFERRED STOCK

On January 17, 1996, the Company issued 2,113,557 shares (pre-split) of
Common Stock upon conversion of 1,115,988 shares of its 1,150,000 issued and
outstanding shares of Preferred Stock. The remaining 34,012 shares of Preferred
Stock were redeemed for cash in the amount of $25.69 per share plus $0.22 per
share in accrued dividends thereon at a cost to the Company of approximately
$881,000.

45
<PAGE> 47
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
---- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
Net Income................................................ N/A $46,659 $14,422
Preferred Stock Dividends................................. N/A -- (31)
--- ------- -------
Numerator for Basic Earnings Per Share --
Income Available to Common Shareholders................ N/A 46,659 14,391
Effect of Dilutive Securities:
Preferred Stock Dividends.............................. N/A -- 31
--- ------- -------
Numerator for Diluted Earnings Per Share -- Income
Available to Common Shareholders After Assumed
Conversions............................................ N/A $46,659 $14,422
Denominator:
Denominator for Basic Earnings Per Share -- Weighted
Average Shares......................................... N/A 15,237 13,736
Effect of Dilutive Securities:
Stock Options.......................................... N/A 196 147
Restricted Stock....................................... N/A 56 6
Contingent Deferred Stock.............................. N/A 4 --
Convertible Exchangeable Preferred Stock............... N/A -- 194
--- ------- -------
Dilutive Potential Common Shares.......................... N/A 256 347
Denominator for Diluted Earnings Per Share -- Adjusted
Weighted Average Shares and Assumed Conversions........ N/A 15,493 14,083
Net Income Per Common Share:
Basic..................................................... N/A $ 3.06 $ 1.05
=== ======= =======
Diluted................................................... N/A $ 3.01 $ 1.02
=== ======= =======
</TABLE>

12. COMMITMENTS AND CONTINGENT LIABILITIES

The Company leases its headquarters office, office equipment and other
items under operating leases expiring at various dates during the next five
years. Management expects that, in the normal course of business, leases that
expire will be renewed or replaced by other leases. Total rent expense under
operating leases was $1,956,000, $1,534,000 and $856,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. Minimum future obligations under
non-cancelable operating leases at December 31, 1998 for the following five
years are $1,446,000, $952,000, $261,000, $58,000 and $1,000, respectively.

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.

13. BUSINESS SEGMENTS

Description of reportable segments

Daywork Drilling -- domestic and foreign drilling of oil and gas wells on a
dayrate basis for major and independent oil and gas companies on land, inland
waters and offshore.

46
<PAGE> 48
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Engineering Services -- domestic and foreign drilling of oil and gas wells
on a turnkey basis for major and independent oil and gas companies on land,
inland waters and offshore and foreign well engineering and management services.

MOPU Operations -- domestic and foreign operation of mobile offshore
production units on a dayrate basis for major and independent oil and gas
companies.

Oil and Gas -- domestic exploration, development and production of
hydrocarbon reserves.

Measurement of segment profit or loss and segment assets

The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment sales are accounted for at prices
comparable to unaffiliated customer sales.

Factors management used to identify the Company's reportable segments

The Company's reportable segments are business units that offer different
services. The reportable segments are each managed separately because they offer
distinct services, including drilling, engineering services and production.

<TABLE>
<CAPTION>
DEPRECIATION,
OPERATING EXPENDITURES DEPLETION
INCOME SEGMENT FOR LONG- AND
REVENUES (LOSS) ASSETS LIVED ASSETS AMORTIZATION
-------- --------- -------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1998
Daywork Drilling.................................. $222,055 $ 71,823 $567,456 $ 65,499 $ 23,575
Engineering Services.............................. 133,366 35,919 46,101 602 45
MOPU Operations................................... 8,676 3,331 32,360 716 4,091
Oil and Gas....................................... 272 (215) 760 56 337
Corporate Office.................................. -- (13,108) 70,579 3,009 653
Eliminations...................................... (28,545) -- -- -- --
-------- -------- -------- -------- --------
Consolidated.................................... $335,824 $ 97,750 $717,256 $ 69,882 $ 28,701
======== ======== ======== ======== ========
December 31, 1997
Daywork Drilling.................................. $173,602 $ 71,623 $422,587 $168,822 $ 15,750
Engineering Services.............................. 91,723 20,446 40,685 -- 27
MOPU Operations................................... 8,663 3,582 34,866 6,976 4,065
Oil and Gas....................................... 410 (330) 2,013 456 311
Corporate Office.................................. -- (9,021) -- -- 290
Eliminations...................................... (10,766) -- -- -- --
-------- -------- -------- -------- --------
Consolidated.................................... $263,632 $ 86,300 $500,151 $176,254 $ 20,443
======== ======== ======== ======== ========
December 31, 1996
Daywork Drilling.................................. $ 77,882 $ 23,048 $257,555 $158,650 $ 9,021
Engineering Services.............................. 60,517 8,036 42,521 -- 32
MOPU Operations................................... 4,329 2,872 35,661 7,719 793
Oil and Gas....................................... 1,156 (3,108) 3,809 350 654
Corporate Office.................................. -- (6,411) -- -- 111
Eliminations...................................... (10,775) -- -- -- (223)
-------- -------- -------- -------- --------
Consolidated.................................... $133,109 $ 24,437 $339,546 $166,719 $ 10,388
======== ======== ======== ======== ========
</TABLE>

Intersegment sales between the Daywork Drilling and Engineering Services
business segments were $28,545,000, $10,766,000 and $10,775,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.

Segment assets include assets directly identified with those operations.
Purchase price adjustments of $97,537,000 related to the Merger were "pushed
down" and recorded in "Rigs and Related Equipment" in the Consolidated Balance
Sheets as of December 31, 1998. Expenditures for long-lived assets for the year

47
<PAGE> 49
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ending December 31, 1997 include $20,500,000 of non-cash investing activity
related to 437,939 shares of Common Stock issued in connection with the
acquisition of the assets used in the offshore contract drilling business in
Trinidad of Well Services and $9,250,000 of non-cash investing activity related
to the acquisition of substantially all of the remaining 50% interest of the
WINDJV. Expenditures for long-lived assets for the year ending December 31, 1996
include $22,215,000 of non-cash investing activity related to 1,200,000 shares
(pre-split basis) of Common Stock issued in connection with the acquisition of
the Southwestern Rigs.

The Company derived a significant amount of its revenues from a few
customers in each of the three years in the period ended December 31, 1998. The
following table summarizes information with respect to these major customers.

<TABLE>
<CAPTION>
% OF
CONSOLIDATED
CUSTOMER REPORTING SEGMENT REVENUES
-------- ----------------- ------------
<S> <C> <C>
December 31, 1998
PDVSA Exploration and Production
(and its predecessors)......... Daywork Drilling and Engineering Services 33%
December 31, 1997
PDVSA Exploration and Production
(and its predecessors)......... Daywork Drilling and Engineering Services 31%
December 31, 1996
PDVSA Exploration and Production
(and its predecessors)......... Daywork Drilling and Engineering Services 31%
</TABLE>

48
<PAGE> 50
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. GEOGRAPHIC INFORMATION

The following table sets forth financial information with respect to the
Company and its subsidiaries on a consolidated basis by geographical area.

<TABLE>
<CAPTION>
LONG-LIVED
REVENUES(a) ASSETS(b)
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
December 31, 1998 (Post-Acquisition)
United States............................................. $111,902 $237,727
Venezuela................................................. 160,155 111,419
Qatar..................................................... 28,156 57,570
Trinidad.................................................. 23,792 66,306
Other..................................................... 11,819 32,819
-------- --------
Total............................................. $335,824 $505,841
======== ========
December 31, 1997 (Pre-Acquisition)
United States............................................. $ 97,199 $145,859
Venezuela................................................. 124,242 94,074
Qatar..................................................... 26,448 50,626
Trinidad.................................................. 4,782 59,561
Other..................................................... 10,961 19,107
-------- --------
Total............................................. $263,632 $369,227
======== ========
December 31, 1996 (Pre-Acquisition)
United States............................................. $ 59,961 $139,500
Venezuela................................................. 56,242 30,761
Qatar..................................................... 5,767 16,863
Trinidad.................................................. 909 --
Other..................................................... 10,230 29,350
-------- --------
Total............................................. $133,109 $216,474
======== ========
</TABLE>

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

(a) Revenues are attributed to countries based on the location of the
drilling operations.

(b) The Merger was effective on December 1, 1998 and was accounted for
using the purchase method of accounting. The purchase price
adjustments were "pushed down" and recorded in the consolidated
financial statements of the Company, which affects the
comparability of the post-acquisition and pre-acquisition
long-lived assets. See Note 2.

49
<PAGE> 51
CLIFFS DRILLING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly operating results for the years ended December 31, 1998 and 1997
are summarized as follows:

<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998:
Revenues.................................... $97,776 $77,248 $94,506 $66,294(a)
Operating Income............................ 28,033 26,100 28,107 15,510(a)
Net Income.................................. 14,972 13,846 14,577 7,694(a)
Net Income per Common Share:
Basic..................................... $ 0.95 $ 0.87 $ 0.92 N/A(b)
Diluted................................... $ 0.93 $ 0.86 $ 0.91 N/A(b)
1997:
Revenues.................................... $60,876 $60,470 $68,120 $74,166
Operating Income............................ 14,576 22,367 23,880 25,477
Net Income.................................. 6,958 13,628 12,291 13,782(c)
Net Income per Common Share:
Basic..................................... $ 0.46 $ 0.90 $ 0.80 $ 0.90(c)(d)
Diluted................................... $ 0.45 $ 0.89 $ 0.79 $ 0.88(c)(d)
</TABLE>

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

(a) Reduced dayrates and utilization affected operating results during
the fourth quarter of 1998.

(b) As a result of the Merger, each outstanding share of Common Stock
of the Company was converted into 1.7 shares of R&B Falcon common
stock and cash in lieu of fractional shares on December 1, 1998.
The Company is now a wholly-owned subsidiary of R&B Falcon.

(d) The first three quarters of 1997 earnings per share amounts have
been restated to comply with SFAS No. 128. In addition, the first
quarter of 1997 earnings per share and weighted average shares
have been retroactively adjusted to reflect the Stock Split.

50
<PAGE> 52

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Stock Purchase Agreement dated as of December 6, 1996 by
and among Delavney-Gestao E Consultadoria LDA.,
Construtora Andrade Gutierrez S.A., Andrade Gutierrez
Perfuracao LTDA., Driltech Inc. and the Company
(incorporated by reference to Exhibit 2.3 to the
Company's Form 10-K for the year ended December 31,
1996).
2.1.1 -- Amendment No. 1 dated as of January 24, 1997 to Stock
Purchase Agreement dated as of December 6, 1996 by and
among Delavney-Gestao E Consultadoria LDA., Construtora
Andrade Gutierrez S.A., Andrade Gutierrez Perfuracao
LTDA., Driltech Inc. and the Company (incorporated by
reference to Exhibit 2.3.1 to the Company's Form 10-K for
the year ended December 31, 1996).
2.1.2 -- Amendment No. 2 dated as of April 24, 1997 to Stock
Purchase Agreement dated as of December 6, 1996 by and
among Delavney-Gestao E Consultadoria LDA., Construtora
Andrade Gutierrez S.A., Andrade Gutierrez Perfuracao
LTDA., Driltech Inc. and the Company (incorporated by
reference to Exhibit 2.3.2 to the Company's Form 10-Q for
the quarter ended March 31, 1997).
2.2 -- Asset Purchase Agreement dated as of December 29, 1997 by
and among Cliffs Drilling Trinidad Offshore Limited, Well
Services (Marine) Ltd., Charles A. Brash and Philip A.
Pollonais (incorporated by reference to Exhibit 2.4 to
the Company's Form 8-K dated December 29, 1997).
2.3 -- Agreement and Plan of Merger dated as of August 21, 1998,
among R&B Falcon Corporation, RBF Cliffs Acquisition
Corp. and Cliffs Drilling Company (incorporated by
reference from Exhibit 2.1 to the Company's Form 8-K
dated August 20, 1998).
*3.1.1 -- Certificate of Merger merging RBF Cliffs Acquisition
Corp. with and into Cliffs Drilling Company effective
December 1, 1998, filed November 25, 1998.
*3.1.2 -- Amended and Restated Certificate of Incorporation of
Cliffs Drilling Company filed February 5, 1999.
3.2 -- By-Laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1, Registration No. 33-23508, filed August 4,
1988).
4.1 -- Amended and Restated Certificate of Incorporation of the
Company (included as Exhibit 3.1.2).
4.2 -- By-Laws of the Company (included as Exhibit 3.2).
4.3 -- Indenture dated as of May 15, 1996 among the Company, as
issuer, Cliffs Drilling Asset Acquisition Company, Cliffs
Drilling Merger Company, Cliffs Drilling International,
Inc. and Cliffs Oil and Gas Company, as subsidiary
guarantors, and Fleet National Bank, predecessor of State
Street Bank and Trust Company, as trustee, including a
Form of the Company's 10.25% Senior Notes due 2003
(incorporated by reference to Exhibit 4.3 to the
Company's Form 8-K dated May 23, 1996).
4.3.1 -- First Supplemental Indenture dated as of July 11, 1996
among the Company, as issuer, Southwestern Offshore
Corporation (f/k/a Cliffs Drilling Asset Acquisition
Company), Cliffs Drilling Merger Company, Cliffs Drilling
International, Inc., Cliffs Oil and Gas Company and DRL,
Inc., as subsidiary guarantors, and Fleet National Bank,
predecessor of State Street Bank and Trust Company, as
trustee (incorporated by reference to Exhibit 4.3.1 to
the Company's Registration Statement on Form S-4,
Registration No. 333-08273, filed July 17, 1996).
</TABLE>

51
<PAGE> 53

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.3.2 -- Second Supplemental Indenture dated as of January 4, 1997
among the Company, as issuer, Southwestern Offshore
Corporation (f/k/a Cliffs Drilling Asset Acquisition
Company), Cliffs Drilling Merger Company, Cliffs Drilling
International, Inc., Cliffs Oil and Gas Company, DRL,
Inc. and Greenbay Drilling Company Ltd., as subsidiary
guarantors, and Fleet National Bank, predecessor of State
Street Bank and Trust Company, as trustee (incorporated
by reference to Exhibit 4.6.2 to the Company's Form 10-K
for the fiscal year ended December 31, 1996).
4.3.3 -- Third Supplemental Indenture dated as of August 29, 1997
among the Company, as issuer, Southwestern Offshore
Corporation (f/k/a Cliffs Drilling Asset Acquisition
Company), Cliffs Drilling Merger Company, Cliffs Drilling
International, Inc., Cliffs Oil and Gas Company, DRL,
Inc., Cliffs Drilling Trinidad Limited and West Indies
Drilling Joint Venture, as subsidiary guarantors, and
State Street Bank and Trust Company, successor to Fleet
National Bank, as trustee (incorporated by reference to
Exhibit 4.3.3 to the Company's Registration Statement on
Form S-4, Registration No. 333-36325, filed September 24,
1997).
4.3.4 -- Fourth Supplemental Indenture dated as of March 2, 1998
among the Company, as issuer, Southwestern Offshore
Corporation (f/k/a Cliffs Drilling Asset Acquisition
Company), Cliffs Drilling Merger Company, Cliffs Drilling
International, Inc., Cliffs Oil and Gas Company, DRL,
Inc., Cliffs Drilling Trinidad Limited, West Indies
Drilling Joint Venture, Cliffs Drilling (Barbados)
Holdings ESRL, Cliffs Drilling (Barbados) SRL and Cliffs
Drilling Trinidad Offshore Limited, as subsidiary
guarantors, and State Street Bank and Trust Company,
successor to Fleet National Bank, as trustee
(incorporated by reference to Exhibit 4.3.4 to the
Company's Form 10-K for the year ended December 31,
1997).
4.4 -- Rights Agreement dated effective June 17, 1997 between
the Company and Harris Trust and Savings Bank, which
includes as Exhibit B thereto the Form of Right
Certificate (incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form 8-A filed
June 6, 1997).
4.4.1 -- Amendment No. 1 to Rights Agreement dated as of August
20, 1998, between Cliffs Drilling Company and Harris
Trust and Savings Bank (incorporated by reference from
Exhibit 4.3.1 to the Company's Form 8-K dated August 20,
1998).
4.5 -- Indenture dated as of August 7, 1997 among the Company,
as issuer, Southwestern Offshore Corporation, Cliffs
Drilling Merger Company, Cliffs Drilling International,
Inc., Cliffs Oil and Gas Company and DRL, Inc., as
subsidiary guarantors, and State Street Bank and Trust
Company, as trustee, including a form of the Company's
10.25% Senior Notes due 2003 (incorporated by reference
to Exhibit 4.4 to the Company's Registration Statement on
Form S-4, Registration No. 333-36325, filed September 24,
1997).
4.5.1 -- First Supplemental Indenture dated as of August 29, 1997
among the Company, as issuer, Southwestern Offshore
Corporation, Cliffs Drilling Merger Company, Cliffs
Drilling International, Inc., Cliffs Oil and Gas Company,
DRL, Inc., Cliffs Drilling Trinidad Limited and the West
Indies Drilling Joint Venture, as subsidiary guarantors,
and State Street Bank and Trust Company, as trustee,
(incorporated by reference to Exhibit 4.4.1 to the
Company's Registration Statement on Form S-4,
Registration No. 333-36325, filed September 24, 1997).
</TABLE>

52
<PAGE> 54

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.5.2 -- Second Supplemental Indenture dated as of March 2, 1998
among the Company, as issuer, Southwestern Offshore
Corporation, Cliffs Drilling Merger Company, Cliffs
Drilling International, Inc., Cliffs Oil and Gas Company,
DRL, Inc., Cliffs Drilling Trinidad Limited, West Indies
Drilling Joint Venture, Cliffs Drilling (Barbados)
Holdings ESRL, Cliffs Drilling (Barbados) SRL and Cliffs
Drilling Trinidad Offshore Limited, as subsidiary
guarantors, and State Street Bank and Trust Company, as
trustee (incorporated by reference to Exhibit 4.7.2 to
the Company's Form 10-K for the year ended December 31,
1997).
10.1 -- Cliffs Drilling Company 1988 Incentive Equity Plan
(incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1,
Registration No. 33-23508, filed under the Securities
Act).
10.1.1 -- Amendment No. 1 dated May 17, 1990 to the Cliffs Drilling
Company 1988 Incentive Equity Plan (incorporated by
reference to Exhibit 10.7.1 to the Company's Form 10-K
for the year ended December 31, 1993).
10.1.2 -- Amendment No. 2 dated May 20, 1993 to the Cliffs Drilling
Company 1988 Incentive Equity Plan (incorporated by
reference to Exhibit 10.7.2 to the Company's Form 10-K
for the year ended December 31, 1993).
10.1.3 -- Amendment No. 3 dated May 22, 1996 to the Cliffs Drilling
Company 1988 Incentive Equity Plan (incorporated by
reference to Exhibit 10.7.3 to the Company's Form 10-K
for the year ended December 31, 1996).
10.2 -- Cliffs Drilling Company Incentive Bonus Plan
(incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-1,
Registration No. 33-23508, filed under the Securities
Act).
10.3 -- Cliffs Drilling Company Retention Plan for Salaried
Employees (incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement on Form S-1,
Registration No. 33-23508, filed under the Securities
Act).
10.3.1 -- Amendment No. 1 dated May 17, 1990 to the Cliffs Drilling
Company Retention Plan for Salaried Employees
(incorporated by reference to Exhibit 10.9.1 to the
Company's Form 10-K for the year ended December 31,
1993).
10.3.2 -- Amendment No. 2 dated May 21, 1992 to the Cliffs Drilling
Company Retention Plan for Salaried Employees
(incorporated by reference to Exhibit 10.9.2 to the
Company's Form 10-K for the year ended December 31,
1993).
10.4 -- Form of Indemnification Agreement between the Company and
its officers and directors (incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement on
Form S-1, Registration No. 33-23508, filed under the
Securities Act).
10.5 -- Form of Restricted Stock Award Agreement entered into
between the Company and certain key executive officers
(incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1,
Registration No. 33-23508, filed under the Securities
Act).
10.6 -- Exploration and Development Agreement dated as of May 25,
1988 among the Company, Mosbacher Offshore, Inc. and
Cliffs Oil and Gas Company (incorporated by reference to
Exhibit 10.13 to the Company's Registration Statement on
Form S-1, Registration No. 33-23508, filed under the
Securities Act).
10.6.1 -- Letter Agreement dated February 15, 1991 extending
Exploration and Development Agreement (incorporated by
reference to Exhibit 10.13.1 to the Company's Form 10-K
for the year ended December 31, 1990).
10.7 -- Third Restated Credit Agreement dated as of July 29, 1998
by and among Cliffs Drilling Company, Cliffs Oil and Gas
Company, Cliffs Drilling International, Inc. and ING
(U.S.) Capital Corporation. (incorporated by reference to
Exhibit 10.13.5 to the Company's Form 10-Q for the
quarter ended June 30, 1998).
</TABLE>

53
<PAGE> 55

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8 -- Form of Executive Agreement dated as of July 20, 1994
(incorporated by reference to Exhibit 10.20 to the
Company's Form 10-Q for the quarter ended June 30, 1994).
10.9 -- Stock Purchase Agreement dated as of December 6, 1996
(included as Exhibit 2.3).
10.9.1 -- Amendment No. 1 dated as of January 24, 1997 to Stock
Purchase Agreement dated December 6, 1996 (included as
Exhibit 2.3.1).
10.9.2 -- Amendment No. 2 dated as of April 24, 1997 to Stock
Purchase Agreement dated as of December 6, 1996 (included
as Exhibit 2.3.2).
10.10 -- Indenture dated as of May 15, 1996 (included as Exhibit
4.3).
10.10.1 -- First Supplemental Indenture dated as of July 11, 1996
(included as Exhibit 4.3.1).
10.10.2 -- Second Supplemental Indenture dated as of January 24,
1997 (included as Exhibit 4.3.2).
10.10.3 -- Third Supplemental Indenture dated as of August 29, 1997
(included as Exhibit 4.3.3).
10.10.4 -- Fourth Supplemental Indenture dated as of March 2, 1998
(included as Exhibit 4.3.4).
10.11 -- Joint Venture Agreement dated as of April 18, 1996
between Well Services (Marine) Limited and Viking
Trinidad Limited, as Partners, and Well Services (Marine)
Limited, as Operator, establishing the West Indies
Drilling Joint Venture (incorporated by reference to
Exhibit 99.1 to the Company's Form 8-K dated May 23,
1996).
10.11.1 -- First Amendment dated effective as of April 1, 1996 to
Joint Venture Agreement between Well Services (Marine)
Limited and Viking Trinidad Limited, as Partners, and
Well Services (Marine) Limited, as Operator (incorporated
by reference to Exhibit 99.1.1 to the Company's Form 8-K
dated May 23, 1996).
10.11.2 -- Purchase and Sale and Joint Venture Amendment Agreement
dated as of July 23, 1997 by and between Well Services
(Marine) Limited and Cliffs Drilling Trinidad Limited
(f/k/a Viking Trinidad Limited) (incorporated by
reference to Exhibit 10.20.2 to the Company's Form 10-K
for the year ended December 31, 1997).
10.12 -- Asset Purchase Agreement dated as of December 29, 1997
(included as Exhibit 2.4).
10.13 -- Indenture dated as of August 7, 1997 (included as Exhibit
4.7).
10.13.1 -- First Supplemental Indenture dated as of August 29, 1997
(included as Exhibit 4.7.1).
10.13.2 -- Second Supplemental Indenture dated as of March 2, 1998
(included as Exhibit 4.7.2).
10.14 -- Cliffs Drilling Company Compensation Deferral Plan
(incorporated by reference to Exhibit 10.23 to the
Company's Form 10-K for the year ended December 31,
1997).
10.14.1 -- Amendment No. 1 to Cliffs Drilling Company Compensation
Deferral Plan dated as of August 20, 1998 (incorporated
by reference from Exhibit 10.23.1 to the Company's Form
8-K dated August 20, 1998).
10.14.2 -- Amendment No. 2 to Cliffs Drilling Company Compensation
Deferral Plan dated as of November 20, 1998 (incorporated
by reference from Exhibit 10.23.2 to the Company's Form
8-K dated December 1, 1998).
*10.14.3 -- Amendment No. 3 to Cliffs Drilling Company Compensation
Deferral Plan dated as of February 22, 1999.
</TABLE>

54
<PAGE> 56

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.15 -- Cliffs Drilling Company 1998 Incentive Equity Plan
(incorporated by reference to Exhibit 10.24 to the
Company's Form 10-Q for the quarter ended June 30, 1998).
10.15.1 -- Amendment No. 1 dated May 13, 1998 to the Cliffs Drilling
Company 1998 Incentive Equity Plan (incorporated by
reference to Exhibit 10.24.1 to the Company's Form 10-Q
for the quarter ended June 30, 1998).
10.16 -- Form of Non-Qualified Stock Option Agreement for
non-employee members of the Board of Directors
(incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarter ended June 30, 1998).
10.17 -- Form of Non-Qualified Stock Option Agreement for key
employees and officers (incorporated by reference to
Exhibit 10.26 to the Company's Form 10-Q for the quarter
ended June 30, 1998).
10.18 -- Cliffs Drilling Company Savings Plan (As Amended and
Restated Effective June 21, 1988) (incorporated by
reference to Exhibit 10.27 to the Company's Form 10-Q for
the quarter ended June 30, 1998).
10.18.1 -- Amendment No. 1 to the Cliffs Drilling Company Savings
Plan (As Amended and Restated Effective June 21, 1988)
(incorporated by reference to Exhibit 10.27.1 to the
Company's Form 10-Q for the quarter ended June 30, 1998).
10.19 -- Cliffs Drilling Company Savings Trust (As Amended and
Restated Effective January 1, 1998) (incorporated by
reference to Exhibit 10.28 to the Company's Form 10-Q for
the quarter ended June 30, 1998).
10.20 -- Agreement and Plan of Merger dated as of August 21, 1998
(included as Exhibit 2.3).
*10.21 -- Employment Agreement dated December 1, 1998 between the
Company and Douglas E. Swanson.
*10.22 -- Employment Agreement dated December 1, 1998 between the
Company and Charles M. McCall.
*10.23 -- Employment Agreement dated December 1, 1998 between the
Company and Edward A. Guthrie.
*10.24 -- Employment Agreement dated December 1, 1998 between the
Company and James P. Mitchen.
*10.25 -- Employment Agreement dated December 1, 1998 between the
Company and Gary W. Owen.
*10.26 -- Employment Agreement dated December 1, 1998 between the
Company and Cindy B. Taylor.
*10.27 -- Employment Agreement dated December 1, 1998 between the
Company and Jim R. Wise.
*21.1 -- Subsidiaries of the Registrant.
*23.1 -- Consent of Ernst & Young LLP.
*27 -- Financial Data Schedule.
</TABLE>

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

* Filed herewith

All other exhibits are omitted because they are not applicable, or not
required, or because the required information is included in the Consolidated
Financial Statements or Notes thereto.

<PAGE> 1

EXHIBIT 3.1.1

CERTIFICATE OF MERGER
OF
RBF CLIFFS ACQUISITION CORP.
INTO
CLIFFS DRILLING COMPANY

Cliffs Drilling Company, organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:

FIRST: That the name and state of incorporation of each of the
constituent corporations is as follows:

Corporation State of Incorporation
----------- ----------------------
RBF Cliffs Acquisition Corp. Delaware
Cliffs Drilling Company Delaware

SECOND: That an agreement and plan of merger has been approved,
adopted, certified and executed and acknowledged by RBF Cliffs Acquisition
Corp. and Cliffs Drilling Company in accordance with the provisions of Section
251 of the General Corporation Law of the State of Delaware.

THIRD: That the name of the surviving corporation of the merger is
Cliffs Drilling Company.

FOURTH: That the certificate of incorporation of Cliffs Drilling
Company shall be the certificate of incorporation of the surviving corporation.

FIFTH: That the executed agreement and plan of merger is on file at
the principal place of business of Cliffs Drilling Company at 1200 Smith
Street, Suite 300, Houston, Texas 77002.

SIXTH: A copy of the agreement and plan of merger will be furnished by
Cliffs Drilling Company, on request and without cost, to any stockholder of
Cliffs Drilling Company or RBF Cliffs Acquisition Corp.

SEVENTH: That this Certificate of Merger shall not become effective
upon filing but shall become effective immediately at 12:01 a.m. on December 1,
1998.

IN WITNESS WHEREOF, the undersigned corporation has caused this
instrument to be executed by and on its behalf and in its corporate name.

CLIFFS DRILLING COMPANY

By: /s/ DOUGLAS E. SWANSON
----------------------------------------------
Douglas E. Swanson, President and Chief
Executive Officer

<PAGE> 1
EXHIBIT 3.1.2

CERTIFICATE OF AMENDMENT AND RESTATEMENT
OF
CERTIFICATE OF INCORPORATION
OF
CLIFFS DRILLING COMPANY

Cliffs Drilling Company, a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:

That by unanimous consent of the Board of Directors of the
Corporation, resolutions were adopted setting forth a proposed amendment to and
restatement of the Corporation's Certificate of Incorporation filed on April
14, 1988 with the Secretary of State of the State of Delaware, as amended,
declaring said amendment and restatement to be advisable and submitting same to
the Corporation's sole stockholder for consideration thereof. The resolutions
setting forth the proposed amendment and restatement are as follows:

"RESOLVED, that the Certificate of Incorporation of the
Corporation, as amended, be further amended and restated in its
entirety by deleting the existing text and substituting the following
therefor:

'FIRST: The name of the corporation is Cliffs Drilling
Company.

SECOND: The address of the registered office of the
Corporation in the State of Delaware is The Corporation Trust Company,
1209 Orange Street, in the City of Wilmington, County of New Castle,
State of Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.

THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under
the General Corporation Law of the State of Delaware as set forth in
Title 8 of the Delaware Code (the "GCL").

FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is One Thousand (1,000)
shares of Common Stock, each having a par value of one cent ($.01) per
share.

FIFTH: The following provisions are included for the
management of the business and the conduct of the affairs of the
Corporation, and for further definition, limitation and regulation of
the powers of the Corporation and of its directors and stockholders:

(1) The business and affairs of the Corporation
shall be managed by or under the direction of the Board of
Directors.

(2) The directors shall have concurrent power with
the stockholders to make, alter, amend, change, add to or
repeal the Bylaws of the Corporation.

(3) The number of directors of the Corporation shall
be as from time to time fixed by, or in the manner provided
in, the Bylaws of the Corporation. Election of directors need
not be by written ballot unless the Bylaws so provide.

<PAGE> 2

(4) No director shall be personally liable to the
Corporation or any of its stockholders for monetary damages
for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under section
174 of the GCL, or (iv) for any transaction from which the
director derived an improper personal benefit. Any repeal or
modification of the foregoing paragraph shall not adversely
affect any right or protection of a director of the
Corporation existing at the time of such repeal or
modification with respect to acts or omissions occurring
prior to such repeal or modification.

(5) In addition to the powers and authority
hereinbefore or by statute expressly conferred upon them, the
directors are hereby empowered to exercise all such powers
and do all such acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to the provision
of the GCL, this Certificate of Incorporation, and any Bylaws
adopted by the stockholders; provided, however, that no
Bylaws hereafter adopted by the stockholders shall invalidate
any prior act of the directors which would have been valid if
such Bylaws had not been adopted.

SIXTH: Meetings of stockholders may be held within or without
the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in the
GCL) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.

SEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon stockholders herein are granted subject
to this reservation.

EIGHTH: Each person who is or was or had agreed to become a
director or officer of the Corporation, or each such person who is or
was serving or who had agreed to serve at the request of the Board of
Directors or an officer of the Corporation as an employee or agent of
the Corporation or as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators or estate
of such person), shall be indemnified by the Corporation to the full
extent permitted from time to time by the GCL or any other applicable
laws as presently or hereafter in effect. Without limiting the
generality or the effect of the foregoing, the Corporation may enter
into one or more agreements with any person which provide for
indemnification greater or different than that provided in this
Article. Any amendment or repeal of this Article shall not adversely
affect any right or protection existing hereunder immediately prior to
such amendment or repeal.'"

II.

That pursuant to the resolutions of the Corporation's Board of
Directors, the proposed amendment and restatement was adopted by the sole
stockholder of the Corporation at a Special Meeting of Stockholders held on
February 2, 1999.

III.

That said amendment and restatement was duly adopted in accordance
with the provisions of Sections 242 and 245 of the General Corporation Law of
the State of Delaware.

IN WITNESS WHEREOF, Cliffs Drilling Company has caused this
Certificate of Amendment and Restatement of the Certificate of Incorporation to
be signed by Douglas E. Swanson, its President, this 2nd day of February, 1999.

<PAGE> 3

CLIFFS DRILLING COMPANY

By: /s/ DOUGLAS E. SWANSON
----------------------------------
Douglas E. Swanson, President

<PAGE> 1

EXHIBIT 10.14.3

AMENDMENT NO. 3
TO
CLIFFS DRILLING COMPANY
COMPENSATION DEFERRAL PLAN

THIS AGREEMENT by Cliffs Drilling Company, a Delaware Corporation (the
"Sponsor"),

WITNESSETH:

WHEREAS, the Sponsor has previously executed the Plan known as "Cliffs
Drilling Company Compensation Deferral Plan" (the "Plan");

WHEREAS, pursuant to Section 9.1 of the Plan, the Sponsor has the right
to amend the Plan; and

WHEREAS, the Sponsor has determined that the Plan should be amended in
the manner hereinafter set forth;

NOW, THEREFORE, the Sponsor agrees that the Plan is hereby amended as
follows:

Section 1.55 of the Plan is amended to read in its entirety
as follows:

1.55 RETIREMENT. "Retirement" shall mean Separation
of a Participant (i) after completion of 15 years of service and
attainment of age 55, (ii) after attainment of age 62, or (iii) only
in the case of a Participant who has not been an Employee at any time
during his participation in the Plan, at any time. For purposes of
this Section, years of service shall be determined under the rules
applied in determining years of service for purposes of vesting under
the Savings Plan. Additionally, any years of service required to be
credited for purposes of this Plan under a severance agreement between
the Sponsor and the Participant shall be considered years of service
for purposes of this Plan.

IN WITNESS WHEREOF, the Sponsor has executed this Agreement this 22nd day of
February, 1999, to be effective as of January 1, 1999.

<PAGE> 2

CLIFFS DRILLING COMPANY

By /s/ DOUGLAS E. SWANSON
----------------------------
President

ATTEST:

/s/ EDWARD A. GUTHRIE
- ---------------------------

THE STATE OF TEXAS )
)
COUNTY OF HARRIS )

This instrument was acknowledged before me on 22nd February, 1999, by
Douglas E. Swanson, president of Cliffs Drilling Company, a Delaware
Corporation, on behalf of said corporation.

/s/ KATHLEEN A. LOPEZ
------------------------------
Notary Public in and for
the State of Texas

[NOTARY SEAL]

-2-

<PAGE> 1
EXHIBIT 10.21

EMPLOYMENT AGREEMENT

This Agreement is entered into between Cliffs Drilling
Company, a Delaware corporation (the "Company"), and Douglas E. Swanson (the
"Executive") on the 1st day of December, 1998.

The Company has determined that it is in its best interests
and those of its shareholders to assure that the Company will have the services
of the Executive and to provide the Executive with compensation and benefit
arrangements which are competitive with those of other corporations.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS;

1. Employment Period. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to be employed by the Company, in
accordance with the terms and provisions of this Agreement, for the period
commencing on the date hereof (the "the Effective Date") and ending on the third
anniversary of such date (the "Employment Period").

2. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period, (A) the Executive's position, authority, duties and
responsibilities shall be at least commensurate in all material respects with
and include status as President of the Company, and (B) the Executive's services
shall be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office of the Company located in Houston,
Texas which is the principal office of the Company or one of its affiliated
companies. The Company is a wholly-owned subsidiary of R&B Falcon Corporation
("Parent") which operates through subsidiaries. Executive agrees that if
requested by Parent or Company, he shall serve in comparable positions of other
subsidiaries of Parent, in addition to or in lieu of serving as President of
Company, provided his overall authority, duties and responsibilities shall not
be materially diminished.

(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote substantially full attention and time during normal
business hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive hereunder,
to use the Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not materially interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement.

(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary of not less than
$450,000 ("Annual Base Salary"), which shall be paid on a monthly basis. During
the Employment Period, the Annual Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to time as may

<PAGE> 2

be determined by the Board, based on the Executive's performance of his position
and responsibilities (to be measured in a fair and objective manner). It may
also be decreased by the Board as a part of Company wide salary reduction
program applicable to all executives and employees generally as a result of
financial losses experienced by the Company. Any increase in Annual Base Salary
shall not serve to limit or reduce any other obligation to the Executive under
this Agreement. Annual Base Salary shall not be reduced after any such increase
(except as provided in this Section 2(b)(i)), and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary as so increased or
decreased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.

(ii) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans that are tax qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended ("Code"), applicable
generally to other executives of the Company and its affiliated companies.

(iii) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, vision, disability, salary continuance, group life and supplemental
group life, accidental death and travel accident insurance plans and programs)
to the extent applicable generally to other executives of the Company and its
affiliated companies.

(iv) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the policies, practices
and procedures of the Company and its affiliated companies.

(v) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the plans,
policies, programs and practices of the Company and its affiliated companies.

(vi) Notwithstanding the foregoing, as provided in
the Agreement and Plan of Merger dated August 21, 1998 among Parent, RBF Cliffs
Acquisition Corp., and Company, Executive shall participate in the employee
benefit plans of the Company as in existence prior to the date hereof until such
plans are merged with those of Parent.

3. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 11(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the

2
<PAGE> 3

"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a
full-time basis for 180 consecutive business days as a result of incapacity due
to mental or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).

(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:

(i) chronic alcoholism or controlled substance abuse, as
determined by a doctor mutually acceptable to the Company and
the Executive, and continuing failure by the Executive to
commence and pursue with due diligence appropriate treatment
for same in accordance with such doctor's recommendations;

(ii) a deliberate act of proven fraud on the part of the Executive
having a material adverse impact on the business or
consolidated financial condition or results of operations of
the Company and its subsidiaries;

(iii) a deliberate and continuing failure by the Executive to comply
with the applicable laws and regulations having a material
adverse impact on the business or consolidated financial
condition or results of operations of the Company and its
subsidiaries; or

(iv) conviction of the Executive of a criminal offense constituting
a felony.

(c) Good Reason. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean

(i) the assignment to the Executive of any duties
materially inconsistent in any respect with the Executive's authority,
duties or responsibilities as contemplated by Section 2 of this
Agreement, or any other action by the Company which results in a
material diminution in such authority, duties or responsibilities
(excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive);

(ii) any failure by the Company to comply with any of
the provisions of Section 2(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;

(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section
2(a)(i)(B) hereof;

3
<PAGE> 4

(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or

(v) any failure by the Company to comply with and
satisfy Section 9 of this Agreement, provided that such successor has
received, at least ten days prior to the giving of Notice of
Termination by the Executive, written notice from the Company or the
Executive of the requirements of Section 9 of the Agreement.

(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 10(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company hereunder or preclude the Executive or the
Company from asserting such fact or circumstance in enforcing the Executive's or
the Company's right hereunder.

(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.

4. Obligations of the Company upon Termination.

(a) Good Reason; Other than for Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:

(i) the Company shall pay or provide to or in respect of the
Executive the aggregate of the following amounts and benefits:

A. in a lump sum in cash within 30 days after the
Date of Termination the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the highest annual
bonus paid or accrued for the benefit of Executive during the
three year period preceding the

4
<PAGE> 5

Date of Termination and (y) a fraction, the numerator of which
is the number of days since the date of the last bonus payment
through the Date of Termination, and the denominator of which
is 365 and (3) any compensation previously deferred or earned
by the Executive (together with any accrued interest or
earnings thereon), any unreimbursed expenses and any accrued
vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2) and (3)
shall be hereinafter referred to as the "Accrued
Obligations"); and

B. in a lump sum in cash within 30 days
after the Date of Termination the product of (i) the sum of
the highest Annual Base Salary and the highest annual bonus
which has been payable to the Executive within the past three
years (including such salary and bonus paid by a previous
employer which is a direct subsidiary of the Company as of the
date of this Agreement) for one year's service times (ii) a
fraction, (A) the numerator of which is the number of days
remaining in the Employment Period following the Date of
Termination and (B) the denominator of which is 365.

(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them
in accordance with the plans, programs, practices and policies
described in Section 2(b)(iii) of this Agreement if the Executive's
employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other
executives and their families on the Effective Date or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other executives of the Company and its
affiliated companies and their families (such continuation of such
benefits for the applicable period herein set forth shall be
hereinafter referred to as "Welfare Benefit Continuation"). [For
purposes of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and policies and
for purposes of determining Vesting Service (as defined in the Reading
& Bates Pension Plan) under the Reading & Bates Pension Plan and the
Reading & Bates Benefits Replacement Plan, the Executive shall be
considered to have remained employed until the end of the Employment
Period and to have retired on the last day of such period.]

(b) Death; Disability; Cause; Other than for Good Reason. If
the Executive's employment shall be terminated for Death, Disability or Cause
during the Employment Period, this Agreement shall terminate without further
obligations to the Executive other than for Accrued Obligations and the timely
payment of reimbursement of expenses incurred by Executive under Section
2(b)(iv). If the Executive terminates employment during the Employment Period,
excluding a termination for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than for Accrued Obligations and the
timely payment of reimbursement of expenses incurred by Executive under Section
2(b)(iv). In such case, all Accrued Obligations and reimbursement of expenses
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination.

5
<PAGE> 6

5. Non-exclusivity of Rights. Except as provided in Section 4
of this Agreement, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.

6. Challenge to Validity. The Company agrees to pay promptly
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive or others of the validity
or enforceability of any provision of this Agreement or any guarantee of
performance thereof, plus interest on any delayed payment at the Applicable
Federal Rate provided for in Section 7872(f)(2)(A) of the Code.

7. Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 7) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.

(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen & Co. (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 7, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. If the Accounting Firm

6
<PAGE> 7

determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 7(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.

(c) The Executive shall notify the Company in writing of any
claims by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than thirty days after the Executive
actually receives notice in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:

(i) give the Company any information reasonably requested by
the Company relating to such claim,

(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,

(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings
relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in

7
<PAGE> 8

a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.

(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section (c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.

8. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.

9. Successors. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.

(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.

8
<PAGE> 9

(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.

10. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.

(b) All notices and other communications hereunder shall be in
writing and shall be given if by the Executive to the Company by telecopy or
facsimile transmission at the telecommunications number set forth below and if
by either the Company or the Executive either by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:

If to the Executive:

Douglas E. Swanson
1104 Potomac Drive
Houston, Texas 77057

If to the Company:

R&B Falcon Corporation
901 Threadneedle
Houston, Texas 77079
Attention: Chief Executive Officer

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.

9
<PAGE> 10

(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 3(c) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.

(f) This Agreement may be superseded by another written
agreement entered into between the Executive and Company on mutually agreeable
terms, provided such agreement expressly by its terms supersedes this Agreement.
However, an offer by the Company to enter into any such agreement with the
Executive shall not constitute an independent basis for the Executive to
terminate this Agreement for Good Reason.

IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.

/s/ DOUGLAS E. SWANSON
------------------------------------
DOUGLAS E. SWANSON

CLIFFS DRILLING COMPANY

By /s/ EDWARD A. GUTHRIE
---------------------------------------
Name: Edward A. Guthrie
Title: Vice President--Finance

<PAGE> 1
EXHIBIT 10.22

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of December 1, 1998, between CLIFFS DRILLING
COMPANY, a Delaware corporation (the "Company"), and Charles M. McCall (the
"Executive").

R&B Falcon Corporation ("Parent") has acquired the Company, and Parent
and Company desire that the Company employ the Executive and the Executive
desires to remain in the employ of the Company, on the terms and conditions of
this Agreement.

Accordingly, the parties agree as follows:

1. Employment Duties and Acceptance.

1.1 Employment by the Company: Duties. The Company hereby agrees to
employ the Executive for a term (the "Term") commencing on December 1, 1998 and
expiring on November 30, 2000 (the "Termination Date"), unless earlier
terminated as provided in Section 4. During the Term, the Executive shall at all
times serve in the capacity of Senior Vice President - Drilling Operations of
Company and shall also serve in those offices and directorships of subsidiary
corporations or entities of the Parent to which he may from time to time be
appointed or elected. During the Term, the Executive shall devote his best
efforts on a full time basis in fulfillment of his employment hereunder, subject
to the direction of the Board of Directors of the Company. The Executive may
engage in commercial pursuits and in charitable and civic activities that do not
interfere with the performance of his duties hereunder.

1.2 Acceptance of Employment by the Executive. The Executive hereby
accepts such employment and shall render the services and perform the duties
described above.

2. Compensation and Other Benefits.

2.1 Annual Salary. The Company shall pay to the Executive an annual
salary at a rate of not less than $205,000 (the "Annual Salary"), prorated for
any partial calendar year, subject to increase at the sole discretion of the
Board. The Annual Salary shall be payable in accordance with the payroll
policies of the Company as from time to time in effect, but in no event less
frequently than once each month, less such deductions as shall be required to be
withheld by applicable law and regulations.

2.2 Bonuses. The Executive may receive, at the sole discretion of the
Board, bonuses.

2.3 Participation in Employee Benefit Plans. The Company agrees to
permit the Executive during the Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, similar benefit plan or other so-called "fringe
benefits" of the Parent and its affiliated companies (collectively, "Benefits")
which may be available to other comparable executives of the Parent and its
affiliated companies on terms no less favorable to the Executive than the terms
offered to such other executives. Notwithstanding the foregoing, to

<PAGE> 2

the extent provided in the Agreement And Plan of Merger dated August 21, 1998
among Parent, RBF Cliffs Acquisition Corp., and Company (the "Merger
Agreement"). Executive shall be covered by Company benefit plans in existence as
of the date hereof until such plans are merged into the plans of Parent, and
Executive shall be entitled to all benefits to be provided to Company employees
pursuant to the Merger Agreement.

2.4 General Business Expenses. The Company shall pay or reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
during the Term in the performance of the Executive's services under this
Agreement. Such payment shall be made upon presentation of such documentation as
the Company customarily requires of its senior executive employees prior to
making such payments or reimbursements.

3. Proprietary Matters.

3.1 Confidential Information; Personal Relationships. The Executive
acknowledges that the Company has a legitimate and continuing proprietary
interest in the protection of its confidential information and that it has
invested substantial sums and will continue to invest substantial sums to
develop, maintain and protect confidential information. The Executive agrees
that the Executive shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others all confidential matters
directly relating to the Company and its business, including without limitation,
financial information, trade secrets, customer lists, details of client or
consultant contracts, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, business acquisition plans,
new personnel acquisition plans, technical processes, designs and design
projects, inventions and research projects of the Company, its affiliates, or
any entity which may hereafter become an affiliate thereof.

3.2 Property of the Company. All memoranda, notes, lists, records,
engineering drawings, technical specifications and related documents and other
documents or papers (and all copies thereof) relating to the Company, including
such items stored in computer memories, microfiche or by any other means, made
or compiled by or on behalf of the Executive after the date hereof, or made
available to the Executive after the date hereof relating to the Company, its
affiliates or any entity which may hereafter become an affiliate thereof, shall
be the property of the Company, and shall be delivered to the Company promptly
upon the termination of the Executive's employment with the Company or at any
other time upon request; provided, however, that Executive's address books,
diaries and rolodex files shall be deemed to be property of the Executive.

3.3 Original Material. The Executive agrees that any inventions,
discoveries, improvements, ideas, concepts or original works of authorship
relating directly to the business of the Company, including without limitation
computer systems, programs and manufacturing techniques, whether or not
protectable by patent or copyright, that have been originated, developed or
reduced to practice by the Executive alone or jointly with others during the
Executive's employment with the Company shall be the property of and belong
exclusively to the Company. The Executive shall promptly and fully disclose to
the Company the origination or development by the Executive of any such material
and shall provide the Company with any information that it may reasonably
request about such material.

2
<PAGE> 3

4. Termination.

4.1 Termination upon Death. If the Executive dies during the Term, this
Employment Agreement shall terminate, except that the Executive's legal
representatives shall be entitled to receive the Annual Salary and bonuses, if
any, earned up to the date of the Executive's death, plus any Benefits accrued
up to the date of Executive's death.

4.2 Termination By Company With Cause. The Company has the right, at
any time, subject to all of the provisions hereof, exercisable by serving
notice, effective on or after the date of service of such notice as specified
therein, to terminate the Executive's employment under this Agreement and
discharge the Executive with Cause. As used in this Section 4.2, the term
"Cause" shall mean and include (i) chronic alcoholism or controlled substance
abuse as determined by a doctor mutually acceptable to the Company and the
Executive, (ii) an act of proven fraud or dishonesty on the part of the
Executive with respect to the Company or its subsidiaries; (iii) knowing and
material failure by the Executive to comply with material applicable laws and
regulations relating to the business of the Company or its subsidiaries; (iv)
the Executive's material and continuing failure to perform (as opposed to
unsatisfactory performance) his duties hereunder or a material breach by the
Executive of this Agreement except, in each case, where such failure or breach
is caused by the illness or other similar incapacity or disability of the
Executive; or (v) conviction of a misdemeanor involving moral turpitude or a
felony. Prior to the effectiveness of termination for Cause under subclause (i),
(ii), (iii) or (iv) above, the Executive shall be given 30 days' prior notice
from the Board specifically identifying the reasons which are alleged to
constitute cause for any termination hereunder and an opportunity to be heard by
the Board in the event Executive disputes such allegations. If Executive is
terminated for Cause, the Company's obligation to the Executive shall be limited
solely to the payment of unpaid Annual Salary accrued, bonuses earned, if any,
and any Benefits vested up to the effective date specified in the Company's
notice of termination.

4.3 Termination By Company Without Cause. The Company may terminate
Executive's employment without Cause; provided, in the event of termination by
the Company without Cause, the Company shall be obligated (but shall only be
obligated) to Executive for the payment, at the times and upon the terms
provided for herein, of the Executive's Annual Salary for the number of full
months remaining in the Term of this Agreement had the Executive not been so
terminated, based on the Annual Salary of the Executive in effect on the date of
termination (or, if the Company has reduced the Executive's Annual Salary in
breach of this Agreement, the Executive's Annual Salary before such reduction),
and assuming such Annual Salary would remain in effect for the full Term
together with all Benefits awarded or accrued and bonuses earned, if any, up to
the date of termination.

4.4 Termination By Executive. Any termination by Executive of his
employment by the Company (i) shall entitle the Company to discontinue payment
of all Annual Salary, bonuses, if any, and Benefits accruing from and after the
date of such termination, and (ii) shall not terminate the obligations of
Executive under Section 3 or the rights of the Company under Section 3.

3
<PAGE> 4

4.5 Suspension upon Disability. If during the Term the Executive
becomes physically or mentally disabled, whether totally or partially, as
evidenced by the written statement of a competent physician licensed to practice
medicine in the United States who is mutually acceptable to the Company and the
Executive or his closest relative if he is not then able to make such a choice,
so that the Executive is unable substantially to perform his services hereunder
for (i) a period of sixty days, or (ii) for shorter periods aggregating sixty
days during any twelve-month period, the Company may at any time thereafter, by
written notice to the Executive, suspend the Term of the Executive's employment
hereunder and discontinue payments of the Annual Salary for the duration of the
disability. The Executive shall be entitled to the full compensation payable to
him hereunder for periods of disability shorter than the periods specified in
clauses (i) and (ii) of the sentence. Nothing contained in this Section 4.5
shall be deemed to extend the Term or to constitute a breach of this Agreement.

5. Insurance. The Company may, from time to time, apply for and take out, in its
own name and at its own expense, naming itself or others as the designated
beneficiary (which it may change from time to time), policies for life, health,
accident, disability or other insurance upon the Executive in any amount or
amounts that it may deem necessary or appropriate to protect its interest. The
Executive agrees to aid the Company in procuring such insurance by submitting to
medical examinations and by filling out, executing and delivering such
applications and other instruments in writing as may reasonably be required by
an insurance company or companies to which any application or applications for
insurance may be made by or for the Company.

6. Other Provisions.

6.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings unless the context otherwise requires:

(i) "affiliate" with respect to the Company means any other person
controlled by or under common control with the Company but shall not include any
stockholder or director of the Company, as such.

(ii) "person" means any individual, corporation, partnership, firm,
joint Company, association, joint-stock company, trust, unincorporated
organization, governmental or regulatory body or other entity.

6.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, on the date of actual receipt thereof, as follows:

(i) if to the Company, to:
Cliffs Drilling Company
----------------------------------------------
1200 Smith Street, Suite 300
----------------------------------------------
Houston, Texas 77002
----------------------------------------------

Attention: Chief Executive Officer
----------------------------------------------

4
<PAGE> 5

(ii) if to the Executive, to:
Charles M. McCall
-----------------------------------------
2819 Kings Forest Drive
-----------------------------------------
Kingwood, TX 77339
-----------------------------------------

Any party may change its address for notice hereunder by notice to the other
party hereto.

6.3 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.

6.4 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms and conditions hereof may be
waived, only by a written instrument signed by the parties or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any such right, power
or privilege hereunder, nor any single or partial exercise of any right, power
or privilege hereunder, preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.

6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas (without giving effect to the
choice of law provisions thereof).

6.6 Assignment. This Agreement, and any rights and obligations
hereunder, may not be assigned by the Executive and may be assigned by the
Company only to a successor by merger or purchasers of substantially all of the
assets of the Company.

6.7 Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

6.8 Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.

6.9 Affiliates. For purposes of this Agreement, the term "Company"
shall include the direct and indirect wholly owned subsidiaries of R&B Falcon
Corporation and their successors, it being understood that R&B Falcon
Corporation conducts its activities primarily through subsidiaries.

Executed to be effective as of the date hereof.

CLIFFS DRILLING COMPANY

By: /s/ DOUGLAS E. SWANSON
----------------------------------
Name: Douglas E. Swanson
Title: President

/s/ CHARLES M. MCCALL
- -----------------------------------
Charles M. McCall

<PAGE> 1

EXHIBIT 10.23

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of December 1, 1998, between CLIFFS DRILLING
COMPANY, a Delaware corporation (the "Company"), and Edward A. Guthrie (the
"Executive").

Accordingly, the parties agree as follows:

1. Employment Duties and Acceptance.

1.1 Employment by the Company: Duties. The Company hereby agrees to
employ the Executive for a term (the "Term") commencing on December 1, 1998 and
expiring on November 30, 2000 (the "Termination Date"), unless earlier
terminated as provided in Section 4. During the Term, the Executive shall at
all times serve in the capacity of Vice President - Finance and Chief Financial
Officer of Company and shall also serve in those offices and directorships of
subsidiary corporations or entities of the Parent to which he may from time to
time be appointed or elected. During the Term, the Executive shall devote his
best efforts on a full time basis in fulfillment of his employment hereunder,
subject to the direction of the Board of Directors of the Company. The
Executive may engage in commercial pursuits and in charitable and civic
activities that do not interfere with the performance of his duties hereunder.

1.2 Acceptance of Employment by the Executive. The Executive hereby
accepts such employment and shall render the services and perform the duties
described above.

2. Compensation and Other Benefits.

2.1 Annual Salary. The Company shall pay to the Executive an annual
salary at a rate of not less than $200,000 (the "Annual Salary"), prorated for
any partial calendar year, subject to increase at the sole discretion of the
Board. The Annual Salary shall be payable in accordance with the payroll
policies of the Company as from time to time in effect, but in no event less
frequently than once each month, less such deductions as shall be required to
be withheld by applicable law and regulations.

2.2 Bonuses. The Executive may receive, at the sole discretion of the
Board, bonuses.

<PAGE> 2

the extent provided in the Agreement And Plan of Merger dated August 21, 1998
among Parent, RBF Cliffs Acquisition Corp., and Company (the "Merger
Agreement"). Executive shall be covered by Company benefit plans in existence
as of the date hereof until such plans are merged into the plans of Parent, and
Executive shall be entitled to all benefits to be provided to Company employees
pursuant to the Merger Agreement.

2.4 General Business Expenses. The Company shall pay or reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
during the Term in the performance of the Executive's services under this
Agreement. Such payment shall be made upon presentation of such documentation
as the Company customarily requires of its senior executive employees prior to
making such payments or reimbursements.

3. Proprietary Matters.

3.1 Confidential Information; Personal Relationships. The Executive
acknowledges that the Company has a legitimate and continuing proprietary
interest in the protection of its confidential information and that it has
invested substantial sums and will continue to invest substantial sums to
develop, maintain and protect confidential information. The Executive agrees
that the Executive shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others all confidential matters
directly relating to the Company and its business, including without
limitation, financial information, trade secrets, customer lists, details of
client or consultant contracts, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans,
business acquisition plans, new personnel acquisition plans, technical
processes, designs and design projects, inventions and research projects of the
Company, its affiliates, or any entity which may hereafter become an affiliate
thereof.

3.3 Original Material. The Executive agrees that any inventions,
discoveries, improvements, ideas, concepts or original works of authorship
relating directly to the business of the Company, including without limitation
computer systems, programs and manufacturing techniques, whether or not
protectable by patent or copyright, that have been originated, developed or
reduced to practice by the Executive alone or jointly with others during the
Executive's employment with the Company shall be the property of and belong
exclusively to the Company. The Executive shall promptly and fully disclose to
the Company the origination or development by the Executive of any such
material and shall provide the Company with any information that it may
reasonably request about such material.

2
<PAGE> 3

4. Termination.

4.1 Termination upon Death. If the Executive dies during the Term,
this Employment Agreement shall terminate, except that the Executive's legal
representatives shall be entitled to receive the Annual Salary and bonuses, if
any, earned up to the date of the Executive's death, plus any Benefits accrued
up to the date of Executive's death.

4.2 Termination By Company With Cause. The Company has the right, at
any time, subject to all of the provisions hereof, exercisable by serving
notice, effective on or after the date of service of such notice as specified
therein, to terminate the Executive's employment under this Agreement and
discharge the Executive with Cause. As used in this Section 4.2, the term
"Cause" shall mean and include (i) chronic alcoholism or controlled substance
abuse as determined by a doctor mutually acceptable to the Company and the
Executive, (ii) an act of proven fraud or dishonesty on the part of the
Executive with respect to the Company or its subsidiaries; (iii) knowing and
material failure by the Executive to comply with material applicable laws and
regulations relating to the business of the Company or its subsidiaries; (iv)
the Executive's material and continuing failure to perform (as opposed to
unsatisfactory performance) his duties hereunder or a material breach by the
Executive of this Agreement except, in each case, where such failure or breach
is caused by the illness or other similar incapacity or disability of the
Executive; or (v) conviction of a misdemeanor involving moral turpitude or a
felony. Prior to the effectiveness of termination for Cause under subclause
(i), (ii), (iii) or (iv) above, the Executive shall be given 30 days' prior
notice from the Board specifically identifying the reasons which are alleged to
constitute cause for any termination hereunder and an opportunity to be heard
by the Board in the event Executive disputes such allegations. If Executive is
terminated for Cause, the Company's obligation to the Executive shall be
limited solely to the payment of unpaid Annual Salary accrued, bonuses earned,
if any, and any Benefits vested up to the effective date specified in the
Company's notice of termination.

4.3 Termination By Company Without Cause. The Company may terminate
Executive's employment without Cause; provided, in the event of termination by
the Company without Cause, the Company shall be obligated (but shall only be
obligated) to Executive for the payment, at the times and upon the terms
provided for herein, of the Executive's Annual Salary for the number of full
months remaining in the Term of this Agreement had the Executive not been so
terminated, based on the Annual Salary of the Executive in effect on the date
of termination (or, if the Company has reduced the Executive's Annual Salary in
breach of this Agreement, the Executive's Annual Salary before such reduction),
and assuming such Annual Salary would remain in effect for the full Term
together with all Benefits awarded or accrued and bonuses earned, if any, up to
the date of termination.

3
<PAGE> 4

4.5 Suspension upon Disability. If during the Term the Executive
becomes physically or mentally disabled, whether totally or partially, as
evidenced by the written statement of a competent physician licensed to
practice medicine in the United States who is mutually acceptable to the
Company and the Executive or his closest relative if he is not then able to
make such a choice, so that the Executive is unable substantially to perform
his services hereunder for (i) a period of sixty days, or (ii) for shorter
periods aggregating sixty days during any twelve-month period, the Company may
at any time thereafter, by written notice to the Executive, suspend the Term of
the Executive's employment hereunder and discontinue payments of the Annual
Salary for the duration of the disability. The Executive shall be entitled to
the full compensation payable to him hereunder for periods of disability
shorter than the periods specified in clauses (i) and (ii) of the sentence.
Nothing contained in this Section 4.5 shall be deemed to extend the Term or to
constitute a breach of this Agreement.

5. Insurance. The Company may, from time to time, apply for and take out, in
its own name and at its own expense, naming itself or others as the designated
beneficiary (which it may change from time to time), policies for life, health,
accident, disability or other insurance upon the Executive in any amount or
amounts that it may deem necessary or appropriate to protect its interest. The
Executive agrees to aid the Company in procuring such insurance by submitting
to medical examinations and by filling out, executing and delivering such
applications and other instruments in writing as may reasonably be required by
an insurance company or companies to which any application or applications for
insurance may be made by or for the Company.

6. Other Provisions.

6.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:

(i) "affiliate" with respect to the Company means any other person
controlled by or under common control with the Company but shall not include
any stockholder or director of the Company, as such.

6.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission
or, if mailed, on the date of actual receipt thereof, as follows:

(i) if to the Company, to:

Cliffs Drilling Company
----------------------------------------------------
1200 Smith Street, Suite 300
----------------------------------------------------
Houston, Texas 77002
----------------------------------------------------
Attention: Chief Executive Officer
----------------------------------------------------

(ii) if to the Executive, to:

Edward A. Guthrie
----------------------------------------------------
14626 Carols Way Drive
----------------------------------------------------
Houston, TX 77070
----------------------------------------------------

4
<PAGE> 5

Any party may change its address for notice hereunder by notice to the other
party hereto.

6.3 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all prior agreements, written or oral, with respect thereto.

6.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas (without giving effect to the
choice of law provisions thereof).

6.8 Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.

5
<PAGE> 6

Executed to be effective as of the date hereof.

CLIFFS DRILLING COMPANY

By: /s/ DOUGLAS E. SWANSON
------------------------------------
Name: Douglas E. Swanson
Title: President

/s/ EDWARD A. GUTHRIE
- -----------------------------------
Edward A. Guthrie

<PAGE> 1
EXHIBIT 10.24

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of December 1, 1998, between CLIFFS DRILLING
COMPANY, a Delaware corporation (the "Company"), and James P. Mitchen (the
"Executive").

Accordingly, the parties agree as follows:

1. Employment Duties and Acceptance.

1.1 Employment by the Company: Duties. The Company hereby agrees to
employ the Executive for a term (the "Term") commencing on December 1, 1998 and
expiring on November 30, 2000 (the "Termination Date"), unless earlier
terminated as provided in Section 4. During the Term, the Executive shall at
all times serve in the capacity of Vice President - Business Development of
Company and shall also serve in those offices and directorships of subsidiary
corporations or entities of the Parent to which he may from time to time be
appointed or elected. During the Term, the Executive shall devote his best
efforts on a full time basis in fulfillment of his employment hereunder,
subject to the direction of the Board of Directors of the Company. The
Executive may engage in commercial pursuits and in charitable and civic
activities that do not interfere with the performance of his duties hereunder.

1.2 Acceptance of Employment by the Executive. The Executive hereby
accepts such employment and shall render the services and perform the duties
described above.

2. Compensation and Other Benefits.

2.1 Annual Salary. The Company shall pay to the Executive an annual
salary at a rate of not less than $147,000 (the "Annual Salary"), prorated for
any partial calendar year, subject to increase at the sole discretion of the
Board. The Annual Salary shall be payable in accordance with the payroll
policies of the Company as from time to time in effect, but in no event less
frequently than once each month, less such deductions as shall be required to
be withheld by applicable law and regulations.

2.2 Bonuses. The Executive may receive, at the sole discretion of the
Board, bonuses.

<PAGE> 2

the extent provided in the Agreement And Plan of Merger dated August 21, 1998
among Parent, RBF Cliffs Acquisition Corp., and Company (the "Merger
Agreement"). Executive shall be covered by Company benefit plans in existence
as of the date hereof until such plans are merged into the plans of Parent, and
Executive shall be entitled to all benefits to be provided to Company employees
pursuant to the Merger Agreement.

2.4 General Business Expenses. The Company shall pay or reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
during the Term in the performance of the Executive's services under this
Agreement. Such payment shall be made upon presentation of such documentation
as the Company customarily requires of its senior executive employees prior to
making such payments or reimbursements.

3. Proprietary Matters.

3.1 Confidential Information; Personal Relationships. The Executive
acknowledges that the Company has a legitimate and continuing proprietary
interest in the protection of its confidential information and that it has
invested substantial sums and will continue to invest substantial sums to
develop, maintain and protect confidential information. The Executive agrees
that the Executive shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others all confidential matters
directly relating to the Company and its business, including without
limitation, financial information, trade secrets, customer lists, details of
client or consultant contracts, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans,
business acquisition plans, new personnel acquisition plans, technical
processes, designs and design projects, inventions and research projects of the
Company, its affiliates, or any entity which may hereafter become an affiliate
thereof.

3.3 Original Material. The Executive agrees that any inventions,
discoveries, improvements, ideas, concepts or original works of authorship
relating directly to the business of the Company, including without limitation
computer systems, programs and manufacturing techniques, whether or not
protectable by patent or copyright, that have been originated, developed or
reduced to practice by the Executive alone or jointly with others during the
Executive's employment with the Company shall be the property of and belong
exclusively to the Company. The Executive shall promptly and fully disclose to
the Company the origination or development by the Executive of any such
material and shall provide the Company with any information that it may
reasonably request about such material.

<PAGE> 3

4. Termination.

4.1 Termination upon Death. If the Executive dies during the Term,
this Employment Agreement shall terminate, except that the Executive's legal
representatives shall be entitled to receive the Annual Salary and bonuses, if
any, earned up to the date of the Executive's death, plus any Benefits accrued
up to the date of Executive's death.

4.2 Termination By Company With Cause. The Company has the right, at
any time, subject to all of the provisions hereof, exercisable by serving
notice, effective on or after the date of service of such notice as specified
therein, to terminate the Executive's employment under this Agreement and
discharge the Executive with Cause. As used in this Section 4.2, the term
"Cause" shall mean and include (i) chronic alcoholism or controlled substance
abuse as determined by a doctor mutually acceptable to the Company and the
Executive, (ii) an act of proven fraud or dishonesty on the part of the
Executive with respect to the Company or its subsidiaries; (iii) knowing and
material failure by the Executive to comply with material applicable laws and
regulations relating to the business of the Company or its subsidiaries; (iv)
the Executive's material and continuing failure to perform (as opposed to
unsatisfactory performance) his duties hereunder or a material breach by the
Executive of this Agreement except, in each case, where such failure or breach
is caused by the illness or other similar incapacity or disability of the
Executive; or (v) conviction of a misdemeanor involving moral turpitude or a
felony. Prior to the effectiveness of termination for Cause under subclause
(i), (ii), (iii) or (iv) above, the Executive shall be given 30 days' prior
notice from the Board specifically identifying the reasons which are alleged to
constitute cause for any termination hereunder and an opportunity to be heard
by the Board in the event Executive disputes such allegations. If Executive is
terminated for Cause, the Company's obligation to the Executive shall be
limited solely to the payment of unpaid Annual Salary accrued, bonuses earned,
if any, and any Benefits vested up to the effective date specified in the
Company's notice of termination.

4.3 Termination By Company Without Cause. The Company may terminate
Executive's employment without Cause; provided, in the event of termination by
the Company without Cause, the Company shall be obligated (but shall only be
obligated) to Executive for the payment, at the times and upon the terms
provided for herein, of the Executive's Annual Salary for the number of full
months remaining in the Term of this Agreement had the Executive not been so
terminated, based on the Annual Salary of the Executive in effect on the date
of termination (or, if the Company has reduced the Executive's Annual Salary in
breach of this Agreement, the Executive's Annual Salary before such reduction),
and assuming such Annual Salary would remain in effect for the full Term
together with all Benefits awarded or accrued and bonuses earned, if any, up to
the date of termination.

<PAGE> 4

4.5 Suspension upon Disability. If during the Term the Executive
becomes physically or mentally disabled, whether totally or partially, as
evidenced by the written statement of a competent physician licensed to
practice medicine in the United States who is mutually acceptable to the
Company and the Executive or his closest relative if he is not then able to
make such a choice, so that the Executive is unable substantially to perform
his services hereunder for (i) a period of sixty days, or (ii) for shorter
periods aggregating sixty days during any twelve-month period, the Company may
at any time thereafter, by written notice to the Executive, suspend the Term of
the Executive's employment hereunder and discontinue payments of the Annual
Salary for the duration of the disability. The Executive shall be entitled to
the full compensation payable to him hereunder for periods of disability
shorter than the periods specified in clauses (i) and (ii) of the sentence.
Nothing contained in this Section 4.5 shall be deemed to extend the Term or to
constitute a breach of this Agreement.

5. Insurance. The Company may, from time to time, apply for and take out, in
its own name and at its own expense, naming itself or others as the designated
beneficiary (which it may change from time to time), policies for life, health,
accident, disability or other insurance upon the Executive in any amount or
amounts that it may deem necessary or appropriate to protect its interest. The
Executive agrees to aid the Company in procuring such insurance by submitting
to medical examinations and by filling out, executing and delivering such
applications and other instruments in writing as may reasonably be required by
an insurance company or companies to which any application or applications for
insurance may be made by or for the Company.

6. Other Provisions.

6.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:

(i) "affiliate" with respect to the Company means any other person
controlled by or under common control with the Company but shall not include
any stockholder or director of the Company, as such.

6.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission
or, if mailed, on the date of actual receipt thereof, as follows:

(i) if to the Company, to:

Cliffs Drilling Company
---------------------------------
1200 Smith Street, Suite 300
---------------------------------

<PAGE> 5

Houston, Texas 77002
-----------------------------------
Attention: Chief Executive Officer
-----------------------------------

(ii) if to the Executive, to:

James P. Mitchen
-----------------------------------
15519 San Milo
-----------------------------------
Houston, TX 77068
-----------------------------------

Any party may change its address for notice hereunder by notice to the other
party hereto.

6.3 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all prior agreements, written or oral, with respect thereto.

6.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas (without giving effect to the
choice of law provisions thereof).

6.8 Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.

<PAGE> 6

Executed to be effective as of the date hereof.

CLIFFS DRILLING COMPANY

By: /s/ DOUGLAS E. SWANSON
--------------------------------
Name: Douglas E. Swanson
Title: President

/s/ JAMES P. MITCHEN
- -----------------------------------
James P. Mitchen

<PAGE> 1
EXHIBIT 10.25

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of December 1, 1998, between CLIFFS DRILLING
COMPANY, a Delaware corporation (the "Company"), and Gary W. Owen (the
"Executive").

Accordingly, the parties agree as follows:

1. Employment Duties and Acceptance.

1.1 Employment by the Company: Duties. The Company hereby agrees to
employ the Executive for a term (the "Term") commencing on December 1, 1998 and
expiring on November 30, 2000 (the "Termination Date"), unless earlier
terminated as provided in Section 4. During the Term, the Executive shall at all
times serve in the capacity of Vice President - Engineering Services of Company
and shall also serve in those offices and directorships of subsidiary
corporations or entities of the Parent to which he may from time to time be
appointed or elected. During the Term, the Executive shall devote his best
efforts on a full time basis in fulfillment of his employment hereunder, subject
to the direction of the Board of Directors of the Company. The Executive may
engage in commercial pursuits and in charitable and civic activities that do not
interfere with the performance of his duties hereunder.

1.2 Acceptance of Employment by the Executive. The Executive hereby
accepts such employment and shall render the services and perform the duties
described above.

2. Compensation and Other Benefits.

2.1 Annual Salary. The Company shall pay to the Executive an annual
salary at a rate of not less than $165,000 (the "Annual Salary"), prorated for
any partial calendar year, subject to increase at the sole discretion of the
Board. The Annual Salary shall be payable in accordance with the payroll
policies of the Company as from time to time in effect, but in no event less
frequently than once each month, less such deductions as shall be required to be
withheld by applicable law and regulations.

2.2 Bonuses. The Executive may receive, at the sole discretion of the
Board, bonuses.

1
<PAGE> 2

3. Proprietary Matters.

3.3 Original Material. The Executive agrees that any inventions,
discoveries, improvements, ideas, concepts or original works of authorship
relating directly to the business of the Company, including without limitation
computer systems, programs and manufacturing techniques, whether or not
protectable by patent or copyright, that have been originated, developed or
reduced to practice by the Executive alone or jointly with others during the
Executive's employment with the Company shall be the property of and belong
exclusively to the Company. The Executive shall promptly and fully disclose to
the Company the origination or development by the Executive of any such
material and shall provide the Company with any information that it may
reasonably request about such material.

2
<PAGE> 3

4. Termination.

3
<PAGE> 4

6. Other Provisions.

6.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings unless the context otherwise requires:

(i) "affiliate" with respect to the Company means any other person
controlled by or under common control with the Company but shall not include any
stockholder or director of the Company, as such.

4
<PAGE> 5
(i) if to the Company, to:

Cliffs Drilling Company
-------------------------------------
1200 Smith Street, Suite 300
-------------------------------------
Houston, Texas 77002
-------------------------------------
Attention: Chief Executive Officer
-------------------------------------

(ii) if to the Executive, to:

Gary W. Owen
-------------------------------------
22106 Haden Park
-------------------------------------
Katy, TX 77450
-------------------------------------

Any party may change its address for notice hereunder by notice to the other
party hereto.

6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas (without giving effect to the
choice of law provisions thereof).

6.8 Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.

5
<PAGE> 6

Executed to be effective as of the date hereof.

CLIFFS DRILLING COMPANY

By: /s/ DOUGLAS E. SWANSON
-------------------------------
Name: Douglas E. Swanson
Title: President

/s/ GARY W. OWEN
- -----------------------------------
Gary W. Owen

<PAGE> 1

EXHIBIT 10.26

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of December 1, 1998, between CLIFFS DRILLING
COMPANY, a Delaware corporation (the "Company"), and Cindy B. Taylor (the
"Executive").

Accordingly, the parties agree as follows:

1. Employment Duties and Acceptance.

1.1 Employment by the Company: Duties. The Company hereby agrees to
employ the Executive for a term (the "Term") commencing on December 1, 1998 and
expiring on November 30, 2000 (the "Termination Date"), unless earlier
terminated as provided in Section 4. During the Term, the Executive shall at
all times serve in the capacity of Vice President - Controller of Company and
shall also serve in those offices and directorships of subsidiary corporations
or entities of the Parent to which he may from time to time be appointed or
elected. During the Term, the Executive shall devote his best efforts on a full
time basis in fulfillment of his employment hereunder, subject to the direction
of the Board of Directors of the Company. The Executive may engage in
commercial pursuits and in charitable and civic activities that do not
interfere with the performance of his duties hereunder.

1.2 Acceptance of Employment by the Executive. The Executive hereby
accepts such employment and shall render the services and perform the duties
described above.

2. Compensation and Other Benefits.

2.2 Bonuses. The Executive may receive, at the sole discretion of the
Board, bonuses.

<PAGE> 2

the extent provided in the Agreement And Plan of Merger dated August 21, 1998
among Parent, RBF Cliffs Acquisition Corp., and Company (the "Merger
Agreement"). Executive shall be covered by Company benefit plans in existence
as of the date hereof until such plans are merged into the plans of Parent, and
Executive shall be entitled to all benefits to be provided to Company employees
pursuant to the Merger Agreement.

2.4 General Business Expenses. The Company shall pay or reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
during the Term in the performance of the Executive's services under this
Agreement. Such payment shall be made upon presentation of such documentation
as the Company customarily requires of its senior executive employees prior to
making such payments or reimbursements.

3. Proprietary Matters.

3.1 Confidential Information; Personal Relationships. The Executive
acknowledges that the Company has a legitimate and continuing proprietary
interest in the protection of its confidential information and that it has
invested substantial sums and will continue to invest substantial sums to
develop, maintain and protect confidential information. The Executive agrees
that the Executive shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others all confidential matters
directly relating to the Company and its business, including without
limitation, financial information, trade secrets, customer lists, details of
client or consultant contracts, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans,
business acquisition plans, new personnel acquisition plans, technical
processes, designs and design projects, inventions and research projects of the
Company, its affiliates, or any entity which may hereafter become an affiliate
thereof.

3.3 Original Material. The Executive agrees that any inventions,
discoveries, improvements, ideas, concepts or original works of authorship
relating directly to the business of the Company, including without limitation
computer systems, programs and manufacturing techniques, whether or not
protectable by patent or copyright, that have been originated, developed or
reduced to practice by the Executive alone or jointly with others during the
Executive's employment with the Company shall be the property of and belong
exclusively to the Company. The Executive shall promptly and fully disclose to
the Company the origination or development by the Executive of any such
material and shall provide the Company with any information that it may
reasonably request about such material.

2
<PAGE> 3

4. Termination.

4.1 Termination upon Death. If the Executive dies during the Term,
this Employment Agreement shall terminate, except that the Executive's legal
representatives shall be entitled to receive the Annual Salary and bonuses, if
any, earned up to the date of the Executive's death, plus any Benefits accrued
up to the date of Executive's death.

4.2 Termination By Company With Cause. The Company has the right, at
any time, subject to all of the provisions hereof, exercisable by serving
notice, effective on or after the date of service of such notice as specified
therein, to terminate the Executive's employment under this Agreement and
discharge the Executive with Cause. As used in this Section 4.2, the term
"Cause" shall mean and include (i) chronic alcoholism or controlled substance
abuse as determined by a doctor mutually acceptable to the Company and the
Executive, (ii) an act of proven fraud or dishonesty on the part of the
Executive with respect to the Company or its subsidiaries; (iii) knowing and
material failure by the Executive to comply with material applicable laws and
regulations relating to the business of the Company or its subsidiaries; (iv)
the Executive's material and continuing failure to perform (as opposed to
unsatisfactory performance) his duties hereunder or a material breach by the
Executive of this Agreement except, in each case, where such failure or breach
is caused by the illness or other similar incapacity or disability of the
Executive; or (v) conviction of a misdemeanor involving moral turpitude or a
felony. Prior to the effectiveness of termination for Cause under subclause
(i), (ii), (iii) or (iv) above, the Executive shall be given 30 days' prior
notice from the Board specifically identifying the reasons which are alleged to
constitute cause for any termination hereunder and an opportunity to be heard
by the Board in the event Executive disputes such allegations. If Executive is
terminated for Cause, the Company's obligation to the Executive shall be
limited solely to the payment of unpaid Annual Salary accrued, bonuses earned,
if any, and any Benefits vested up to the effective date specified in the
Company's notice of termination.

4.3 Termination By Company Without Cause. The Company may terminate
Executive's employment without Cause; provided, in the event of termination by
the Company without Cause, the Company shall be obligated (but shall only be
obligated) to Executive for the payment, at the times and upon the terms
provided for herein, of the Executive's Annual Salary for the number of full
months remaining in the Term of this Agreement had the Executive not been so
terminated, based on the Annual Salary of the Executive in effect on the date
of termination (or, if the Company has reduced the Executive's Annual Salary in
breach of this Agreement, the Executive's Annual Salary before such reduction),
and assuming such Annual Salary would remain in effect for the full Term
together with all Benefits awarded or accrued and bonuses earned, if any, up to
the date of termination.

3
<PAGE> 4

4.5 Suspension upon Disability. If during the Term the Executive
becomes physically or mentally disabled, whether totally or partially, as
evidenced by the written statement of a competent physician licensed to
practice medicine in the United States who is mutually acceptable to the
Company and the Executive or his closest relative if he is not then able to
make such a choice, so that the Executive is unable substantially to perform
his services hereunder for (i) a period of sixty days, or (ii) for shorter
periods aggregating sixty days during any twelve-month period, the Company may
at any time thereafter, by written notice to the Executive, suspend the Term of
the Executive's employment hereunder and discontinue payments of the Annual
Salary for the duration of the disability. The Executive shall be entitled to
the full compensation payable to him hereunder for periods of disability
shorter than the periods specified in clauses (i) and (ii) of the sentence.
Nothing contained in this Section 4.5 shall be deemed to extend the Term or to
constitute a breach of this Agreement.

5. Insurance. The Company may, from time to time, apply for and take out, in
its own name and at its own expense, naming itself or others as the designated
beneficiary (which it may change from time to time), policies for life, health,
accident, disability or other insurance upon the Executive in any amount or
amounts that it may deem necessary or appropriate to protect its interest. The
Executive agrees to aid the Company in procuring such insurance by submitting
to medical examinations and by filling out, executing and delivering such
applications and other instruments in writing as may reasonably be required by
an insurance company or companies to which any application or applications for
insurance may be made by or for the Company.

6. Other Provisions.

6.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:

(i) "affiliate" with respect to the Company means any other person
controlled by or under common control with the Company but shall not include
any stockholder or director of the Company, as such.

6.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission
or, if mailed, on the date of actual receipt thereof, as follows:

(i) if to the Company, to:

(ii) if to the Executive, to:

Cindy B. Taylor
----------------------------------------------------
2260 Sunset Oaks
----------------------------------------------------
West Columbia, TX 77486
----------------------------------------------------

4
<PAGE> 5

Any party may change its address for notice hereunder by notice to the other
party hereto.

6.3 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all prior agreements, written or oral, with respect thereto.

6.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas (without giving effect to the
choice of law provisions thereof).

6.8 Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.

5
<PAGE> 6

Executed to be effective as of the date hereof.

CLIFFS DRILLING COMPANY

By: /s/ DOUGLAS E. SWANSON
----------------------------------------
Name: Douglas E. Swanson
Title: President

/s/ CINDY B. TAYLOR
- -----------------------------------
Cindy B. Taylor

<PAGE> 1
EXHIBIT 10.27

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of December 1, 1998, between CLIFFS DRILLING
COMPANY, a Delaware corporation (the "Company"), and Jim R. Wise (the
"Executive").

Accordingly, the parties agree as follows:

1. Employment Duties and Acceptance.

1.1 Employment by the Company: Duties. The Company hereby agrees to
employ the Executive for a term (the "Term") commencing on December 1, 1998 and
expiring on November 30, 2000 (the "Termination Date"), unless earlier
terminated as provided in Section 4. During the Term, the Executive shall at all
times serve in the capacity of Vice President - Domestic Drilling Operations of
Company and shall also serve in those offices and directorships of subsidiary
corporations or entities of the Parent to which he may from time to time be
appointed or elected. During the Term, the Executive shall devote his best
efforts on a full time basis in fulfillment of his employment hereunder, subject
to the direction of the Board of Directors of the Company. The Executive may
engage in commercial pursuits and in charitable and civic activities that do not
interfere with the performance of his duties hereunder.

1.2 Acceptance of Employment by the Executive. The Executive hereby
accepts such employment and shall render the services and perform the duties
described above.

2. Compensation and Other Benefits.

2.1 Annual Salary. The Company shall pay to the Executive an annual
salary at a rate of not less than $184,000 (the "Annual Salary"), prorated for
any partial calendar year, subject to increase at the sole discretion of the
Board. The Annual Salary shall be payable in accordance with the payroll
policies of the Company as from time to time in effect, but in no event less
frequently than once each month, less such deductions as shall be required to be
withheld by applicable law and regulations.

2.2 Bonuses. The Executive may receive, at the sole discretion of the
Board, bonuses.

<PAGE> 2

3. Proprietary Matters.

2
<PAGE> 3

4. Termination.

3
<PAGE> 4

6. Other Provisions.

6.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings unless the context otherwise requires:

(i) "affiliate" with respect to the Company means any other person
controlled by or under common control with the Company but shall not include any
stockholder or director of the Company, as such.

4
<PAGE> 5

(i) if to the Company, to:

Cliffs Drilling Company
----------------------------------------
1200 Smith Street, Suite 300
----------------------------------------
Houston, Texas 77002
----------------------------------------
Attention: Chief Executive Officer
----------------------------------------

(ii) if to the Executive, to:

Jim R. Wise
----------------------------------------
7919 Burgoyne
----------------------------------------
Houston, TX 77063
----------------------------------------

Any party may change its address for notice hereunder by notice to the other
party hereto.

6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas (without giving effect to the
choice of law provisions thereof).

6.8 Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.

5
<PAGE> 6

Executed to be effective as of the date hereof.

CLIFFS DRILLING COMPANY

By: /s/ DOUGLAS E. SWANSON
----------------------------------------
Name: Douglas E. Swanson
Title: President

/s/ JIM R. WISE
- -------------------------------------------
Jim R. Wise

<PAGE> 1
EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

1. Cliffs Drilling International, Inc., a Delaware corporation wholly owned
by Cliffs Drilling Company.

2. Cliffs Oil and Gas Company, a Delaware corporation wholly owned by
Cliffs Drilling Company (f/k/a Cliffs Exploration Company, f/k/a Cliffs
Offshore, Inc.)

3. Cliffs Drilling Venezuela, Inc., a Delaware corporation wholly owned by
Cliffs Drilling Company.

4. Cliffs Drilling de Venezuela, S.A., a Venezuelan corporation wholly
owned by Cliffs Drilling Company.

5. Cliffs Drilling de Mexico, S.A. de C.V., a Mexican corporation wholly
owned by Cliffs Drilling International, Inc.

6. Cliffs Drilling do Brasil Servicos de Petroleo S/C Ltda., a Brazilian
corporation owned 90% by Cliffs Drilling Company and 10% by a third
party as nominee for the benefit of Cliffs Drilling Company.

7. Cliffs Central Drilling International, a joint venture between Cliffs
Drilling International, Inc. and Perforadora Central, S.A. de C.V., in
which Cliffs Drilling International, Inc. owns a 50% interest.

8. Servicios Integrados Petroleros C.C.I., S.A., a Venezuelan joint venture
company among Cliffs Drilling Company, Inelectra S.A. and Cementaciones
Petroleras Venezolanas C.A., in which Cliffs Drilling Company owns a
one-third (33 1/3%) interest.

9. Cliffs Neddrill Central Turnkey International, a joint venture among
Cliffs Drilling International, Inc., Neddrill Turnkey Drilling B.V. and
Perforadora Central, S.A. de C.V., in which Cliffs Drilling
International, Inc. owns a one-third (33 1/3%) interest.

10. Cliffs Drilling Trinidad L.L.C., a Delaware limited liability company of
which Cliffs Drilling Company is the single member.

11. Cliffs Drilling (Barbados) Holdings SRL, a Barbados Exempt Societies
with Restricted Liability owned 99.99% by Cliffs Drilling Company and
.01% by Cliffs Drilling Trinidad L.L.C.

12. Cliffs Drilling (Barbados) SRL, a regular Barbados Societies with
Restricted Liability, owned 99.99% by Cliffs Drilling (Barbados)
Holdings SRL and .01% by Cliffs Drilling Trinidad L.L.C.

13. Cliffs Drilling Trinidad Offshore Limited., a Trinidad and Tobago
private limited company wholly owned by Cliffs Drilling (Barbados) SRL.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-29915, 33-37162, 33-71778 and 333-27543)
pertaining to the 1988 Incentive Equity Plan of Cliffs Drilling Company of our
report dated February 17, 1999, with respect to the consolidated financial
statements of Cliffs Drilling Company included in the Annual Report (Form 10-K)
for the year ended December 31, 1998.

/s/ ERNST & YOUNG LLP

Houston, Texas
March 25, 1999

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 36,276
<SECURITIES> 0
<RECEIVABLES> 42,846
<ALLOWANCES> 472
<INVENTORY> 10,335
<CURRENT-ASSETS> 123,609
<PP&E> 508,739
<DEPRECIATION> 2,898
<TOTAL-ASSETS> 717,256
<CURRENT-LIABILITIES> 52,941
<BONDS> 202,935
0
0
<COMMON> 0
<OTHER-SE> 404,489
<TOTAL-LIABILITY-AND-EQUITY> 717,256
<SALES> 335,824
<TOTAL-REVENUES> 335,824
<CGS> 196,918
<TOTAL-COSTS> 238,074
<OTHER-EXPENSES> (606)
<LOSS-PROVISION> 279
<INTEREST-EXPENSE> 20,443
<INCOME-PRETAX> 77,634
<INCOME-TAX> 26,545
<INCOME-CONTINUING> 51,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,089
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>