PRIDE PETROLEUM SERVICES INC, 424B1, 1996-01-24

PRIDE PETROLEUM SERVICES INC
424B1, 1996-01-24
OIL & GAS FIELD SERVICES, NEC

Previous: KINETIC CONCEPTS INC /TX/, S-3/A, 1996-01-24

Next: TMS INC /OK/, S-4/A, 1996-01-24

PROSPECTUS
JANUARY 22, 1996

$70,000,000

PRIDE
PETROLEUM
SERVICES

6 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006

The Debentures are convertible into Common Stock of the Company at any time
prior to maturity at a conversion price of $12.25 per share (equivalent to a
conversion rate of 81.633 shares per $1,000 principal amount of Debentures),
subject to adjustment under certain circumstances. Interest on the Debentures is
payable semi-annually on February 15 and August 15, commencing August 15, 1996.
On January 22, 1996, the last reported sale price of the Common Stock on the
NASDAQ National Market System (where it is traded under the symbol "PRDE") was
$10 per share. The Debentures have been approved for listing on the NASDAQ
SmallCap Market under the symbol "PRDEG."

The Debentures are redeemable, in whole or in part, at the option of the
Company, for cash at any time on or after March 1, 1999 at the redemption prices
set forth herein, plus accrued and unpaid interest to the date of redemption.
The Company will be required to offer to purchase the Debentures in the event of
a Change of Control (as defined) or if the Company's Common Stock ceases to be
listed on the NASDAQ National Market System or a national securities exchange,
at 100% of the principal amount thereof, plus accrued and unpaid interest to the
date of purchase. The Debentures will mature on February 15, 2006. See
"Description of Debentures."

The Debentures are unsecured general obligations of the Company,
subordinated in right of payment to all existing and future Senior
Indebtedness (as defined) of the Company. In addition, the Debentures are
effectively subordinated to all of the creditors of the Company's
subsidiaries, including trade creditors. The Indenture does not restrict the
incurrence of Senior Indebtedness or other indebtedness by the Company or its
subsidiaries. At September 30, 1995, as adjusted to give effect to this
offering and the anticipated use of the net proceeds therefrom, the Company
and its subsidiaries would have had an aggregate of $105.4 million of
consolidated indebtedness and other obligations effectively ranking senior to
the Debentures. See "Use of Proceeds" and "Description of Debentures."

SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE DEBENTURES OFFERED
HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO THE
THE PUBLIC (1) AND COMMISSIONS (2) COMPANY(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture........................ 100.0% 3.0% 97.0%
Total (4)............................ $70,000,000 $2,100,000 $67,900,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) PLUS ACCRUED INTEREST, IF ANY, FROM THE DATE OF ISSUANCE.

(2) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."

(3) BEFORE DEDUCTING EXPENSES ESTIMATED AT $500,000 PAYABLE BY THE COMPANY.

(4) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO AN ADDITIONAL $10,500,000 AGGREGATE PRINCIPAL AMOUNT OF DEBENTURES, ON
THE SAME TERMS AND CONDITIONS AS SET FORTH ABOVE, TO COVER OVER-ALLOTMENTS,
IF ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC,
UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO THE COMPANY WILL BE
$80,500,000, $2,415,000, AND $78,085,000, RESPECTIVELY. SEE "UNDERWRITING."

The Debentures are offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the Debentures will be made in New York, New York on
or about January 26, 1996.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ROBERT W. BAIRD & CO.
INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
<PAGE>
[PHOTOS]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES AND
THE COMMON STOCK AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET SYSTEM IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS
PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED. AS USED IN THIS PROSPECTUS, THE "COMPANY" OR "PRIDE" REFERS TO
PRIDE PETROLEUM SERVICES, INC. AND ITS SUBSIDIARIES.

THE COMPANY

Pride Petroleum Services, Inc. is a leading domestic and international
provider of well servicing, workover, contract drilling, completion, and
plugging and abandonment services, both on land and offshore. The Company's
fleet of 519 owned rigs is the world's second largest, consisting of 429 land-
based rigs divided among three operating regions in the United States, 65
land-based rigs deployed in international markets, 23 offshore platform rigs
located in the Gulf of Mexico and two drilling/workover barge rigs located in
Venezuela. The Company performs maintenance and workovers necessary to operate
producing oil and gas wells efficiently and provides contract drilling of new
wells in certain international and offshore markets. The Company also provides
services for the completion of newly drilled oil and gas wells and plugging
and abandonment services at the end of a well's useful life.

Through the implementation of an aggressive growth and diversification
strategy, which commenced in mid-1993, the Company has increased its total
assets approximately two and one-half times, from $94.0 million as of June 30,
1993 to $256.8 million as of September 30, 1995. Revenues have increased
approximately two-fold, from $127.1 million for the year ended December 31,
1993 to $252.8 million for the twelve months ended September 30, 1995, and
EBITDA (earnings before interest, taxes, depreciation and amortization) has
increased approximately four-fold, from $9.1 million to $38.9 million for the
same periods. For the nine months ended September 30, 1995, revenues increased
55% to $198.5 million from $128.0 million during the same period in 1994 and
EBITDA increased 189% to $33.2 million from $11.5 million during the same
period in 1994.

BUSINESS STRATEGY

The Company's goal is to achieve revenue and earnings growth through a
strategy of (i) acquisitions in both international and domestic markets, (ii)
deployment of its excess domestic rig capacity to more profitable
international markets and (iii) upgrades to enhance the capabilities and
profitability of its existing rig fleet. International and offshore operations
generally have greater profit potential than domestic land-based operations
because of less competition, higher utilization and stronger demand resulting
from a general trend by major oil operators toward shifting expenditures to
exploration and development activities abroad. For these reasons, the Company
has actively sought to diversify beyond its domestic land-based operations,
which prior to mid-1993 accounted for substantially all of the Company's
revenues and earnings. For the nine months ended September 30, 1995, the
Company's international and offshore operations accounted for approximately
57% of the Company's total revenue and 77% of the Company's total earnings
from operations.

In implementing its strategy, since mid-1993, the Company has acquired
four businesses with 47 land-based rigs serving international markets and a
fleet of 22 rigs serving the domestic offshore market. The Company has further
expanded international operations by deploying 28 underutilized rigs from its
U.S. fleet to Argentina, Venezuela and Russia since entering those markets.
Additionally, in 1994 the Company constructed two drilling/workover barge rigs
now operating in Venezuela, and in 1995 constructed one platform rig now
operating in the Gulf of Mexico. Because the Company believes that providing
high quality equipment, employees and services in a safe work environment is
critical to its strategy, the Company has committed substantial capital to an
ongoing rig refurbishment program and to quality, safety and management
training programs.

INTERNATIONAL OPERATIONS

Since the beginning of 1993, the Company has expanded its international
operations through acquisitions and deployment of underutilized domestic
assets into Argentina, Venezuela, Colombia and Russia. The Company currently
operates 45 rigs in Argentina, 11 land-based and two barge rigs in Venezuela,
six rigs in Colombia and three rigs in Russia. In July 1993, the Company
purchased established well servicing and drilling operations in Argentina and
Venezuela and, in February 1994, acquired a four-rig competitor in Argentina.
The Company has also upgraded and deployed 25 rigs from its U.S. land-based
fleet to Argentina and Venezuela and plans to use a portion of the proceeds of
this offering to upgrade and deploy four drilling and seven workover rigs to
international markets in early 1996. In 1994, the Company built two
drilling/workover barge rigs which were placed in operation in Venezuela in
January 1995 under ten-year contracts. In October 1995, the Company acquired a
six-rig drilling operation in Colombia. During the first half of 1993, the
Company deployed three rigs from its U.S. land-based fleet to Western Siberia.
The Company continues to review opportunities to expand internationally
through deployment of underutilized domestic assets, acquisitions and new rig
construction projects. International operations accounted for approximately
38% of the Company's operating revenues in the first nine months of 1995,
while generating 50% of earnings from operations.

DOMESTIC OFFSHORE OPERATIONS

In June 1994, the Company commenced operations in the Gulf of Mexico
through the acquisition of the largest fleet of offshore platform workover
rigs in that market. The Company operates 23 platform rigs (approximately 45%
of available market capacity), a fleet approximately twice as large as that of
its next largest competitor. The Company has made substantial capital
improvements in this fleet and believes it has one of the most technologically
advanced fleets in the industry, which the Company believes has led to higher
day rates and increased utilization of its rigs. Domestic offshore operations
accounted for approximately 19% of the Company's operating revenues for the
first nine months of 1995, while generating 26% of earnings from operations.

DOMESTIC LAND-BASED OPERATIONS

The Company's domestic land-based fleet consists of 429 rigs that operate
from 21 service locations concentrated primarily in California, the Permian
Basin areas of West Texas and New Mexico, and the Texas and Louisiana Gulf
Coast. Pride has enhanced the profitability of its domestic land-based
operations by increasing efficiency and implementing cost-saving measures. The
Company actively considers acquisition opportunities in its three principal
domestic markets when such acquisitions may result in significant
consolidation savings and operating efficiencies. In March 1995, the Company
acquired an operator of 35 well servicing rigs in New Mexico. The Company has
increased earnings from such operations from $1.3 million for the year ended
December 31, 1993 to $4.4 million for the twelve months ended September 30,
1995. Domestic land-based operations accounted for approximately 43% of the
Company's operating revenues for the first nine months of 1995, while
generating 24% of earnings from operations.

THE OFFERING
<TABLE>
<S> <C>
Securities Offered................... $70,000,000 principal amount of 6 1/4% Convertible Subordinated
Debentures due 2006 (the "Debentures").

Payment of Interest.................. February 15 and August 15, commencing August 15, 1996.

Conversion Rights.................... The Debentures are convertible, at the holder's option, into
shares of Common Stock of the Company at any time at or prior to
maturity at a conversion price of $12.25 per share, subject to
adjustment under certain circumstances as described herein (the
"Conversion Price"). Accordingly, each $1,000 principal amount of
Debentures is convertible into 81.633 shares of Common Stock,
subject to adjustment, for an aggregate of 5,714,285 shares for all
the Debentures. See "Capitalization."

Optional Redemption.................. The Debentures are redeemable, in whole or in part, at the option
of the Company at any time on or after March 1, 1999 at the
redemption prices set forth herein, plus accrued and unpaid
interest to the date of redemption.

Change of Control/Failure to Maintain
Listing............................ If a Change of Control (as defined) occurs, or if the Common Stock
ceases to be listed on the NASDAQ
National Market System or a national securities exchange, each
holder of Debentures will have the right to require the Company to
purchase all or any part of such holder's Debentures at 100% of
the principal amount thereof, plus accrued and unpaid interest to
the date of purchase.

Subordination........................ The Debentures are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior
Indebtedness (as defined) of the Company. In addition, the
Debentures are effectively subordinated to all of the creditors of
the Company's subsidiaries, including trade creditors. The
indenture governing the Debentures will not include any covenants
limiting or restricting the ability of the Company or its
subsidiaries to incur any indebtedness.

Maturity............................. February 15, 2006.

Use of Proceeds...................... The net proceeds from the sale of the Debentures will be used to
fund capital expenditures, primarily for rig fleet expansion in
international and offshore markets, to repay indebtedness and for
general corporate purposes. See "Use of Proceeds."

Trading.............................. The Debentures have been approved for listing on the NASDAQ
SmallCap Market under the symbol "PRDEG." The Company's Common
Stock is traded on the NASDAQ National Market System
(symbol: PRDE).
</TABLE>
5

SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
(IN THOUSANDS, EXCEPT RATIOS, RIGS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 101,654 $ 112,224 $ 101,382 $ 127,099 $ 182,336 $ 128,036 $ 198,512
Operating costs...................... 78,980 87,700 83,829 100,305 139,653 99,402 143,376
Depreciation and amortization........ 4,641 5,861 5,649 6,407 9,550 6,807 12,077
Selling, general and
administrative..................... 11,208 13,825 14,076 17,572 25,105 16,802 23,620
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from operations...... $ 6,825 $ 4,838 $ (2,172) $ 2,815 $ 8,028 $ 5,025 $ 19,439
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)(1)............... $ 4,666 $ 3,519 $ (842) $ 5,940 $ 6,214 $ 3,836 $ 11,227
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per share(1)..... $ .29 $ .22 $ (.05) $ .36 $ .30 $ .20 $ .44
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER OPERATING DATA:
EBITDA(2)............................ $ 11,507 $ 10,800 $ 3,482 $ 9,087 $ 17,273 $ 11,512 $ 33,156
Capital and acquisition
expenditures......................... 13,756 5,918 4,094 21,875 81,388 55,869 36,425
Ratio of earnings to fixed charges(3)
Historical....................... 33.6x 14.3x (1.3)x 5.8x 6.2x 5.8x 4.1x
Pro forma(4)..................... 1.7x 1.4x 2.7x
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital...................... $ 20,884 $ 25,983 $ 29,989 $ 21,758 $ 26,640 $ 31,218 $ 28,914
Property and equipment, net.......... 46,359 46,424 45,084 62,823 139,899 97,508 173,264
Total assets......................... 85,600 89,819 94,842 109,981 205,193 172,910 256,818
Long-term debt, net of current
portion............................ 5,944 4,908 3,648 200 42,096 6,488 58,817
Shareholders' equity................. 58,946 62,376 61,774 69,126 111,385 108,960 126,546
NUMBER OF RIGS (AT END OF PERIOD):
International........................ -- -- -- 51 60 54 67
Domestic -- offshore................. -- -- -- -- 22 22 23
Domestic -- land-based............... 409 437 430 410 400 404 429
--------- --------- --------- --------- --------- --------- ---------
Total number of rigs............. 409 437 430 461 482 480 519
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>

- ------------
(1) Net earnings for the year ended December 31, 1993 include $3,835,000 ($.23
per share), representing the cumulative effect of a change in accounting
for income taxes. See Note 5 of Notes to Consolidated Financial
Statements.

(2) EBITDA (earnings before interest, taxes, depreciation, and amortization)
is presented here to provide additional information about the Company's
operations. EBITDA should not be considered as an alternative to net
income as an indicator of the Company's operating performance or as an
alternative to cash flows as a better measure of liquidity.

(3) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest
expense plus capitalized interest and the portion of operating lease
rental expense that represents the interest factor).

(4) Assumes the Debentures bear interest at an annual rate of 6%, but does not
give effect to interest earned on proceeds of this offering prior to
application thereof.

INVESTMENT CONSIDERATIONS

THE FOLLOWING SHOULD BE CONSIDERED CAREFULLY WITH THE INFORMATION
PROVIDED ELSEWHERE IN THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES THERETO, IN
REACHING A DECISION REGARDING AN INVESTMENT IN THE DEBENTURES OFFERED HEREBY.

DEPENDENCE ON OIL AND GAS INDUSTRY; INDUSTRY CONDITIONS

The Company's current business and operations are substantially dependent
upon the conditions in the oil and gas industry and, specifically, the
exploration and production expenditures of oil and gas companies. The demand
for well servicing and workover activities is directly influenced by oil and
gas prices, expectations about future prices, the cost of producing and
delivering oil and gas, government regulations, local and international
political and economic conditions, including the ability of the Organization
of Petroleum Exporting Countries ("OPEC") to set and maintain production
levels and prices, the level of production by non-OPEC countries and the
policies of the various governments regarding exploration and development of
their oil and gas reserves. A substantial amount of the Company's land-based
equipment is currently in service in U.S. markets where, despite occasional
upturns, the demand for well servicing and related services has been severely
depressed for most of the last decade due in large part to prolonged weakness
and uncertainty in oil and gas prices. Diminished demand during this period
has led to lower day rates and lower utilization of available equipment.

OPERATING RISKS; INSURANCE

The Company's operations are subject to the many hazards inherent in the
well servicing industry. Performance of the Company's services requires the
use of heavy equipment and exposure to hazardous conditions, which may subject
the Company to liability claims by employees, customers and third parties.
These hazards can cause personal injury or loss of life, severe damage to or
destruction of property and equipment, pollution or environmental damage and
suspension of operations. The Company's Gulf of Mexico fleet and the
Venezuelan barge rigs are also subject to hazards inherent in marine
operations, either while on site or during mobilization, such as capsizing,
sinking, and damage from severe weather conditions. In certain instances,
contractual indemnification of customers or others is required of the Company.
The Company maintains workers' compensation insurance for its employees and
other insurance coverage for normal business risks, including general
liability insurance. Although the Company believes its insurance coverages to
be adequate and in accordance with industry practice against normal risks in
its operations, there can be no assurance that any insurance protection will
be sufficient or effective under all circumstances or against all hazards to
which the Company may be subject. The Company has elected not to insure most
of its domestic land-based rigs against property damage. Because the Company
is able to use its fleet of excess rigs to repair or replace damaged rigs, the
Company believes such action is cost effective. The occurrence of a
significant event against which the Company is not fully insured, or of a
number of lesser events against which the Company is insured, but subject to
substantial deductibles, could materially and adversely affect the Company's
operations and financial condition. Moreover, no assurance can be given that
the Company will be able to maintain adequate insurance in the future at rates
or on terms it considers reasonable or acceptable.

COMPETITION

Competition is intense in all markets in which the Company operates, and
with respect to certain services or operating regions, a few competitors may
have greater access to financial or other resources than the Company. The
domestic land-based well servicing industry is highly fragmented and is
characterized by a few large companies and numerous smaller companies. In the
international markets in which the Company operates, the Company believes that
it has fewer competitors and a greater opportunity to operate under long-term
contracts. Similarly, while competition in the Gulf of Mexico for platform
workover services is intense, the Company has fewer competitors in that
market. In recent

years, customers have placed emphasis not only on pricing, but also
increasingly on safety and quality of service. See "Business -- Competition."

CERTAIN CUSTOMERS

In Argentina, approximately 68% of the Company's business for the nine
months ended September 30, 1995 was conducted for YPF Sociedad Anonima
("YPF"), the successor to the operations of the former state-owned oil
company. Services provided to YPF accounted for approximately 17% of the
Company's consolidated revenues for the nine months ended September 30, 1995.
One customer, Shell Oil Company, accounted for approximately 59% of revenues
from domestic offshore operations for the nine months ended September 30,
1995. Revenues from Shell Oil Company and its affiliates from both land-based
and offshore operations accounted for approximately 15% of consolidated
revenues for the nine months ended September 30, 1995. The loss of YPF or
Shell Oil Company and its affiliates as customers could have a material
adverse effect on the Company's operations and financial condition. See
"Business -- Customers."

INTERNATIONAL OPERATIONS

An increasingly significant portion of the Company's revenues are
attributable to international operations, which provided approximately 35% of
the Company's revenues during the year ended December 31, 1994 and
approximately 38% of the Company's revenues for the nine months ended
September 30, 1995. Risks associated with operating in international markets
include foreign exchange restrictions and currency fluctuations, foreign
taxation, changing political conditions and foreign and domestic monetary and
tax policies, expropriation, nationalization, nullification, modification or
renegotiation of contracts, war and civil disturbances or other risks that may
limit or disrupt markets. Although the Company has obtained political risk
insurance from the Overseas Private Investment Corporation ("OPIC"), a U.S.
government entity, with respect to its Venezuelan operations, such insurance
cannot fully protect the Company against all possible losses. Additionally,
the ability of the Company to compete in the international well servicing and
drilling markets may be adversely affected by foreign governmental regulations
that favor or require the awarding of such contracts to local contractors, or
by regulations requiring foreign contractors to employ citizens of, or
purchase supplies from, a particular jurisdiction. No predictions can be made
as to what foreign governmental regulations may be enacted in the future that
could be applicable to the Company's operations. See "Business --
International Operations" and "-- Contracts."

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

Many aspects of the Company's operations are affected by domestic and
foreign political developments and are subject to numerous state, federal and
foreign governmental regulations that may relate directly or indirectly to the
well servicing industry. The Company's operations routinely involve the
handling of waste materials, some of which are classified as hazardous
substances. Consequently, the regulations applicable to the Company's
operations include those with respect to containment, disposal and controlling
the discharge of hazardous oilfield waste and other non-hazardous waste
material into the environment, requiring removal and cleanup under certain
circumstances, or otherwise relating to the protection of the environment.
Laws and regulations protecting the environment have become more stringent in
recent years, and may in certain circumstances impose "strict liability,"
rendering a party liable for environmental damage without regard to negligence
or fault on the part of such party. Such laws and regulations may expose the
Company to liability for the conduct of, or conditions caused by, others, or
for acts of the Company which were in compliance with all applicable laws at
the time such acts were performed. The application of these requirements or
the adoption of new requirements could have a material adverse effect on the
Company. In addition, the modification of existing laws or regulations or the
adoption of new laws or regulations curtailing exploratory or development
drilling for oil and gas for economic, environmental or other reasons could
have a material adverse effect on the Company's operations by limiting future
well servicing opportunities.

The President of the United States has recently proposed the enactment of
tax legislation that would, if enacted, disallow the interest deduction for
certain issuances of convertible debentures on or after December 7, 1995 when
it is substantially certain at the time of issuance that the conversion right
will be exercised. The Company believes, based upon the conversion premium of
the Debentures and the information that has been publicly released to date,
that such legislation is not intended to apply to the Debentures. However,
there can be no assurance regarding what form such legislative proposal might
ultimately take, if enacted into law, including whether such legislation might
adversely affect the Company's deduction of interest with respect to the
Debentures.

SUBORDINATION; COMPANY STRUCTURE; SUBSIDIARY CASH FLOW

The Debentures are general, unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company. Under the Indenture, generally, the Company will
not be permitted to pay the principal of, or premium, if any, or interest on
the Debentures or repurchase, redeem or otherwise retire any Debentures in the
event of a default in the payment of any principal of, premium, if any, or
interest on any Senior Indebtedness of the Company when it becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise, unless and until such payment default has been cured
or waived, or in the event of certain other defaults with respect to Senior
Indebtedness. In addition, the Debentures are effectively subordinated to all
of the creditors of the Company's subsidiaries, including trade creditors. As
of September 30, 1995, as adjusted to give effect to this offering and the
anticipated use of the net proceeds therefrom, the Company and its
subsidiaries would have had an aggregate of $105.4 million of consolidated
indebtedness and other obligations effectively ranking senior to the
Debentures. The Indenture will not restrict the incurrence of Senior
Indebtedness or other indebtedness by the Company or any of its subsidiaries.
See "Description of Debentures -- Subordination."

The Company conducts a significant portion of its operations through both
U.S. and foreign subsidiaries. Accordingly, the Company may be dependent, from
time to time, in whole or in part, on its ability to obtain funds from its
subsidiaries in order to service its indebtedness, including the Debentures.
Certain financing arrangements that the Company's subsidiaries are party to
impose restrictions on the ability of the Company to gain access to the cash
flow or assets of its subsidiaries. In addition, the Company's foreign
subsidiaries may face governmentally imposed restrictions, from time to time,
on their ability to transfer funds to the Company. See "Business."

LACK OF LIQUIDITY

Although the Debentures have been approved for listing on the NASDAQ
SmallCap Market, there can be no assurance as to the liquidity of the trading
market for the Debentures or that an active trading market for the Debentures
will develop.

CERTAIN ANTI-TAKEOVER MEASURES

Certain provisions of the Company's Articles of Incorporation and Bylaws,
as well as certain provisions of Louisiana law, may serve to discourage
takeover attempts that a shareholder might consider to be in its best
interest. See "Description of Capital Stock -- Certain Provisions of the
Articles, Bylaws and Louisiana Law." In addition, the Company has entered into
employment agreements with certain key members of management providing for the
payment of certain severance benefits to such persons in the event of their
termination following a change in control of the Company.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol "PRDE." The following table sets forth the high and low sale
prices of the Common Stock for the periods indicated below as reported by
NASDAQ.

PRICE
---------------
HIGH LOW
1993
First Quarter...................... $5 $3 1/2
Second Quarter..................... 5 1/2 4 3/8
Third Quarter...................... 6 1/8 4 1/2
Fourth Quarter..................... 7 1/2 4 7/8
1994
First Quarter...................... $6 1/4 $4 7/8
Second Quarter..................... 5 7/8 4 3/4
Third Quarter...................... 5 7/8 4 5/8
Fourth Quarter..................... 5 1/2 4 5/8
1995
First Quarter...................... $7 3/8 $4 3/4
Second Quarter..................... 8 3/4 6 1/2
Third Quarter...................... 10 1/2 7 3/8
Fourth Quarter..................... 11 8
1996
First Quarter (through January 22). 11 1/2 9 3/4

On January 22, 1996, the last reported sale price of the Common Stock on
the NASDAQ National Market System was $10 per share. As of December 15, 1995,
there were 2,155 holders of record of Common Stock.

The Company has not paid any cash dividends on the Common Stock since
becoming an independent publicly held corporation in September 1988. The Board
of Directors currently intends to retain any earnings for use in the Company's
business and does not anticipate paying dividends on the Common Stock at any
time in the foreseeable future. Furthermore, the Company may be restricted
from paying cash dividends on the Common Stock by the terms of future
borrowing agreements.

USE OF PROCEEDS

The net proceeds to the Company from the sale of Debentures offered hereby
will be approximately $67.4 million ($77.6 million if the Underwriters'
over-allotment option is exercised in full). Approximately $25 million of the
net proceeds will be used to fund various capital projects, including the
refurbishment, equipping and deployment to international markets of seven
workover and four drilling rigs, the purchase and outfitting of a specially
designed rig for land-based operations, the conversion of three conventional
platform well-servicing rigs to modular, diesel-electric powered units and the
purchase of auxiliary equipment to enhance the operating capability of the
offshore fleet. Approximately $5 million of the net proceeds will be used to
repay outstanding indebtedness under the Company's working capital facility,
which provides for interest at the lender's prime rate plus 1% (currently 9.5%)
and matures in April 1996, and another $5 million will be used to repay other
outstanding indebtedness, which accrues interest at rates ranging from 8.0% to
9.5% with maturities ranging from less than one year to approximately four
years. The balance of the proceeds will be available for general corporate
purposes, including the replenishment of $6 million in working capital used to
fund the acquisition of Marlin Colombia Drilling Co. Inc. in October 1995 and $2
million in working capital used during the second half of 1995 to acquire the
four drilling rigs being refurbished as described above. Pending such uses, the
Company will invest the net proceeds in short-term, investment grade securities.
The Company intends to use any excess proceeds and available borrowing

capacity to pursue its business strategy, including acquisitions and capital
projects primarily in the offshore and international markets.

CAPITALIZATION

The following table sets forth the consolidated short-term debt and
capitalization of the Company and its subsidiaries as of September 30, 1995
(i) on a historical basis and (ii) as adjusted to give effect to the issuance
and sale of the Debentures offered hereby by the Company (assuming the
Underwriters' over-allotment option is not exercised) and application of the
proceeds therefrom.

SEPTEMBER 30, 1995
-----------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
CASH AND CASH EQUIVALENTS(1)......... $ 11,139 $ 43,539
-------- -----------
-------- -----------
SHORT-TERM DEBT AND CURRENT
MATURITIES OF LONG-TERM DEBT....... $ 12,756 $ 3,022
-------- -----------
-------- -----------
LONG-TERM DEBT
6 1/4% Convertible Subordinated
Debentures due 2006........... $ -- $ 70,000
Limited-recourse secured term
loans......................... 39,413 39,413
Secured term loans.............. 10,430 10,430
Notes payable................... 8,974 8,708
-------- -----------
Total long-term debt, net
of current maturities... 58,817 128,551
-------- -----------
SHAREHOLDERS' EQUITY
Preferred Stock, no par value,
5,000,000 shares authorized;
no shares
issued or outstanding........ -- --
Common Stock, no par value;
40,000,000 shares authorized;
24,849,572 shares issued and
24,795,352 shares
outstanding(2)................ 1 1
Paid-in capital................. 95,190 95,190
Treasury stock.................. (191) (191)
Retained earnings............... 31,546 31,546
-------- -----------
Total shareholders'
equity.................. 126,546 126,546
-------- -----------
Total
capitalization.... $185,363 $ 255,097
-------- -----------
-------- -----------

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

(1) After giving effect to $25 million of capital expenditures and $10 million
used to repay indebtedness as described in "Use of Proceeds."

(2) Does not include 2,153,350 shares reserved for issuance upon exercise of
outstanding stock options, 622,200 shares available for future grants
under the Company's stock option plans, 15,000 shares purchasable upon
exercise of warrants or 5,714,285 shares initially issuable upon conversion
of the Debentures.

SELECTED FINANCIAL DATA

The following selected consolidated financial information as of December
31, 1993 and 1994, and for each of the three years in the period ended
December 31, 1994 has been derived from the audited consolidated financial
statements of the Company included elsewhere herein. This information should
be read in conjunction with such consolidated financial statements and the
notes thereto. The selected income statement and balance sheet data for the
nine-month periods ended or as of September 30, 1994 and 1995 have been
derived from the unaudited consolidated financial statements of the Company,
which include all adjustments, consisting of normal recurring accruals, that
the Company considers necessary for a fair presentation of its financial
position and results of operations for these periods. Operating results from
the nine-month period ended September 30, 1995 are not necessarily indicative
of the results that may be expected for the entire year. The selected
consolidated financial information as of December 31, 1990, 1991 and 1992, and
for each of the two years in the period ended December 31, 1991 has been
derived from audited consolidated financial statements of the Company which
are not included herein. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 101,654 $ 112,224 $ 101,382 $ 127,099 $ 182,336 $ 128,036 $ 198,512
Operating costs...................... 78,980 87,700 83,829 100,305 139,653 99,402 143,376
Depreciation and amortization........ 4,641 5,861 5,649 6,407 9,550 6,807 12,077
Selling, general and
administrative..................... 11,208 13,825 14,076 17,572 25,105 16,802 23,620
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from operations...... 6,825 4,838 (2,172) 2,815 8,028 5,025 19,439
Other income (expense)............... 766 880 813 504 106 (19) (2,472)
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes
and cumulative effect of change in
accounting for income taxes........ 7,591 5,718 (1,359) 3,319 8,134 5,006 16,967
Income tax provision (benefit)....... 2,925 2,199 (517) 1,214 1,920 1,170 5,740
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) before cumulative
effect of change in accounting for
income taxes....................... 4,666 3,519 (842) 2,105 6,214 3,836 11,227
Cumulative effect of change in
accounting for income taxes........ -- -- -- 3,835 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss).................. $ 4,666 $ 3,519 $ (842) $ 5,940 $ 6,214 $ 3,836 $ 11,227
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per share before
cumulative effect of change in
accounting for income taxes........ $ .29 $ .22 $ (.05) $ .13 $ .30 $ .20 $ .44
Cumulative effect of change in
accounting for income taxes -- -- -- .23 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per share........ $ .29 $ .22 $ (.05) $ .36 $ .30 $ .20 $ .44
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average common shares and
equivalents outstanding 16,305 16,354 16,245 16,487 20,795 19,590 25,280
OTHER OPERATING DATA:
EBITDA(1)............................ $ 11,507 $ 10,800 $ 3,482 $ 9,087 $ 17,273 $ 11,512 $ 33,156
Capital and acquisition
expenditures....................... 13,756 5,918 4,094 21,875 81,388 55,869 36,425
Ratio of earnings to fixed
charges(2)......................... 33.6x 14.3x (1.3)x 5.8x 6.2x 5.8x 4.1x
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital...................... $ 20,884 $ 25,983 $ 29,989 $ 21,758 $ 26,640 $ 31,218 $ 28,914
Property and equipment, net.......... 46,359 46,424 45,084 62,823 139,899 97,508 173,264
Total assets......................... 85,600 89,819 94,842 109,981 205,193 172,910 256,818
Long-term debt, net of current
portion............................ 5,944 4,908 3,648 200 42,096 6,488 58,817
Shareholders' equity................. 58,946 62,376 61,774 69,126 111,385 108,960 126,546
</TABLE>
- ------------

(1) EBITDA (earnings before interest, taxes, depreciation, and amortization)
is presented here to provide additional information about the Company's
operations. EBITDA should not be considered as an alternative to net
income as an indicator of the Company's operating performance or as an
alternative to cash flows as a better measure of liquidity.

(2) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest
expense plus capitalized interest and the portion of operating lease
rental expense that represents the interest factor).

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

GENERAL

The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto included
elsewhere herein.

Increases and decreases in domestic well servicing activity historically
have had a significant correlation with changes in oil and natural gas prices.
International well servicing activity is also affected by fluctuations in oil
and natural gas prices, but historically to a lesser extent than domestic
activity. International well servicing contracts are typically for terms of
one year or more, while domestic contracts are typically entered into for one
or multiple wells. Accordingly, international well servicing activities
generally are not as sensitive to short-term changes in oil and gas prices as
domestic operations.

Since 1993, the Company has entered into a number of transactions that
have significantly expanded the Company's operations, including the following:

In March 1995, the Company acquired X-Pert Enterprises, Inc.
("X-Pert"), which operates 35 well servicing rigs in New Mexico.

In January 1995, the Company commenced operation of two
drilling/workover barge rigs on Lake Maracaibo, Venezuela. The barges
were constructed during 1994 pursuant to ten-year operating contracts
entered into with Lagoven, S.A. ("Lagoven"), a subsidiary of the
Venezuelan national oil company.

In June 1994, the Company acquired the largest fleet of platform
workover rigs, consisting of 22 units, in the Gulf of Mexico. An
additional platform rig was constructed and added to the fleet in
September 1995.

In a series of transactions from mid-1993 through 1995, the Company
acquired established businesses in Argentina, Venezuela and Colombia
and deployed 28 rigs from its U.S. land-based fleet to Venezuela,
Argentina and Russia.

RESULTS OF OPERATIONS

The following tables set forth selected consolidated financial
information of the Company by segment for the periods indicated:
<TABLE>
<CAPTION>

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1992 1993 1994 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Domestic land................... $ 101,382 $ 105,865 $ 95,860 $ 72,545 $ 85,990
Domestic offshore............... -- -- 23,441 11,229 37,564
International................... -- 21,234 63,035 44,262 74,958
----------- ----------- ----------- ----------- -----------
Total revenues............ $ 101,382 $ 127,099 $ 182,336 $ 128,036 $ 198,512
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations:
Domestic land................... $ (2,172) $ 1,307 $ 1,184 $ 1,367 $ 4,574
Domestic offshore............... -- -- 3,304 1,172 5,074
International................... -- 1,508 3,540 2,486 9,791
----------- ----------- ----------- ----------- -----------
Total earnings (loss) from
operations.............. $ (2,172) $ 2,815 $ 8,028 $ 5,025 $ 19,439
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C>
Revenues:
Domestic land................... 100.0% 83.3% 52.6% 56.6% 43.3%
Domestic offshore............... -- -- 12.9 8.8 18.9
International................... -- 16.7 34.5 34.6 37.8
--------- --------- --------- --------- ---------
Total revenues............ 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (loss) from operations:
Domestic land................... 100.0% 46.5% 14.7% 27.2% 23.5%
Domestic offshore............... -- -- 41.2 23.3 26.1
International................... -- 53.5 44.1 49.5 50.4
--------- --------- --------- --------- ---------
Total earnings (loss) from
operations.............. 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1994

REVENUES. Revenues for the nine months ended September 30, 1995
increased $70,476,000, or 55%, as compared to the corresponding period in
1994. Of this increase, $26,335,000 was attributable to domestic offshore
operations, which the Company acquired in June 1994, and $30,696,000 was a
result of expansion of the Company's international operations, primarily in
Venezuela and Argentina. Revenues from Venezuelan operations increased
primarily as a result of the commencement of operations of the Company's two
drilling/workover barge rigs. Revenues from domestic land operations increased
$13,445,000, primarily as a result of the acquisition of X-Pert in March 1995,
as well as some improvement in pricing for the Company's services.

OPERATING COSTS. Operating costs for the nine months ended September 30,
1995 increased $43,974,000, or 44%, as compared to the corresponding period in
1994. Of this increase, $17,687,000 was attributable to the Company's recently
acquired domestic offshore operations, and $18,294,000 was a result of
expansion of the Company's international operations, as discussed above.
Operating costs related to domestic land operations increased $7,993,000,
corresponding to the addition of X-Pert.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
nine months ended September 30, 1995 increased $5,270,000, or 77%, as compared
to the corresponding period in 1994, primarily as a result of provisions for
recently acquired domestic offshore and international assets.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the nine months ended September 30, 1995 increased $6,818,000, or
41%, as compared to the corresponding period in 1994, primarily as a result of
the inclusion of such costs for acquired domestic offshore, land and
international operations. As a percentage of revenues, however, total selling,
general and administrative costs declined to 12% for the first nine months of
1995 from 13% for the first nine months of 1994, as such costs have been
spread over a larger revenue base.

EARNINGS FROM OPERATIONS. The Company generated earnings from operations
for the nine months ended September 30, 1995 of $19,439,000. Of this amount,
$9,791,000 was generated by international operations, $5,074,000 was generated
by domestic offshore operations and $4,574,000 was generated by domestic land
operations. For the corresponding nine month period of 1994, international
operations generated earnings from operations of $2,486,000, domestic offshore
operations generated earnings from operations of $1,172,000 and domestic land
operations generated earnings from operations of $1,367,000.

OTHER INCOME (EXPENSE). Other income (expense) for the nine months ended
September 30, 1995 included a gain of $1,049,000 from the insurance recovery
relating to a domestic land rig which

was destroyed in an explosion and fire, and other miscellaneous gains of
$591,000 from asset sales, other insurance recoveries, foreign exchange
transactions and other sources. Other income (expense) for the corresponding
1994 period consisted principally of net foreign currency translation losses
of $363,000 resulting from the devaluation of the Venezuelan bolivar. Interest
income increased to $577,000 for the nine months ended September 30, 1995 from
$471,000 for the corresponding 1994 period, due to an increase in excess cash
available for investment. Interest expense for the nine months ended September
30, 1995 increased to $4,689,000 from $170,000 for the corresponding 1994
period, primarily as a result of borrowings related to the two
drilling/workover barge rigs, acquisitions and other additions to property and
equipment.

INCOME TAX PROVISION. The Company's consolidated effective income tax
rate for the nine months ended September 30, 1995 increased to approximately
34% from approximately 23% for the corresponding period in 1994. The Company
has estimated that approximately $600,000 of the insurance gain discussed
above will not be subject to income tax. During the third quarter of 1994, the
Company recognized the current tax benefits from the expected utilization of
approximately $2,255,000 of foreign net operating loss carryforwards which
were obtained in connection with the acquisition of a foreign enterprise. The
Company had recognized a valuation allowance for the tax benefits of such
foreign net operating loss carryforwards at the date the foreign enterprise
was acquired.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

REVENUES. Revenues for the year ended December 31, 1994 increased
$55,237,000, or 43%, as compared to the corresponding period in 1993. Of this
increase, $41,801,000 was attributable to the Company's international
operations. The Company's expansion into Argentina and Venezuela did not begin
until July 1993, while such operations generated revenues for all of 1994. The
addition of the Company's domestic offshore operations in mid-1994 accounted
for $23,441,000 of the increase. These increases were partially offset by a
$10,005,000 decline in revenues as a result of a reduction in hours worked due
to weaker demand for the Company's domestic land operations.

OPERATING COSTS. Operating costs for the year ended December 31, 1994
increased $39,348,000, or 39%, as compared to the corresponding period in
1993. Of this increase, $31,636,000 was attributable to the Company's
international operations and $16,875,000 was a result of the addition of the
Company's offshore operations. These increases were partially offset by a
$9,163,000 decline in operating costs as a result of reduced activity for the
Company's domestic land operations.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
year ended December 31, 1994 increased $3,143,000, or 49%, as compared to the
corresponding period in 1993, primarily as a result of provisions for recently
acquired domestic offshore and international assets.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the year ended December 31, 1994 increased $7,533,000, or 43%, as
compared to the corresponding period in 1993, primarily as a result of the
inclusion of such costs for acquired domestic offshore and international
operations, offset somewhat by a decrease in such costs for domestic land
operations. As a percentage of revenues, total selling, general and
administrative expenses remained constant from 1993 to 1994 at approximately
14%.

EARNINGS FROM OPERATIONS. The Company generated earnings from operations
for the year ended December 31, 1994 of $8,028,000. Of this amount, $3,540,000
was generated from international operations (despite a loss from operations in
Russia of $1,172,000), $3,304,000 was generated from domestic offshore
operations and $1,184,000 was generated from domestic land-based operations.
For the corresponding period in 1993, domestic land operations generated
earnings from operations of $1,307,000 and international operations generated
earnings from operations of $1,508,000, including earnings of $462,000 from
Russian operations.

OTHER INCOME (EXPENSE). Other income (expense) for the year ended
December 31, 1994 consisted principally of net foreign currency translation
losses of $362,000 resulting from the

devaluation of the Venezuelan bolivar, partially offset by other miscellaneous
income items. Interest expense of $207,000 for the twelve months ended
December 31, 1994 resulted from debt related to the Company's newly acquired
domestic offshore operations and other short-term working capital borrowing.
During the year December 31, 1994, the Company capitalized $458,000 of
interest expense in connection with construction projects, primarily the
construction of the two workover/drilling barge rigs sent to Venezuela. During
the corresponding period of 1993, the Company had no such borrowing or
interest expense.

INCOME TAX PROVISION. The Company's consolidated effective income tax
rate for the year ended December 31, 1994 declined to approximately 24% from
approximately 37%, before the cumulative effect of a change in accounting for
income taxes, for the corresponding period in 1993, primarily as a result of
the recognition of current tax benefits from the utilization of approximately
$3,000,000 of foreign net operating loss carryforwards. The Company does not
expect to recognize additional tax benefits from the utilization of foreign
net operating loss carryforwards in 1995.

YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992

REVENUES. Revenues for the year ended December 31, 1993 increased
$25,717,000, or 25%, as compared to the corresponding period in 1992, with
international revenues accounting for $21,234,000 of the increase. Domestic
revenues increased $4,483,000 when compared to 1992. The domestic revenue
increase resulted from increased rig hours worked and improved rates for
services. The Company had no international revenues in 1992.

OPERATING COSTS. Operating costs for the year ended December 31, 1993,
increased $16,476,000, or 20%, as compared to the corresponding period in
1992, primarily due to the addition of international operations. Domestic
operating costs decreased as a percentage of domestic revenues to 81% from
83%, primarily due to reduced insurance cost, which was partially offset by
increased labor, repair, and supply costs.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
year ended December 31, 1993 increased $758,000, or 13%, as compared to the
corresponding period in 1992, primarily as a result of additional depreciation
expense on newly acquired assets of international operations. Domestic
depreciation expense for 1993 decreased from that of 1992 as the Company
replaced previously owned vehicles with leased vehicles.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the year ended December 31, 1993 increased $3,496,000, or 25%, as
compared to the corresponding period in 1992, primarily due to the increase in
international operations expenses of $3,768,000, which was partially offset by
a decrease in domestic selling, general and administrative expenses. As a
percentage of revenues, total selling, general and administrative expenses
remained constant from 1992 to 1993 at approximately 14%.

EARNINGS FROM OPERATIONS. The Company generated earnings from operations
during 1993 of $1,508,000 from international operations and $1,307,000 from
domestic land operations. During 1992, when the Company's operations consisted
entirely of domestic land operations, the Company generated a loss from
operations of $2,172,000.

OTHER INCOME (EXPENSE). Other income (expense) for 1993 included
$167,000 of foreign exchange loss which was primarily the result of the
Company's operations in Venezuela. Net interest income (interest income less
interest expense) for 1993 was $169,000 lower than 1992, primarily as a result
of a lower average cash balance following the consummation of Pride's
international acquisitions.

INCOME TAX PROVISION (BENEFIT). The Company's consolidated income tax
rate for the years ended December 31, 1993 and 1992 was 37%, before the
cumulative effect of a change in accounting for income taxes, and 38%,
respectively. During 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," and recorded a
gain in the amount of $3,835,000 as the cumulative effect of a change in
accounting for income taxes.

LIQUIDITY AND CAPITAL RESOURCES

The Company had net working capital of $28,914,000, $26,640,000 and
$21,758,000 at September 30, 1995 and December 31, 1994 and 1993,
respectively. In October 1995, the Company used approximately $6 million of
its working capital to fund the acquisition of Marlin, which operates six
drilling rigs in Colombia. The Company's current ratio was 1.6, 1.8 and 1.9 at
September 30, 1995 and December 31, 1994 and 1993, respectively. In June 1994,
the Company completed the public issuance of 6,918,000 shares of common stock,
which resulted in net cash proceeds to the Company of approximately
$32,000,000. The Company utilized $20,608,000 of such proceeds toward the
purchase of 22 offshore platform workover rigs that operate in the Gulf of
Mexico. The balance of the proceeds from the public offering were used to fund
the upgrading of certain of the acquired offshore assets as well as other
capital expenditures for the refurbishment and deployment of rigs from its
domestic fleet to Argentina. The Company believes that its available funds,
together with the proceeds from this offering and cash generated from
operations, will be sufficient to fund its capital expenditures, working
capital and debt service requirements.

As of September 30, 1995, the Company had domestic bank commitments
providing for guidance lines of credit of $18,000,000, against which letters
of credit totaling $11,048,000 were outstanding. Substantially all of these
letters of credit have been issued in favor of the Company's insurance
carriers to guarantee payment of the Company's share of insured claims. As of
September 30, 1995, the Company had accrued approximately $9,846,000 of claims
liabilities, of which $5,626,000 was included in current liabilities and
$4,220,000 was reflected as other long-term liabilities in the accompanying
unaudited consolidated balance sheets. The Company has estimated the amount
and timing of payment of these liabilities based on actuarial studies provided
by the insurance carriers and past experience. Due to the nature of the
Company's business and the structure of its insurance program, the occurrence
of a significant event against which the Company is not fully insured, or of a
number of lesser events against which the Company is insured, but subject to
substantial deductibles, could significantly impact the operating results of
the Company for a given period.

During 1994, the Company entered into long-term financing arrangements
with two Japanese trading companies in connection with the construction and
operation of two drilling/workover barge rigs. The aggregate amount of the
collateralized term loans was initially $42,000,000. As of September 30, 1995,
$2,503,000 of accrued interest has been added to the principal amount of the
loans. Pursuant to the terms of the loan agreements, interest, which accrues
at a rate of 9.61% per annum, was added to the principal amount of the loans
until the first scheduled payment in July 1995. At September 30, 1995, the
outstanding balance of these loans was $43,117,000. The total amount of the
loans is being paid from the proceeds of the related charter contracts in 109
equal monthly installments of principal and interest. In addition, a portion
of contract proceeds is being held in trust to assure the timely payment of
future debt service obligations. At September 30, 1995, $2,435,000 of such
contract proceeds are being held in trust for the benefit of the lenders, and
are not presently available for use by the Company. The terms of the financing
agreement limit the lenders' recourse essentially to the barge rigs, contract
proceeds and the assets of the Company's Venezuelan subsidiary. The Company
also provided the lenders a limited guaranty with respect to certain political
risks. The Company has obtained political risk insurance policies from OPIC to
protect against political risks that could result in potential payments under
the terms of the Company's guaranty.

In connection with the acquisition and planned upgrading and expansion of
its acquired offshore platform rig fleet in 1994, the Company established
credit facilities with a lending institution in the aggregate amount of
$14,400,000. In February 1995, this credit facility was amended to, among
other things, increase the aggregate borrowing availability to $30,000,000. As
of September 30, 1995, $12,590,000 of secured term loans and $2,773,000 of
working capital line of credit borrowings were outstanding pursuant to this
facility. The Company plans to continue a program to upgrade its offshore
platform rig fleet throughout 1995. During the nine months ended September 30,
1995, the Company spent approximately $12,800,000 on offshore assets,
including: (i) construction of a new "flagship"

state-of-the-art diesel electric platform rig, (ii) major rig refurbishments
and (iii) auxiliary equipment such as top-drive drilling systems, larger
capacity pumps and generators and improved living quarters.

In September 1995, the Company entered into an agreement with a financial
institution for the sale and leaseback of up to $10,000,000 of equipment to be
used in the Company's business. As of September 30, 1995, the Company had
received proceeds of $5,500,000 pursuant to this facility. The Company has
annual purchase and lease renewal options at projected future fair market
values under the agreement. The lease has been classified as an operating
lease for financial statement purposes. Rentals on the initial transaction are
$1,167,000 annually. The net book value of the equipment has been removed from
the balance sheet and the excess of $587,000 realized on the transaction has
been deferred and will be amortized as a reduction of lease expense over the
maximum lease term of five years.

The Company spent approximately $3,800,000 during the nine months ended
September 30, 1995 to complete construction of the two new drilling/workover
barge rigs deployed in Venezuela. Rig refurbishment and international
deployment costs for the nine months ended September 30, 1995 and 1994 were
approximately $14,600,000 and $6,200,000, respectively.

In March 1995, the Company acquired all of the outstanding capital stock
of X-Pert for consideration of approximately $10,000,000, consisting of
$3,000,000 cash, a note payable to the selling shareholders in the amount of
approximately $6,000,000 and 200,000 shares of the Company's common stock. At
such time, X-Pert had working capital and other monetary assets in excess of
liabilities of approximately $3,000,000.

Capital expenditures related to other domestic operations for the nine
months ended September 30, 1995 and 1994 were approximately $3,200,000 and
$3,000,000, respectively. Capital expenditures (excluding acquisitions,
international rig deployment and drilling/workover barge costs) for the years
ended December 31, 1994 and 1993 were $10,994,000 and $2,200,000,
respectively. International rig refurbishment and deployment costs for the
twelve months ended December 31, 1994 and 1993 were $9,952,000 and $9,900,000,
respectively.

The Company expects to continue to review opportunities to pursue its
international and offshore equipment and technology expansion. From time to
time, the Company has one or more bids outstanding for contracts that could
require significant capital expenditures and mobilization costs. While the
Company has no other definitive agreements to acquire additional equipment,
suitable opportunities may arise in the future. The timing, size or success of
any acquisition effort and the associated potential capital commitments are
unpredictable. The Company expects to fund project opportunities and
acquisitions primarily through a combination of working capital, cash flow
from operations and full or limited recourse debt or equity financing.

In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No.
121"). SFAS No. 121, which is effective for fiscal years beginning after
December 15, 1995, requires that long-lived assets and certain identifiable
intangibles to be held and used by the entity, be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company does not expect that the
adoption of SFAS No.121 will have any material effect on its financial
position or results of operations.

CURRENCY FLUCTUATIONS

Deterioration in economic conditions in Venezuela resulted in significant
devaluation of the country's currency during the first half of 1994. To a
large extent, the Company has been able to insulate its ongoing operations
from currency exchange losses by matching the local currency component of
contracts to the amount of operating costs transacted in local currency.
Further, the Company is continuing its efforts to maximize the U.S. dollar
component of its Venezuelan contracts. During the first two quarters of 1994,
the devaluation of the Venezuelan bolivar resulted in currency

translation losses for the Company. These losses resulted principally from the
translation of the net Venezuelan monetary assets (that is, essentially
accounts receivable in excess of trade payables) at devaluing exchange rates
from month to month.

In the latter part of June 1994, the Venezuelan government imposed
exchange control policies and established an official fixed exchange rate of
170 bolivars per U.S. dollar. This official rate was maintained for the
remainder of 1994 and during the first three quarters of 1995. Accordingly, no
currency translation losses resulted in those periods. On December 11, 1995,
the Venezuelan government devalued its currency by revising the official
exchange rate to 290 Venezuelan bolivars per U.S. dollar. The Company believes
that the December 1995 devaluation will not result in any material currency
translation loss to be recognized in its financial statements. If the official
rate is subsequently revised or a market exchange mechanism is reimplemented
so that the Venezuelan bolivar "floats" relative to the U.S. dollar, the
Company could be susceptible to future translation losses with respect to its
Venezuelan operations. The Company intends to continue to monitor developments
in this regard and to take such measures as may be practical to limit its
exposure to currency translation losses in future periods. However, there is
no assurance that translation losses will not occur in the future.

BUSINESS

GENERAL

Pride Petroleum Services, Inc. is a leading domestic and international
provider of well servicing, workover, contract drilling, completion and
plugging and abandonment services, both on land and offshore. The Company's
fleet of 519 owned rigs is the world's second largest, consisting of 429 land-
based rigs divided among three operating regions in the United States, 65
land-based rigs deployed in international markets, 23 offshore platform rigs
located in the Gulf of Mexico and two drilling/workover barge rigs located in
Venezuela. The Company performs maintenance and workovers necessary to operate
producing oil and gas wells efficiently and provides contract drilling of new
wells in certain international and offshore markets. The Company also provides
services for the completion of newly drilled oil and gas wells and plugging
and abandonment services at the end of a well's useful life.

Pride is a Louisiana corporation with its principal executive offices
located at 1500 City West Blvd., Suite 400, Houston, Texas 77042. Its
telephone number at such address is (713) 789-1400.

BUSINESS STRATEGY

The Company's goal is to achieve revenue and earnings growth through a
strategy of (i) acquisitions in both international and domestic markets, (ii)
deployment of existing domestic land-based capacity to more profitable
international markets and (iii) upgrades to enhance the capabilities and
profitability of its existing rig fleet. International and offshore operations
generally have greater profit potential than domestic land-based operations
because of less competition, higher utilization rates and stronger demand
resulting from a general trend by major oil operators toward shifting
expenditures to exploration and development activities abroad. For these
reasons, the Company has actively sought to diversify beyond its domestic
land-based operations, which prior to mid-1993 accounted for substantially all
of the Company's revenues and earnings.

The Company believes that providing high quality equipment, employees and
services and a safe work environment is critical to its strategy. The Company
has committed substantial capital to an ongoing rig refurbishment program to
provide technological enhancements and to maintain the Company's equipment in
high quality condition. Additionally, the Company has invested in quality,
safety and management training programs. The Company believes that many
smaller competitors have not undertaken comparable maintenance and upgrading
of equipment or training of personnel, and do not have the financial resources
to enable them to do so. The Company believes that certain of its customers
give significant consideration to safety records and quality management
systems of contractors in their screening and selecting processes, and that
such factors will gain further importance in the future.

INTERNATIONAL OPERATIONS

upgrade and deploy four drilling and seven workover rigs to international
markets in early 1996. In 1994, the Company built two drilling/workover barge
rigs, which were placed in operation in Venezuela in 1995 under ten-year
contracts. In October 1995, the Company acquired a six-rig drilling operation
in Colombia. During the first half of 1993, the Company deployed three rigs
from its U.S. land-based fleet to Western Siberia. The Company continues to
review opportunities to expand internationally through redeployment of
underutilized domestic assets, acquisitions and new rig construction projects.

In Argentina, the Company's fleet currently consists of 45 rigs, seven of
which are drilling rigs and the balance of which are workover rigs. The
Argentine oil production market has experienced improved conditions in recent
years as a result of general economic reform, sales of certain state-owned
oilfields to private operators and privatization of the state-owned oil
company, the predecessor of YPF. These improved conditions have resulted in
additional demand for rig services. The Company operates a fleet of oilfield
haul trucks and maintains camps to provide eating and sleeping accommodations
for its employees and for employees of certain of its customers. The Argentine
base camps are stocked with significant levels of spare parts and operating
supplies to avoid interruption of services. The Company believes that this
established infrastructure provides the Company with a competitive advantage
in the Argentine market.

The Company's fleet in Venezuela currently consists of 11 land rigs and
two drilling/workover barge rigs. In recent years, the Venezuelan national oil
company has entered into operating service agreements with a number of
international oil companies to rehabilitate and develop approximately 80
"marginal" fields. Development of these fields is providing additional demand
for rig services in Venezuela. In July 1995, the Venezuelan Congress enacted
legislation that, through production sharing contracts, creates a new
mechanism for private sector involvement in the oil and gas industry in that
country. Venezuelan government estimates indicate that $10 billion or more in
new investment will be needed over the next ten years to develop the initial
ten projects selected for development pursuant to production sharing
contracts. The Company believes it is well positioned to capitalize on any
resulting opportunities.

In January 1995, the Company's two drilling/workover barge rigs began
operations on Lake Maracaibo, Venezuela, pursuant to contracts with Lagoven
which run through 2004. The two barge rigs were completed for an aggregate
total cost of approximately $42 million, which was financed on a project basis
by two Japanese trading firms. Terms of the financing agreement limit the
lenders' recourse essentially to the barge rigs, related proceeds and the
assets of the Company's Venezuelan subsidiary. The Company also provided the
lenders a limited guaranty with respect to certain political risks. The
Company has obtained political risk insurance policies from OPIC to protect
against political risks that could result in potential payments under the
terms of the Company's guaranty.

In October 1995, the Company purchased all of the capital stock of Marlin
Columbia Drilling Co. Inc. ("Marlin") from a member of the Royal Dutch/Shell
Group of Companies for approximately $6 million. For the twelve months ended
September 30, 1995, Marlin generated revenues of approximately $7 million. The
Colombian government has recently enacted policies to encourage oil and gas
exploration and production activities, and the Company believes it will be
able to compete effectively for any resulting business opportunities.

In 1993, the Company formed a Russian company and deployed one
workover/drilling rig and two small well servicing rigs in Russia. These rigs
have been equipped for severe cold weather conditions and are supported by
heavy equipment, including oilfield trucks and a large capacity forklift with
earth moving capability. The Company believes that there will be significant
opportunities in Russia if, and when, the political situation in that country
stabilizes and allows a more meaningful flow of international investment
capital for rehabilitation and development of its oil fields.

DOMESTIC OFFSHORE OPERATIONS

The Company generally utilizes its offshore rigs to service wells located
on platforms in water depths of greater than 125 feet. Platform rigs consist
of well servicing equipment and machinery arranged in modular packages which
are transported to and assembled and installed on fixed offshore platforms
owned by the customer. Fixed offshore platforms are steel tower-like
structures that stand on the ocean floor, with the top portion, or platform,
above the water level and providing the foundation upon which the platform rig
is placed. Certain of the Company's heavy workover platform rigs are capable
of operating at well depths of up to 18,000 feet. In addition to providing
workover services offshore, the Company is performing an increasing amount of
drilling and horizontal re-entry services utilizing portable top drives,
enhanced pumps and solids control equipment for drilling fluids.

DOMESTIC LAND-BASED OPERATIONS

The Company worked 293 of its domestic land-based rigs at some time
during 1994, with most of the inactive rigs being maintained in workable
condition. The Company's inactive rigs generally can be mobilized quickly,
giving Pride substantial operating leverage to take advantage of new market
opportunities. As a result of international opportunities for Pride's services
and equipment, the Company has shipped 28 previously inactive rigs from its
U.S. fleet to international markets since mid-1993.

SERVICES PROVIDED

The Company provides oil field services to oil and gas exploration and
production companies, primarily through the use of mobile well servicing rigs,
together with crews of generally three to four persons. Additional equipment,
such as pumps, tanks, blowout preventers, power swivels, coiled tubing units
and foam units, is also provided by the Company as may be required and
requested by the customer for a particular job. The Company also provides
trucking services for moving large equipment and hauling fluids to and from
the job sites of its customers.

Well servicing can be categorized as to the type of job performed:
maintenance, workover or completion.

MAINTENANCE SERVICES

Maintenance services are required on producing oil and natural gas wells
to ensure efficient, continuous operation. These services consist of routine
mechanical repairs necessary to maintain production from the well, such as
repairing parted sucker rods or replacing a defective downhole pump in an oil
well or replacing defective tubing in a gas well. The Company provides the
rigs, equipment and crews for these maintenance services, which are performed
on both oil and gas wells but which are more often required on oil wells. Many
of the Company's rigs also have pumps and tanks that can be

used for circulating fluids into and out of the well. Maintenance jobs are
often performed on a series of wells in geographic proximity to each other,
typically take less than 48 hours per well to complete and generally require
little, if any, revenue-generating equipment other than a rig.

Maintenance services are generally required throughout the life of a
well. The need for these services does not depend on the level of drilling
activity and is generally independent of short-term fluctuations in oil and
gas prices. Accordingly, the demand for maintenance services is generally more
stable than for other well servicing activities. The general level of
maintenance, however, is affected by changes in the total number of producing
oil and gas wells.

WORKOVER SERVICES

In addition to needing periodic maintenance, producing oil and natural
gas wells occasionally require major repairs or modifications, called
"workovers." Workover services include the opening of new producing zones in
an existing well, recompletion of a well in which production has declined,
drilling out plugs and packers and the conversion of a producing well to an
injection well during enhanced recovery operations. These extensive workover
operations are normally performed by a well servicing rig with additional
specialized accessory equipment, which may include rotary drilling equipment,
mud pumps, mud tanks and blowout preventers, depending upon the particular
type of workover operation. Most of the Company's rigs are designed and
equipped to handle the more complex workover operations. A workover may last
anywhere from a few days to several weeks and generally requires additional
revenue-generating equipment.

The level of workover services is sensitive to changes in oil and gas
prices. When oil and gas prices are low, there is little incentive to perform
workovers on wells to increase production, and operators of wells tend to
defer workover services. As oil and gas prices increase, the incentive to
increase production also improves and the number of workovers increases as
operators seek to increase production by enhancing the efficiency of their
wells through workovers.

COMPLETION SERVICES

Completion services prepare a newly drilled well for production. The
completion process may involve selectively perforating the well casing at the
depth of discrete producing zones, stimulating and testing these zones and
installing downhole equipment. Newly drilled wells are frequently completed by
a well servicing rig so that an operator can avoid using a higher-cost
drilling rig any longer than necessary. The completion process may require a
few days to several weeks, depending on the nature and type of the completion,
and will also generally require additional revenue-generating equipment.

The market for well completions is directly related to drilling activity
levels which are very sensitive to changes in oil and gas prices. During
periods of weak drilling demand, drilling contractors will frequently price
the well completion work competitively with a workover rig so that the
drilling rig stays on the job for a longer period of time. Thus, excess
drilling capacity will serve to reduce the amount of completion work available
to the well servicing industry.

DRILLING SERVICES

The Company provides contract drilling services to oil and gas operators
in certain international and offshore markets. Some of the Company's workover
rigs that are operating internationally can also be used for drilling,
although the Company has specialized drilling rigs and ancillary equipment in
its international locations.

ADDITIONAL SERVICES

The Company also provides packer sales and service, oil field trucking,
plugging and abandonment services and well bore cleaning and production
enhancement services. In addition, the Company sells oil field supplies on a
retail basis through a wholly owned subsidiary.

COMPETITION

Competition in the international markets in which the Company operates is
generally limited to substantially fewer companies than in the domestic
land-based market. These companies range from large multinational competitors
offering a wide range of well servicing and drilling services to smaller,
locally owned businesses. The Company believes that it is competitive in terms
of pricing, performance, equipment, safety, availability of equipment to meet
customer needs and availability of experienced, skilled personnel in those
international areas in which it operates. Currently, the Company has a strong
market position in Argentina and Venezuela, and believes it is well positioned
in Colombia and Russia.

The Company believes that in the Gulf of Mexico there are approximately
12,000 producing oil and gas wells and that such wells generally require
workovers about once every five years in order to maintain optimal production
levels. The market for offshore platform workover rig services is highly
competitive, with the Company's two most significant competitors being Nabors
Industries with 11 rigs and Pool Energy Services Co. ("Pool") with eight rigs,
as compared to 23 for the Company.

The domestic land-based well servicing industry is highly fragmented and
is characterized by a few large companies and numerous smaller companies.
Competition is primarily on a local market basis, and the Company generally
competes with several well servicing contractors within a 50-mile radius of
each service location. Pride and its most significant competitor in this
market, Pool, are the largest companies serving the domestic land-based
well-servicing market. Both Pride and Pool operate in multiple geographic
regions and each has in excess of 400 domestic land-based rigs. Pride competes
with Pool in all three of the Company's principal domestic regions. Two other
competitors, each having 100 to 200 rigs, compete with the Company in separate
domestic regions. There are several regional companies that have fleets of 30
to 60 rigs which operate from several service bases within each region.
Numerous other competitors have 10 or fewer rigs and operate in limited market
areas.

Excess capacity in the well servicing industry has resulted in severe
price competition throughout much of the past decade. In the well servicing
market, possibly the most important competitive factor in establishing and
maintaining long-term customer relationships is having an experienced, skilled
and well-trained work force. In recent years, customers have placed emphasis
not only on pricing, but also increasingly on safety and quality of service.
The Company believes that certain of its customers give significant
consideration to safety records and quality management systems of contractors
in their screening and selecting processes, and that such factors will gain
further importance in the future. In that regard, the Company has directed
substantial resources toward employee safety and quality management training
programs, as well as its employment review process. While the Company's
efforts in these areas are not unique, many competitors, particularly small
contractors, have not been able to undertake similar training programs for
their employees. One of the benefits of distinguishing itself in safety and
quality is that the Company has been able to establish strategic alliances
with certain major customers.

CUSTOMERS

In international markets, the Company works for government-owned oil
companies, large multinational oil companies and locally owned independent
operators. In Argentina, approximately 68% of the Company's business for the
nine months ended September 30, 1995 was conducted for YPF, the successor to
the operations of the former state-owned oil company. Services provided to YPF
accounted for approximately 17% of the Company's consolidated revenues for the
nine months ended September 30, 1995. The remainder of the Company's Argentine
customers are large multinational oil companies and locally owned independent
operators. In Venezuela, the Company provides services for three subsidiaries
of Petroleos de Venezuela, S.A., the state-owned oil company, as well as
multinational oil companies. In Russia, the Company's current contract is with
a joint venture entity co-owned by a large multinational operator and a
Russian production association. The Company's U.S. customers

are predominantly major integrated and large independent operators. One
customer, Shell Oil Company, accounted for approximately 59% of revenues from
domestic offshore operations for the nine months ended September 30, 1995.
Revenues from Shell Oil Company and its affiliates from both land-based and
offshore operations accounted for approximately 15% of consolidated revenues
for the nine months ended September 30, 1995.

CONTRACTS

Most of the Company's contracts provide for compensation on either an
hourly or daily basis. Under such contracts, the Company receives a fixed
amount per hour or per day for servicing or drilling the well. Such contracts
also generally provide that the customer pay for movement of the equipment to
the job site, assembly and dismantling.

In the United States, many jobs are performed on a "call-out" or "as
requested" basis and may involve one or multiple wells. Such work is performed
pursuant to the Company's published operating rates and general work terms and
conditions or according to the terms of service arrangements established with
the operators.

In international markets, contracts generally provide for a term of one
to two years. Such contracts are often awarded to the successful bidder of the
customer's project tender. When contracting abroad, the Company is faced with
the risks of currency fluctuation and, in certain cases, exchange controls.
Typically, the Company limits these risks by obtaining contracts providing for
payment in freely convertible foreign currency or U.S. dollars. To the extent
possible, the Company seeks to limit its exposure to potentially devaluating
currencies by matching its acceptance thereof to its expense requirements in
such local currencies. There can be no assurance that the Company will be able
to continue to take such actions in the future, thereby exposing the Company
to foreign currency fluctuations which could have a material adverse effect
upon its results of operations and financial condition. Currently, foreign
exchange in Argentina and Colombia is carried out on a free-market basis.
However, there can be no assurances that the local monetary authorities in
these countries will not implement exchange controls in the future. In
Venezuela, the government has imposed exchange control policies and has
established an official exchange rate relative to the U.S. dollar. To date,
contracts for the Company's operations in Russia have provided for payment in
U.S. dollars.

The Company's contracts with Lagoven for the operation of the two
drilling/workover barge rigs on Lake Maracaibo provide for a term which runs
through 2004. Rates under the contracts are subject to contractual escalation
and are denominated in part in U.S. dollars and in part in local currency. The
portion of the rate denominated in U.S. dollars may be paid in local currency
based on prevailing exchange rates provided that exchange into U.S. dollars
can be readily effected. Presently, the U.S. dollar portion of the Company's
contracts with Lagoven is being paid in U.S. dollars. Lagoven can terminate a
contract with respect to a barge upon payment of a "make-whole" termination
fee, in which event it will be required to purchase the barge.

SEASONALITY

In general, the Company's business activities are not significantly
affected by seasonal fluctuations. In the United States, all of the Company's
rigs are located in geographical areas which are not subject to severe weather
that would halt operations for prolonged periods. The Company's rigs in Russia
have been winterized so that they may continue to operate during periods of
severe cold weather.

PROPERTY

The Company's property consists primarily of well servicing rigs,
drilling rigs and ancillary equipment, all of which are owned by the Company.

A well servicing rig consists of a mobile carrier, engine, drawworks and
derrick. The primary function of a well servicing rig is to act as a hoist so
that pipe, rods and downhole equipment can be

run into and out of a well. A single derrick rig is able to stand up single
joints of tubing in the derrick and hang double joints of rods. A double
derrick rig is able to stand up double joints of tubing in the derrick and
hang triple joints of rods. A swab unit is a specialized piece of equipment
used solely for swabbing or cleaning operations. It includes a short derrick
and small drawworks mounted on a truck. The majority of the Company's rigs are
large double capacity derrick units. All of the Company's well servicing rigs
can be readily moved between well sites and between geographic areas of
operations.

A drilling rig consists of engines, drawworks, a mast, pumps to circulate
the drilling fluid, blowout preventers, drill string and related equipment.
The engines power a rotary table that turns the drill string, causing the
drill bit to bore through the subsurface rock layers. The rock cuttings are
carried to the surface by the circulating drilling fluid. The intended well
depth and the drilling site conditions are the principal factors that
determine the size and type of rig most suitable for a particular drilling
job.

The Company's drilling/workover barge rigs have crew quarters, storage
facilities, and related equipment mounted on floating barges with the drilling
equipment cantilevered from the stern of the barge. The barges are towed to
the drilling location and are held in place by anchors while drilling or
workover activities are conducted.

The Company owns and operates vacuum, transport and winch trucks;
plugging and cementing units; hyperclean and filtration units; and foam units,
pumps, generators, power swivels, coiled tubing units and similar ancillary
equipment. The Company owns approximately 600 vehicles and leases
approximately 525 others. The Company also owns 17 sets of accommodation
modules which may be leased to customers to provide temporary living quarters
for crews working on offshore platforms, as well as several cranes utilized
for lifting heavy equipment onto the platforms.

The corporate office in Houston, Texas occupies approximately 18,000
square feet of leased space under a lease that expires in April 1998. The
Company owns 18 and leases 16 of its office and yard locations in Texas,
Louisiana, Oklahoma, New Mexico and California, not all of which are currently
being used. In Argentina, the Company leases 4,500 square feet of office space
in Buenos Aires and owns five operating bases and leases three others. In
Venezuela, the Company leases two operating bases with an office facility at
one. In Colombia, the Company leases office space in Bogota and an operating
base in Neiva. Shore-based operations for the Company's offshore platform rig
operations are conducted from its owned facility in Houma, Louisiana. The
shore facility is located on the intracoastal waterway and provides direct
access to the Gulf of Mexico.

The following table sets forth the type, number and location of the land
rigs owned by the Company and its subsidiaries as of December 15, 1995:

LAND-BASED RIG FLEET
<TABLE>
<CAPTION>

SINGLE DOUBLE SWAB
LOCATION TOTAL DERRICK DERRICK UNIT DRILLING
UNITED STATES:
Southern Area --
<S> <C> <C> <C> <C> <C>
Alice, TX....................... 14 -- 14 -- --
McAllen, TX..................... 10 -- 10 -- --
Freer, TX....................... 11 5 6 -- --
Liberty, TX..................... 13 1 12 -- --
Winnsboro, TX................... 7 -- 7 -- --
Corpus Christi, TX.............. 10 -- -- 10 --
Panola, TX...................... 12 1 7 4 --
Palestine, TX................... 3 -- 3 -- --
LaGrange, TX.................... 9 -- 9 -- --
El Campo, TX.................... 15 -- 14 1 --
South Houston, TX............... 9 -- 9 -- --
Lafayette, LA................... 12 -- 12 -- --
Kilgore, TX..................... 22 1 19 2 --
Central Area --
Midland, TX..................... 28 -- 28 -- --
Crane, TX....................... 35 -- 35 -- --
Hobbs, NM....................... 49 -- 48 1 --
Snyder, TX...................... 17 -- 17 -- --
Artesia, NM..................... 11 -- 11 -- --
Western Area --
Bakersfield, CA................. 61 24 37 -- --
Ventura, CA..................... 13 1 12 -- --
Taft, CA........................ 47 32 15 -- --
Elk City, OK (storage area)(1)..... 11 -- 11 -- --
Undergoing Refurbishment(2)........ 10 -- 10 -- --
----- ---- ------- ---- -----
Total United States................ 429 65 346 18 --
----- ---- ------- ---- -----
INTERNATIONAL:
Argentina --
Comodora Rivadavia.............. 24 -- 19 -- 5
Rincon de los Sauces/Neuquen.... 11 -- 9 -- 2
Mendoza......................... 9 -- 9 -- --
Salta........................... 1 -- 1 -- --
Colombia........................... 6 -- -- -- 6
Venezuela.......................... 11 -- 8 -- 3
Russia............................. 3 -- 1 2 --
----- ---- ------- ---- -----
Total International................ 65 -- 47 2 16
----- ---- ------- ---- -----
TOTAL COMPANY........................ 494 65 393 20 16
----- ---- ------- ---- -----
----- ---- ------- ---- -----
</TABLE>
- ------------

(1) No operations are conducted from this facility.

(2) These rigs are being refurbished for international deployment.

The following table sets forth, as of December 15, 1995, certain
information concerning the Company's offshore platform and Venezuelan barge
rig fleet:

OFFSHORE PLATFORM AND VENEZUELAN BARGE RIGS
<TABLE>
<CAPTION>

RIG DRAWWORKS RATED
NO. RIG TYPE MAKE/MODEL HORSEPOWER DEPTH STATUS
OFFSHORE PLATFORM RIGS

<S> <C> <C> <C> <C> <C>
6 Concentric Tubing Gardner Denver 3000 150 12,000 Active
10 Concentric Tubing Gardner Denver 3000 150 12,000 Stacked
11 Light Workover Gardner Denver 3000 350 10,000 Stacked
14 Light Workover Gardner Denver 3000 350 10,000 Available
15 Light Workover Gardner Denver 3000 350 10,000 Active
30 Standard Workover Gardner Denver 500S(1) 650 15,000 Active
80 Standard Workover Gardner Denver 500S 650 15,000 Stacked
100 Standard Workover Gardner Denver 500S 650 15,000 Available
110 Standard Workover Gardner Denver 500S 650 15,000 Available
130 Standard Workover Gardner Denver 500S 650 15,000 Available
170 Standard Workover Gardner Denver 500S 650 15,000 Available
200 Improved Workover Gardner Denver 500S 650 15,000 Available
210 Improved Workover Gardner Denver 500S 650 15,000 Available
220 Improved Workover Gardner Denver 500S 650 15,000 Available
650E Improved Electric Workover Gardner Denver 500S(1) 650 15,000 Active
651E Improved Electric Workover Gardner Denver 500S(1) 650 15,000 Active
653E Improved Electric Workover Gardner Denver 500S 650 15,000 Active
750E Heavy Electric Workover Dreco 750E(1) 750 16,500 Active
751E Heavy Electric Workover OIME SL-5(1) 800 16,500 Active
951 Heavy Workover Gardner Denver 1000S 1,000 18,000 Active
952 Heavy Workover Gardner Denver 1000S 1,000 18,000 Active
1001E Heavy Electric Workover OIME SL-7(1) 1,500 18,000 Active
1002E Heavy Electric Workover OIME SL-7(1) 1,500 18,000 (2)
VENEZUELAN BARGE RIGS

PRIDE I Drilling/Workover National 110UBDE(1) 1,500 20,000 Active
PRIDE II Drilling/Workover National 110UBDE 1,500 20,000 Active
</TABLE>
- ------------

(1) Equipped with top drive drilling system.

(2) Undergoing upgrading and major refurbishment.

LEGAL PROCEEDINGS

The Company is routinely involved in litigation incidental to its
business, which often involves claims for significant monetary amounts, some
of which would not be covered by insurance. In the opinion of management, none
of the existing litigation will have any material adverse effect on the
Company.

EMPLOYEES

The Company currently employs approximately 750 salaried employees and
approximately 3,600 hourly paid employees. Approximately 2,600 of the
employees are located in the United States and 1,750 are located abroad.
Hourly rig crew members comprise the vast majority of employees. Typically, a
rig crew consists of an operator, a derrick man and two crewmen on the rig
floor. In most cases, a rig supervisor oversees the rig crew, secures work
orders from customers and maintains contact with the customer throughout the
job.

None of the Company's U.S. employees are represented by a collective
bargaining unit. Many of the Company's international employees are subject to
industry-wide labor contracts within their respective countries. Management
believes that the Company's employee relations are good.

SEGMENT INFORMATION

Information with respect to revenues, earnings from operations and
identifiable assets attributable to the Company's industry segments and
geographic areas of operations for the last three fiscal years is presented in
Note 11 of the Notes to Consolidated Financial Statements and Note 8 of Notes
to Unaudited Consolidated Financial Statements.

MANAGEMENT

The following table and descriptions set forth information regarding the
directors and executive officers of the Company. Directors are elected at the
Company's annual meeting of shareholders and serve for five-year terms or
until their successors are elected and qualified or until their earlier
resignation or removal in accordance with the Company's bylaws. Officers are
elected annually by the Board of Directors and serve until their successors
are chosen or until their resignation or removal.

NAME AGE* POSITION
Ray H. Tolson(1).................... 60 Chairman of the Board, President and
Chief Executive Officer

Paul A. Bragg....................... 39 Vice President, Chief Financial
Officer and Treasurer

Dexter R. Polk...................... 64 Senior Vice President -- Domestic
Operations

James W. Allen...................... 52 Senior Vice President of Pride
International, Ltd.

Robert W. Randall................... 53 Vice President -- General Counsel
and Secretary

James T. Sneed(1)(2)(3)............. 64 Director

Thomas H. Roberts, Jr.(2)(3)........ 71 Director

Ralph D. McBride.................... 49 Director

Jorge E. Estrada M.................. 48 Director

James B. Clement(1)(2)(3)........... 50 Director

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

* As of December 15, 1995

(1) Member of Executive Committee

(2) Member of Audit Committee

(3) Member of Compensation Committee

Ray H. Tolson was elected Chairman of the Board in December 1993. He has
served as a director since August 1988 and as President and Chief Executive
Officer of the Company and its predecessor since 1975.

Paul A. Bragg joined the Company in July 1993 as its Vice President and
Chief Financial Officer. In 1990, Mr. Bragg became President of BRM Capital
Corporation, a private equity investment entity, of which he was co-founder.
From 1988 through 1989, Mr. Bragg was an independent business consultant and
managed private investments. He previously served as Vice President and Chief
Financial Officer of Energy Service Company, Inc., an oilfield services
company, from 1983 through 1987.

Dexter R. Polk has been Senior Vice President -- Domestic Operations of
the Company since April 1992. Prior thereto, he served as Senior Vice
President -- Area Manager of the Company since 1985. He has been an officer of
the Company since 1977. Mr. Polk will retire effective January 31, 1996.

James W. Allen joined the Company in January 1993. He became Senior Vice
President of Pride International, Ltd. in May 1994, responsible for
international operations. From 1988 through 1992, Mr. Allen was an independent
business consultant and managed private investments. From 1984 to 1988, he was
Vice President -- Latin America for Energy Service Company, Inc. Mr. Allen has
28 years of oilfield experience with several different companies. Upon the
retirement of Mr. Polk on January 31, 1996, Mr. Allen will oversee all of the
Company's operations.

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

James T. Sneed has been a director of the Company since October 1992. In
1991 he retired after 37 years of employment with Mobil Oil Corporation where
he was Production Manager USA.

Thomas H. Roberts, Jr. has been a director of the Company since 1988. He
has also been Vice Chairman of the Executive Committee of DEKALB Energy
Company for more than the past five years and is a director of IMC Fertilizer
Group, Inc.

Ralph D. McBride became a director of the Company in September 1995. Mr.
McBride has been a partner with the law firm of Bracewell & Patterson, L.L.P.,
Houston, Texas, since 1980.

Jorge E. Estrada M. has been a director of the Company since October
1993. For more than five years, Mr. Estrada has been President and Chief
Executive Officer of JEMPSA Media and Entertainment, a company specializing in
the Spanish and Latin American entertainment industry. Previously Mr. Estrada
served as President -- Worldwide Drilling Division of Geosource and Vice
President of Geosource Exploration Division -- Latin America. Mr. Estrada is a
director of Production Operators Inc. and Wood Group USA Inc.

James B. Clement has been a director of the Company since November 1993.
Since 1977, he has been an executive officer of Offshore Logistics, Inc. and
has served as its President, Chief Executive Officer and a director since
1988.

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following sets forth as of December 15, 1995 the beneficial ownership
of Common Stock by (i) each director of the Company, (ii) each executive
officer of the Company, (iii) all directors and officers as a group and (iv)
the persons known to the Company to be the beneficial owners (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of more than five percent of the outstanding shares of Common
Stock.

COMMON STOCK
BENEFICIALLY OWNED(1)
------------------------------
NUMBER PERCENT
NAME OF SHARES(2) OF CLASS
Ray H. Tolson........................ 815,200 3.2%
Paul A. Bragg........................ 346,000 1.4%
Dexter R. Polk....................... 176,000 *
James W. Allen....................... 300,000 1.2%
Robert W. Randall.................... 110,000 *
James T. Sneed....................... 14,500 *
Thomas H. Roberts, Jr................ 354,313 1.4%
Ralph D. McBride..................... -- *
Jorge E. Estrada M................... 410,000 1.7%
James B. Clement..................... 11,500 *
All directors and executive officers
as a group (10 persons)............ 2,537,513 9.6%
The Travelers, Inc................... 2,108,700(3) 8.5%
65 East 55th Street
New York, New York 10022
George D. Bjurman & Associates....... 2,176,615(3) 8.8%
10100 Santa Monica Blvd.
Suite 1200
Los Angeles, California 90067
- ------------

* Less than 1%.

(1) Unless otherwise indicated, the beneficial owner has sole voting and
investment power with respect to all shares listed.

(2) Includes shares issuable upon exercise of options vesting within 60 days
of December 15, 1995.

(3) Such information is based upon filings made with the Securities and
Exchange Commission.

DESCRIPTION OF DEBENTURES

The Debentures will be issued pursuant to an indenture (the "Indenture"),
dated as of January 26, 1996, by and between the Company and Marine Midland
Bank, as trustee (the "Trustee"). The following summary of the Debentures and
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by, reference to all of the provisions of the
Debentures and the Indenture, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus constitutes a part. The terms of
the Indenture are also governed by certain provisions contained in the Trust
Indenture Act of 1939, as amended. Capitalized terms used herein without
definition have the meanings ascribed to them in the Indenture. As used in this
section, "the Company" refers to Pride Petroleum Services, Inc., exclusive of
its Subsidiaries. Wherever particular provisions of the Indenture are referred
to in this summary, such provisions are incorporated by reference as a part of
the statements made and such statements are qualified in their entirety by such
reference.

GENERAL

The Debentures will be unsecured, subordinated, general obligations of
the Company, limited in aggregate principal amount to $70,000,000 ($80,500,000
if the Underwriters' over-allotment option is exercised in full). The
Debentures will be subordinated in right of payment to all Senior Indebtedness
of the Company, as described under "Subordination" below. The Debentures will
be issued only in fully registered form, without coupons, in denominations of
$1,000 and integral multiples thereof.

The Debentures will mature on February 15, 2006. The Debentures will bear
interest at the rate per annum stated on the cover page hereof from the date
of issuance or from the most recent Interest Payment Date to which interest
has been paid or provided for, payable semi-annually on February 15 and August
15 of each year, commencing August 15, 1996, to the persons in whose names
such Debentures are registered at the close of business on the February 1 or
August 1 immediately preceding such Interest Payment Date. Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.

Principal or premium, if any, and interest on the Debentures will be
payable, the Debentures will be convertible and the Debentures may be
presented for registration of transfer or exchange, at the office or agency of
the Company maintained for such purpose. At the option of the Company, payment
of interest may be made by check mailed to the holders of the Debentures
(individually a "Holder" and collectively the "Holders") at the addresses set
forth upon the registry books of the Company. No service charge will be made
on any registration of transfer or exchange of the Debentures, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Until otherwise designated by the
Company, the Company's office or agency will be the corporate trust office of
the Trustee presently located in New York City.

The covenants and provisions contained in the Indenture and the
Debentures would not necessarily afford the Holders protection in the event of
a highly leveraged transaction involving the Company, including a leveraged
transaction initiated or supported by the Company, the management of the
Company or any affiliate of either party.

CONVERSION RIGHTS

The Holder of any Debentures will have the right, at the Holder's option,
to convert any portion of the principal amount thereof that is an integral
multiple of $1,000 into shares of Common Stock at any time prior to maturity
(unless earlier redeemed or repurchased) at the Conversion Price set forth on
the cover page hereof (subject to adjustment as described below). The right to
convert a Debenture called for redemption or delivered for repurchase will
terminate at the close of business on the fifth or second Business Day,
respectively, prior to the Redemption Date or Repurchase Date for such
Debenture, unless the Company subsequently fails to pay the applicable
Redemption Price.

In the case of any Debenture which has been converted after any Record
Date, but on or before the next Interest Payment Date, interest the stated due
date of which is on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest

shall be paid to the Holder of such Debenture who is a Holder on such Record
Date. Any Debenture so converted (provided such Debenture has not been called
for redemption on a redemption date that occurs within such period) must be
accompanied by payment of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of Debentures being surrendered
for conversion. No fractional shares will be issued upon conversion but, in lieu
thereof, an appropriate amount will be paid in cash by the Company based on the
market price of Common Stock (as determined in accordance with the Indenture) at
the close of business on the day of conversion.

The Conversion Price will be subject to adjustment upon the occurrence of
certain events, including: (a) any dividend (and other distributions) payable
in Common Stock on any class of Capital Stock of the Company, (b) any issuance
of rights, options or warrants to all holders of Common Stock entitling them
to subscribe for or purchase Common Stock at a price per share less than the
then current market price (as determined in accordance with the Indenture) of
Common Stock, (c) any subdivision, combination or reclassification of Common
Stock, (d) any distribution to all holders of Common Stock of assets,
evidences of indebtedness, shares of Capital Stock, cash or securities other
than Common Stock (other than dividends or distributions exclusively in cash
or any dividend or distribution for which an adjustment is required to be made
under (b) above), (e) any distribution consisting exclusively of cash
(excluding any cash portion of distributions for which an adjustment is
required to be made in accordance with (d) above, or cash distributed upon a
merger or consolidation to which the second succeeding paragraph applies) to
all holders of Common Stock in an aggregate amount that, combined together
with (i) all other such all-cash distributions made within the then preceding
12 months in respect of which no adjustment has been made and (ii) any cash
and the fair market value of other consideration paid or payable in respect of
any tender offer by the Company or any of its Subsidiaries for Common Stock
(any such tender offer being referred to as an "Offer") concluded within the
preceding 12 months in respect of which no adjustment has been made, exceeds
12.5% of the Company's market capitalization (defined as being the product of
the then current market price of the Common Stock times the number of shares
of Common Stock then outstanding) on the record date of such distribution, and
(f) the completion of an Offer that involves an aggregate consideration having
a fair market value as of the expiration time of such Offer that, together
with (i) any cash and other consideration paid or payable in an Offer that
expired within the 12 months preceding the expiration of such Offer in respect
of which no adjustment has been made and (ii) the aggregate amount of all
other all-cash distributions made within the 12 months preceding the
expiration of such Offer in respect of which no adjustments have been made
(other than all-cash distributions to which the second succeeding paragraph
applies), exceeds 12.5% of the Company's market capitalization on the
expiration of such Offer. The Company reserves the right to make such
reductions in the conversion price in addition to those required in the
foregoing provisions as it considers to be advisable in order that any event
treated for Federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the recipients. No adjustment of the conversion price
will be required to be made until the cumulative adjustments amount to 1.0% or
more of the conversion price as last adjusted; PROVIDED, that the Company may
make any such adjustment at its election.

In the event that the Company distributes rights, options or warrants
(other than those referred to in (b) in the preceding paragraph) pro rata to
holders of Common Stock, so long as any such rights, options or warrants have
not expired or been redeemed by the Company, the Holder of any Debenture
surrendered for conversion will be entitled to receive upon such conversion,
in addition to the shares of Common Stock issuable upon such conversion (the
"Conversion Shares"), a number of rights, options or warrants to be determined
as follows: (i) if such conversion occurs on or prior to the date for the
distribution to the holders of rights, options or warrants of separate
certificates evidencing such rights, options or warrants (the "Distribution
Date"), the same number of rights, options or warrants to which a holder of a
number of shares of Common Stock equal to the number of Conversion Shares is
entitled at the time of such conversion in accordance with the terms and
provisions of and applicable to the rights, options or warrants, and (ii) if
such conversion occurs after such Distribution Date, the same number of
rights, options or warrants to which a holder of the number of shares of
Common Stock into which such Debenture was convertible immediately prior to
such Distribution Date would have been

entitled on such Distribution Date in accordance with the terms and provisions
of and applicable to the rights, options or warrants. The conversion price of
the Debentures will not be subject to adjustment on account of any
declaration, distribution or exercise of such rights, options or warrants.

In case of any reclassification, consolidation or merger of the Company
with or into another Person or any merger of another Person with or into the
Company (with certain exceptions), or in the case of any sale, transfer or
conveyance of all or substantially all of the assets of the Company (computed
on a consolidated basis), each Debenture then outstanding will, without the
consent of any Holder, become convertible only into the kind and amount of
securities, cash and other property receivable upon such reclassification,
consolidation, merger, sale, transfer or conveyance by a holder of the number
of shares of Common Stock into which such Debenture was convertible
immediately prior thereto, after giving effect to any adjustment event
(assuming such holder of Common Stock (i) is not a person party to such
transaction and (ii) failed to exercise any rights of election and received
per share the kind and amount received per share by a plurality of
non-electing shares).

If at any time the Company makes a distribution of cash or property to
shareholders that would be taxable to such shareholders as a dividend for
Federal income tax purposes (for example, distributions of cash, assets or
evidences of indebtedness of the Company, but generally not stock dividends or
rights to subscribe for Common Stock), and pursuant to the antidilution
provisions of the Indenture, the Conversion Price is decreased, such decrease
may be deemed to result in taxable dividends to holders of the Debentures.

SUBORDINATION

The Debentures are general, unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company. In addition, the Debentures are effectively
subordinated to all of the creditors of the Company's Subsidiaries, including
trade creditors. The Indenture will not restrict the incurrence of Senior
Indebtedness or other indebtedness by the Company or its Subsidiaries. As of
September 30, 1995, as adjusted to give effect to this offering and the
anticipated use of the net proceeds therefrom, the Company and its
subsidiaries would have had an aggregate of $105.4 million of consolidated
indebtedness and other obligations effectively ranking senior to the
Debentures.

The Indenture will provide that no payment may be made by the Company on
account of the principal of, premium, if any, or interest on the Debentures,
or to acquire any of the Debentures (including repurchases of Debentures at
the option of the Holder) for cash or property (other than Junior Securities),
or on account of the redemption provisions of the Debentures, in the event of
(i) default in the payment of any principal of, premium, if any, or interest
on, any Senior Indebtedness of the Company when it becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise (a "Payment Default"), unless and until such Payment Default has
been cured or waived or otherwise has ceased to exist, or (ii) any other event
of default with respect to any Designated Senior Indebtedness permitting the
holders of such Designated Senior Indebtedness (or a trustee or other
representative on behalf of the holders thereof) to declare such Designated
Senior Indebtedness due and payable prior to the date on which it would
otherwise have become due and payable, upon written notice thereof to the
Company and the Trustee by any holders of Designated Senior Indebtedness (or a
trustee or other representative on behalf of the holders thereof) (the
"Default Notice"), unless and until such event of default shall have been
cured or waived or otherwise has ceased to exist, PROVIDED that such payments
may not be prevented under clause (ii) above for more than 179 days after an
applicable Default Notice has been received by the Trustee unless the
Designated Senior Indebtedness in respect of which such event of default
exists has been declared due and payable in its entirety, in which case no
such payment may be made until such acceleration has been rescinded or
annulled or such Designated Senior Indebtedness has been paid in full. No
event of default that existed or was continuing on the date of any Default
Notice (whether or not such event of default is on the same issue of
Designated Senior Indebtedness) may be made the basis for the giving of a
second Default Notice, and only one such Default Notice may be given in any
365-day period.
34

In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Securities) shall be
received by the Trustee or the Holders at a time when such payment or
distribution is prohibited by the foregoing provisions, then, unless such
payment or distribution is no longer prohibited by the foregoing provisions,
such payment or distribution shall be received and held in trust by the
Trustee or such Holders or the Paying Agent for the benefit of the holders of
Senior Indebtedness of the Company, and shall be paid or delivered by the
Trustee or such Holders or the Paying Agent, as the case may be, to the
holders of the Senior Indebtedness of the Company remaining unpaid or
unprovided for or their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing
such Senior Indebtedness of the Company may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness of the Company held or represented by each, for application to
the payment of all Senior Indebtedness in full after giving effect to any
concurrent payment or distribution to or for the holders of such Senior
Indebtedness.

Upon any distribution of assets of the Company upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a
similar proceeding or upon assignment for the benefit of creditors, (i) the
holders of all Senior Indebtedness of the Company will first be entitled to
receive payment in full before the Holders are entitled to receive any payment
on account of the principal of, premium, if any, and interest on the
Debentures (other than Junior Securities) and (ii) any payment or distribution
of assets of the Company of any kind or character, whether in cash, property
or securities (other than Junior Securities) to which the Holders or the
Trustee on behalf of the Holders would be entitled, except for the
subordination provisions contained in the Indenture, will be paid by the
liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of Senior Indebtedness of the Company or
their representative, ratably according to the respective amounts of Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full of all such Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution to the holders of such Senior
Indebtedness.

No provision contained in the Indenture or the Debentures will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on the Debentures. The
subordination provisions of the Indenture and the Debentures will not prevent
the occurrence of any Default or Event of Default under the Indenture or limit
the rights of the Trustee or any Holder, subject to the two preceding
paragraphs, to pursue any other rights or remedies with respect to the
Debentures.

As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its Subsidiaries or a marshalling of assets or liabilities of the
Company and its Subsidiaries, Holders of the Debentures may receive ratably
less than other creditors.

REDEMPTION AT THE COMPANY'S OPTION

The Debentures will not be subject to redemption prior to March 1, 1999 and
will be redeemable on such date and thereafter at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice to each
Holder, at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period commencing February 15
of the years indicated below, in each case together with accrued and unpaid
interest thereon to the Redemption Date:

YEAR PERCENTAGE
1999................................. 103.125%
2000................................. 102.083%
2001................................. 101.042%
2002 and thereafter.................. 100.000%

In the case of a partial redemption, the Trustee shall select the
Debentures or portions thereof for redemption on a pro rata basis, by lot, or
by such other method as the Trustee shall determine to be fair and appropriate
and in such manner as complies with any applicable depositary, legal and stock
exchange requirements. The Debentures may be redeemed in part in multiples of
$1,000 only.

The Debentures will not be subject to any sinking fund.

Notice of any redemption will be sent, by first-class mail, postage
prepaid, at least 30 days and not more than 60 days prior to the date for
redemption to the Holder of each Debenture to be redeemed to such Holder's
last address as then shown upon the registry books. The notice of redemption
must state, among other things, the Redemption Date, the Redemption Price,
including the amount of accrued and unpaid interest to be paid upon such
redemption, and that the Debentures called for redemption may not be converted
after the fifth Business Day prior to the Redemption Date. Any notice which
relates to a Debenture to be redeemed in part only must state the portion of
the principal amount equal to the unredeemed portion thereof and must state
that on and after the Redemption Date, upon surrender of such Debenture, a new
Debenture or Debentures in principal amount equal to the unredeemed portion
thereof will be issued. On and after the Redemption Date, interest will cease
to accrue on the Debentures or portions thereof called for redemption, unless
the Company defaults in is obligations with respect thereto.

REPURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER

The Indenture will provide that in the event that a Repurchase Event has
occurred, each Holder will have the right, at such Holders' option, pursuant
to an irrevocable and unconditional offer by the Company (the "Repurchase
Offer"), to require the Company to repurchase all or any part of such Holder's
Debentures (PROVIDED, that the principal amount of such Debentures must be
$1,000 or an integral multiple thereof) on the date determined by the Company
(the "Repurchase Payment Date") that is no later than 45 Business Days after
the occurrence of such Repurchase Event, at a cash price determined by the
Company (the "Repurchase Payment") equal to 100% of the principal amount
thereof, together with accrued and unpaid interest to the Repurchase Date. The
Repurchase Offer shall be made within 15 Business Days following a Repurchase
Event and shall remain open for 20 Business Days following its commencement
and no longer, except to the extent that a longer period is required by
applicable law (the "Repurchase Offer Period"). Upon expiration of the
Repurchase Offer Period, the Company shall purchase all Debentures properly
tendered in response to the Repurchase Offer.

A Repurchase Event will be deemed to have occurred at such time as:

(1) there is a Change in Control (as defined) of the Company; or

(2) the Company's Common Stock (or other common stock into which
the Debentures are then convertible) is not listed for trading on a
United States national securities exchange or the NASDAQ National Market
System.

The Indenture will provide that a "Change of Control" occurs (i) upon any
merger or consolidation of the Company with or into any person or any sale,
transfer or other conveyance, whether direct or indirect, of all or
substantially all of the assets of the Company, on a consolidated basis, in
one transaction or a series or related transactions, if, immediately after
giving effect to such transaction or transactions, any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable) is or becomes the "beneficial owner," directly
or indirectly, of more than 50% of the total voting power in the aggregate
normally entitled to vote in the election of directors, managers, or trustees,
as applicable, of the transferee or surviving entity, (ii) when any "person"
or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of
the Exchange Act, whether or not applicable) is or becomes the "beneficial
owner," directly or indirectly, of more than 50% of the total voting power in
the aggregate normally entitled to vote in the election of directors of the
Company, or (iii) when, during any period of 12 consecutive months after the
Issue Date, individuals who at the beginning of any such 12-month period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of

the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved), cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.

On or before the Repurchase Payment Date, the Company will (i) accept for
payment Debentures or portions thereof properly tendered pursuant to the
Repurchase Offer, (ii) deposit with the Paying Agent cash sufficient to pay
the Repurchase Payment for all Debentures or portions thereof so tendered and
(iii) deliver to the Trustee Debentures so accepted, together with an
Officers' Certificate listing the Debentures or portions thereof being
purchased by the Company. The Paying Agent will on the Repurchase Payment Date
mail to the Holders of Debentures so accepted payment in an amount equal to
the Repurchase Payment, and the Trustee will promptly authenticate and mail or
deliver to each such Holder a new Debenture equal in principal amount to any
unpurchased portion of the Debentures surrendered. Any Debentures not so
accepted will be promptly mailed or delivered by the Company to the Holder
thereof. The Company will publicly announce the results of the Repurchase
Offer on or as soon as practicable after the Repurchase Date.

The term "all or substantially all of the assets" is likely to be
interpreted by reference to applicable state law at the time applicable, and
will be dependent on the facts and circumstances existing at such time. As a
result, there may be a degree of uncertainty in ascertaining whether a sale or
transfer of "all or substantially all of the assets" of the Company has
occurred. In addition, no assurances can be given that the Company will be
able to acquire the Debentures tendered upon the occurrence of a Repurchase
Event.

For purposes of this definition, (i) the terms "person" and "group" shall
have the meaning used for purposes of Rules 13d-3 and 13d-5 of the Exchange
Act as in effect on the Issue Date, whether or not applicable; and (ii) the
term "beneficial owner" shall have the meaning used in Rules 13d-3 and 13d-5
under the Exchange Act as in effect on the Issue Date, whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time or upon the occurrence of certain events.

The Change of Control feature of the Debentures may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. The Change of Control purchase feature resulted from negotiations
between the Company and the Underwriters.

The provisions of the Indenture relating to a Change of Control may not
afford the Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger, spin-off or similar transaction that
may adversely affect Holders, if such transaction does not constitute a Change
of Control, as set forth above.

To the extent applicable and if required by law, the Company will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E, Rule
13e-4 and any other tender offer rules under the Exchange Act and any other
securities laws, rules and regulations which may then be applicable to any
offer by the Company to purchase the Debentures at the option of Holders upon
a Repurchase Event.

The right to require the Company to repurchase Debentures as a result of
the occurrence of a Change of Control could create an event of default under
Senior Indebtedness as a result of which any repurchase could, absent a
waiver, be blocked by the subordination provision of the Debentures. See
"-- Subordination." Failure of the Company to repurchase the Debentures when
required would result in an Event of Default with respect to the Debentures
whether or not such repurchase is permitted by the subordination provisions.
There can be no assurance that the Company will have sufficient resources to
purchase Debentures upon a Change of Control.

LIMITATION ON MERGER, SALE OR CONSOLIDATION

The Indenture provides that the Company may not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey
or transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series or related transactions,

to another person or group of affiliated persons, unless (i) either (a) in the
case of a merger or consolidation the Company is the surviving entity or (b) the
resulting, surviving or transferee entity is a corporation organized under the
laws of the United States, any state thereof or the District of Columbia and
expressly assumes by supplemental indenture all of the obligations of the
Company in connection with the Debentures and the Indenture; and (ii) no Default
or Event of Default shall exist or shall occur immediately after giving effect
on a PRO FORMA basis to such transaction.

Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of the Company under the Indenture with the
same effect as if such successor corporation had been named therein as the
Company, and when a successor corporation duly assumes all of the obligations of
the Company pursuant to the Indenture and pursuant to the Debentures, the
Company will be released from its obligations under the Indenture and the
Debentures, except as to any obligations that arise from or as a result of such
transaction.

REPORTS

The Company shall deliver to the Trustee its annual and quarterly
reports, within 15 days after it files such reports with the Securities and
Exchange Commission pursuant to the reporting requirements of Section 13 or
15(d) of the Exchange Act. The Company shall deliver to each Holder such
annual and quarterly reports as it provides to its shareholders.

EVENTS OF DEFAULTS AND REMEDIES

The Indenture will define an Event of Default as (i) the failure by the
Company to pay any installment of interest on the Debentures as and when due
and payable and the continuance of any such failure for 30 days, (ii) the
failure by the Company to pay all or any part of the principal of, or premium,
if any, on the Debentures when and as the same become due and payable at
maturity, redemption, by acceleration or otherwise, including, without
limitation, pursuant to any Repurchase Offer or otherwise, (iii) the failure
of the Company to perform any conversion of Debentures required under the
Indenture and the continuance of any such failure for 30 days, (iv) the
failure by the Company to observe or perform any other covenant or agreement
contained in the Debentures or the Indenture and, subject to certain
exceptions, the continuance of such failure for a period of 60 days after
there has been given, by registered or certified mail, to the Company by the
Trustee, or to the Company and the Trustee by Holders of at least 25% in
aggregate principal amount of the then outstanding Debentures, a written
notice specifying such default or breach, requesting that such default or
breach be remedied and stating that such notice is a "Notice of Default" under
the Indenture, (v) certain events of bankruptcy, insolvency or reorganization
in respect of the Company or any of its Significant Subsidiaries, (vi) a
default in the payment of principal, premium or interest when due which
extends beyond any stated period of grace applicable thereto or an
acceleration for any other reason of the maturity of any Indebtedness (other
than Limited Recourse Indebtedness, unless such default or acceleration
results in any other Indebtedness (other than Limited Recourse Indebtedness)
with an aggregate principal amount in excess of $10 million being accelerated
or otherwise becoming due and payable) of the Company or any of its
Subsidiaries with an aggregate principal amount in excess of $10 million and
(vii) final unsatisfied judgments not covered by insurance for the payment of
money, or the issuance of any warrant of attachment against any portion of the
property or assets of the Company or any of its Subsidiaries, aggregating in
excess of $10 million, at any one time rendered against the Company or any of
its Subsidiaries and not stayed, bonded or discharged within 75 days (or, in
the case of any such final judgment that provides for payment over time, that
shall remain so unstayed, unbonded or undischarged beyond any applicable
payment date provided therein). The Indenture provides that, with certain
exceptions, if a Default occurs and is continuing, the Trustee must, within 90
days after the occurrence of such default, give to the Holders notice of such
Default.

The Indenture will provide that if an Event of Default occurs and is
continuing (other than an Event of Default specified in clause (v) above with
respect to the Company), then in every such case, unless the principal of all
of the Debentures shall have already become due and payable, either the

Trustee or the Holders of 25% in aggregate principal amount of the Debentures
then outstanding, by notice in writing to the Company (and to the Trustee if
given by Holders) (an "Acceleration Notice"), may declare all of the principal
of the Debentures (or the Repurchase Payment if the Event of Default includes
failure to pay the Repurchase Payment), including in each case accrued
interest thereon, to be due and payable immediately. If an Event of Default
specified in clause (v) above occurs with respect to the Company, all
principal and accrued interest thereon will be immediately due and payable on
all outstanding Debentures without any declaration or other act on the part of
Trustee or the Holders. The Holders of no less than a majority in aggregate
principal amount of Debentures generally are authorized to rescind such
acceleration if all existing Events of Default, other than the non-payment of
the principal of, premium, if any, and interest on the Debentures which have
become due solely by such acceleration, have been cured or waived.

Prior to the declaration of acceleration of the maturity of the
Debentures, the Holders of a majority in aggregate principal amount of the
Debentures at the time outstanding may waive on behalf of all of the Holders
any default, except a default in the payment of principal of or interest on
any Debenture not yet cured, or a default with respect to any covenant or
provision which cannot be modified or amended without the consent of the
Holder of each outstanding Debenture affected. Subject to the provisions of
the Indenture relating to the duties of the Trustee, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at
the request, order or direction of any of the Holders, unless such Holders
have offered to the Trustee reasonable security or indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the Debentures at the time outstanding will have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee.

AMENDMENTS AND SUPPLEMENTS

The Indenture will contain provisions permitting the Company and the
Trustee to enter into a supplemental indenture for certain limited purposes
without the consent of the Holders. With the consent of the Holders of not
less than a majority in aggregate principal amount of the Debentures at the
time outstanding, the Company and the Trustee are permitted to amend or
supplement the Indenture or any supplemental indenture or modify the rights of
the Holders; PROVIDED, that no such modification may, without the consent of
each Holder affected thereby: (i) change the Stated Maturity of any Debenture
or reduce the principal amount thereof or the rate (or extend the time for
payment) of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in
which, any Debenture or any premium or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment on
or after the due date thereof (including, in the case of redemption, on or
after the Redemption Date) or the conversion of any Debenture, or reduce the
Repurchase Price, or alter the redemption, subordination, conversion or
repurchase provisions in a manner adverse to the Holders, or (ii) reduce the
percentage in principal amount of the outstanding Debentures, the consent of
whose Holders is required for any such amendment, supplemental indenture or
waiver provided for in the Indenture, or (iii) adversely affect the right of
such Holder to convert Debentures, or (iv) modify any of the waiver
provisions, except to increase any required percentage or to provide that
certain other provisions of the Indenture cannot be modified or waived without
the consent of the Holder of each outstanding Debenture affected thereby.

NO PERSONAL LIABILITY OF SHAREHOLDERS, OFFICER, DIRECTORS

The Indenture will provide that no shareholder, employee, officer or
director, as such, past, present or future of the Company or any successor
corporation shall have any personal liability in respect of the obligations of
the Company under the Indenture or the Debentures by reason of his or its
status as such shareholder, employee, officer or director.

CERTAIN DEFINITIONS

"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.

"CAPITAL STOCK" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.

"DESIGNATED SENIOR INDEBTEDNESS" means any Senior Indebtedness that (i)
at the time of delivery of a Default Notice, has an aggregate principal amount
outstanding of at least $12.5 million and (ii) in the instrument evidencing
the same or the assumption or guarantee thereof (or related documents to which
the Company is a party) is expressly designated as "Designated Senior
Indebtedness" for purposes of the Indenture (PROVIDED that such instrument or
documents may place limitations and conditions on the right of such Senior
Indebtedness to exercise the rights of Designated Senior Indebtedness).

"INDEBTEDNESS" of any person means, without duplication, the following
(whether currently outstanding or subsequently incurred or created): (a) all
liabilities and obligations, contingent or otherwise, of any such person (i)
in respect of borrowed money (whether or not the recourse of the lender is to
the whole of the assets of such person or only to a portion thereof), (ii)
evidenced by bonds, notes, debentures or similar instruments, (iii)
representing the balance deferred and unpaid of the purchase price of any
property or services, except such as would constitute trade payables to trade
creditors in the ordinary course of business that are not more than 90 days
past their original due date, (iv) evidenced by bankers' acceptances or
similar instruments issued or accepted by banks, (v) for the payment of money
relating to a Capitalized Lease Obligation, or (vi) evidenced by a letter of
credit or a reimbursement obligation of such person with respect to any letter
of credit; (b) all net obligations of such person under Interest Swap and
Hedging Obligations; (c) all liabilities of others of the kind described in
the preceding clauses (a) or (b) that such person has guaranteed or that is
otherwise its legal liability and all obligations to purchase, redeem or
acquire any Capital Stock; and (d) any and all deferrals, renewals,
extensions, refinancing and refundings (whether direct or indirect) of, or
amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a), (b) or (c), or this clause (d),
whether or not between or among the same parties.

"ISSUE DATE" means the date of the first issuance of the Debentures under
the Indenture.

"JUNIOR SECURITIES" of any Person means any Qualified Capital Stock (as
defined in the Indenture) and any Indebtedness of such Person that is
subordinated in right of payment to the Debentures and has no scheduled
installment of principal due, by redemption, sinking fund payment or
otherwise, on or prior to the Stated Maturity of the Debentures.

"LIMITED RECOURSE INDEBTEDNESS" means (A) Indebtedness with respect to
the two drilling/workover barge rigs owned by the Company's Venezuelan
Subsidiary as in effect on the date of the Indenture (the "Venezuelan Barge
Financing") and (B) Indebtedness incurred to finance the purchase,
acquisition, renovation or construction of capital assets and related items
(including interest added to principal), or refinancings thereof, (i) in
respect of which the recourse of the holder of such Indebtedness is
effectively limited to specified assets or (ii) in which the recourse and
security are similar to (or more favorable to the Company and its Subsidiaries
than) the Venezuelan Barge Financing.

"SENIOR INDEBTEDNESS" of the Company means (i) all Indebtedness of the
Company unless, by the terms of the instrument creating or evidencing such
Indebtedness, it is provided that such Indebtedness is not superior in right
of payment to the Debentures or to other Indebtedness which is pari passu
with, or subordinated to the Debentures, and (ii) any modifications,
refundings, deferrals, renewals or extensions of any such Indebtedness or
securities, notes or other evidences of Indebtedness issued in exchange for
such Indebtedness; PROVIDED that in no event shall Senior Indebtedness include
(a) Indebtedness of the Company owed or owing to any Subsidiary of the Company
or any officer,

director or employee of the Company or any Subsidiary of the Company, (b)
Indebtedness to trade creditors, or (c) any liability for taxes owed or owing
by the Company.

"STATED MATURITY" when used with respect to any Debenture, means February
15, 2006.

"SUBSIDIARY," with respect to any person, means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly,
owned by such person, by such person and one or more Subsidiaries of such
person or by one or more Subsidiaries of such person, (ii) a partnership in
which such Person or a Subsidiary of such Person is, at the time, a general
partner, or (iii) any other person (other than a corporation) in which such
person, one or more Subsidiaries of such person, or such person and one or
more Subsidiaries of such person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest.

DESCRIPTION OF CAPITAL STOCK

The Company has 45,000,000 authorized shares of capital stock, consisting
of 40,000,000 shares of Common Stock, no par value, and 5,000,000 shares of
Preferred Stock, no par value. To date no series of Preferred Stock has been
designated or issued.

The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Restated Articles of
Incorporation of the Company, as amended (the "Articles"), a copy of which has
been incorporated by reference as an exhibit to the Registration Statement of
which this Prospectus forms a part.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on each matter
to be voted upon by the shareholders of the Company. Dividends may be paid to
the holders of Common Stock when, as and if declared by the Board of Directors
out of funds legally available for such purpose. Holders of Common Stock have
no conversion, redemption, cumulative voting or preemptive rights. In the
event of any liquidation, dissolution or winding up of the Company, after
payment or provision for payment of the debts and other liabilities of the
Company and payment or provision for payment of all amounts to which holders
of all other series or classes of the Company's stock hereafter issued that
rank senior as to liquidation rights to the Common Stock are entitled, the
holders of Common Stock will be entitled to share ratably in any remaining
assets of the Company. All outstanding shares of Common Stock are, and the
shares issuable upon conversion of the Debentures will be, duly and validly
issued, fully paid and nonassessable.

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.

PREFERRED STOCK

Shares of each series of Preferred Stock will have such rights and
preferences as are fixed by the Board of Directors in the resolution or
resolutions authorizing the issuance of that particular series. In designating
any series of Preferred Stock, the Board of Directors has the authority,
without further action of the holders of Common Stock, to fix the number of
shares constituting that series and to fix the preferences, limitations and
relative rights of the series, including the dividend rights, dividend rate,
terms and prices of redemption, liquidation preferences, sinking fund rights,
conversion rights and voting rights. It is expected that the holders of any
series of Preferred Stock, when and if issued, will have priority with respect
to dividends and any distributions upon liquidation of the Company, and may
have other preferences over the holders of the Common Stock, including the
preferential right to elect directors in the event dividends on the Preferred
Stock are not paid for a specified period. Although the Company has no present
intent to issue shares of Preferred Stock, the issuance of Preferred Stock
could be used to discourage an unsolicited acquisition proposal or otherwise
have an anti-takeover effect.

CERTAIN PROVISIONS OF THE ARTICLES, BYLAWS AND LOUISIANA LAW

The Articles, the Company's Bylaws (the "Bylaws") and Louisiana law
contain certain other provisions that may impede an unsolicited takeover
attempt or otherwise have an anti-takeover effect.

DIRECTOR TERMS AND RELATED PROVISIONS

The Articles provide that the members of the Board of Directors of the
Company will be elected for terms of five years and until their successors are
elected and qualified. The Articles further provide that the number of
directors will be as designated in the Bylaws, provided that no amendment to
the Bylaws to decrease the number of directors shall shorten the term of any
incumbent director. The Bylaws provide for six directors and in addition
provide that the Bylaws may be amended by shareholders only upon the
affirmative vote of at least 80% of the total voting power. In addition, the
Articles provide that any vacancy on the Board of Directors may be filled by a
vote of at least two-thirds of the directors then in office, and a director
elected to fill a vacancy shall serve until the next shareholders' meeting
held for the election of directors generally, provided that the shareholders
have the right at a special meeting, if called for such purpose prior to such
action by the Board of Directors, to fill a vacancy. The Articles also provide
that directors may be removed only for cause and only by the affirmative vote
of not less than 80% of the voting power, provided that the removal may only
be effected at a meeting of shareholders called for that purpose.

SHAREHOLDER MEETINGS

The Articles and the Bylaws provide that special meetings of shareholders
may be called by any shareholder or group of shareholders holding in the
aggregate at least 80% of the total voting power, or by the Chairman of the
Board, the President or the Board of Directors of the Company.

SHAREHOLDER NOMINATIONS OF DIRECTORS

The Articles provide that only persons who are nominated by, or at the
direction of, the Board of Directors of the Company or by a shareholder who
has given timely notice to the Secretary of the Company prior to the meeting
at which directors are to be elected will be eligible for election as
directors. To be timely, notice must be received by the Company at its
principal executive offices not less than 45 days nor more than 90 days prior
to the meeting (or, if less than 55 days' notice or prior public disclosure of
the meeting date is given or made to shareholders, not later than the tenth
day following the day on which such notice was mailed or such prior public
disclosure was made). Notice to the Company from a shareholder who proposes to
nominate a person at a meeting for election as a director must contain certain
specified information about that person.

SUPERMAJORITY VOTE FOR CERTAIN BUSINESS COMBINATIONS

The Articles provide that no Business Combination (as hereinafter
defined) shall be effected unless it is approved at the shareholders' meeting
called for that purpose by the affirmative vote of 80% of the total voting
power of the holders of voting securities or other obligations with voting
power (excluding such securities and obligations owned by an Acquiring Entity
(as hereinafter defined) and its affiliates). In addition to the voting
requirements, no Business Combination may be effected without first satisfying
substantive conditions with regard to: (i) the consideration to be received by
shareholders; (ii) certain restrictions prohibiting the Acquiring Entity from
purchasing voting securities or obligations with voting power subsequent to
becoming an Acquiring Entity but prior to any Business Combination; (iii) the
dividends paid on the outstanding stock of the Company; (iv) certain
restrictions prohibiting the Acquiring Entity from receiving the benefit of
any financial assistance of the Company or making any major change in the
Company's business or equity capital structure without unanimous approval of
the directors; and (v) the distribution of a proxy statement containing any
recommendations by the directors and the opinion of a reputable investment
banking firm as to the fairness of the terms of the Business Combination.

These requirements will not apply to a Business Combination that (i) is
approved by a majority of directors unaffiliated with the Acquiring Entity who
were directors prior to an Acquiring Entity's becoming such (or certain
successors) (the "Continuing Directors"), if there are at least three

Continuing Directors, or (ii) involves solely either (A) transfer of assets of
the Company to a subsidiary wholly owned by the Company or (B) a merger or
consolidation with or into a successor corporation, as long as the percentages
of shareholder ownership remain the same and the successor corporation's
articles of incorporation contain the same provisions as the Articles.

A "Business Combination" is defined in the Articles as: (i) any merger or
consolidation of the Company with or into any entity unrelated to the Company
which is the beneficial owner of securities representing 30% or more of the
voting power of Company securities or other obligations of the Company
granting voting rights (an "Acquiring Entity") or any affiliate thereof; (ii)
any sale or other disposition of all or substantially all of the assets of the
Company to an Acquiring Entity or any affiliate thereof; (iii) any sale or
other disposition to the Company or any subsidiary thereof of any assets in
exchange for which an Acquiring Entity or any affiliate thereof becomes the
beneficial owner of either (A) voting securities of the Company or any
subsidiary thereof or (B) other obligations of the Company granting voting
rights; (iv) any transaction designed to decrease the number of holders of the
Company's voting securities remaining after an Acquiring Entity has become an
Acquiring Entity; or (v) the adoption of any plan or proposal for the
liquidation or dissolution of the Company in which anything other than cash
will be received by an Acquiring Entity or any affiliates thereof.

LOUISIANA LAW

Louisiana law requires that certain transactions, such as mergers,
consolidations or share exchanges, with a shareholder beneficially owning 10%
or more of the voting power of the corporation (an "Interested Shareholder")
or its affiliates be recommended by the board of directors and approved by the
affirmative vote of (i) 80% of the votes entitled to be cast by outstanding
shares of the corporation's voting stock and (ii) two-thirds of the votes
entitled to be cast by holders of voting stock other than the Interested
Shareholder and its affiliates. These voting requirements do not apply to such
transactions if the transaction (i) does not alter the contract rights of the
stock or change or convert, in whole or in part, the outstanding shares of the
corporation or (ii) satisfies certain requirements with regard to the
consideration to be received by shareholders and certain procedural
requirements.

OTHER PROVISIONS

The Articles and Louisiana law provide that the Board of Directors of the
Company, when evaluating a tender offer or an offer to make a tender or
exchange offer or to effect a Business Combination, may, in exercising its
judgment in determining what is in the best interests of the Company and its
shareholders, consider the following factors and any other factors that it
deems relevant: (i) not only the consideration being offered in the proposed
transaction, in relation to the then current market price for the outstanding
capital stock of the Company, but also (A) the market price for the capital
stock of the Company over a period of years, (B) the estimated price that
might be achieved in a negotiated sale of the Company as a whole or in part or
through orderly liquidation, (C) the premiums over market price for the
securities of other corporations in similar transactions, (D) current
political, economic and other factors bearing on securities prices and (E) the
Company's financial condition and future prospects; (ii) the social and
economic effects of such transaction on the Company, its subsidiaries or their
employees, customers, creditors and the communities in which the Company and
its subsidiaries do business; (iii) the business and financial condition and
earnings prospects of the acquiring party or parties, including, but not
limited to, debt service and other existing or likely financial obligations of
the acquiring party or parties, and the possible effect of such conditions
upon the Company and its subsidiaries and the communities in which the Company
and its subsidiaries do business; and (iv) the competence, experience and
integrity of the acquiring party or parties and its or their management.

AMENDMENT OF CERTAIN PROVISIONS OF THE ARTICLES AND BYLAWS

The Articles provide, with certain exceptions, that the holders of 80% of
the total voting power are required to amend certain provisions of the
Articles. The Bylaws provide that the Bylaws may be amended or repealed only
by (i) a majority of the entire Board of Directors at any time when there is
no Acquiring Entity, (ii) both a majority of the entire Board of Directors and
a majority of the

Continuing Directors at any time when there is an Acquiring Entity or (iii)
the affirmative vote of the holders of at least 80% of the total voting power.

UNDERWRITING

The Underwriters named below have agreed, severally and not jointly, and
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company the respective principal amounts of Debentures set forth
opposite their names below.

PRINCIPAL
AMOUNT OF
UNDERWRITERS DEBENTURES
Donaldson, Lufkin & Jenrette
Securities Corporation ............ $35,000,000
Robert W. Baird & Co. Inc. .......... 17,500,000
Morgan Keegan & Company, Inc. ....... 17,500,000
-----------
Total .......................... $70,000,000
===========

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Debentures offered hereby
are subject to approval of certain legal matters by counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all the
Debentures offered hereby if any are taken.

The Underwriters have advised the Company that the Underwriters propose to
offer the Debentures directly to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $18.00 per Debenture. Any
Underwriter may allow, and such dealers may reallow, a discount not in excess of
$2.50 per Debenture to any other Underwriter and to certain other dealers. After
the initial public offering of the Debentures, the public offering price and
other selling terms may be changed by the Underwriters.

Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to an additional $10,500,000 principal amount of Debentures at the
public offering price less the underwriting discounts and commissions set
forth on the cover page hereof. The Underwriters may exercise such option to
purchase additional Debentures solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the Debentures
offered hereby. To the extent such over-allotment option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
the same percentage of such additional Debentures as the number set forth next
to such Underwriter's name in the preceding table bears to the total number of
Debentures set forth on the cover page hereof.

The current executive officers and directors of the Company have agreed
with the Underwriters, subject to certain exceptions, not to offer, sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for, or warrants, rights or options to
acquire Common Stock, or enter into any agreement to do any of the foregoing,
for a period of 90 days (30 days in the case of Dexter Polk) after the Closing
Date without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), and to contribute to payments the Underwriters
may be required to make in respect thereof

In connection with this offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock
on the NASDAQ National Market System immediately prior to the commencement of
sales in this offering, in accordance with Rule 10b-6A under the Exchange Act.
Passive market making consists of, among other things, displaying bids on the
NASDAQ National Market System limited by the bid prices of independent market
makers and purchases limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average

daily trading volume in the Common Stock during a specified prior period, and
all passive market making activity must be discontinued when such limit is
reached. Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced,
may be discontinued at any time.

LEGAL MATTERS

Certain legal matters in connection with the Debentures offered hereby
will be passed upon for the Company by Baker & Botts, L.L.P., Houston, Texas
and for the Underwriters by Weil, Gotshal & Manges LLP, Dallas, Texas.
McGlinchey Stafford Lang, a professional limited liability company, New
Orleans, Louisiana, will pass on all matters of Louisiana law in this
connection.

INDEPENDENT PUBLIC ACCOUNTANTS

The consolidated balance sheet of the Company as of December 31, 1994 and
1993, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1994, and the related schedules, included and incorporated
by reference in this Prospectus, have been included and incorporated by
reference herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
auditing and accounting. With respect to the unaudited interim financial
information for the periods ended March 31, June 30 and September 30, 1995 and
1994, included or incorporated by reference in this Prospectus, Coopers &
Lybrand L.L.P. has reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate reports related to the interim financial information
included or incorporated by reference herein state that they did not audit and
they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their reports on such information
should be restricted in light of the limited nature of the review procedures
applied. Coopers & Lybrand L.L.P. is not subject to the liability provisions
of Section 11 of the Securities Act for their reports on the unaudited interim
financial information because those reports are not a "report" or a "part" of
the registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act.

The consolidated balance sheet of X-Pert Enterprises, Inc. as of February
28, 1995 and March 31, 1994, and the related consolidated statements of
earnings, shareholders' equity and cash flows for the 11 months and the year
then ended, have been incorporated by reference herein in reliance on the
report of Johnson, Miller & Co., independent certified public accountants,
given on the authority of that firm as experts in auditing and accounting.

AVAILABLE INFORMATION

Pride is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission, which can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549; and at the regional
offices of the Commission at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at 7 World Trade Center, New York, New York 10048. Copies
of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549
at prescribed rates. The Common Stock is traded on the NASDAQ National Market
System.

This Prospectus, which constitutes part of the Registration Statement
filed by Pride with the Commission under the Securities Act, omits certain of
the information contained in the Registration Statement. Reference is hereby
made to the Registration Statement and the exhibits thereto, which may be
obtained at the public reference facilities maintained by the Commission as
provided in the preceding paragraph, for further information with respect to
Pride and the securities offered hereby. Statements contained herein
concerning the provisions of such documents are necessarily summaries of

such documents, and each such statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have been filed by Pride with the
Commission pursuant to the Exchange Act (File No. 0-16961), are incorporated
in this Prospectus by reference and shall be deemed to be a part hereof:

(a) Annual Report on Form 10-K for the year ended December 31, 1994;

(b) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1995, June 30, 1995 and September 30, 1995; and

(c) Current Report on Form 8-K filed on April 6, 1995, as amended by
amendments on Forms 8-K/A filed on June 2, 1995 and January 22, 1996.

All documents filed by Pride pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in this
Prospectus, in a supplement to this Prospectus or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed supplement to this
Prospectus or in any document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

Pride hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated
in this Prospectus by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Written or telephone requests for such copies should be directed to Pride at
its principal executive offices located at 1500 City West Blvd., Suite 400,
Houston, Texas 77042, Attention: Paul A. Bragg (telephone number: (713)
789-1400).

INDEX TO FINANCIAL STATEMENTS

PAGE
----
Pride Petroleum Services, Inc.

Annual Financial Statements

Report of Independent Accountants ...................... F-2

Consolidated Balance Sheet as of
December 31, 1994 and 1993 ........................... F-3

Consolidated Statement of Operations
for the Years Ended December 31,
1994, 1993 and 1992 .................................. F-4

Consolidated Statement of
Changes in Shareholders'
Equity for the Years Ended
December 31, 1994, 1993 and 1992 ..................... F-5

Consolidated Statement of Cash
Flows for the Years Ended
December 31, 1994, 1993
and 1992 ............................................. F-6

Notes to Consolidated
Financial Statements ................................. F-7

Interim Financial Statements
(unaudited)

Report of Independent
Accountants on Review of
Interim Financial Information ........................ F-20

Consolidated Balance Sheet
as of September 30, 1995
and December 31, 1994 ................................ F-21

Consolidated Statement of
Operations for the Nine
Months Ended September 30,
1995 and 1994 ........................................ F-22

Consolidated Statement of
Cash Flows for the Nine
Months Ended September 30,
1995 and 1994 ........................................ F-23

Notes to Unaudited Consolidated
Financial Statements ................................. F-24

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of Pride Petroleum Services, Inc.:

We have audited the consolidated balance sheet of Pride Petroleum
Services, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1994. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pride
Petroleum Services, Inc. and Subsidiaries as of December 31, 1994 and 1993,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.

As discussed in Note 5 to the financial statements, the Company changed
its method of accounting for income taxes in 1993.

COOPERS & LYBRAND L.L.P.

Houston, Texas
February 20, 1995

F-2
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

DECEMBER 31,
-------------------------
1994 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents....... $ 5,970 $ 7,509
Short-term investments.......... 3,001 7,659
Trade receivables, net of
allowance for doubtful
accounts
of $394 and $811,
respectively.................. 38,334 22,695
Parts and supplies.............. 4,468 2,277
Deferred income taxes........... 2,388 2,380
Other current assets............ 6,128 3,521
------------ -----------
Total current assets...... 60,289 46,041
------------ -----------
PROPERTY AND EQUIPMENT, AT COST...... 246,365 162,299
ACCUMULATED DEPRECIATION............. (106,466) (99,476)
------------ -----------
Net property and
equipment............... 139,899 62,823
------------ -----------
GOODWILL AND OTHER INTANGIBLES,
net................................ 3,580 1,105
OTHER ASSETS......................... 1,425 12
------------ -----------
$ 205,193 $ 109,981
============ ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................ $ 14,715 $ 9,973
Accrued expenses................ 15,332 10,463
Current portion of long-term
debt.......................... 3,602 3,847
------------ -----------
Total current
liabilities............. 33,649 24,283
------------ -----------
OTHER LONG-TERM LIABILITIES.......... 5,327 5,099
LONG-TERM DEBT, net of current
portion............................ 42,096 200
DEFERRED INCOME TAXES................ 12,736 11,273
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value;
40,000,000 shares authorized;
24,081,872 and 16,375,372
shares issued and 24,027,652
and 16,321,152 shares
outstanding, respectively..... 1 1
Paid-in capital................. 91,256 55,211
Treasury stock, at cost......... (191) (191)
Retained earnings............... 20,319 14,105
------------ -----------
Total shareholders'
equity.................. 111,385 69,126
------------ -----------
$ 205,193 $ 109,981
============ ===========

The accompanying notes are an integral part of the consolidated financial
statements.

F-3
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992

<S> <C> <C> <C>
REVENUES................................................................ $ 182,336 $ 127,099 $ 101,382
----------- ----------- -----------
COSTS AND EXPENSES
Operating costs.................................................... 139,653 100,305 83,829
Depreciation and amortization...................................... 9,550 6,407 5,649
Selling, general and administrative................................ 25,105 17,572 14,076
----------- ----------- -----------
Total costs and expenses..................................... 174,308 124,284 103,554
----------- ----------- -----------
Earnings (loss) from operations......................... 8,028 2,815 (2,172)
OTHER INCOME (EXPENSE)
Other income (expense)............................................. (305) (135) 5
Interest income.................................................... 618 649 811
Interest expense................................................... (207) (10) (3)
----------- ----------- -----------
Total other income, net................................. 106 504 813
----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES........................................... 8,134 3,319 (1,359)
INCOME TAX PROVISION (BENEFIT).......................................... 1,920 1,214 (517)
----------- ----------- -----------
NET EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
INCOME TAXES.......................................................... 6,214 2,105 (842)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES.............. -- 3,835 --
----------- ----------- -----------
NET EARNINGS (LOSS)..................................................... $ 6,214 $ 5,940 $ (842)
=========== =========== ===========
NET EARNINGS (LOSS) PER SHARE
Before cumulative effect of change in accounting for income
taxes........................................................... $ .30 $ .13 $ (.05)
Cumulative effect of change in accounting for income taxes......... -- .23 --
----------- ----------- -----------
EARNINGS (LOSS) PER SHARE............................................... $ .30 $ .36 $ (.05)
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING........................................................... 20,795 16,487 16,245
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
F-4

PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY TOTAL
----------------- PAID-IN STOCK RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL AT COST EARNINGS EQUITY

<S> <C> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 31, 1991......... 15,924 $ 1 $ 53,603 $ (235) $ 9,007 $ 62,376
Net loss........................ -- -- -- -- (842) (842)
Purchase of treasury stock...... (20) -- -- (72) -- (72)
Exercise of stock options....... 130 -- 293 -- -- 293
Amortization of restricted stock
awards....................... -- -- 17 -- -- 17
Tax benefit of non-qualified
stock options................ -- -- 2 -- -- 2
--------- ------ --------- -------- --------- --------------
BALANCE -- DECEMBER 31, 1992......... 16,034 1 53,915 (307) 8,165 61,774
Net earnings.................... -- -- -- -- 5,940 5,940
Issuance of common stock in
connection with
acquisition.................. 270 -- 1,099 116 -- 1,215
Exercise of stock options....... 17 -- 129 -- -- 129
Tax benefit of non-qualified
stock options................ -- -- 68 -- -- 68
--------- ------ --------- -------- --------- --------------
BALANCE -- DECEMBER 31, 1993......... 16,321 1 55,211 (191) 14,105 69,126
Net earnings.................... -- -- -- -- 6,214 6,214
Issuance of common stock in
public offering.............. 6,918 -- 32,108 -- -- 32,108
Issuance of common stock in
connection with
acquisition.................. 785 -- 3,925 -- -- 3,925
Exercise of stock options....... 4 -- 8 -- -- 8
Tax benefit of non-qualified
stock options................ -- -- 4 -- -- 4
--------- ------ --------- -------- --------- --------------
BALANCE -- DECEMBER 31, 1994......... 24,028 $ 1 $ 91,256 $ (191) $ 20,319 $111,385
========= ====== ========= ======== ========= ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
OPERATING ACTIVITIES
Net earnings (loss)................ $ 6,214 $ 5,940 $ (842)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating
activities --
Depreciation and
amortization................. 9,550 6,407 5,649
Gain on sale of assets....... (475) (241) (283)
Effect of exchange rates..... 362 167 --
Deferred tax provision
(benefit).................... 1,120 (103) 128
Effect of change in
accounting for income
taxes........................ -- (3,835) --
Changes in assets and
liabilities, net of
effects of acquisitions
Trade receivables....... (10,106) (830) (840)
Parts and supplies...... (1,128) (313) (128)
Other current assets.... (31) (395) 132
Accounts payable........ 1,534 2,778 598
Accrued expenses and
other................... 1,331 (343) 6,120
----------- ----------- -----------
Net cash provided
by operating
activities..... 8,371 9,232 10,534
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of net assets of acquired
entities, including acquisition
costs, less cash acquired....... (22,217) (9,752) --
Purchases of property and
equipment....................... (59,171) (12,123) (4,094)
Proceeds from sale of short-term
investments..................... 1,004 2,852 --
Proceeds from sale of property and
equipment....................... 908 285 377
Purchase of short-term
investments..................... -- (2,000) (3,883)
Other.............................. (6) 45 1,317
----------- ----------- -----------
Net cash used in
investing
activities........ (79,482) (20,693) (6,283)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of common
stock........................... 32,116 129 293
Proceeds from debt borrowings...... 39,358 400 --
Reduction of debt.................. (740) (1,797) (1,270)
Other.............................. (1,162) -- (72)
----------- ----------- -----------
Net cash provided
(used) by
financing
activities..... 69,572 (1,268) (1,049)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (1,539) (12,729) 3,202
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 7,509 20,238 17,036
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 5,970 $ 7,509 $ 20,238
=========== =========== ===========

The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

Pride Petroleum Services, Inc. (the "Company") is a Louisiana corporation
which was organized in 1988 as the successor to a company originally
incorporated in 1968. The Company was acquired by DEKALB Energy Corporation
("DEKALB") in 1978 and operated as a subsidiary until 1988, when DEKALB
effected a tax-free distribution of all the Company's outstanding shares to
the DEKALB shareholders. As a result, the Company became an independent
publicly traded company as of September 1, 1988.

The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. Certain reclassifications have
been made to prior year amounts to conform with the current year presentation.

CASH EQUIVALENTS

For purposes of the consolidated balance sheet and consolidated statement
of cash flows, the Company considers highly liquid debt instruments having
maturities of three months or less at the date of purchase to be cash
equivalents.

SHORT-TERM INVESTMENTS

Short-term investments include marketable securities, which in the case
of debt instruments have maturities in excess of three months but less than
one year at the date of purchase, and are carried at the lower of cost or
market value. There were no material differences between cost and fair market
value at December 31, 1994.

Included in the consolidated balance sheet at December 31, 1993, was a
short-term investment and related debt of $4,651,000 and $3,647,000,
respectively. In February 1994, the Company disposed of both the investment
security and the related non-recourse debt in exchange for a net payment of
$1,200,000. The resulting gain of $196,000 was included in income during 1994.

PARTS AND SUPPLIES

Parts and supplies consist of spare rig parts and supplies held for use
in operations and are valued at the lower of weighted average cost or market
value.

PROPERTY AND EQUIPMENT

Property and equipment are carried at original cost or adjusted net
realizable value, as applicable. Major renewals and improvements are
capitalized and depreciated over the respective asset's useful life.
Maintenance and repair costs are charged to expense as incurred. During the
years ended December 31, 1994, 1993 and 1992, maintenance and repair costs
included in operating costs were $16,290,000, $12,541,000 and $9,531,000,
respectively. When assets are sold or retired, the remaining costs and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is included in income.

For financial reporting purposes, depreciation of property and equipment
is provided using primarily the straight line method based upon expected
useful lives of each class of assets. Estimated useful lives of the assets for
financial reporting purposes are as follows:

YEARS
-------
Rigs and rig equipment............... 5 - 17
Transportation equipment............. 3 - 7
Buildings and improvements........... 10 - 20
Furniture and fixtures............... 5

F-7
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company capitalizes interest applicable to the construction of
significant additions to property and equipment. In 1994, total interest
incurred was $665,000, of which $458,000 was capitalized. No interest was
capitalized in 1993 or 1992.

GOODWILL AND OTHER INTANGIBLES

Goodwill, totalling $2,846,000 at December 31, 1994, represents the cost
in excess of fair value of the net assets of companies acquired and is being
amortized over 15 years. Other intangible assets, totalling $734,000 and
$1,105,000 at December 31, 1994 and 1993, respectively, represent costs
allocated to service contracts, employment contracts, covenants not to compete
and client lists acquired in business acquisitions. Other intangible assets
are being amortized over their estimated useful lives, which range from three
to ten years. Total amortization of goodwill and other intangible assets for
the years ended December 31, 1994, 1993 and 1992 amounted to $475,000,
$453,000 and $442,000, respectively.

REVENUE RECOGNITION

The Company recognizes revenue from domestic land well servicing
operations as services are performed based upon actual rig hours worked.
Revenues from international and offshore well servicing and daywork drilling
operations are recognized as services are performed based upon contracted day
rates and the number of operating days during the period. Revenues from
related operations are recognized in the period in which such services are
performed.

INCOME TAXES

Until 1993, the Company provided for deferred income taxes resulting from
timing differences in reporting revenues and expenses for financial statement
and income tax purposes. Effective January 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the asset is recovered or the liability
is settled. The tax effects of temporary differences which give rise to
deferred tax assets and liabilities are presented in Note 5.

FOREIGN CURRENCY TRANSLATION

The Company accounts for translation of foreign currency in accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation". The Company's Venezuelan operations are in a "highly
inflationary" economy resulting in the use of the U.S. dollar as the
functional currency. Therefore, certain assets of this operation are
translated at historical exchange rates and all translation gains or losses
are reflected in the period's results of operations. In Argentina, the local
currency is considered the functional currency. Translation of Argentine
assets and liabilities is made at the prevailing exchange rate as of the
balance sheet date. Revenues and expenses are translated at the average rate
of exchange during the period. The resulting translation adjustments are
recorded as a component of shareholders' equity. In Russia, contracts to date
have called for payment and expenses to be in U.S. dollars; therefore, no
exchange gain or loss has been applicable. The foreign exchange losses for
1994 and 1993 of $362,000 and $167,000, respectively, result primarily from
operations in Venezuela.

EARNINGS (LOSS) PER SHARE

Earnings (loss) per share has been computed based on the weighted average
number of common shares outstanding during the applicable period. Common share
equivalents have been included in

F-8
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

periods in which their effect is dilutive. Common share equivalents include
the number of shares issuable upon exercise of stock options, less the number
of shares that could have been repurchased with the exercise proceeds, using
the treasury stock method. Fully diluted earnings per share have not been
presented as the results are not materially different.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade receivables. The Company places its temporary cash
investments in U. S. Government securities and in other high quality financial
instruments. By policy, the Company limits the amount of credit exposure to
any one financial institution or issuer. The Company's customer base consists
primarily of major integrated and government-owned international oil companies
as well as smaller independent oil and gas producers. Management believes the
credit quality of its customers is generally high. The Company has in place
insurance to cover certain exposure in its foreign operations and provides
allowances for potential credit losses when necessary.

2. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1994 and 1993 consists of the
following:

DECEMBER 31,
------------------------
1994 1993
(IN THOUSANDS)
Land................................. $ 2,340 $ 1,696
Equipment............................ 191,248 148,159
Buildings............................ 5,495 3,094
Other................................ 251 242
Construction-in-progress............. 47,031 9,108
----------- -----------
246,365 162,299
Accumulated depreciation............. (106,466) (99,476)
----------- -----------
$ 139,899 $ 62,823
=========== ===========

Construction-in-progress as of December 31, 1994 included approximately
$36,533,000 of costs related to the construction of the two drilling/workover
barge rigs which were placed in service in January 1995, approximately
$4,355,000 of costs related to improvements to three offshore platform rigs,
and $3,701,000 related to the refurbishment, upgrading and deployment of four
additional rigs to Argentina. At December 31, 1993, construction-in-progress
included approximately $7,700,000 of costs related to the refurbishment,
upgrading and deployment of eleven rigs to Argentina.

3. ACQUISITIONS

In June 1994, the Company acquired substantially all of the assets of
Offshore Rigs, L.L.C. ("Offshore Rigs") for consideration of $31,213,000,
consisting of $20,608,000 in cash, the issuance of 785,000 shares of the
Company's common stock with a market value of $3,925,000 and the assumption of
existing bank indebtedness of $6,680,000.

F-9
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The assets acquired and liabilities assumed, which were transferred to
the Company's new wholly-owned subsidiary, Pride Offshore, Inc. ("Pride
Offshore"), were as follows:

ASSETS (LIABILITIES)
(IN THOUSANDS)

Trade receivables.................... $ 4,434
Parts and supplies................... 21
Other current assets................. 827
Property and equipment............... 27,508
Other assets, including goodwill..... 2,944
Accounts payable..................... (2,707)
Accrued expenses..................... (1,814)
Long-term debt....................... (6,680)
----------
$24,533
==========

Unaudited pro forma results of operations assuming the acquisition of the
assets of Offshore Rigs had occurred on January 1, 1993, are as follows:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31,
------------------------
1994 1993
(IN THOUSANDS, EXCEPT
PER SHARE DATA)

Revenues............................................................... $ 199,817 $ 166,742
Net Earnings........................................................... $ 7,367 $ 5,167
Earnings per share..................................................... $ .35 $ .30
</TABLE>
The pro forma results of operations presented above do not purport to be
indicative of the results of operations of the Company that might have
occurred nor are they indicative of future results.

In July 1993, the Company acquired for cash Perforaciones Western, C.A.,
renamed Pride International, C.A., of Cuidad Ojeda, Venezuela, which owned 14
well servicing and drilling rigs equipped for 24-hour operation.

Also in July 1993, the Company purchased for cash a 51% interest in an
Argentine company previously owned by Western Atlas International. The
business, renamed Pride Petrotech S.A.M.P.I.C., owned a fleet of 23 well
servicing rigs. Effective August 1, 1993, the Company acquired the remaining
49% ownership from minority interest owners. This transaction was accomplished
principally through the issuance of common stock and stock purchase warrants.

The acquisitions in 1993 resulted in cash expenditures of $11,549,000
(including payments to retire assumed debt) and the issuance of 270,000 shares
of common stock and 315,000 stock purchase warrants valued at an aggregate of
$1,215,000. The issuance of an additional 160,000 shares and 200,000 warrants
is contingent upon the achievement of certain future operating results by
Pride Petrotech S.A.M.P.I.C.

In February 1994, the Company acquired all of the outstanding capital
stock of Hydrodrill, S.A. ("Hydrodrill"). The principal assets of Hydrodrill
were four land-based workover rigs located in southern Argentina.

Each of the acquisitions discussed above was recorded using the purchase
method of accounting. The operating results of each acquisition were included
in consolidated earnings from the date of acquisition.

F-10
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT

Long-term debt at December 31, 1994 and 1993 consists of the following:

DECEMBER 31,
--------------------
1994 1993
(IN THOUSANDS)
Limited-recourse secured term
loans.............................. $ 33,311 $ --
Secured term loans................... 8,860 --
Revolving line of credit............. 3,325 --
Notes payable........................ 202 400
Non-recourse term loan............... -- 3,647
--------- ---------
45,698 4,047
Less current portion................. 3,602 3,847
--------- ---------
$ 42,096 $ 200
========= =========

In September 1994, the Company entered into long-term financing
arrangements with two Japanese trading companies in connection with the
construction of two drilling/workover barge rigs. The construction loans
provided for a floating interest rate, initially 6.875%, and were
collateralized by the two barge rigs under construction. Upon completion of
the two drilling/workover barge rigs, the interim construction loans were
repaid from the proceeds of separate secured term loans made by the Japanese
firms to the Company's wholly-owned Venezuelan subsidiary. The term loans are
collateralized by the barge rigs and related charter contracts. The aggregate
amount of the secured term loans was $42,000,000, including construction
advances made subsequent to December 31, 1994. The interest rate on the
secured term loans has been fixed at 9.61% per annum. The secured term loans
will be repaid from project revenues over the ten-year term of the related rig
charter contracts. The terms of the financing agreement limit the lenders'
recourse essentially to the barge rigs and contract proceeds and the assets of
the Company's Venezuelan subsidiary. The Company also provided the lenders a
limited guaranty with respect to certain political risks. The Company has
obtained political risks insurance policies from the Overseas Private
Investment Corporation to protect against political risks that could result in
potential payments under the terms of the Company's guaranty.

In connection with the acquisition of the assets of Offshore Rigs in June
1994, the Company's new wholly-owned subsidiary, Pride Offshore, Inc. ("Pride
Offshore"), entered into a $14,400,000 credit facility with a financial
institution. The credit facility included a $5,400,000 secured term loan, a
$4,000,000 secured revolver that was scheduled to convert to a term loan in
January 1995 and a $5,000,000 revolving line of credit. The secured term loan
initially bore interest at 8% per annum, while the secured revolver and the
revolving line of credit each bore interest at a variable rate of prime plus
1/2% per annum. At December 31, 1994, the Company had $4,860,000 of borrowings
outstanding under the secured term loan, $4,000,000 outstanding under the
secured revolver and $3,325,000 outstanding under the revolving line of
credit.

In February 1995, the credit facility was amended to, among other things,
increase the aggregate borrowing availability under the facility to
$30,000,000, reschedule maturities of the loans and to revise the interest
rates on a portion of the borrowings. Pursuant to the amended credit facility,
the amount of the secured term loan was increased to $10,000,000, with two
tranches. Tranche A has a principal amount of $4,680,000, is repayable in 28
equal monthly principal payments of $90,000 plus interest and one final
principal payment of $2,160,000 in June 1997, and bears interest, payable
monthly, at a rate of 8% per annum. Tranche B has a principal amount of
$5,320,000, is repayable in
F-11
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

60 equal monthly principal payments of $88,667 plus interest and bears
interest, payable monthly, at a rate of 9.25% per annum.

The proceeds of Tranche B of the amended secured term loan were used to
repay the outstanding balance of the original secured revolver and a portion
of the outstanding balance of the revolving line of credit. The secured term
loan is collateralized by certain of the Company's offshore property and
equipment.

Pursuant to the amended loan agreements, the amount of borrowing
availability under the secured revolver was increased to $15,000,000. The
secured revolver is to convert in July 1996 to a term loan which is repayable
in 60 equal monthly principal payments plus interest. The secured revolver is
to be collateralized by certain of the Company's property and equipment and
bears interest, payable monthly, at a variable rate of prime plus 1/2% per
annum.

The $5,000,000 revolving line of credit was amended to extend the
maturity of such loan to April 30, 1996. The revolving line of credit bears
interest, payable monthly, at a variable rate of prime plus 1/2% and is
collateralized by substantially all of the accounts receivable of Pride
Offshore.

The Company has unconditionally guaranteed the obligations of Pride
Offshore under each of the amended secured term loans, the secured revolver
and the revolving line of credit.

Current maturities of long-term debt in the consolidated balance sheet as
of December 31, 1994 have been revised to reflect the terms of the amended
loan agreements. Future maturities of long-term debt are as follows:

AMOUNT
(IN THOUSANDS)

1995................................. $ 3,602
1996................................. 6,158
1997................................. 8,355
1998................................. 4,030
1999................................. 3,350
Thereafter........................... 20,203

The Company has obtained bank commitments which provide for guidance
lines of credit of $19,585,000. As of December 31, 1994, letters of credit
totaling $17,129,000 were outstanding against these credit facilities.

Based on rates currently available to the Company for debt with similar
terms and remaining maturities, the Company believes that the recorded value
of long-term debt approximates fair market value at December 31, 1994.

5. INCOME TAXES

Effective January 1, 1993, the Company adopted SFAS 109. During the first
quarter of 1993, the Company recorded a gain in the amount of $3,835,000, or
$.23 per share, which represents the reduction of the deferred tax liability
as of January 1, 1993. The gain has been recorded in the consolidated
statement of operations as "cumulative effect of change in accounting for
income taxes".
F-12
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of the provision (benefit) for income taxes were as
follows:

YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
(IN THOUSANDS)
United States Federal:
Current......................... $ 410 $ 832 $ (618)
Deferred........................ 1,526 (14) 156
--------- --------- ---------
1,936 818 (462)
--------- --------- ---------
State:
Current......................... 24 85 (27)
Deferred........................ 90 (89) (28)
--------- --------- ---------
114 (4) (55)
--------- --------- ---------
Foreign:
Current......................... 366 400 --
Deferred........................ (496) -- --
--------- --------- ---------
(130) 400 --
--------- --------- ---------
Total income tax provision
(benefit)............... $ 1,920 $ 1,214 $ (517)
========= ========= =========

The difference between the effective federal income tax rate reflected in
the income tax provision (benefit) and the amounts which would be determined
by applying the statutory federal tax rate to earnings (loss) before income
taxes is summarized as follows:

YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
U.S. statutory rate.................. 34.0% 34.0% (34.0)%
Foreign.............................. (14.0) (1.1) --
State and local taxes................ 1.4 (0.1) (2.2)
Other................................ 2.2 3.8 (1.8)
--------- --------- ---------
Effective tax rate................... 23.6% 36.6% (38.0)%
========= ========= =========

The Company's consolidated effective federal income tax rate for the year
ended December 31, 1994 declined to approximately 24% from approximately 37%
for the corresponding period in 1993, before the cumulative effect of a change
in accounting for income taxes, primarily as a result of the recognition of
current tax benefits from the utilization of approximately $3,000,000 of
foreign net operating loss carryforwards. The Company had recognized a
valuation allowance for the tax benefits of such foreign net operating loss
carryforwards at the date the related foreign enterprise was acquired, due to
uncertainties then existing regarding the Company's ability to utilize such
tax benefits.

The domestic and foreign components of earnings (loss) before income
taxes and cumulative effect of change in accounting for income taxes were as
follows:

YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
(IN THOUSANDS)

Domestic.................. $ 5,178 $ 1,933 $ (1,359)
Foreign................... 2,956 1,386 --
--------- --------- ---------
$ 8,134 $ 3,319 $ (1,359)
========= ========= =========

F-13
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities and deferred tax assets as of
December 31, 1994 and 1993 were as follows:

DECEMBER 31,
--------------------
1994 1993
(IN THOUSANDS)
Deferred tax liabilities:
Depreciation.................................... $ 13,949 $ 12,450
Other........................................... 983 977
--------- ---------
Total deferred tax liabilities............ $ 14,932 $ 13,427
--------- ---------
Deferred tax assets:
Insurance claims................................ (3,814) (3,848)
Investment receipts............................. -- (300)
Bad debts....................................... (142) (292)
Other........................................... (628) (94)
--------- ---------
Total deferred tax assets................. (4,584) (4,534)
Valuation allowance for deferred tax assets..... -- --
--------- ---------
Net deferred tax assets................... (4,584) (4,534)
--------- ---------
Net deferred tax liability........................... $ 10,348 $ 8,893
========= =========

In conjunction with the acquisitions described in Note 3, deferred tax
liabilities of $417,000 and $1,900,000 were recorded during 1994 and 1993,
respectively.

Applicable U.S. income taxes have not been provided on approximately
$5,000,000 of undistributed earnings of the Company's foreign subsidiaries.
The Company considers such earnings to be permanently invested outside the
U.S. These earnings could be subject to U.S. income tax if distributed to the
Company as dividends or otherwise. The Company anticipates that foreign tax
credits would substantially reduce the amount of U.S. income tax that would be
payable if these earnings were to be repatriated.

6. SHAREHOLDERS' EQUITY

COMMON STOCK

In June 1994, the Company completed the sale of 6,918,000 shares of
common stock. The public offering resulted in net cash proceeds to the Company
of approximately $32,000,000. The Company utilized $20,608,000 of the proceeds
from the public offering toward the purchase of the assets of Offshore Rigs.

LONG-TERM INCENTIVE PLAN

The Company has a Long-Term Incentive Plan which provides for the
granting or awarding of stock options, restricted stock, stock appreciation
rights and stock indemnification rights to officers and other key employees.
The number of shares authorized and reserved for issuance under the Long-Term
Incentive Plan is limited to 9% of total issued and outstanding shares,
currently 2,162,000, subject to adjustment in the event of certain changes in
the Company's corporate structure or capital stock. Stock options may be
exercised in whole or part beginning six months from the date of grant and
expire 10 years from the date of grant. The stock options also expire 60 days
after termination of employment or one year after retirement, total disability
or death of an employee.
F-14
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Transactions in stock options pursuant to the Long-Term Incentive Plan
for the last three years are summarized as follows:

NUMBER
OF SHARES
Outstanding at December 31, 1991..... 965,850
Granted......................... --
Exercised ($2.25 per share)..... (130,000)
Forfeited ($2.25 per share)..... (2,500)
----------
Outstanding at December 31, 1992..... 833,350
Granted ($4.50 to $5.50 per
share).......................... 325,500
Exercised ($2.25 per share)..... (2,000)
Forfeited ($2.25 per share)..... (2,000)
----------
Outstanding at December 31,1993...... 1,154,850
Granted ($5.25 per share)....... 785,000
Exercised ($2.25 per share)..... (3,500)
Forfeited....................... --
----------
Options Outstanding at December 31,
1994............................... 1,936,350
==========
Exercisable at December 31, 1994..... 1,936,350
==========

DIRECTORS' STOCK OPTION PLAN

In 1993, the shareholders of the Company approved and ratified the 1993
Directors' Stock Option Plan. The purpose of the plan is to afford the
Company's directors who are not full-time employees of the Company or any
subsidiaries an opportunity to acquire a greater proprietary interest in the
Company. A maximum of 200,000 shares of the Company's common stock are to be
available for purchase upon the exercise of options granted pursuant to the
1993 Directors' Stock Option Plan. The exercise price of options is the fair
market value per share on the date the option is granted. Options expire ten
years from the date of the grant.

Transactions in the 1993 Directors' Stock Option Plan since inception are
summarized as follows:

NUMBER
OF SHARES
Outstanding at December 31, 1992..... --
Granted ($4.25 to $6.75 per
share)........................ 50,000
Exercised....................... --
Forfeited ($4.25 per share)..... (10,000)
---------
Outstanding at December 31, 1993..... 40,000
Granted ($5.00 per share)....... 12,000
Exercised....................... --
Forfeited ($4.25 to $5.00 per
share)........................ (13,000)
---------
Outstanding at December 31, 1994..... 39,000
=========
Exercisable at December 31, 1994..... 15,000
=========

7. EMPLOYEE BENEFITS

The Company has a salary deferral plan covering its employees whereby
employees may elect to contribute up to 15% of their annual compensation. The
Company may at its discretion make matching

F-15
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contributions with respect to an employee's salary contribution of up to
$1,000 or 6% of compensation, whichever is less. The Company made matching
contributions to the plan for the years ended December 31, 1994, 1993 and 1992
totaling $150,000, $105,000 and $114,000, respectively.

In 1993, the Company established a deferred compensation plan providing
officers and key employees with the opportunity to participate in an unfunded
deferred compensation program titled the "401(k) Restoration Plan". The 401(k)
Restoration Plan is a non-qualified plan which allows certain employees to
defer up to 100% of base compensation and bonuses earned.

The Company does not provide post-retirement benefits.

8. COMMITMENTS AND CONTINGENCIES

The Company is self-insured with respect to physical damage or loss to
its domestic vehicles, land rigs, and equipment (except for eight of its
largest domestic rigs). Eight of the Company's largest domestic land rigs and
all of the Company's international land rigs are insured, with deductibles of
generally $25,000 per occurrence. The Company's offshore platform rigs and
barge rigs are insured with deductibles of $50,000 and $150,000, respectively.
Presently, the Company has insurance deductibles of $250,000 per occurrence
for domestic workers' compensation claims, $100,000 per occurrence for
domestic automobile liability claims, and $250,000 for general liability
claims. The Company further limits its exposure by maintaining an accident and
health insurance policy with respect to its domestic employees with a
deductible of $10,000 per occurrence. Coverages with respect to foreign
operations for workers' compensation and automobile claims are subject to
deductibles of $40,000 to $100,000 per occurrence. The Company accrues for its
estimated share of insured claims. As of December 31, 1994 and 1993, the
Company had accrued approximately $11,111,000 and 11,087,000, respectively for
claims liabilities, of which $6,047,000 and $5,988,000, respectively was
included in current liabilities and $5,064,000 and $5,099,000, respectively,
was reflected as other long-term liabilities in the accompanying balance
sheet.

As of December 31, 1994, the Company had letters of credit outstanding
totaling $17,129,000. These letters of credit guarantee principally the
funding of the Company's share of insured claims. Cash and cash equivalents
and a portion of accounts receivable have been pledged as security for these
letters of credit. The credit facility provides flexibility to reduce the
pledge of cash and cash equivalents by pledging additional accounts
receivable.

Rental expense for equipment, vehicles and various facilities of the
Company for the years ended December 31, 1994, 1993, and 1992 was $7,987,000,
$4,505,000 and $3,307,000, respectively. As of December 31, 1994, future
minimum lease payments for operating leases having initial or remaining
noncancelable lease terms longer than one year are as follows: $215,000 in
1995; $223,000 in 1996; $223,000 in 1997; $80,000 in 1998; and none
thereafter. The Company leases vehicles used in its operations under a
revolving master lease. Although any single lease is cancelable by the Company
with 60 days notice, the Company expects to incur this lease expense in
increasing amounts for the foreseeable future. Vehicle lease expense included
in the above rental expense for the years ended December 31, 1994, 1993 and
1992 was $2,134,000, $1,809,000 and $1,571,000, respectively.

F-16
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Summarized quarterly financial data for 1994 and 1993 are as follows:

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER

1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Revenues............................. $ 36,805 $ 40,257 $ 50,974 $ 54,300
Earnings from operations............. 1,264 1,991 1,770 3,003
Net earnings......................... 929 979 1,928 2,378
Earnings per share................... .06 .06 .08 .10
Weighted average common shares and
equivalents outstanding............ 16,727 17,537 24,418 24,381
1993
Revenues............................. $ 25,085 $ 26,503 $ 37,254 $ 38,257
Earnings (loss) from operations...... (1,245) 539 1,934 1,587
Net earnings (loss) before cumulative
effect of change in accounting for
income taxes....................... (704) 481 1,308 1,020
Net earnings......................... 3,131 481 1,308 1,020
Earnings (loss) per share:
Before cumulative effect of
change in accounting for
income taxes................. (.04) .03 .08 .06
Earnings per share.............. .19 .03 .08 .06
Weighted average common shares and
equivalents outstanding............ 16,314 16,389 16,483 16,813

10. SUPPLEMENTAL FINANCIAL INFORMATION

OTHER CURRENT ASSETS

Other current assets at December 31, 1994 and 1993 consists of the
following:

DECEMBER 31,
--------------------
1994 1993
(IN THOUSANDS)
Pre-funded construction costs........ $ 1,692 $ --
Other receivables.................... 1,382 1,424
Prepaid expenses..................... 3,054 2,097
--------- ---------
$ 6,128 $ 3,521
========= =========
ACCRUED EXPENSES

Accrued expenses at December 31, 1994 and 1993 consists of the following:

DECEMBER 31,
--------------------
1994 1993
(IN THOUSANDS)
Insurance (excluding the long-term
portion of $5,064
and $5,099, respectively).......... $ 6,047 $ 5,988
Payroll.............................. 4,149 2,215
Taxes, other than income............. 4,193 1,622
Other................................ 943 638
--------- ---------
$ 15,332 $ 10,463
========= =========

F-17
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CASH FLOW INFORMATION

Cash paid for interest and income taxes during the years ended December
31, 1994, 1993 and 1992 was as follows:

YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
(IN THOUSANDS)
Cash paid during the year for:
Interest........................ $ 623 $ 10 $3
Income taxes -- U.S............. 1,893 2 2
Income taxes -- foreign......... 28 871 --

11. FINANCIAL DATA OF DOMESTIC AND INTERNATIONAL OPERATIONS

The following table sets forth certain consolidated information with
respect to the Company and its subsidiaries by industry segment.
<TABLE>
<S> <C>

DOMESTIC DOMESTIC
LAND OFFSHORE INTERNATIONAL TOTAL
(IN THOUSANDS)
1994
Revenues............................. $ 95,860 $ 23,441 $63,035 $ 182,336
Earnings from operations............. 1,184 3,304 3,540 8,028
Identifiable assets.................. 64,740 46,693 93,760 205,193
Capital expenditures, including
acquisitions......................... 3,062 34,617 48,987 86,666
Depreciation and amortization........ 5,085 1,056 3,409 9,550
1993
Revenues............................. $ 105,865 $ -- $21,234 $ 127,099
Earnings from operations............. 1,307 -- 1,508 2,815
Identifiable assets.................. 78,607 -- 31,374 109,981
Capital expenditures, including
acquisitions....................... 2,435 -- 21,408 23,843
Depreciation and amortization........ 5,241 -- 1,166 6,407
1992
Revenues............................. $ 101,382 $ -- $-- $ 101,382
Earnings (loss) from operations...... (2,172) -- -- (2,172)
Identifiable assets.................. 94,842 -- -- 94,842
Capital expenditures................. 4,108 -- -- 4,108
Depreciation and amortization........ 5,649 -- -- 5,649
</TABLE>
F-18
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth certain information with respect to the
Company and its subsidiaries by geographic area:
RUSSIA
NORTH SOUTH AND
AMERICA AMERICA OTHER TOTAL
(IN THOUSANDS)
1994
Revenues......................... $ 119,301 $ 62,430 $ 605 $ 182,336
Earnings (loss) from operations.. 4,488 4,712 (1,172) 8,028
Identifiable assets.............. 111,433 90,195 3,565 205,193
Capital expenditures............. 37,679 48,922 65 86,666
Depreciation and amortization.... 6,141 3,216 193 9,550

1993
Revenues......................... $ 105,865 $ 18,625 $ 2,609 $ 127,099
Earnings from operations......... 1,307 1,046 462 2,815
Identifiable assets.............. 78,607 28,461 2,913 109,981
Capital expenditures............. 2,435 20,953 455 23,843
Depreciation and amortization.... 5,241 927 239 6,407

1992
Revenues......................... $ 101,382 $ -- $ -- $ 101,382
Earnings (loss) from operations.. (2,172) -- -- (2,172)
Identifiable assets.............. 94,842 -- -- 94,842
Capital expenditures............. 4,108 -- -- 4,108
Depreciation and amortization.... 5,649 -- -- 5,649

One customer accounted for approximately 18% of consolidated revenues
representing 67% of revenues from operations in Argentina during 1994. Another
customer which accounted for less than 10% of consolidated revenues, accounted
for approximately 40% of revenues from domestic offshore operations. Since
June 1994, when the Company acquired its offshore operations, such customer
has accounted for approximately 18% of consolidated revenues. During 1993 and
1992, no customer accounted for more than 10% of consolidated revenues.

12. SUBSEQUENT AND PROPOSED TRANSACTIONS

In February 1995, the Company agreed to acquire all of the outstanding
capital stock of X-Pert Enterprises, Inc. ("X-pert") for consideration of
approximately $10,000,000, consisting of $3,000,000 cash, a note payable to
the selling shareholders in the amount of approximately $6,000,000, and
200,000 shares of the Company's common stock. X-pert operates 35 well
servicing rigs in New Mexico and also provides lease maintenance services to
oilfield operators. X-pert has annual revenues of approximately $15,000,000
and working capital and other monetary assets in excess of liabilities of
approximately $3,000,000. Conclusion of the acquisition is subject to certain
conditions, including finalization of a definitive purchase agreement.

F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of Pride Petroleum Services, Inc.:

We have reviewed the accompanying consolidated balance sheet of Pride
Petroleum Services, Inc. as of September 30, 1995 and the related consolidated
statements of operations and cash flows for the nine-month periods ended
September 30, 1995 and 1994. These financial statements are the responsibility
of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 1994,
and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 20, 1995, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying balance sheet as of December 31,
1994 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.

COOPERS & LYBRAND L.L.P.

Houston, Texas
November 3, 1995

F-20
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

SEPTEMBER 30, DECEMBER 31,
1995 1994
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents....... $ 11,139 $ 5,970
Short-term investments.......... 2,000 3,001
Trade receivables, net of
allowance for doubtful
accounts
of $617 and $394,
respectively.................. 45,710 38,334
Parts and supplies.............. 7,235 4,468
Deferred income taxes........... 2,532 2,388
Other current assets............ 9,070 6,128
------------- ------------
Total current assets...... 77,686 60,289
------------- ------------
PROPERTY AND EQUIPMENT, AT COST...... 290,273 246,365
ACCUMULATED DEPRECIATION............. (117,009) (106,466)
------------- ------------
Net property and
equipment.............. 173,264 139,899
------------- ------------
GOODWILL AND OTHER INTANGIBLES,
NET................................ 3,675 3,580
OTHER ASSETS......................... 2,193 1,425
------------- ------------
$ 256,818 $ 205,193
============= ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................ $ 18,408 $ 14,715
Accrued expenses................ 17,608 15,332
Current portion of long-term
debt.......................... 12,756 3,602
------------- ------------
Total current
liabilities............ 48,772 33,649
------------- ------------
OTHER LONG-TERM LIABILITIES.......... 5,118 5,327
LONG-TERM DEBT, net of current
portion............................ 58,817 42,096
DEFERRED INCOME TAXES................ 17,565 12,736
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value;
40,000,000 shares authorized;
24,849,572 and 24,081,872
shares issued and 24,795,352
and 24,027,652 shares
outstanding, respectively..... 1 1
Paid-in capital................. 95,190 91,256
Treasury stock, at cost......... (191) (191)
Retained earnings............... 31,546 20,319
------------- ------------
Total shareholders'
equity................. 126,546 111,385
------------- ------------
$ 256,818 $ 205,193
============= ============

The accompanying notes are an integral part of the consolidated financial
statements.

F-21
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1995 1994
REVENUES............................. $ 198,512 $ 128,036
----------- -----------
COSTS AND EXPENSES
Operating costs................. 143,376 99,402
Depreciation and amortization... 12,077 6,807
Selling, general and
administrative................ 23,620 16,802
----------- -----------
Total costs and
expenses................ 179,073 123,011
----------- -----------
Earnings from
operations....... 19,439 5,025
OTHER INCOME (EXPENSE)
Other income (expense).......... 1,640 (320)
Interest income................. 577 471
Interest expense................ (4,689) (170)
----------- -----------
Total other expense,
net.............. (2,472) (19)
----------- -----------
EARNINGS BEFORE INCOME TAXES......... 16,967 5,006
INCOME TAX PROVISION................. 5,740 1,170
----------- -----------
NET EARNINGS......................... $ 11,227 $ 3,836
=========== ===========
NET EARNINGS PER SHARE............... $ .44 $ .20
=========== ===========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS
OUTSTANDING........................ 25,280 19,590
=========== ===========

The accompanying notes are an integral part of the consolidated financial
statements.

F-22
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1995 1994
OPERATING ACTIVITIES
Net earnings.................... $ 11,227 $ 3,836
Adjustments to reconcile net
earnings to net cash provided
by operating activities --
Depreciation and
amortization............ 12,077 6,807
Deferred interest......... 1,947 --
Gain on sale of assets.... (1,597) (398)
Effect of exchange
rates................... 7 393
Deferred tax provision
(benefit)............... 1,001 (51)
Changes in assets and
liabilities, net of
effects of
acquisitions --
Trade receivables.... (5,122) (6,029)
Parts and supplies... (2,475) (1,040)
Other current
assets............ (4,759) (1,042)
Accounts payable..... 2,988 7,949
Accrued expenses and
other............. 1,141 450
-------- --------
Net cash
provided by
operating
activities... 16,435 10,875
-------- --------
INVESTING ACTIVITIES
Purchase of net assets of
acquired entities, including
acquisition costs, less cash
acquired...................... (1,999) (22,054)
Pre-funded construction costs... -- (21,440)
Purchases of property and
equipment..................... (34,426) (12,375)
Proceeds from short-term
investments................... 1,009 1,004
Proceeds from sales of property
and equipment................. 6,603 724
Other........................... (473) (6)
-------- --------
Net cash used
in investing
activities... (29,286) (54,147)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common
stock......................... 655 32,073
Proceeds from debt borrowings... 22,682 4,663
Reduction of debt............... (5,410) (420)
Other........................... 93 (199)
-------- --------
Net cash
provided by
financing
activities... 18,020 36,117
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH
EQUIVALENTS........................ 5,169 (7,155)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 5,970 7,509
-------- --------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 11,139 $ 354
======== ========

The accompanying notes are an integral part of the consolidated financial
statements.

F-23
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The unaudited consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted, pursuant to
such rules and regulations. These unaudited consolidated financial statements
should be read in conjunction with Pride Petroleum Services, Inc.'s (the
"Company's") audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994. Certain reclassifications have been made to prior year
amounts to conform with the current year presentation.

The unaudited consolidated financial information included herein reflects
all adjustments, consisting only of normal recurring adjustments, which are
necessary, in the opinion of management, for a fair presentation of the
Company's financial position, results of operations and cash flows for the
interim periods presented. The results of operations for the interim periods
presented herein are not necessarily indicative of the results to be expected
for full years.

2. COMMITMENTS AND CONTINGENCIES

The Company is self-insured with respect to physical damage or loss to
its domestic vehicles, land rigs, and equipment (except for thirteen of its
largest domestic land rigs). Thirteen of the Company's largest domestic land
rigs and all of the Company's international land rigs are insured, with
deductibles of generally $25,000 per occurrence. The Company's offshore
platform rigs and barge rigs are insured with deductibles of $50,000 and
$150,000, respectively. Presently, the Company has insurance deductibles of
$250,000 per occurrence for domestic workers' compensation claims, $100,000
per occurrence for domestic automobile liability claims, and $250,000 for
general liability claims. The Company further limits its exposure by
maintaining an accident and health insurance policy with respect to its
domestic employees with a deductible of $10,000 per occurrence. Coverages with
respect to foreign operations for workers' compensation and automobile claims
are subject to deductibles of generally $40,000 to $100,000 per occurrence.

In July 1995, one of the Company's domestic land rigs was destroyed in an
explosion and fire. The damaged rig was covered by insurance and the Company
has received net insurance proceeds of $1,094,000. The Company recognized a
gain from the insurance recovery of $1,049,000 which is included in other
income in the accompanying unaudited consolidated statements of operations.

The Company accrues expenses and liabilities for its estimated share of
insured claims. As of September 30, 1995 and December 31, 1994, the Company
had accrued approximately $9,846,000 and $11,111,000, respectively, for claims
liabilities, of which $5,626,000 and $6,047,000, respectively, were included
in current liabilities and $4,220,000 and $5,064,000, respectively, were
reflected as other long-term liabilities in the accompanying unaudited
consolidated balance sheet. As of September 30, 1995, the Company had letters
of credit outstanding totaling $11,048,000. These letters of credit guarantee
principally the Company's funding of its share of insured claims.

F-24
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. LONG-TERM DEBT

Long-term debt at September 30, 1995 and December 31, 1994 consists of
the following:

SEPTEMBER 30, DECEMBER 31,
1995 1994
(IN THOUSANDS)
Limited-recourse secured term
loans................................ $ 43,117 $33,311
Secured term loans................... 12,590 8,860
Notes payable........................ 7,025 200
Acquisition note payable............. 5,368 --
Revolving line of credit............. 2,773 3,325
Bank overdraft facility.............. 700 2
-------------- -------------
71,573 45,698
Less: current portion................ 12,756 3,602
-------------- -------------
$ 58,817 $42,096
============== =============

The balance of the limited-recourse secured term loans at September 30,
1995 includes $9,172,000 of construction advances and $2,020,000 of accrued
interest which was added to the principal amount of the loans during the first
nine months of 1995. Approximately $73,000 of such accrued interest was
capitalized as part of the cost of the related assets during the first nine
months of 1995. Pursuant to the terms of the loan agreements, interest, which
accrues at a rate of 9.61% per annum, was added to the principal amount of the
loans until the first scheduled payment in July 1995, and is being paid from
the proceeds of the related charter contracts in 109 equal monthly
installments of principal and interest. In addition, a portion of contract
proceeds are being held in trust to assure that timely payment of future debt
service obligations is made. At September 30, 1995, $2,435,000 of such
contract proceeds, which amount is included in cash and cash equivalents on
the accompanying unaudited consolidated balance sheet, are being held in trust
for the benefit of the lenders, and is not presently available for use by the
Company.

Borrowings pursuant to the secured term loans were increased by
$5,170,000 during the first nine months of 1995 to finance certain additions
to property and equipment.

Notes payable include five notes payable to lending institutions totaling
an aggregate $6,720,000 which are collateralized by selected property and
equipment, financed insurance premiums in the amount of $255,000, and a note
payable in the amount of $50,000 issued to the sellers of certain assets
acquired by the Company during the first quarter of 1995.

In March 1995, the Company entered into a note payable to two individuals
in the amount of $5,964,000 as partial consideration for a business
acquisition. The note bears interest at the rate of 8.5% per annum and is
repayable in quarterly installments through March 2000. The acquisition note
is collateralized by certain of the property and equipment of the acquired
business.

The Company had domestic revolving bank lines of credit of $23,000,000 as
of September 30, 1995, and letters of credit totaling $11,048,000 outstanding
against these facilities. Additionally, $2,773,000 of borrowings were
outstanding thereunder. Cash and cash equivalents and a portion of accounts
receivable have been pledged as security pursuant to these credit facilities.

4. LEASES

F-25
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company has purchase and lease renewal options at projected future fair market
values under the agreement. The lease has been classified as an operating
lease for financial statement purposes. Rentals on the initial transaction are
$1,167,000 annually. The net book value of the equipment has been removed from
the balance sheet and the excess of $587,000 realized on the transaction has
been deferred and will be amortized as a reduction of lease expense over the
maximum lease term of five years.

5. NET EARNINGS PER SHARE

Net earnings per share has been computed based on the weighted average
number of common shares outstanding during the applicable period. Common share
equivalents have been included in periods in which their effect is dilutive.
Common share equivalents include the number of shares issuable upon the
exercise of stock options and warrants, less the number of shares that could
have been repurchased with the exercise proceeds, using the treasury stock
method. Fully diluted net earnings per share have not been presented as the
results are not materially different.

6. ACQUISITIONS

In March 1995, the Company acquired all of the outstanding capital stock
of X-Pert Enterprises, Inc. ("X-Pert") for aggregate consideration of
approximately $10,000,000, consisting of $3,000,000 cash, a note payable to
the selling shareholders in the amount of $5,964,000, and 200,000 shares of
the Company's common stock.

The assets acquired and liabilities assumed in the X-Pert acquisition
were as follows:

ASSETS (LIABILITIES)
(IN THOUSANDS)
Cash and cash equivalents............ $ 1,719
Trade receivables.................... 2,254
Other current assets................. 80
Property and equipment............... 10,000
Other assets......................... 725
Accounts payable..................... (648)
Accrued expenses..................... (761)
Long-term debt....................... (569)
Deferred income taxes................ (2,800)
----------
$ 10,000
==========

Unaudited pro forma results of operations assuming the acquisition of
X-Pert had occurred on January 1, 1994, are as follows:

NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1995 1994
(IN THOUSANDS, EXCEPT
PER SHARE DATA)

Revenues............................. $ 200,505 $ 138,845
Net Earnings......................... $ 11,356 $ 4,477
Earnings per share................... $ .45 $ .23

The pro forma results of operations presented above do not purport to be
indicative of the results of operations of the Company that might have
occurred nor are they indicative of future results.

F-26
<PAGE>
PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Also in March 1995, the Company acquired substantially all of the assets
used in the fluids hauling business of McNeel Company, Inc. for total
consideration of $400,000, consisting of $350,000 cash and a note payable to
the sellers in the amount of $50,000.

Each of the acquisitions discussed above was recorded using the purchase
method of accounting. The operating results of each acquisition have been
included in the Company's consolidated results of operations from the date of
acquisition.

7. ISSUANCES OF COMMON STOCK

During the nine months ended September 30, 1995, 242,500 shares of the
Company's common stock were issued pursuant to the exercise of employee stock
options. The Company received proceeds of $655,000 in connection with the
exercise of such employee stock options.

In April 1995, the Company issued 87,000 shares of common stock pursuant
to the contractual earnout provisions of an acquisition agreement to an
individual who became a director of the Company in connection with such
acquisition. The value of such shares, estimated to be $435,000 has been
allocated to the acquired assets and will be amortized over the remaining
useful lives of such assets. In June 1995, the Company entered into an
agreement with the director, pursuant to which it issued 203,000 additional
shares of common stock in exchange for the director's remaining contingent
right to receive up to 73,000 common shares and the exercise of warrants to
acquire an additional 500,000 shares of common stock on a net value basis. The
value of the additional shares issued, estimated to be $1,624,000, was also
allocated to the acquired assets.

Also in April 1995, the Company issued 35,200 shares of common stock,
having an estimated aggregate value of $220,000, as consideration for the
purchase of support assets.

8. SEGMENT INFORMATION

The following table sets forth certain consolidated information with
respect to the Company and its subsidiaries by industry segment.
<TABLE>
<S> <C>

DOMESTIC DOMESTIC
LAND OFFSHORE(1) INTERNATIONAL TOTAL
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1995
Revenues............................. $ 85,990 $37,564 $ 74,958 $198,512
Earnings from operations............. 4,574 5,074 9,791 19,439
Identifiable assets.................. 78,514 55,521 122,783 256,818
Capital expenditures, including
acquisitions....................... 15,202 12,852 20,349 48,403
Depreciation and amortization........ 4,155 2,274 5,648 12,077

NINE MONTHS ENDED SEPTEMBER 30, 1994
Revenues............................. $ 72,545 $11,229 $ 44,262 $128,036
Earnings from Operations............. 1,367 1,172 2,486 5,025
Identifiable assets.................. 79,065 39,987 53,858 172,910
Capital expenditures, including
acquisitions....................... 1,693 27,379 30,722 59,794
Depreciation and amortization........ 3,843 539 2,425 6,807
</TABLE>
- ------------
(1) The Company acquired its offshore operations in June 1994.

F-27
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE DEBENTURES BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

PAGE
Prospectus Summary................... 3
Investment Considerations............ 7
Price Range of Common Stock and
Dividend Policy.................... 10
Use of Proceeds...................... 10
Capitalization....................... 11
Selected Financial Data.............. 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 13
Business............................. 20
Management........................... 30
Security Ownership of Management and
Certain Beneficial Owners.......... 31
Description of Debentures............ 32
Description of Capital Stock......... 41
Underwriting......................... 44
Legal Matters........................ 45
Independent Public Accountants....... 45
Available Information................ 45
Incorporation of Certain Documents by
Reference.......................... 46
Index to Financial Statements........ F-1

$70,000,000

PRIDE
PETROLEUM
SERVICES

6 1/4% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2006

------------------------------
PROSPECTUS
------------------------------

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

ROBERT W. BAIRD & CO.
INCORPORATED

MORGAN KEEGAN & COMPANY, INC.

January 22, 1996
<PAGE>