PRIDE PETROLEUM SERVICES INC, S-3, 1996-06-04

PRIDE PETROLEUM SERVICES INC
S-3, 1996-06-04
OIL & GAS FIELD SERVICES, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1996
REGISTRATION NO. 333-

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-3

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

PRIDE PETROLEUM SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

LOUISIANA 76-0069030
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NO.)

1500 CITY WEST BLVD., SUITE 400
HOUSTON, TEXAS 77042
(713) 789-1400

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

ROBERT W. RANDALL
VICE PRESIDENT AND GENERAL COUNSEL
PRIDE PETROLEUM SERVICES, INC.
1500 CITY WEST BLVD., SUITE 400
HOUSTON, TEXAS 77042
(713) 789-1400

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

L. PROCTOR THOMAS JOHN T. GAFFNEY
BAKER & BOTTS, L.L.P. CRAVATH, SWAINE & MOORE
ONE SHELL PLAZA WORLDWIDE PLAZA
910 LOUISIANA STREET 825 EIGHTH AVENUE
HOUSTON, TEXAS 77002 NEW YORK, NEW YORK 10019
(713) 229-1234 (212) 474-1000

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value............... 5,750,000 $17.3125 $99,546,875 $34,327
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes an aggregate of 750,000 shares subject to the Underwriters'
overallotment option.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 based upon the
average of the high and low sales prices of a share of Common Stock as
reported on the Nasdaq National Market on May 31, 1996.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

SUBJECT TO COMPLETION
JUNE 4, 1996

PROSPECTUS

5,000,000 SHARES

[PRIDE NAME/LOGO]

COMMON STOCK
(NO PAR VALUE)

All of the 5,000,000 shares of Common Stock, no par value (the "Common
Stock"), of Pride Petroleum Services, Inc. (the "Company") being offered
hereby are being issued and sold by the Company. The Common Stock is traded on
the Nasdaq National Market under the symbol "PRDE." On May 31, 1996, the last
reported sale price of the Common Stock on the Nasdaq National Market was $17.25
per share. See "Price Range of Common Stock."

PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK SHOULD CAREFULLY CONSIDER
THE MATTERS SET FORTH BEGINNING ON PAGE 7 UNDER THE CAPTION "RISK FACTORS."

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.

PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)

Per Share..... $ $ $
Total (2)..... $ $ $

(1) Before deducting expenses estimated at $ payable by the Company.

(2) The Company has granted to the Underwriters an option, exercisable within
thirty days of the date of this Prospectus, to purchase up to an additional
750,000 shares of Common Stock at the Price to Public, less Underwriting
Discount, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."

The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the certificates for the shares of Common Stock
will be made at the office of Salomon Brothers Inc, Seven World Trade Center,
New York, New York, or through the facilities of The Depository Trust Company,
on or about , 1996.

SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ROBERT W. BAIRD & CO.
INCORPORATED
MORGAN KEEGAN & COMPANY, INC.

The date of this Prospectus is , 1996.

[Photos]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL 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 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 AND SHOULD BE READ IN
CONJUNCTION WITH THE DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING
THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE
INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT
OPTION IS NOT EXERCISED. AS USED IN THIS PROSPECTUS, THE "COMPANY" OR
"PRIDE" REFERS TO PRIDE PETROLEUM SERVICES, INC. AND ITS SUBSIDIARIES. UNLESS
OTHERWISE INDICATED, (I) THE PRO FORMA AMOUNTS IN THIS PROSPECTUS GIVE EFFECT TO
THE ACQUISITION OF QUITRAL-CO S.A.I.C. ("QUITRAL-CO") AND RELATED FINANCING
TRANSACTIONS ON THE BASIS SET FORTH IN THE PRO FORMA FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS, (II) THE
HISTORICAL FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) AND THE HISTORICAL
FINANCIAL INFORMATION OF QUITRAL-CO, WHETHER STATED IN U.S. DOLLARS OR ARGENTINE
PESOS, ARE ON THE BASIS OF ARGENTINE GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND (III) STATISTICAL DATA RELATING TO NUMBERS OF RIGS OWNED OR OPERATED BY THE
COMPANY IS AS OF MAY 31, 1996.

THE COMPANY

Pride Petroleum Services, Inc. is a leading international and domestic
provider of well servicing, workover, contract drilling, completion, and
plugging and abandonment services, both on land and offshore. The Company's
fleet of 634 owned rigs is one of the world's largest, consisting of 428 land-
based rigs in the United States, 130 land-based rigs in Argentina, 42 land-based
and two drilling/workover barge rigs in Venezuela, nine land-based rigs in other
international markets and 23 offshore platform rigs located in the Gulf of
Mexico. 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.

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,
including related consolidation savings and economies of scale, (ii) deployment
of its excess domestic rig capacity to more profitable international markets,
(iii) expansion in the offshore market through acquisitions and new rig
construction and (iv) 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 and in the Gulf of Mexico. 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.

Consistent with its strategy, in April 1996, the Company acquired
Quitral-Co from Perez Companc S.A., Astra C.A.P.S.A. and other shareholders for
an aggregate purchase price of $140 million, consisting of $110 million in cash
and a $30 million installment note. Quitral-Co is the largest drilling and
workover contractor in Argentina, where it operates 23 drilling and 57 workover
rigs. Quitral-Co also has significant operations in Venezuela, where it operates
seven drilling and 23 workover rigs. For its fiscal year ended June 30, 1995 and
the nine-month period ended March 31, 1996, Quitral-Co's consolidated revenues
were approximately $175 million and $150 million, respectively, based on an
effective exchange rate of one U.S. dollar to one Argentine peso. Approximately
80% of such revenues were derived from Quitral-Co's Argentine operations, with
the remainder attributable to Venezuela. The acquisition of Quitral-Co will be
included in the Company's consolidated results of operations from April 30,
1996, the effective date of the acquisition. See "Unaudited Pro Forma Financial
Statements."

In addition to the Quitral-Co acquisition, since mid-1993, the Company has
acquired four other 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 35 underutilized rigs
from its U.S. land-based 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 has constructed two
new platform rigs in the past two years, both of which are now operating in the
Gulf of Mexico.

Through implementation of its growth and diversification strategy, the
Company's pro forma revenues have increased to $458 million in 1995 from actual
revenues of $127 million in 1993, and its pro forma earnings from operations
have increased to $45 million from reported earnings from operations of $3
million for the same periods. On a pro forma basis, the Company's international
and offshore operations accounted for approximately 75% of the Company's
revenues and approximately 84% of the Company's earnings from operations in
1995.

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. On a pro forma basis,
international operations accounted for approximately 64% of the Company's
operating revenues while generating approximately 69% of earnings from
operations in 1995.

In Argentina, the Company operates 130 land-based rigs, 80 of which were
added in the Quitral-Co acquisition. Of these rigs, 30 are drilling rigs and 100
are workover rigs. The Argentine market has improved 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. These improved
conditions have resulted in additional demand for rig services. The Company has
significantly enhanced its position in the Argentine well service and drilling
market through the Quitral-Co acquisition.

The Company's fleet in Venezuela consists of 42 land-based rigs, 30 of
which were added as a result of the Quitral-Co acquisition, and two
workover/drilling barge rigs working on Lake Maracaibo. Of the 42 land-based
rigs, 32 are workover rigs and 10 are drilling rigs. The Company believes that
it is well positioned to capitalize on new opportunities resulting from the
recently awarded operating service agreements and production sharing contracts
between the Venezuelan state-owned oil company and a number of international oil
companies.

The Company has also expanded its operations into Colombia and Russia, two
other international markets which the Company believes offer attractive
opportunities. In 1993, the Company formed a Russian company and deployed one
workover/drilling rig and two small well servicing rigs in Russia. In October
1995, the Company purchased Marlin Colombia Drilling Co. Inc. from a member of
the Royal Dutch/Shell Group of Companies. The Colombian government has recently
enacted policies to encourage oil and gas exploration and production activities
and awarded additional properties for development to major international oil
operators under production sharing contracts. The Company believes it will be
able to compete effectively for any resulting business opportunities. The
Company continues to review opportunities to expand internationally through
deployment of underutilized domestic assets, acquisitions and new rig
construction projects.

DOMESTIC OFFSHORE OPERATIONS

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. On a pro forma basis, domestic offshore operations
accounted for approximately 11% of the Company's operating revenues while
generating approximately 15% of earnings from operations in 1995.

DOMESTIC LAND-BASED OPERATIONS

The Company's domestic land-based fleet consists of 428 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 and in February 1996, acquired
a seven-rig operation in South Texas. The Company has increased earnings from
such operations from $1.3 million for the year ended December 31, 1993 to $6.9
million for the year ended December 31, 1995. On a pro forma basis, domestic
land-based operations accounted for approximately 25% of the Company's operating
revenues while generating approximately 16% of earnings from operations in 1995.

THE OFFERING

Common Stock offered............................ 5,000,000 shares (1)
Common Stock to be outstanding after the
Offering...................................... 30,059,656 shares (1) (2)
Use of proceeds................................. The net proceeds from the sale
of the Common Stock offered
hereby will be used to fund
capital expenditures, to
reduce outstanding
indebtedness and for general
corporate purposes. See "Use
of Proceeds."
Nasdaq National Market Symbol................... PRDE

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

(1) Excludes 750,000 shares subject to the Underwriters' over-allotment option.

(2) Based on the number of shares of Common Stock outstanding on May 31, 1996.
Does not include 6,571,428 shares issuable upon conversion of the Company's
6 1/4% Convertible Subordinated Debentures due 2006 and 2,396,150 shares
reserved for issuance upon exercise of outstanding stock options and
warrants.

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table sets forth summary historical and pro forma financial
and operating information for the Company as of the dates and for the periods
indicated. The following data should be read in conjunction with "Unaudited Pro
Forma Financial Statements," "Selected Historical Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements (including the notes
thereto) included elsewhere in this Prospectus. The historical consolidated
results of operations for the three months ended March 31, 1995 and 1996 are
unaudited and not necessarily indicative of the results of operations for the
full year.

THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- --------------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1995(3) 1995 1996 1996(3)
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND RIG AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 127,099 $ 182,336 $ 263,599 $458,163 $ 62,512 $ 66,235 $113,645
Operating costs...................... 100,305 139,653 188,252 346,237 45,171 47,946 84,947
Depreciation and amortization........ 6,407 9,550 16,657 28,064 3,578 4,774 8,021
Selling, general and
administrative....................... 17,572 25,105 32,418 39,063 8,042 8,157 10,528
--------- --------- --------- --------- --------- --------- ---------
Earnings from operations............. $ 2,815 $ 8,028 $ 26,272 $ 44,799 $ 5,721 $ 5,358 $ 10,149
========= ========= ========= ========= ========= ========= =========
Net earnings(1)...................... $ 5,940 $ 6,214 $ 15,359 $ 17,778 $ 3,012 $ 2,780 $ 4,815
========= ========= ========= ========= ========= ========= =========
Net earnings per share(1)
Primary.......................... $ 0.36 $ 0.30 $ 0.60 $ 0.70 $ 0.12 $ 0.11 $ 0.18
========= ========= ========= ========= ========= ========= =========
Fully diluted.................... $ 0.36 $ 0.30 $ 0.60 $ 0.65 $ 0.12 $ 0.11 $ 0.17
========= ========= ========= ========= ========= ========= =========
OTHER FINANCIAL DATA:
EBITDA(2)............................ $ 9,087 $ 17,273 $ 44,616 $ 74,527 $ 9,309 $ 10,359 $ 18,008
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital...................... $ 21,758 $ 26,640 $ 31,302 $ 29,144 $ 92,576 $ 17,790
Property and equipment, net.......... 62,823 139,899 178,488 160,385 188,265 351,328
Total assets......................... 109,981 205,193 257,605 233,091 340,568 498,536
Long-term debt, net of current
portion............................ 200 42,096 61,136 58,207 52,712 109,258
Convertible subordinated
debentures........................... -- -- -- -- 80,500 80,500
Shareholders' equity................. 69,126 111,385 131,239 115,397 135,145 135,145
NUMBER OF RIGS (AT END OF PERIOD):
International.................... 51 60 66 176 63 73 183
Domestic -- offshore............. -- 22 23 23 22 23 23
Domestic -- land-based........... 410 400 429 429 432 429 428
--------- --------- --------- --------- --------- --------- ---------
Total number of rigs......... 461 482 518 628 517 525 634
========= ========= ========= ========= ========= ========= =========
</TABLE>
- ------------

(1) Net earnings for the year ended December 31, 1993 include $3,835,000 ($0.23
per share) cumulative effect of change in accounting for income taxes. See
Note 6 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) Gives effect to the Quitral-Co acquisition and related financing
transactions on the basis described under "Unaudited Pro Forma Financial
Statements."

RISK FACTORS

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 COMMON STOCK OFFERED HEREBY.

DEPENDENCE ON OIL AND GAS INDUSTRY; INDUSTRY CONDITIONS

The Company's current business and operations are substantially dependent
upon conditions in the oil and gas industry and, specifically, the exploration
and production expenditures of oil and gas companies. The demand for well
servicing, workover and drilling 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.

INTERNATIONAL OPERATIONS

An increasingly significant portion of the Company's revenues are
attributable to international operations, particularly in South America. On a
pro forma basis, international operations provided approximately 64% of the
Company's revenues during the year ended December 31, 1995 and for the three
months ended March 31, 1996. Risks associated with operating in international
markets include foreign exchange restrictions and currency fluctuations, foreign
taxation, changing political conditions, foreign and domestic monetary and tax
policies, expropriation, nationalization, nullification, modification or
renegotiation of contracts, war and civil disturbances and 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 a portion of 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. Furthermore, the
Company's foreign subsidiaries may face governmentally imposed restrictions from
time to time on their ability to transfer funds to the Company. 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."

The Company records its transactions and prepares its financial statements
in U.S. dollars. Fluctuations in the value of the currencies in which the
Company conducts its business relative to the U.S. dollar have caused, and will
continue to cause, translated amounts to change in comparison with previous
periods. During the first half of 1994, the devaluation of the Venezuelan
bolivar resulted in currency translation losses for the Company, principally as
a result of translation of net Venezuelan monetary assets (primarily, accounts
receivable in excess of trade payables) at devaluing exchange rates from month
to month. In April 1996, the Venezuelan government removed certain exchange
control restrictions and effectively allowed the bolivar to float relative to
the U.S. dollar, which caused a decline in the relative exchange rate of the
bolivar from 290 to 450-500 bolivars per U.S. dollar. If the market rate of
exchange for Venezuelan bolivars continues to decline relative to the U.S.
dollar, or if the market rate of exchange for Argentine pesos declines relative
to the U.S. dollar, the Company could be susceptible to future translation
losses or reduced revenues and earnings, or both, with respect to its

Venezuelan or Argentine operations. The Company cannot predict the effect of
exchange rate fluctuations upon future operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Currency Fluctuations" and "Business -- Contracts."

OPERATING RISKS; INSURANCE

The Company's operations are subject to the many hazards inherent in the
oilfield services industry. Well servicing and drilling require 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.

RISKS OF ACQUISITION STRATEGY

The Company's growth strategy emphasizes the acquisition of other oilfield
service businesses. There can be no assurance, however, that the Company will be
able to continue to identify attractive acquisition opportunities, successfully
acquire identified targets or obtain financing for acquisitions on satisfactory
terms. In addition, no assurance can be given that the Company will be
successful in integrating acquired businesses, including Quitral-Co, into its
existing operations, and such integration may result in unforeseen operational
difficulties or require a disproportionate amount of management's attention.
Future acquisitions may be financed through the incurrence of additional
indebtedness or through the issuance of Common Stock. However, any significant
issuance of Common Stock following this offering would require action on the
part of the Company's shareholders to increase the number of shares authorized
under the Company's Restated Articles of Incorporation. Furthermore, there can
be no assurance that competition for acquisition opportunities in the industry
will not escalate, thereby increasing the cost to the Company of making further
acquisitions or causing the Company to refrain from making further acquisitions.

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.
See "Business -- Competition."

RELIANCE ON SIGNIFICANT CUSTOMERS

During 1995, approximately 40% of the revenues from the operations
conducted in Argentina by the Company and Quitral-Co on a pro forma basis was
derived from YPF Sociedad Anonima ("YPF"), the successor to the operations of
the former state-owned oil company. Services provided to YPF accounted for
approximately 20% of the Company's pro forma consolidated revenues for 1995.
Approximately 24% of the revenues from the operations conducted in Venezuela by
the Company and Quitral-Co in 1995 on a pro forma basis was derived from Perez
Companc S.A. Services provided to Perez Companc S.A. in both Venezuela and
Argentina accounted for approximately 12% of the Company's pro forma
consolidated revenues for 1995. One customer, Shell Oil Company, accounted for
approximately 54% of revenues from domestic offshore operations for 1995.
Revenues from Shell Oil Company and its affiliates from both land-based and
offshore operations accounted for approximately 8% of pro forma consolidated
revenues for 1995. The loss of YPF, Perez Companc S.A. 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."

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.

CERTAIN ANTI-TAKEOVER MEASURES

Certain provisions of the Company's Restated 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 that shareholder's
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 key members of management providing for the payment
of 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 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 the Nasdaq
National Market.

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......................................... $14 3/8 9 1/8
Second Quarter (through May 31, 1996)................. 18 13 5/8

On May 31, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $17.25 per share. As of May 31, 1996, there were
2,038 holders of record of Common Stock.

The Company has not paid any cash dividends on the Common Stock since
becoming a 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,
although it is not currently so restricted.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Stock offered
hereby will be approximately $81.5 million ($93.8 million if the Underwriters'
over-allotment option is exercised in full), based on an assumed offering price
of $17.25 per share and deduction of estimated underwriting discounts and
offering expenses payable by the Company. Approximately $12 million of the net
proceeds will be used to construct two platform rigs for the Company's offshore
fleet, and approximately $12 million of the net proceeds will be used to fund
various capital projects for Quitral-Co, including rig upgrades and expansion of
its rig transportation fleet. Approximately $25 million of the net proceeds will
be used to repay outstanding indebtedness, including: (i) $17.6 million under
the Company's bank credit facilities, which bear interest at rates ranging from
8.0% to 9.25% with maturities ranging from one month to six years; (ii) $4.8
million under an acquisition installment note that bears interest at a rate of
8.5% with final maturity in 2000; and (iii) $2.6 million of other outstanding
indebtedness that bears interest at rates ranging from 6.3% to 7.7% with
maturities ranging from 3 months to approximately 4 years. The Company may use
up to $30.0 million of the net proceeds of this offering to retire other
indebtedness, with the balance of the proceeds to be available for general
corporate purposes. 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.

CAPITALIZATION

The following table sets forth the cash and cash equivalents, consolidated
short-term debt and capitalization of the Company and its subsidiaries as of
March 31, 1996 (i) on a historical basis, (ii) giving pro forma effect to the
acquisition of Quitral-Co and related financing transactions and (iii) giving
pro forma effect to the transactions described in (ii) as adjusted to give
effect to the issuance and sale of the Common Stock offered hereby for assumed
net proceeds to the Company of $81.5 million (based on an assumed offering price
of $17.25 per share and deduction of estimated underwriting discounts and
offering expenses payable by the Company) and the application of $25 million of
such proceeds to reduce indebtedness as described under "Use of Proceeds."

AS OF MARCH 31, 1996
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ---------- -----------

(IN THOUSANDS)
CASH AND CASH EQUIVALENTS............ $ 74,659 $ 6,240 $ 38,740
=========== ========== ===========
SHORT-TERM DEBT AND CURRENT MATURITIES
OF LONG-TERM DEBT.................... $ 11,858 $ 41,496 $ 25,996
=========== ========== ===========
LONG-TERM DEBT
6 1/4% Convertible Subordinated
Debentures due 2006........... $ 80,500 $ 80,500 $ 80,500
Limited-recourse secured term
loans......................... 38,037 38,037 38,037
Secured term loans.............. 5,500 5,500 --
Notes payable................... 9,175 28,554 24,554
Bank credit facilities.......... -- 37,167 37,167
----------- ---------- -----------
Total long-term debt....... 133,212 189,758 180,258
----------- ---------- -----------
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; 25,073,876 shares issued and 25,019,656
shares outstanding, actual; 30,073,876 shares issued and 30,019,656
shares
outstanding, as adjusted(1)... 1 1 1
Paid-in capital................. 96,877 96,877 178,377
Treasury stock.................. (191) (191 ) (191)
Retained earnings............... 38,458 38,458 38,458
----------- ---------- -----------
Total shareholders'
equity..................... 135,145 135,145 216,645
----------- ---------- -----------
Total
capitalization........ $ 268,357 $ 324,903 $ 396,903
=========== ========== ===========
- ------------

(1) Does not include 6,571,428 shares issuable upon conversion of the Company's
6 1/4% Convertible Subordinated Debentures due 2006 and 2,436,150 shares
reserved for issuance upon exercise of outstanding stock options and
warrants.

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The unaudited pro forma balance sheet as of March 31, 1996 and the
unaudited pro forma statements of operations for the three months ended March
31, 1996 and the year ended December 31, 1995 give effect to the acquisition of
Quitral-Co by the Company and the related financing transactions, as described
in Note 1 to the Unaudited Pro Forma Financial Statements.

The historical balance sheet and results of operations for the Company have
been derived from the Company's consolidated financial statements included
elsewhere in this Prospectus. The historical balance sheet and results of
operations for Quitral-Co have been derived from Quitral-Co's consolidated
financial statements. The unaudited pro forma balance sheet has been prepared
assuming that the acquisition of Quitral-Co by the Company and the related
financing transactions were consummated as of March 31, 1996. The unaudited pro
forma statements of operations have been prepared assuming the acquisition of
Quitral-Co by the Company and the related financing transactions were
consummated as of January 1, 1995.

The unaudited pro forma financial statements and the pro forma adjustments
have been prepared on the basis of U.S. generally accepted accounting principles
and are based upon available information and certain assumptions and estimates
described in the notes to the unaudited pro forma financial statements that
management of the Company believes are reasonable. The pro forma financial
statements do not purport to represent what the Company's financial position or
results of operations actually would have been had the acquisition of Quitral-Co
and the related financing transactions in fact occurred on the dates indicated
or to project the Company's financial position or results of operations for any
future date or period. Furthermore, the unaudited pro forma financial statements
do not reflect changes which may occur as the result of post-combination
activities and other matters.

The unaudited pro forma financial statements and the notes thereto should
be read in conjunction with the historical financial statements of the Company,
including the notes thereto and the historical financial statements of
Quitral-Co, including the notes thereto, all of which are included elsewhere in
this Prospectus.

UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
PRIDE QUITRAL-CO ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents....... $ 74,659 $ 1,581 $ 40,000 (A) $ 6,240
(110,000 )(B)
Short-term investments.......... 52 5,960 6,012
Trade receivables, net.......... 43,946 33,257 77,203
Parts and supplies.............. 10,545 14,621 (4,500 )(B) 20,666
Deferred income taxes........... 1,569 1,372 2,941
Other current assets............ 10,196 8,173 18,369
----------- ----------- ---------
Total current assets....... 140,967 64,964 131,431
----------- ----------- ---------
PROPERTY AND EQUIPMENT, NET.......... 188,265 66,965 96,098 (B) 351,328
GOODWILL AND OTHER INTANGIBLES,
NET................................ 3,509 -- 3,509
OTHER ASSETS......................... 7,827 4,441 12,268
----------- ----------- ---------
$ 340,568 $ 136,370 $ 498,536
=========== =========== =========
CURRENT LIABILITIES
Accounts payable................ $ 21,759 $ 15,166 $ 36,925
Accrued expenses................ 14,774 14,946 $ 5,500 (B) 35,220
Current portion of long-term
debt.......................... 11,858 11,338 6,300 (A) 41,496
12,000 (B)
----------- ----------- ---------
Total current
liabilities.............. 48,391 41,450 113,641
----------- ----------- ---------
OTHER LONG-TERM LIABILITIES.......... 4,199 9,454 13,653
LONG-TERM DEBT, NET OF CURRENT
PORTION............................ 52,712 4,846 33,700 (A) 109,258
18,000 (B)
CONVERTIBLE SUBORDINATED
DEBENTURES........................... 80,500 -- 80,500
DEFERRED INCOME TAXES................ 19,621 1,218 25,500 (B) 46,339
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock.................... 1 36,747 (36,747 )(B) 1
Paid-in capital................. 96,877 24,953 (24,953 )(B) 96,877
Treasury stock, at cost......... (191) -- (191)
Retained earnings............... 38,458 17,702 (17,702 )(B) 38,458
----------- ----------- ---------
Total shareholders'
equity................... 135,145 79,402 135,145
----------- ----------- ---------
$ 340,568 $ 136,370 $ 498,536
=========== =========== =========
</TABLE>

The accompanying notes are an integral part of the unaudited pro forma financial
statements.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL
-----------------------
PRIDE QUITRAL-CO ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ----------
<S> <C> <C> <C>
REVENUES............................. $ 66,235 $ 47,410 $ 113,645
---------- ---------- ----------
COSTS AND EXPENSES
Operating costs................. 47,946 37,001 84,947
Depreciation and amortization... 4,774 2,847 $ 400(C) 8,021
General and administrative...... 8,157 2,871 (500)(D) 10,528
---------- ---------- ----------
Total costs and expenses... 60,877 42,719 103,496
---------- ---------- ----------
EARNINGS FROM OPERATIONS............. 5,358 4,691 10,149
OTHER INCOME (EXPENSE)
Other income (expense).......... 227 (389) (162 )
Interest income................. 774 242 1,016
Interest expense................ (2,554) (294) (375)(E) (4,661 )
(1,438)(F)
---------- ---------- ----------
Total other expense, net... (1,553) (441) (3,807 )
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 3,805 4,250 6,342
INCOME TAX PROVISION................. 1,025 1,091 (589)(G) 1,527
---------- ---------- ----------
NET EARNINGS $ 2,780 $ 3,159 $ 4,815
========== ========== ==========
NET EARNINGS PER SHARE
Primary......................... $ 0.11 $ 0.18
========== ==========
Fully Diluted................... $ 0.11 $ 0.17
========== ==========
WEIGHTED AVERAGE COMMON SHARES AND
EQUIVALENTS OUTSTANDING
Primary......................... 26,094 26,094
========== ==========
Fully Diluted................... 31,051 1,871(I) 32,922
========== ==========
</TABLE>

The accompanying notes are an integral part of the unaudited pro forma financial
statements.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

HISTORICAL
------------------------
PRIDE QUITRAL-CO ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ---------
<S> <C> <C> <C>
REVENUES................................ $ 263,599 $ 194,564 $ 458,163
----------- ---------- ---------
COSTS AND EXPENSES
Operating costs.................... 188,252 157,985 346,237
Depreciation and amortization...... 16,657 9,807 $ 1,600(C) 28,064
General and administrative......... 32,418 8,645 (2,000)(D) 39,063
----------- ---------- ---------
Total costs and expenses...... 237,327 176,437 413,364
----------- ---------- ---------
EARNINGS FROM OPERATIONS................ 26,272 18,127 44,799
OTHER INCOME (EXPENSE)
Other income (expense)............. 1,687 (23) 1,664
Interest income.................... 740 502 1,242
Interest expense................... (6,276) (5,945) (4,450)(E) (22,421)
(5,750)(F)
----------- ---------- ----------- ---------
Total other expense, net...... (3,849) (5,466) (19,515)
----------- ---------- ---------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE
INCOME TAXES.......................... 22,423 12,661 25,284
INCOME TAX PROVISION.................... 7,064 3,867 (3,425)(G) 7,506
----------- ---------- ---------
EARNINGS FROM CONTINUING OPERATIONS..... 15,359 8,794 17,778
EARNINGS FROM DISCONTINUED OPERATIONS... -- 2,100 (2,100)(H) --
----------- ---------- ---------
NET EARNINGS............................ $ 15,359 $ 10,894 $ 17,778
=========== ========== =========
NET EARNINGS PER SHARE
Primary............................ $ 0.60 $ 0.70
=========== =========
Fully Diluted...................... $ 0.60 $ 0.65
=========== =========
WEIGHTED AVERAGE COMMON SHARES AND
EQUIVALENTS OUTSTANDING
Primary............................ 25,465 25,465
=========== =========
Fully Diluted...................... 25,840 6,571(I) 32,411
=========== =========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma financial
statements.

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

1. BACKGROUND

In April 1996, the Company acquired all of the outstanding capital stock of
Quitral-Co from Perez Companc S.A., Astra C.A.P.S.A. and other shareholders for
aggregate consideration of $140,000,000, consisting of $110,000,000 in cash and
a note payable to the sellers for $30,000,000. The note payable bears interest
at a variable rate of LIBOR plus 2% payable quarterly. Payments of principal are
expected to be made in 30 monthly installments. Of the cash portion of the
purchase price, $70,000,000 was funded from the Company's working capital and
$40,000,000 from the net proceeds from two new long-term financing arrangements
with three lending institutions. Borrowings under these arrangements, which are
collateralized by substantially all of the Company's domestic land-based rig
fleet and ancillary equipment, bear interest at a variable rate of prime plus
1/2% and are repayable in monthly installments of principal and interest over a
five to six year period.

In January 1996, the Company completed the public sale of $80,500,000
principal amount of 6 1/4% convertible subordinated debentures, which resulted
in net proceeds to the Company of approximately $77,585,000. Approximately
$10,000,000 of such net proceeds were used to repay outstanding indebtedness.
The remainder of such net proceeds were used to fund various capital projects,
including the acquisition of Quitral-Co.

2. BASIS OF PRESENTATION

The accompanying unaudited pro forma balance sheet has been prepared
assuming the
acquisition of Quitral-Co by the Company and the related financing transactions
were consummated as of March 31, 1996. The unaudited pro forma statements of
operations have been prepared assuming the acquisition of Quitral-Co by the
Company and the related financing transactions were consummated as of January 1,
1995.

Net earnings per share have been computed based on the weighted average
number of common shares and common share equivalents outstanding during the
applicable period, assuming that the sale by the Company of its 6 1/4%
Convertible Subordinated Debentures due 2006 was completed on January 1, 1995.
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.

3. PRO FORMA ADJUSTMENTS

The unaudited pro forma financial statements reflect the following pro
forma adjustments related to the acquisition of Quitral-Co by the Company and
the related financing transactions:

(A) Receipt of aggregate net proceeds of $40,000,000 from two new
financing arrangements.

(B) Acquisition of Quitral-Co by the Company for $110,000,000 cash and a
note payable to the sellers for $30,000,000. Adjustments to reflect the
acquisition include elimination of the equity accounts of Quitral-Co and
allocation of the purchase price to property and equipment, based on the fair
market value of such property and equipment. Also, as part of the acquisition,
the Company estimates that it will make the following accruals: (i) $25,500,000
of deferred income taxes; (ii) $4,500,000 to adjust the recorded amount of parts
and supplies to estimated realizable value based upon the Company's maintenance
and stocking practices; (iii) $4,000,000 for dismissal benefits due to
Quitral-Co employees to be terminated; and (iv) $1,500,000 for other
transaction-related expenses.

(C) Estimated increase in depreciation and amortization expense resulting
from allocation of the purchase cost to the assets acquired and application of
the Company's depreciation policies to such assets.

(D) Estimated reduction in general and administrative expenses resulting
from combination of duplicate administrative functions, reduction in personnel
and other administrative efficiencies.

(E) Estimated increase in interest expense due to issuance and sale of
$80,500,000 principal amount of 6 1/4% Convertible Subordinated Debentures, less
estimated decrease in interest expense on $10,000,000 of debt retired with a
portion of the net proceeds from such debentures.

(F) Estimated increase in interest expense resulting from $40,000,000 of
net borrowings pursuant to two new financing arrangements entered into in
connection with the acquisition of Quitral-Co by the Company and addition of a
$30,000,000 note payable to the sellers.

(G) Estimated income tax effects of the pro forma adjustments included
herein, based on an estimated combined effective U.S. federal and state income
tax rate of 36% and an estimated effective Argentine income tax rate of 30%.

(H) Elimination of earnings from discontinued operations of Quitral-Co
which were not acquired by the Company.

(I) Estimated increase in weighted average common shares and equivalents
outstanding for fully diluted earnings per share calculation purposes, due to
issuance and sale of $80,500,000 principal amount of the Company's 6 1/4%
Convertible Subordinated Debentures, which are convertible at a price of $12.25
per share.

SELECTED HISTORICAL FINANCIAL DATA

The following selected consolidated financial information as of December
31, 1994 and 1995, and for each of the three years in the period ended December
31, 1995 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 three-month periods
as of or ended March 31, 1995 and 1996 have been derived from the unaudited
consolidated financial statements of the Company included elsewhere herein,
which include all adjustments, consisting of normal, recurring adjustments, that
the Company considers necessary for a fair presentation of its financial
position and results of operations for these periods. Operating results for the
three-month period ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the entire year. The selected consolidated
financial information as of December 31, 1991, 1992 and 1993, and for each of
the two years in the period ended December 31, 1992 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>
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 112,224 $ 101,382 $ 127,099 $ 182,336 $ 263,599 $ 62,512 $ 66,235
Operating costs...................... 87,700 83,829 100,305 139,653 188,252 45,171 47,946
Depreciation and amortization........ 5,861 5,649 6,407 9,550 16,657 3,578 4,774
Selling, general and
administrative..................... 13,825 14,076 17,572 25,105 32,418 8,042 8,157
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) from operations...... 4,838 (2,172) 2,815 8,028 26,272 5,721 5,358
Other income (expense)............... 880 813 504 106 (3,849) (1,112) (1,553)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes
and cumulative effect of change in
accounting
for income taxes................... 5,718 (1,359) 3,319 8,134 22,423 4,609 3,805
Income tax provision (benefit)....... 2,199 (517) 1,214 1,920 7,064 1,597 1,025
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) before cumulative
effect of change in accounting for
income taxes....................... 3,519 (842) 2,105 6,214 15,359 3,012 2,780
Cumulative effect of change in
accounting for income taxes........ -- -- 3,835 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss).................. $ 3,519 $ (842) $ 5,940 $ 6,214 $ 15,359 $ 3,012 $ 2,780
========== ========== ========== ========== ========== ========== ==========
Net earnings (loss) per share before
cumulative effect of change in
accounting
for income taxes................... $ 0.22 $ (0.05) $ 0.13 $ 0.30 $ 0.60 $ 0.12 $ 0.11
Cumulative effect of change in
accounting for income taxes........ -- -- 0.23 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) per share........ $ 0.22 $ (0.05) $ 0.36 $ 0.30 $ 0.60 $ 0.12 $ 0.11
========== ========== ========== ========== ========== ========== ==========
Weighted average common shares and
equivalents outstanding............ 16,354 16,245 16,487 20,795 25,465 24,675 26,094
OTHER FINANCIAL DATA:
EBITDA(1)............................ $ 10,800 $ 3,482 $ 9,087 $ 17,273 $ 44,616 $ 9,309 $ 10,359
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital...................... $ 25,983 $ 29,989 $ 21,758 $ 26,640 $ 31,302 $ 29,144 $ 92,576
Property and equipment, net.......... 46,424 45,084 62,823 139,899 178,488 160,385 188,265
Total assets......................... 89,819 94,842 109,981 205,193 257,605 233,091 340,568
Long-term debt, net of current
portion............................ 4,908 3,648 200 42,096 61,136 58,207 52,712
Convertible subordinated
debentures......................... -- -- -- -- -- -- 80,500
Shareholders' equity................. 62,376 61,774 69,126 111,385 131,239 115,397 135,145
</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.

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 pro forma financial
statements, including the notes thereto, included elsewhere in this Prospectus
or incorporated by reference 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:

o In a series of transactions from mid-1993 through 1995, the Company
acquired established businesses in Argentina, Venezuela and Colombia
and deployed 35 rigs from its U.S. land-based fleet to Argentina,
Venezuela and Russia.

o In June 1994, the Company acquired the largest fleet of platform
workover rigs, consisting of 22 units, in the Gulf of Mexico. Two
additional platform rigs were constructed and added to the fleet, one
in September 1995 and the other in April 1996 (replacing a rig then
retired from the fleet).

o In January 1995, the Company commenced operation of two
drilling/workover barge rigs on Lake Maracaibo, Venezuela. The barge
rigs 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.

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

o In April 1996, the Company acquired Quitral-Co from Perez Companc
S.A., Astra C.A.P.S.A. and other shareholders. Quitral-Co operates 23
drilling and 57 workover rigs in Argentina and seven drilling and 23
workover rigs in Venezuela. For its fiscal year ended June 30, 1995
and the nine-month period ended March 31, 1996, Quitral-Co's
consolidated revenues were approximately $175 million and $150
million, respectively, based on an effective exchange rate of one U.S.
dollar to one Argentine peso. The acquisition has been accounted for
as a purchase, effective April 30, 1996.

RESULTS OF OPERATIONS -- HISTORICAL

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

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Domestic land................... $ 105,865 $ 95,860 $ 113,115 $ 26,753 $ 27,861
Domestic offshore............... -- 23,441 49,595 13,058 12,376
International................... 21,234 63,035 100,889 22,701 25,998
----------- ----------- ----------- ---------- ----------
Total revenues............. $ 127,099 $ 182,336 $ 263,599 $ 62,512 $ 66,235
=========== =========== =========== ========== ==========
EARNINGS FROM OPERATIONS:
Domestic land................... $ 1,307 $ 1,184 $ 6,857 $ 1,163 $ 1,097
Domestic offshore............... -- 3,304 6,785 1,873 1,221
International................... 1,508 3,540 12,630 2,685 3,040
----------- ----------- ----------- ---------- ----------
Total earnings from
operations................. $ 2,815 $ 8,028 $ 26,272 $ 5,721 $ 5,358
=========== =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES:
Domestic land................... 83.3% 52.6% 42.9% 42.8% 42.0%
Domestic offshore............... -- 12.9 18.8 20.9 18.7
International................... 16.7 34.5 38.3 36.3 39.3
-------- -------- -------- -------- --------
Total revenues............. 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========
EARNINGS FROM OPERATIONS:
Domestic land................... 46.4% 14.7% 26.1% 20.3% 20.5%
Domestic offshore............... -- 41.2 25.8 32.7 22.8
International................... 53.6 44.1 48.1 47.0 56.7
-------- -------- -------- -------- --------
Total earnings from
operations............... 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995.

REVENUES. Revenues for the three months ended March 31, 1996 increased
$3,723,000, or 6%, as compared to the corresponding period in 1995. Of this
increase, $3,297,000 was a result of expansion of the Company's international
operations. Revenues from domestic land operations increased $1,108,000, as a
result of the acquisition of X-Pert in March 1995, partially offset by reduced
activity in the domestic land-based workover rig market. Without X-Pert,
revenues from domestic land operations would have declined because of such
reduced activity. Revenues attributable to domestic offshore operations
decreased $682,000 due primarily to lower utilization of the Company's offshore
platform workover rigs.

OPERATING COSTS. Operating costs for the three months ended March 31, 1996
increased $2,775,000 or 6%, as compared to the corresponding period in 1995. Of
this increase, $2,135,000 was a result of expansion of the Company's
international operations and $1,024,000 was attributable to domestic land
operations, due to the addition of X-Pert. Operating costs related to domestic
offshore operations decreased $384,000 due to lower utilization, as discussed
above.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the three
months ended March 31, 1996 increased $1,196,000, or 33%, as compared to the
corresponding period in 1995, primarily as a result of expansion of the
Company's international and domestic offshore asset base.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three months ended March 31, 1996 increased $115,000, or 1%, as
compared to the corresponding period in 1995. As a percentage of revenues,
however, total selling, general and administrative costs declined to 12% for the
first quarter of 1996 from 13% for the first quarter of 1995 as such costs have
been spread over a larger revenue base.

EARNINGS FROM OPERATIONS. Earnings from operations for the three months
ended March 31, 1996 decreased by $363,000, or 6%, as compared to the
corresponding period in 1995. The decrease in earnings from operations was
primarily attributable to moderately lower than expected utilization for the
Company's offshore platform workover rigs as well as reduced activity in the
domestic land-based workover rig market.

OTHER INCOME (EXPENSE). Other income (expense) for the first quarter of
1996 included gains from asset sales, foreign exchange transactions and other
sources. Interest income increased to $774,000 for the three months ended March
31, 1996 from $125,000 for the corresponding 1995 period due to an increase in
cash available for investment as the Company completed the public sale of
$80,500,000 principal amount of convertible subordinated debentures in January
1996, which resulted in net proceeds to the Company of approximately
$77,585,000. Interest expense for the three months ended March 31, 1996
increased by $1,307,000 over the corresponding 1995 period, as a result of
interest on the convertible subordinated debentures and borrowings related to
acquisitions and other additions to property and equipment.

INCOME TAX PROVISION. The Company's consolidated effective income tax rate
for the three months ended March 31, 1996 was approximately 27%, as compared to
approximately 35% for the corresponding period in 1995. The decrease is
primarily attributable to the recognition in the first quarter of 1996 of
current tax benefits from the utilization of approximately $638,000 of foreign
net operating loss carryforwards. The Company had previously provided a
valuation allowance for the tax benefits of such foreign net operating loss
carryforwards.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

REVENUES. Revenues for the year ended December 31, 1995 increased
$81,263,000, or 45%, as compared to the year ended December 31, 1994. Of this
increase, $37,854,000 was attributable to the Company's international
operations. The Company experienced increased activity levels in Argentina,
Venezuela and Russia, due primarily to the utilization of additional assets
deployed in those areas. The Company's offshore operations, which were acquired
in mid-1994, accounted for $26,154,000 of the increase, as those operations were
included for a full year in 1995. Revenues from the Company's domestic
land-based operations increased $17,255,000, due primarily to the addition of
X-Pert in March 1995.

OPERATING COSTS. Operating costs for the year ended December 31, 1995
increased $48,599,000, or 35%, as compared to the year ended December 31, 1994.
Of this increase, $21,957,000 was attributable to the Company's international
operations, due to expansion of those operations, as discussed above,
$17,285,000 was attributable to a full year of operations for the Company's
offshore operations, and $9,357,000 was attributable to the Company's domestic
land-based operations. The Company's domestic land-based operations experienced
improved operating margins as a result of extensive cost-cutting efforts,
improved safety performance and reduced insurance costs (attributable to both
reduced rates and improved claims experience).

DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the year
ended December 31, 1995 increased $7,107,000, or 74%, as compared to the year
ended December 31, 1994, primarily as a result of expansion of the Company's
domestic offshore and international asset base.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the year ended December 31, 1995 increased $7,313,000, or 29%, as
compared to the year ended December 31, 1994, primarily as a result of the
inclusion of such costs related to acquired businesses. As a percentage of
revenues, total selling, general and administrative expenses declined to
approximately 12% in 1995 from approximately 14% in 1994.

EARNINGS FROM OPERATIONS. The Company generated earnings from operations
for the year ended December 31, 1995 of $26,272,000. Of this amount, $12,630,000
was generated from international operations, $6,785,000 was generated from
domestic offshore operations and $6,857,000 was generated from domestic
land-based operations. During 1994, international operations generated earnings
from operations of $3,540,000, domestic offshore operations generated earnings
from operations of $3,304,000, and domestic land-based operations generated
earnings from operations of $1,184,000.

OTHER INCOME (EXPENSE). Other income (expense) for the year ended December
31, 1995 included a gain of $1,049,000 from the insurance recovery relating to
the loss of a domestic land rig, and other miscellaneous gains of $638,000 from
asset sales, other insurance recoveries, foreign exchange transactions and other
sources. Interest income increased to $740,000 for the year ended December 31,
1995 from $618,000 in 1994 due to an increase in cash available for investment.
Interest expense for the year ended December 31, 1995 increased by $6,069,000
from 1994, as a result of borrowings related to the project financing of the
Company's 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 year ended December 31, 1995 increased to approximately 32% from
approximately 24% for the year ended December 31, 1994, primarily as a result of
the recognition in 1994 of current tax benefits from the utilization of
approximately $3,000,000 of foreign net operating loss carryforwards. The
Company recognized no such tax benefits from the utilization of foreign net
operating loss carryforwards in 1995.

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 borrowings. 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 borrowings 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.

QUITRAL-CO ACQUISITION

On April 30, 1996, the Company completed the acquisition of Quitral-Co from
Perez Companc S.A., Astra C.A.P.S.A. and other shareholders for approximately
$140 million, consisting of $110 million in cash and a $30 million installment
note. Quitral-Co is the largest drilling and workover contractor in Argentina,
where it operates 23 drilling and 57 workover rigs. Quitral-Co also has
significant operations in Venezuela, where it operates seven drilling and 23
workover rigs. Of the cash portion of the purchase price, $70 million was funded
from the Company's working capital and $40 million from the net proceeds of two
new financing arrangements with three lenders.

The following table presents summary historical financial information and
other data for Quitral-Co. The summary historical financial information should
be read in conjunction with the historical financial statements of Quitral-Co
included herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------- ---------------------
1994 1995 1994 1995
---------- ---------- --------- ----------

(IN THOUSANDS OF (IN THOUSANDS OF
CONSTANT ARGENTINE ARGENTINE PESOS)(1)
PESOS AS OF
JUNE 30, 1995)
<S> <C> <C> <C> <C>
Net sales............................... 143,178 175,313 83,280 101,240
Costs and expenses:
Cost of sales...................... 126,516 158,767 74,806 90,834
Operating expenses................. 7,875 11,624 6,541 5,589
Other (income) expenses, net....... 800 620 961 (3,889)
Financial (income) expense and
holding (gains) losses, net...... 271 3,709 3,209 (244)
---------- ---------- --------- ----------
Income (loss) from continuing operations
before income tax..................... 7,716 593 (2,237) 8,950
Income tax.............................. (2,528) (4,044) (3,906) (2,682)
---------- ---------- --------- ----------
Income (loss) from continuing
operations............................ 5,188 (3,451) (6,143) 6,268
========== ========== ========= ==========
</TABLE>
- ------------

(1) According to a resolution adopted by the Inspeccion General de Justicia
(governmental restatement in constant money has been computed only until
August 31, 1995). (See Note 3 to the December 31, 1995 financial
statements).

The following is a discussion of the summary historical financial
information and other data for Quitral-Co.

YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994

Net sales of 175.3 million pesos for the year ended June 30, 1995 increased
32.1 million pesos, or 18.3%, from 143.2 million pesos for the year ended June
30, 1994. This increase was primarily attributable to an increase of 18.9
million pesos, or 14%, in Argentina due principally to improved utilization of
Quitral-Co's rig fleet corresponding to generally improved oil and gas
exploration and production activities during the period. Net sales from
Venezuelan operations increased 13.2 million pesos, or 172%, during the year
ended June 30, 1995. This increase is attributable primarily to Quitral-Co's
owning the Venezuelan business for the entire 1995 fiscal period as compared to
only seven months during the 1994 fiscal period. Additionally, the Venezuelan
rig fleet was increased by eleven rigs during the 1995 fiscal year in response
to strong demand, particularly from private sector operators.

The loss from continuing operations of 3.5 million pesos for the year ended
June 30, 1995 was comprised of income of 3.2 million pesos from Argentine
operations and a loss of 6.6 million pesos from Venezuelan operations. The
income from operations of 5.2 million pesos for the corresponding prior year was
comprised of income of 6.4 million pesos from Argentine operations and a loss of
1.2 million pesos from Venezuelan operations. During the year ended June 30,
1995, Quitral-Co incurred substantial expenses in connection with a major
restructuring of its recently acquired Venezuelan business. It acquired the
remaining 30% of the ownership of the entity and assumed full operating control
of the business. Major costs incurred included those to repair and upgrade rigs
and facilities, to terminate management and other employees and to settle other
obligations and commitments that originated prior to Quitral-Co's assuming
control over the business. The income from the Argentine operations decreased
3.2 million pesos in the year ended June 30, 1995 despite increased revenues
primarily because (i) financial expense increased 3.4 million pesos due to
increased Argentine borrowings primarily utilized to finance an increase of the
Company's investment in Venezuela and deployment of rigs to that market, and
(ii) salaries and benefits costs increased. Also, no benefit could be recognized
in Argentina for tax losses originating in Venezuela in the period.

SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994

Net sales of $101.2 million for the six months ended December 31, 1995
increased $17.9 million , or 17.7%, from $83.3 million for the six months ended
December 31, 1994. This increase was primarily attributable to an increase of
8.4 million pesos, or 11%, from Argentine operations due to improved utilization
of Quitral-Co's rig fleet corresponding to generally increased oil and gas
exploration and production activities during the period. Also, the net sales
from Venezuelan operations increased 9.5 million pesos, or 101%, during the six
months ended December 31, 1995, primarily due to expansion of the Venezuelan rig
fleet from 12 rigs at December 31, 1994 to 28 rigs at December 31, 1995,
corresponding to strong demand from Venezuelan customers, particularly private
sector operators.

Income from continuing operations of 6.3 million pesos for the six months
ended December 31, 1995 was comprised of 2.9 million pesos from Argentine
operations and 3.4 million pesos from Venezuelan operations. The operating loss
of 6.1 million pesos for the corresponding prior year period was comprised of
0.1 million pesos income from Argentine operations and 6.0 million pesos loss
from Venezuelan operations. During the latter part of 1994, Quitral-Co incurred
substantial expenses in connection with a major restructuring of its recently
acquired Venezuelan business. It acquired the remaining 30% of the ownership of
the entity and assumed full operating control of the business. Major costs
incurred included those to repair and upgrade rigs and facilities, to terminate
management and employees and to settle other obligations and commitments that
originated prior to Quitral-Co's assuming control over the business. The
improved income from continuing operations in Argentina was a direct result of
increased rig utilization during the period.

LIQUIDITY AND CAPITAL RESOURCES

The Company had net working capital of $92,576,000 and $31,302,000 at March
31, 1996 and December 31, 1995, respectively. The Company's current ratio was
2.9 to 1.0 at March 31, 1996 and 1.7 to 1.0 at December 31, 1995. In January
1996, the Company completed the public sale of $80,500,000 principal amount of
convertible subordinated debentures, which resulted in net proceeds to the
Company of approximately $77,585,000. Approximately $10,000,000 of such net
proceeds has been used to repay outstanding indebtedness. The remainder of such
net proceeds were used to fund various capital projects and a portion of the
purchase price for Quitral-Co. The Company purchased Quitral-Co for aggregate
consideration of $140,000,000, consisting of $110,000,000 in cash and a
$30,000,000 installment note. The note bears interest at LIBOR plus 2% payable
quarterly and is expected to be repaid in 30 monthly installments. Of the cash
portion of the purchase price, $70,000,000 was funded from the Company's working
capital and $40,000,000 from the net proceeds from two new long-term financing
arrangements with three lending institutions. Borrowings under these
arrangements, which are collateralized by substantially all of the Company's
domestic land-based rig fleet and ancillary equipment, bear interest initially
at the prime rate plus 1/2% and are repayable in monthly installments of
principal and interest over a five- to six-year period. The Company may elect to
convert the borrowings to a fixed rate of interest at any time during the term.
At March 31, 1996, on a pro forma basis after giving effect to the Quitral-Co
acquisition and the related financing arrangements, the Company had working
capital of $14,790,000 and its current ratio was 1.1 to 1.0. Management believes
that the Company's available funds, including cash generated from operations and
existing bank credit lines together with the proceeds of this offering, will be
sufficient to fund its normal ongoing capital expenditure, working capital and
debt service requirements.

The Company is active in reviewing possible expansion and acquisition
opportunities relating to all of its business segments. 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 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.

As of March 31, 1996, the Company had domestic bank commitments providing
for guidance lines of credit of $18,000,000, against which letters of credit of
$8,540,000 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 March 31, 1996, the Company had
accrued approximately $6,296,000 of claims liabilities, of which $3,510,000 was
included in current liabilities and $2,786,000 was included in other long-term
liabilities in the unaudited consolidated balance sheet. 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 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 financing agreement provides that the
loans are to be collateralized by the barge rigs and related charter contracts.
At March 31, 1996, the outstanding balance of these loans was $41,504,000. The
loans are being repaid from the proceeds of the related charter contracts in
equal monthly installments of principal and interest through July 2004. In
addition, a portion of the contract proceeds is being held in trust to assure
the timely payment of future debt service obligations. At March 31, 1996,
$2,435,000

of such contract proceeds are being held in trust as security for the lenders,
and are not presently available for use by the Company.

In connection with the operation, upgrading and expansion of its offshore
platform rig fleet the Company has established credit facilities with a lending
institution in the aggregate amount of $30,000,000. As of March 31, 1996,
$7,660,000 of secured term loans, $850,000 of secured revolving loans and
$1,696,000 of working capital line of credit borrowings were outstanding
pursuant to this facility.

During the three months ended March 31, 1996, the Company spent
approximately $7,111,000 on offshore assets, including: (i) construction of a
new state-of-the-art diesel electric platform rig, (ii) major rig refurbishments
and (iii) auxiliary equipment such as top-drive drilling systems and larger
capacity pumps and generators, and improved living quarters. The Company is
currently constructing two additional new platform rigs for an estimated
aggregate cost of $11,500,000.

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 March 31, 1996, the Company had received
proceeds of $5,500,000 pursuant to this facility relating to the construction of
a new platform rig. 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 $483,000
realized on the transaction has been deferred and is being amortized as a
reduction of the lease expense over the maximum lease term of five years. In
April 1996, the amount of the facility was increased to $10,800,000 and
$5,300,000 of proceeds was received by the Company in connection with the sale
and leaseback of a second newly constructed platform rig.

International rig refurbishment and deployment costs for the three months
ended March 31, 1996 and 1995 were approximately $3,503,000 and $2,898,000,
respectively. Capital expenditures related to the completion of the two
drilling/workover barge rigs in the first quarter of 1995 were $2,543,000. Other
international capital expenditures for the three months ended March 31, 1996 and
1995 were $1,301,000 and $1,082,000, respectively. Capital expenditures,
including acquisitions, related to domestic land-based operations for the three
months ended March 31, 1996 and 1995 were approximately $2,817,000 and
$10,955,000, respectively.

CURRENCY FLUCTUATIONS

Deterioration in economic conditions in Venezuela resulted in significant
devaluation of the country's currency during the first half of 1994, which
resulted in currency translation losses for the Company. These losses resulted
principally from the translation of the net Venezuelan monetary assets
(primarily, 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
Venezuelan 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. In December 1995, the
Venezuelan government devalued its currency by revising the official exchange
rate to 290 Venezuelan bolivars per U.S. dollar. The December 1995 devaluation
did not result in the recognition of any material currency translation gain or
loss by the Company in its consolidated financial statements.

In April 1996, the Venezuelan government removed exchange control
restrictions and effectively allowed the bolivar to float relative to the U.S.
dollar. As a result, the exchange rate for Venezuelan bolivars has declined to
approximately 450-500 bolivars per U.S. dollar. The Company does not expect this
recent devaluation to have any material impact on its consolidated results of
operations. To a large extent, the Company avoided currency translation losses
from these recent devaluations of the bolivar by limiting the bolivar component
of its Venezuelan contracts. However, if the market rate of exchange for
Venezuelan bolivars continues to decline 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. See
"Business -- Contracts."

FORWARD-LOOKING INFORMATION

The statements included herein regarding future financial performance and
results and the other statements that are not historical facts are
forward-looking statements. The words "expect," "project," "estimate,"
"predict" and similar expressions are also intended to identify
forward-looking statements. Such statements involve risks, uncertainties and
assumptions, including but not limited to, industry conditions, prices of crude
oil and natural gas, foreign exchange and currency fluctuations and other
factors discussed herein and in the Company's other filings with the Securities
and Exchange Commission. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may vary materially from those indicated.

ACCOUNTING MATTERS

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 adoption of SFAS No. 121 did not have any
material effect on the Company's financial position or results of operations.

In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). SFAS No. 123, which is effective for fiscal years beginning
after December 15, 1995, encourages but does not require companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on new fair value accounting rules. The Company
has decided not to adopt this new fair value-based method of accounting for its
stock-based incentive plans.

BUSINESS

GENERAL

The Company is a leading international and domestic provider of well
servicing, workover, contract drilling, completion and plugging and abandonment
services, both on land and offshore. The Company's fleet of 634 owned rigs is
one of the world's largest, consisting of 428 land-based rigs in the United
States, 130 land-based rigs in Argentina, 42 land-based and two barge rigs in
Venezuela, nine land-based rigs in other international markets and 23 offshore
platform rigs located in the Gulf of Mexico. 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 Petroleum Services, Inc. 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,
including related consolidation savings and economies of scale, (ii) deployment
of existing domestic land-based capacity to more profitable international
markets, (iii) expansion in the offshore market through acquisitions and new rig
construction and (iv) 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 and in the Gulf of Mexico. 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.

Consistent with its strategy, in April 1996 the Company acquired Quitral-Co
from Perez Companc S.A., Astra C.A.P.S.A. and other shareholders for an
aggregate purchase price of $140 million, consisting of $110 million in cash and
a $30 million installment note. Quitral-Co is the largest drilling and workover
contractor in Argentina, where it operates 23 drilling and 57 workover rigs.
Quitral-Co also has significant operations in Venezuela, where it operates seven
drilling and 23 workover rigs. For its fiscal year ended June 30, 1995 and the
nine-month period ended March 31, 1996, Quitral-Co's consolidated revenues were
approximately $175 million and $150 million, respectively, based on an effective
exchange rate of one U.S. dollar to one Argentine peso. Approximately 80% of
such revenues were derived from Quitral-Co's Argentine operations, with the
remainder attributable to Venezuela. The acquisition of Quitral-Co will be
included in the Company's consolidated results of operations from April 30,
1996, the effective date of the acquisition. See "Unaudited Pro Forma Financial
Statements."

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

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. During the first half of 1993,
the Company deployed three rigs from its U.S. land-based fleet to Western
Siberia. 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 seven to Venezuela. 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. In April 1996, the
Company acquired the rig operations of Quitral-Co in Argentina and Venezuela.
Including Quitral-Co, the Company operates 130 rigs in Argentina, 42 land-based
and two barge rigs in Venezuela, six rigs in Colombia and three rigs in Russia.
The Company continues to review opportunities to expand internationally through
redeployment of underutilized domestic assets, acquisitions and new rig
construction projects.

ARGENTINA

In Argentina, the Company currently operates 130 land-based rigs, 80 of
which were added in the Quitral-Co acquisition, which the Company believes
represents approximately 40% of rigs in the Argentine market. Of these rigs, 30
are drilling rigs and 100 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.
Argentine rig operations are mostly conducted in remote regions of the country
and require substantial fixed infrastructure and operating support costs. 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.
Additionally, because the Company has achieved critical mass and is realizing
certain economies of scale by acquiring and operating 130 rigs in Argentina, it
is able to allocate and recover such fixed costs efficiently. The Company
estimates that its largest competitor in Argentina has approximately 45 rigs.
The Company believes that its established infrastructure and scale of operations
provide the Company with a competitive advantage in the Argentine market. See
"-- Customers."

VENEZUELA

The Company's fleet in Venezuela currently consists of 42 land-based rigs,
30 of which were added as a result of the Quitral Co acquisition, and two
workover/drilling barge rigs working on Lake Maracaibo. Of the 42 land-based
rigs, 32 are workover rigs and 10 are drilling 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 creates a new mechanism for private sector
involvement in the oil and gas industry in that country through production
sharing contracts. As of March 1996, eight of Venezuela's largest undeveloped
properties had been awarded to multinational oil operators for development
through such contracts. Venezuelan government estimates indicate that $10
billion or more in new investment will be needed over the next ten years to
develop these properties. 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 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.

COLOMBIA

In October 1995, the Company purchased Marlin Colombia Drilling Co. Inc.
("Marlin") from a member of the Royal Dutch/Shell Group of Companies for
approximately $6 million. The Colombian government has recently enacted policies
to encourage oil and gas exploration and production activities and awarded
additional properties for development to major international oil operators under
production sharing contracts. The Company believes it will be able to compete
effectively for any resulting business opportunities.

RUSSIA

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

In June 1994, the Company commenced operations in the Gulf of Mexico
through the acquisition of the largest fleet of offshore self-erecting 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.

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 20,000 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

During 1995, the Company's average utilization rate per working day (rig
hours worked divided by total available hours) for its domestic land rigs was
approximately 50%. The Company worked 337 of its domestic land-based rigs at
some time during 1995, 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 35 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, oilfield trucking,
plugging and abandonment services and well bore cleaning and production
enhancement services. In addition, the Company sells oilfield supplies on a
retail basis through certain wholly owned subsidiaries.

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 having an
aggregate of approximately 19 rigs 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
Energy Services Co. ("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. During 1995, approximately 40% of the revenues from the operations
conducted in Argentina by the Company and Quitral-Co on a pro forma basis was
derived from YPF, the successor to the operations of the former state-owned oil
company. Services provided to YPF accounted for approximately 20% of the
Company's pro forma consolidated revenues for 1995. The remainder of the
Company's Argentine customers are large multinational oil companies and locally
owned independent operators. Approximately 24% of the revenues from the
operations conducted in Venezuela by the Company and Quitral-Co in 1995 on a pro
forma basis was derived from Perez Companc S.A. Services provided to Perez
Companc S.A. accounted for approximately 12% of the Company's pro forma
consolidated revenues for 1995. In Venezuela, the Company also 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 contracts are with joint venture entities co-owned by large
multinational operators and Russian production associations. The Company's U.S.
customers are predominantly major integrated and large independent operators.
One customer, Shell Oil Company, accounted for approximately 54% of revenues
from domestic offshore operations during 1995. Revenues from Shell Oil Company
and its affiliates from both land-based and offshore operations accounted for
approximately 8% of pro forma consolidated revenues for 1995. Approximately 60%
of revenues from domestic land-based operations were generated from the
Company's 20 largest U.S. customers, with no one customer accounting for more
than 10% of such revenues in 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 longer terms.
Such contracts are often awarded to the successful bidder of the customer's
project tender. When contracting abroad, the Company may be faced with the risks
of currency fluctuation or exchange controls. Typically, the Company seeks to
limit these risks by obtaining contracts denominated to the greatest extent
possible in U.S. dollars and maximizing the portion of payments to be received
in freely convertible foreign currency or U.S. dollars. There can be no
assurance that the Company will be able to continue to take such actions.
Accordingly, the Company could be exposed to foreign currency risks, which could
adversely affect its results of operations and financial condition.

Since January 1992, currency exchange transactions in Argentina have been
governed by the country's Convertibility Law. The Convertibility Law was adopted
as the primary fiscal policy of that country's economic reform program, and has
resulted in a stable currency since its implementation. The Convertibility Law
requires the Argentine Central Bank to maintain foreign reserves equivalent to
the amount of outstanding domestic currency at a rate of one U.S. dollar to each
Argentine peso issued. The law prevents the Argentine Central Bank from printing
new money to finance the country's treasury. The Company believes the law
provides fiscal and monetary discipline and has served to control inflation by
limiting the government's ability to increase the amount of domestic currency in
the economy. The Convertibility Law also requires the Argentine Central Bank to
sell U.S. dollars to any party who presents Argentine pesos for exchange.
Accordingly, the Company has not been subjected to any significant currency
exchange risks with respect to its Argentine operations and does not contemplate
such risks so long as the Convertibility Law is maintained. Additionally,
substantially all of the Company's contracts in Argentina are denominated in
U.S. dollars.

In Venezuela, the government has from time to time imposed exchange control
policies and established arbitrary exchange rates for its currency relative to
the U.S. dollar. A deterioration in economic conditions in Venezuela resulted in
significant devaluation of the Venezuelan bolivar during the first half of 1994,
resulting in currency translation losses for the Company during that period. In
December 1995, the Venezuelan government further devalued the bolivar. This
devaluation did not result in the recognition of any material currency
translation gain or loss by the Company. In April 1996, the Venezuelan
government removed exchange control restrictions with respect to the bolivar and
effectively allowed the bolivar to float relative to the U.S. dollar. As a
result, the value of the Venezuelan bolivar has further declined relative to the
U.S. dollar. The Company does not expect this recent devaluation to result in
any material currency translation gains or losses. At present, the Company has
structured its contracts in Venezuela so that the amount of revenues denominated
in local currency does not exceed its expense requirement in bolivars. Such
contract terms allow the Company to limit its exposure to potential currency
losses in certain circumstances. The Company intends to continue to monitor
Venezuelan economic conditions and to take such measures as may be practicable
to limit its exposure to currency translation losses in future periods resulting
from fluctuations in the value of the Venezuelan bolivar relative to the U.S.
dollar.

Currently, foreign exchange in Colombia is carried out on a free-market
basis. However, there can be no assurances that the local monetary authorities
in that country will not implement exchange controls in the future. 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, Venezuela 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. To date, all receipts of the U.S. dollar
portion of the Company's contracts with Lagoven have been in U.S. dollars.

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, substantially 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 capacity double derrick-type 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. 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.
Including the Quitral-Co acquisition, the Company owns approximately 850
vehicles and leases approximately 525 others. The Company also owns 18 sets of
accommodation modules that 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 20,000 square
feet of leased space under a lease that expires in April 1998. The Company owns
19 and leases 13 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 owns approximately 30,000 square feet of office space in
Buenos Aires and owns nine operating bases and leases three others. In
Venezuela, the Company owns one operating base and office facility and leases
two additional 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 May 31, 1996:

LAND-BASED RIG FLEET
<TABLE>
<CAPTION>

SINGLE DOUBLE SWAB
LOCATION TOTAL DERRICK DERRICK UNIT DRILLING
- ---------------------------------------- ----- ------- ------- ---- --------
<S> <C> <C> <C> <C> <C>
UNITED STATES:
Southern Area
Alice, TX.......................... 14 -- 14 -- --
McAllen, TX........................ 10 -- 10 -- --
Freer, TX.......................... 18 5 13 -- --
Liberty, TX........................ 13 1 12 -- --
Winnsboro, TX...................... 7 -- 7 -- --
Corpus Christi, TX................. 10 -- -- 10 --
Panola, TX......................... 13 -- 7 6 --
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........................ 20 1 19 -- --
Central Area
Midland, TX........................ 28 -- 28 -- --
Crane, TX.......................... 34 -- 34 -- --
Hobbs, NM.......................... 43 -- 42 1 --
Snyder, TX......................... 17 -- 17 -- --
Artesia, NM........................ 15 -- 15 -- --
Western Area
Bakersfield, CA.................... 60 24 36 -- --
Ventura, CA........................ 15 1 14 -- --
Taft, CA........................... 46 32 14 -- --
Elk City, OK (storage area)(1)........ 11 -- 11 -- --
Undergoing Refurbishment(2)........... 6 -- 4 -- 2
----- ------- ------- ---- --------
Total United States................ 428 64 344 18 2
----- ------- ------- ---- --------
INTERNATIONAL:
Argentina
Comodora Rivadavia................. 64 1 48 -- 15
Rincon de los Sauces/Neuquen....... 42 -- 31 -- 11
Mendoza............................ 23 -- 19 -- 4
Salta.............................. 1 -- 1 -- --
Colombia.............................. 6 -- -- -- 6
Venezuela............................. 42 -- 32 -- 10
Russia................................ 3 -- 1 2 --
----- ------- ------- ---- --------
Total International................ 181 1 132 2 46
----- ------- ------- ---- --------
TOTAL COMPANY........................... 609 65 476 20 48
===== ======= ======= ==== ========
</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 May 31, 1996, certain
information concerning the Company's offshore platform and Venezuelan barge rig
fleet:

OFFSHORE PLATFORM AND VENEZUELAN BARGE RIGS

RATED
RIG DRAWWORKS DEPTH
NO. RIG TYPE MAKE/MODEL HORSEPOWER (FEET) STATUS
- ---------------------------------------------------- ----------------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
OFFSHORE PLATFORM RIGS
6 Concentric Tubing Gardner Denver 3000 150 12,000 Available
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 Available
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 Active
110 Standard Workover Gardner Denver 500S 650 15,000 Available
130 Standard Workover Gardner Denver 500S 650 15,000 Active
170 Standard Workover Gardner Denver 500S 650 15,000 Active
200 Improved Workover Gardner Denver 500S 650 15,000 Active
210 Improved Workover Gardner Denver 500S 650 15,000 Available
220 Improved Workover Gardner Denver 500S 650 15,000 Active
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 Active
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.

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's
financial condition or results of operations.

EMPLOYEES

Including Quitral-Co, the Company employs approximately 1,000 salaried
employees and approximately 6,000 hourly paid employees. Approximately 2,500 of
the employees are located in the United States and 4,500 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. Offshore platform and barge rig crews also typically
include a crane operator, two roustabouts and an electrician. 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 operating segments and
geographic areas of operations for the last three fiscal years is presented in
Note 12 of the Notes to Consolidated Financial Statements and Note 7 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)..................... 61 Chairman of the Board, President
and Chief Executive Officer
Paul A. Bragg........................ 40 Vice President and Chief
Financial Officer
James W. Allen....................... 52 Senior Vice President --
Operations
Robert W. Randall.................... 54 Vice President -- General Counsel
and Secretary
James J. Byerlotzer.................. 49 Vice President -- Domestic
Operations
James B. Clement(1)(2)(3)............ 50 Director
Jorge E. Estrada M................... 48 Director
Ralph D. McBride..................... 49 Director
Thomas H. Roberts, Jr.(2)............ 71 Director
James T. Sneed(1)(3)................. 64 Director

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

* As of May 31, 1996

(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.

James W. Allen joined the Company in January 1993 as its Vice
President -- International Operations (Latin America). In February 1996, he was
named Senior Vice President -- Operations. He became Senior Vice President of
Pride International Ltd. in May 1994. 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.

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 for Tejas
Gas Corporation, a natural gas transmission company.

James J. Byerlotzer has been Vice President -- Domestic Operations of the
Company since February 1996. Prior thereto, he served as Vice
President -- Central Area. Mr Byerlotzer has been with the Company since 1981.

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.

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.

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, Houston,
Texas, since 1980.

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.

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.

EMPLOYEE STOCK PURCHASE PLAN.

At the Company's annual meeting held May 16, 1996, the shareholders of the
Company approved the adoption of the Pride Petroleum Services, Inc. Employee
Stock Purchase Plan (the "Plan"). Substantially all of the Company's employees
who have completed at least six months of service are eligible to purchase
through payroll deduction shares of Common Stock at 85% of the lesser of (i) the
fair market value of the Common Stock at the beginning of the purchase period
and (ii) the market value at the end of the purchase period. The maximum amount
an employee is entitled to purchase annually is that number of shares having a
fair market value equal to the lesser of (i) 10% of such employee's annual base
pay or (ii) $25,000.

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following sets forth 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) of more than five percent of the outstanding shares of
Common Stock as of May 31, 1996, unless otherwise indicated.

COMMON STOCK
BENEFICIALLY OWNED(1)
---------------------------
NUMBER PERCENT
NAME OF SHARES(2) OF CLASS
- ---------------------------------------- ------------ --------

Ray H. Tolson........................... 841,867 3.3%
Paul A. Bragg........................... 366,000 1.4%
James W. Allen.......................... 320,000 1.3%
Robert W. Randall....................... 115,000 *
James J. Byerlotzer..................... 73,833 *
James B. Clement........................ 14,500 *
Jorge E. Estrada M...................... 170,857(3) *
Ralph D. McBride........................ 1,000 *
Thomas H. Roberts, Jr................... 357,813 1.4%
James T. Sneed.......................... 17,500 *
All directors and executive officers as 2,278,370 8.5%
a group (10 persons)..................
George V. Bjurman & Associates ......... 2,200,599(4) 8.8%
10100 Santa Monica Blvd., Suite 1200
Los Angeles, California 90067
Travelers Group, Inc. .................. 1,886,138(4)(5) 7.5%
388 Greenwich Street
New York, New York 10013
John Hancock Advisors, Inc. ............ 1,436,800(4) 5.7%
101 Huntington Avenue
Boston, Massachusetts 02199

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

* 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
May 31, 1996.

(3) Represents shares issuable upon conversion of the Company's 6 1/4%
Convertible Subordinated Debentures due 2006.

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

(5) Includes shares issuable upon conversion of the Company's 6 1/4%
Convertible Subordinated Debentures due 2006. The number of such shares is
not determinable from such beneficial owner's filings with the Securities
and Exchange Commission. The number appearing in the table is calculated as
though none of such shares are attributable to conversion of debentures. If
all of such shares were attributable to conversion of debentures, such
number would be 7.0%.

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.

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 all
other series or class of the Company's stock hereafter issued that ranks 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 of Common Stock to be
sold by the Company hereby 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

Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below (the "Underwriters"), for whom Salomon Brothers Inc, Donaldson, Lufkin &
Jenrette Securities Corporation, Robert W. Baird & Co. Incorporated and Morgan
Keegan & Company, Inc. are acting as representatives (the "Representatives"),
and each of the Underwriters has severally agreed to purchase from the Company,
the number of shares set forth opposite their respective names below:

UNDERWRITER NUMBER OF SHARES
- ------------------------------------- -----------------

Salomon Brothers Inc.................
Donaldson, Lufkin & Jenrette
Securities Corporation...............
Robert W. Baird & Co. Incorporated...
Morgan Keegan & Company, Inc.........

-----------------
Total........................... 5,000,000
=================

In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all 5,000,000
shares of Common Stock offered hereby (other than those subject to the
over-allotment option described below), if any shares of Common Stock are
purchased. In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
the non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated. The Company has been advised by the Representatives that the
several Underwriters propose initially to offer shares of Common Stock to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such offering price less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to other dealers.
After the initial offering, the public offering price and such concessions may
be changed.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 750,000
additional shares of Common Stock at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriters may exercise such option only to cover over-allotments in
connection with the sale of the shares of Common Stock that the Underwriters
have agreed to purchase. To the extent that the Underwriters exercise such
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase a number of option shares of Common Stock proportionate
to such Underwriter's initial commitment.

The Company has agreed not to offer, sell or contract to sell, or otherwise
dispose of, or announce the offering of, any shares of Common Stock, or any
securities convertible into, or exchangeable for, shares of Common Stock except
the shares of Common Stock offered hereby, for a period of 120 days from the
date of this Prospectus without the prior written consent of Salomon Brothers
Inc, subject to certain exceptions. Furthermore, all directors and executive
officers of the Company have agreed that they will not offer, sell or contract
to sell, or otherwise dispose of, or announce the offering of any shares

of Common Stock for a period of 120 days from the date of this Prospectus
without the prior written consent of Salomon Brothers Inc.

The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.

In connection with this offering, certain Underwriters and selling group
members who are qualifying registered market makers on the Nasdaq National
Market may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934 during the two-business day period before commencement of
offers or sales of the Common Stock offered hereby. Passive market making
transactions must comply with certain volume and price limitations and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security, and if all
independent bids are lowered below the passive market maker's bid, then such bid
must be lowered when certain purchase limits are exceeded.

LEGAL MATTERS

Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Company by Baker & Botts, L.L.P., Houston, Texas and
for the Underwriters by Cravath, Swaine & Moore, New York, New York. 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, 1995 and
1994, 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, 1995, 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, 1996 and 1995, 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 report related to the interim
financial information incorporated by reference herein states that they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report 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 report on the unaudited interim financial
information because that report is 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 financial statements of Quitral-Co S.A.I.C. at June 30,
1995 and 1994, and for each of the three years in the period ended June 30,
1995, included in this Prospectus have been audited by Pistrelli, Diaz Y
Asociados, member firm of Andersen Worldwide SC, independent public accountants,
as indicated in their report with respect thereto, and included in this
Prospectus in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports.

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 Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (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 a registration statement (the
"Registration Statement") filed by Pride with the Commission under the
Securities Act of 1933, as amended 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, 1995;

(b) Quarterly Report on Form 10-Q for the quarter ended March 31,
1996;

(d) Current Report on Form 8-K filed May 15, 1996, as amended by a
Form 8-K/A filed June 4, 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, 1995 and
1994 ................................................. F-3
Consolidated Statement of
Operations for the Years
Ended December 31, 1995,
1994 and 1993 ...................................... F-4
Consolidated Statement of
Changes in Shareholders'
Equity for the Years Ended
December 31, 1995, 1994 and
1993 ................................................. F-5
Consolidated Statement of
Cash Flows for the Years
Ended December 31, 1995,
1994 and 1993 ...................................... F-6
Notes to Consolidated
Financial Statements ................................. F-7
Interim Financial Statements
(unaudited)
Report of Independent
Accountants on Review of
Interim Financial
Information .......................................... F-21
Consolidated Balance Sheet
as of March 31, 1996 and
December 31, 1995 .................................... F-22
Consolidated Statement of
Operations for the Three
Months Ended March 31, 1996
and 1995 ............................................. F-23
Consolidated Statement of
Cash Flows for the Three
Months Ended March 31, 1996
and 1995 ............................................. F-24
Notes to Unaudited
Consolidated Financial
Statements ........................................... F-25
Quitral-Co S.A.I.C. and Subsidiary
Annual Financial Statements
Report of Independent
Public Accountants ................................... F-29
Consolidated Balance Sheets
as of June 30, 1995 and
1994 ................................................. F-30
Consolidated Statements of
Income for the Years Ended
June 30, 1995, 1994 and
1993 ................................................. F-31
Consolidated Statements of
Changes in Shareholders'
Equity for the Years Ended
June 30, 1995, 1994 and
1993 ................................................. F-32
Consolidated Statements of
Cash Flows for the Years
Ended June 30, 1995, 1994
and 1993 ............................................. F-33
Notes to the Consolidated
Financial Statements ................................. F-34
Interim Financial Statements
(unaudited)
Consolidated Balance Sheets
as of December 31, 1995 and
1994 ................................................. F-55
Consolidated Statements of
Income for the Six months
ended December 31, 1995 and
1994 ................................................. F-56
Consolidated Statements of
Changes in Shareholders'
Equity for the Six months
ended December 31, 1995 and
1994 ................................................. F-57
Consolidated Statements of
Cash Flows for the Six
months ended December 31,
1995 and 1994 ........................................ F-58
Notes to Unaudited Interim
Consolidated Financial
Statements ........................................... F-59

F-1

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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.

As discussed in Note 6 to the financial statements, the Company changed its
method of accounting for income taxes in 1993.

COOPERS & LYBRAND L.L.P.

Houston, Texas
February 26, 1996

F-2

PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents....... $ 9,295 $ 5,970
Short-term investments.......... 2,612 3,001
Trade receivables, net of
allowance for doubtful
accounts of $426, $426 and
$394, respectively............ 43,767 38,334
Parts and supplies.............. 9,473 4,468
Deferred income taxes........... 1,518 2,388
Other current assets............ 6,488 6,128
------------ ------------
Total current assets....... 73,153 60,289
------------ ------------
PROPERTY AND EQUIPMENT, AT COST...... 296,939 246,365
ACCUMULATED DEPRECIATION............. (118,451) (106,466)
------------ ------------
Net property and
equipment................ 178,488 139,899
------------ ------------
GOODWILL AND OTHER INTANGIBLES,
net................................ 3,699 3,580
OTHER ASSETS......................... 2,265 1,425
------------ ------------
$ 257,605 $ 205,193
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................ $ 15,010 $ 14,715
Accrued expenses................ 16,550 15,332
Current portion of long-term
debt.......................... 10,291 3,602
------------ ------------
Total current
liabilities.............. 41,851 33,649
------------ ------------
OTHER LONG-TERM LIABILITIES.......... 4,127 5,327
LONG-TERM DEBT, net of current
portion............................ 61,136 42,096
DEFERRED INCOME TAXES................ 19,252 12,736
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value;
40,000,000 shares authorized;
24,863,072, 24,863,072 and
24,081,872 shares issued and
24,808,852, 24,808,852 and
24,027,652 shares outstanding,
respectively.................. 1 1
Paid-in capital................. 95,751 91,256
Treasury stock, at cost......... (191) (191)
Retained earnings............... 35,678 20,319
------------ ------------
Total shareholders'
equity................... 131,239 111,385
------------ ------------
$ 257,605 $ 205,193
============ ============

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

F-3

PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES............................................................... $ 263,599 $ 182,336 $ 127,099
----------- ----------- -----------
COSTS AND EXPENSES
Operating costs................................................... 188,252 139,653 100,305
Depreciation and amortization..................................... 16,657 9,550 6,407
Selling, general and administrative............................... 32,418 25,105 17,572
----------- ----------- -----------
Total costs and expenses..................................... 237,327 174,308 124,284
----------- ----------- -----------
Earnings from operations................................ 26,272 8,028 2,815
OTHER INCOME (EXPENSE)
Other income (expense)............................................ 1,687 (305) (135)
Interest income................................................... 740 618 649
Interest expense.................................................. (6,276) (207) (10)
----------- ----------- -----------
Total other income (expense), net....................... (3,849) 106 504
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES.......................................... 22,423 8,134 3,319
INCOME TAX PROVISION................................................... 7,064 1,920 1,214
----------- ----------- -----------
NET EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR INCOME TAXES................................ 15,359 6,214 2,105
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES....................................... -- -- 3,835
----------- ----------- -----------
NET EARNINGS........................................................... $ 15,359 $ 6,214 $ 5,940
=========== =========== ===========
NET EARNINGS PER SHARE
Before cumulative effect of change
in accounting for income taxes.................................. $ .60 $ .30 $ .13
Cumulative effect of change in
accounting for income taxes..................................... -- -- .23
----------- ----------- -----------
EARNINGS PER SHARE..................................................... $ .60 $ .30 $ .36
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING................................. 25,465 20,795 16,487
=========== =========== ===========

</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

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, 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
Net earnings.................... -- -- -- -- 15,359 15,359
Issuance of common stock in
connection with
acquisitions.................. 525 -- 3,279 -- -- 3,279
Exercise of stock options....... 256 -- 739 -- -- 739
Tax benefit of non-qualified
stock options................. -- -- 477 -- -- 477
--------- ------ ---------- -------- --------- --------------
BALANCE -- DECEMBER 31, 1995......... 24,809 $ 1 $ 95,751 $ (191) $ 35,678 $ 131,239
========= ====== ========== ======== ========= ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

F-5

PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------

OPERATING ACTIVITIES
Net earnings....................... $ 15,359 $ 6,214 $ 5,940
Adjustments to reconcile net
earnings to net cash provided by
operating activities --
Depreciation and
amortization............... 16,657 9,550 6,407
Gain on sale of assets........ (1,544) (475) (241)
Effect of exchange rates...... (142) 362 167
Deferred tax provision
(benefit).................. 4,602 1,120 (103)
Effect of change in accounting
for income taxes........... -- -- (3,835)
Changes in assets and
liabilities, net of effects
of acquisitions --
Trade receivables........ (4,493) (10,106) (830)
Parts and supplies....... (2,866) (1,128) (313)
Other current assets..... (1,914) (31) (395)
Accounts payable......... (358) 1,534 2,778
Accrued expenses and
other................. 1,391 1,331 (343)
----------- ----------- -----------
Net cash provided by
operating
activities....... 26,692 8,371 9,232
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of net assets of acquired
entities, including
acquisition costs, less cash
acquired........................ (8,144) (22,217) (9,752)
Purchases of property and
equipment....................... (40,636) (59,171) (12,123)
Proceeds from sale of short-term
investments..................... 1,250 1,004 2,852
Proceeds from sale of property and
equipment....................... 6,862 908 285
Purchase of short-term
investments..................... (360) -- (2,000)
Other.............................. (485) (6) 45
----------- ----------- -----------
Net cash used in
investing
activities....... (41,513) (79,482) (20,693)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of common
stock........................... 1,216 32,116 129
Proceeds from debt borrowings...... 27,535 39,358 400
Reduction of debt.................. (10,410) (740) (1,797)
Other.............................. (195) (1,162) --
----------- ----------- -----------
Net cash provided
(used) by
financing
activities....... 18,146 69,572 (1,268)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 3,325 (1,539) (12,729)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 5,970 7,509 20,238
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 9,295 $ 5,970 $ 7,509
=========== =========== ===========

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

F-6

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 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, 1995.

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,
1995, 1994 and 1993, maintenance and repair costs included in operating costs
were $20,776,000, $16,290,000 and $12,541,000, 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

The Company capitalizes interest applicable to the construction of
significant additions to property and equipment. In 1995 and 1994, total
interest incurred was $6,526,000 and $665,000, respectively, of which $250,000
and $458,000, respectively, was capitalized. No interest was capitalized in
1993.

GOODWILL AND OTHER INTANGIBLES

Goodwill, totalling $2,650,000 and $2,846,000 at December 31, 1995 and
1994, respectively, 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 $1,049,000 and $734,000 at December 31,

F-7

PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 and 1994, 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, 1995,
1994 and 1993 amounted to $543,000, $475,000 and $453,000, 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

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.

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 and Colombia, the local
currency is considered the functional currency. Translation of Argentine and
Colombian 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.

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 periods in which their effect is dilutive.
Common share equivalents include the number of shares issuable upon exercise of
warrants and 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

F-8

PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.

MANAGEMENT ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. While it is believed that such estimates are reasonable,
actual results could differ from those estimates.

CONDITIONS AFFECTING ONGOING OPERATIONS

2. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1995 and 1994 consists of the
following:

DECEMBER 31,
------------------------
1995 1994
----------- -----------

(IN THOUSANDS)
Land................................. $ 2,458 $ 2,340
Equipment............................ 274,378 191,248
Buildings............................ 6,492 5,495
Other................................ 471 251
Construction-in-progress............. 13,140 47,031
----------- -----------
296,939 246,365
Accumulated depreciation............. (118,451) (106,466)
----------- -----------
$ 178,488 $ 139,899
=========== ===========

Construction-in-progress as of December 31, 1995 included approximately
$5,700,000 of costs related to the acquisition, refurbishment, equipping and
deploying to international markets of seven land-based workover and four
land-based drilling rigs and approximately $2,500,000 of costs related to the
construction of an offshore platform workover rig. At December 31, 1994,
construction-in-progress 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.

3. 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.

F-9

PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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:

YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------

(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenues............................................ $ 265,592 $ 197,154
Net Earnings........................................ $ 15,488 $ 7,112
Earnings per share.................................. $ .61 $ .34

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.

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

In October 1995, the Company purchased all of the outstanding capital stock
of Marlin Colombia Drilling Co., Inc. ("Marlin") for cash consideration of
approximately $6,000,000.

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.

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 have been
included in consolidated results of operations from the date of acquisition.

F-10

PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. DEBT

LONG-TERM DEBT

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

DECEMBER 31,
----------------------
1995 1994
---------- ----------

(IN THOUSANDS)
Limited-recourse collateralized term
loans................................ $ 42,320 $ 33,311
Secured term loans................... 8,200 8,860
Secured revolver..................... 8,850 --
Notes payable........................ 6,225 202
Acquisition note payable............. 5,070 --
Revolving line of credit............. 762 3,325
---------- ----------
71,427 45,698
Less current portion................. 10,291 3,602
---------- ----------
$ 61,136 $ 42,096
========== ==========

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 term loans are collateralized by the
barge rigs and related charter contracts. The aggregate amount of the
collateralized term loans was initially $42,000,000. During 1994 and 1995, an
aggregate of $2,503,000 of accrued interest was 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
prior to the first scheduled payment in July 1995. The loans are being repaid
from the proceeds of the related charter contracts in equal monthly installments
of principal and interest through July 2004. In addition, a portion of the
contract proceeds is being held in trust to assure timely payment of future debt
service obligations. At December 31, 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 agreements 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 risks insurance policies from the Overseas Private
Investment Corporation to protect against political risks that could potentially
result in 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 $5,400,000 of secured term loans, 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 a rate of 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 loans, $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 had
an initial principal amount of $4,680,000, is repayable in 28 equal monthly
principal payments of $90,000 plus

F-11

PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 had an initial
principal amount of $5,320,000, is repayable in 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 is $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 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 (totalling 9% at
December 31, 1995).

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% per annum (totalling 9%
at December 31, 1995) 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.

Notes payable include four notes payable to lending institutions totaling
an aggregate $6,175,000 which are collateralized by selected property and
equipment 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 acquistion note is collateralized
by certain of the property and equipment of the acquired business.

Future maturities of long-term debt are as follows:

AMOUNT
--------------

(IN THOUSANDS)
1996................................. $ 10,291
1997................................. 12,158
1998................................. 9,675
1999................................. 9,583
2000................................. 7,195
Thereafter........................... 22,525

The Company has obtained bank commitments which provide for guidance lines
of credit of $18,000,000. As of December 31, 1995, letters of credit totaling
$11,397,000 were outstanding thereunder. Cash and cash equivalents and a portion
of accounts receivable have been pledged as collateral pursuant to 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, 1995.

F-12

PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONVERTIBLE SUBORDINATED DEBENTURES

In January 1996, the Company completed the public sale of $80,500,000
principal amount of 6 1/4% convertible subordinated debentures. The debentures,
which are due February 15, 2006, are convertible into common stock of the
Company at a price of $12.25 per share. The debentures are redeemable at the
option of the Company, in whole or in part, at any time on or after March 1,
1999, at an initial redemption price of 103.125% of the principal amount and
declining to 100% of the principal amount by February 15, 2002. Interest is
payable semi-annually on February 15 and August 15 of each year, commencing
August 15, 1996.

5. LEASES

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 December 31, 1995, the Company had
received proceeds of $5,500,000 pursuant to this facility attributable to a new
platform workover rig which was placed in service in September 1995. The 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 relating to 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 funding over such net book value of $483,000
has been deferred and is being amortized as a reduction of lease expense over
the maximum lease term of five years.

6. 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".

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

YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------

(IN THOUSANDS)
United States Federal:
Current......................... $ 1,650 $ 410 $ 832
Deferred........................ 3,616 1,526 (14)
--------- --------- ---------
5,266 1,936 818
--------- --------- ---------
State:
Current......................... 89 24 85
Deferred........................ 201 90 (89)
--------- --------- ---------
290 114 (4)
--------- --------- ---------
Foreign:
Current......................... 723 366 400
Deferred........................ 785 (496) --
--------- --------- ---------
1,508 (130) 400
--------- --------- ---------
Total income tax
provision................ $ 7,064 $ 1,920 $ 1,214
========= ========= =========

F-13

PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------

U.S. statutory rate.................. 34.0% 34.0% 34.0%
Foreign.............................. (7.1) (14.0) (1.1)
State and local taxes................ 1.3 1.4 (0.1)
Other................................ 3.3 2.2 3.8
--------- --------- ---------
Effective tax rate................... 31.5% 23.6% 36.6%
========= ========= =========

The Company's consolidated effective federal income tax rate for the year
ended December 31, 1995 increased to approximately 32% from approximately 24%
for the corresponding period in 1994, primarily as a result of the recognition
in 1994 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 before income taxes and
cumulative effect of change in accounting for income taxes were as follows:

YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---------- --------- ---------

(IN THOUSANDS)
Domestic...................................... $ 13,302 $ 5,178 $ 1,933
Foreign....................................... 9,121 2,956 1,386
---------- --------- ---------
$ 22,423 $ 8,134 $ 3,319
========== ========= =========

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, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Depreciation............................................................ $ 19,850 $ 13,949
Other................................................................... 1,133 983
---------- ----------
Total deferred tax liabilities..................................... 20,983 14,932
---------- ----------
Deferred tax assets:
Foreign net operating loss carryforwards................................ (1,462) --
Insurance claims........................................................ (2,236) (3,814)
Bad debts............................................................... (153) (142)
Other................................................................... (1,220) (628)
---------- ----------
Total deferred tax assets.......................................... (5,071) (4,584)
Valuation allowance for deferred tax assets............................. 1,822 --
---------- ----------
Net deferred tax assets............................................ (3,249) (4,584)
---------- ----------
Net deferred tax liability.............................................. $ 17,734 $ 10,348
========== ==========
</TABLE>

F-14

PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Applicable U.S. income taxes have not been provided on approximately
$10,300,000 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.

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 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, 1995, 1994 and 1993 totaling $229,000, $150,000 and $105,000,
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.

24. SHAREHOLDERS' EQUITY

COMMON STOCK

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 is being 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, to a related party as
consideration for the purchase of support assets.

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 13% of total issued and outstanding shares, currently 2,775,550,
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 in part
beginning six months from the date of grant and expire ten 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-15

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, 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)....... 775,000
Exercised ($2.25 per share)..... (3,500)
Forfeited....................... --
------------
Outstanding at December 31, 1994..... 1,926,350
Granted ($6.875 per share)...... 483,000
Exercised ($2.25 - $6.875 per
share).......................... (256,000)
Forfeited....................... --
------------
Outstanding at December 31, 1995..... 2,153,350
============
Exercisable at December 31,
1995............................ 2,153,350
============

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 subsidiary of
the Company 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. Directors' stock options vest
over two years at the rate of 50% per year and expire ten years from the date of
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
Granted ($8.375 - $9.125 per
share).......................... 19,000
Exercised....................... --
Forfeited....................... --
----------
Outstanding at December 31, 1995..... 58,000
==========
Exercisable at December 31, 1995..... 34,500
==========

F-16

PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. 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 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 $100,000 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.

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
received net insurance proceeds, after repurchasing the salvage, 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 consolidated statement of
operations.

As of December 31, 1995 and 1994, the Company had accrued approximately
$7,249,000 and $11,111,000, respectively for estimated claims liabilities, of
which $3,940,000 and $6,047,000, respectively, was included in current
liabilities and $3,309,000 and $5,064,000, respectively, was reflected as other
long-term liabilities in the accompanying balance sheet.

As of December 31, 1995, the Company had letters of credit outstanding
totaling $11,397,000. 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, 1995, 1994 and 1993 was $9,503,000,
$7,987,000 and $4,505,000, respectively. As of December 31, 1995, future minimum
lease payments for operating leases having initial or remaining noncancelable
lease terms longer than one year are as follows: $218,000 in 1996; $218,000 in
1997; $74,000 in 1998; and none thereafter. The Company leases vehicles used in
its domestic 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, 1995, 1994 and 1993 was $2,218,000, $2,134,000 and $1,809,000,
respectively.

F-17

PRIDE PETROLEUM SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Summarized quarterly financial data for 1995 and 1994 are as follows:

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues............................. $ 62,512 $ 68,856 $ 67,144 $ 65,087
Earnings from operations............. 5,721 7,081 6,637 6,833
Net earnings......................... 3,012 3,582 4,633 4,132
Earnings per share................... .12 .14 .18 .16
Weighted average common shares and
equivalents outstanding............ 24,675 25,496 25,708 25,893
1994
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
</TABLE>

11. SUPPLEMENTAL FINANCIAL INFORMATION

OTHER CURRENT ASSETS

Other current assets at December 31, 1995 and 1994 consists of the
following:

DECEMBER 31,
----------------------
1995 1994
---------- ----------

(IN THOUSANDS)
Pre-funded construction costs........ $ -- $ 1,692
Other receivables.................... 1,937 1,382
Prepaid expenses..................... 4,551 3,054
---------- ----------
$ 6,488 $ 6,128
========== ==========

ACCRUED EXPENSES

Accrued expenses at December 31, 1995 and 1994 consists of the following:

DECEMBER 31,
----------------------
1995 1994
---------- ----------

(IN THOUSANDS)
Insurance (excluding the long-term
portion of $3,309 and $5,064,
respectively)...................... $ 3,940 $ 6,047
Payroll.............................. 6,318 4,149
Taxes, other than income............. 4,186 4,193
Other................................ 2,106 943
---------- ----------
$ 16,550 $ 15,332
========== ==========

F-18

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,
1995, 1994 and 1993 was as follows:

YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
--------- --------- -----

(IN THOUSANDS)
Cash paid during the year for:
Interest........................ $ 4,316 $ 623 $ 10
Income taxes -- U.S............. 500 1,893 2
Income taxes -- foreign......... 16 28 871

12. FINANCIAL DATA OF DOMESTIC AND INTERNATIONAL OPERATIONS

The following table sets forth certain consolidated information with
respect to the Company and its subsidiaries by operating segment:
<TABLE>
<CAPTION>

DOMESTIC DOMESTIC
LAND OFFSHORE INTERNATIONAL TOTAL
----------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995
Revenues............................. $ 113,115 $ 49,595 $ 100,889 $ 263,599
Earnings from operations............. 6,857 6,785 12,630 26,272
Identifiable assets.................. 77,243 50,978 129,384 257,605
Capital expenditures, including
acquisitions......................... 14,502 15,066 28,940 58,508
Depreciation and amortization........ 5,578 3,091 7,988 16,657
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
</TABLE>

F-19

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:
<TABLE>
<CAPTION>

RUSSIA
NORTH SOUTH AND
AMERICA AMERICA OTHER TOTAL
----------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995
Revenues............................. $ 162,710 $ 98,382 $ 2,507 $ 263,599
Earnings from operations............. 13,642 12,448 182 26,272
Identifiable assets.................. 128,221 125,939 3,445 257,605
Capital expenditures................. 29,568 28,940 -- 58,508
Depreciation and amortization........ 8,669 7,611 377 16,657
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
</TABLE>

One customer accounted for approximately 17% and 18% of consolidated
revenues during 1995 and 1994, respectively, representing 69% and 67%,
respectively, of revenues from operations in Argentina during those years.
Another customer accounted for approximately 54% and 40%, respectively, of
revenues from domestic offshore operations during such periods. Revenues from
such customer and its affiliates from both land-based and offshore operations
accounted for approximately 13% and 18% of consolidated revenues during 1995 and
1994, respectively. During 1993, no customer accounted for more than 10% of
consolidated revenues.

F-20

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 March 31, 1996, and the related consolidated
statements of operations and cash flows for the three-month periods ended March
31, 1996 and 1995. 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, 1995, 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 26, 1996, 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, 1995 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
May 15, 1996

F-21

PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

MARCH 31, DECEMBER 31,
1996 1995
---------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents....... $ 74,659 $ 9,295
Short-term investments.......... 52 2,612
Trade receivables, net of
allowance for doubtful accounts
of
$511 and $426, respectively... 43,946 43,767
Parts and supplies.............. 10,545 9,473
Deferred income taxes........... 1,569 1,518
Other current assets............ 10,196 6,488
---------- -------------
Total current assets....... 140,967 73,153
---------- -------------
PROPERTY AND EQUIPMENT, at cost...... 311,173 296,939
ACCUMULATED DEPRECIATION............. (122,908 ) (118,451)
---------- -------------
Net property and
equipment.................... 188,265 178,488
---------- -------------
GOODWILL AND OTHER INTANGIBLES,
net................................ 3,509 3,699
OTHER ASSETS......................... 7,827 2,265
---------- -------------
$ 340,568 $ 257,605
========== =============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................ $ 21,759 $ 15,010
Accrued expenses................ 14,774 16,550
Current portion of long-term
debt........................... 11,858 10,291
---------- -------------
Total current
liabilities.................. 48,391 41,851
---------- -------------
OTHER LONG-TERM LIABILITIES.......... 4,199 4,127
LONG-TERM DEBT, net of current
portion.............................. 52,712 61,136
CONVERTIBLE SUBORDINATED
DEBENTURES........................... 80,500 --
DEFERRED INCOME TAXES................ 19,621 19,252
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value;
40,000,000 shares authorized;
25,073,876 and 24,863,072
shares issued and 25,019,656
and
24,808,852 shares outstanding,
respectively................... 1 1
Paid-in capital................. 96,877 95,751
Treasury stock, at cost......... (191 ) (191)
Retained earnings 38,458 35,678
---------- -------------
Total shareholders'
equity....................... 135,145 131,239
---------- -------------
$ 340,568 $ 257,605
========== =============

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

F-22

PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
---------- ----------

REVENUES............................. $ 66,235 $ 62,512
---------- ----------
COSTS AND EXPENSES
Operating costs................. 47,946 45,171
Depreciation and amortization... 4,774 3,578
Selling, general and
administrative................. 8,157 8,042
---------- ----------
Total costs and expenses... 60,877 56,791
---------- ----------
Earnings from
operations.......... 5,358 5,721
OTHER INCOME (EXPENSE)
Other income.................... 227 10
Interest income................. 774 125
Interest expense................ (2,554) (1,247)
---------- ----------
Total other expense,
net................. (1,553) (1,112)
---------- ----------
EARNINGS BEFORE INCOME TAXES......... 3,805 4,609
INCOME TAX PROVISION................. 1,025 1,597
---------- ----------
NET EARNINGS......................... $ 2,780 $ 3,012
========== ==========

NET EARNINGS PER SHARE:
Primary......................... $ .11 $ .12
Fully diluted................... $ .11 $ .12
WEIGHTED AVERAGE COMMON SHARES
AND
COMMON SHARE EQUIVALENTS
OUTSTANDING:
Primary......................... 26,094 24,675
Fully diluted................... 31,051 24,979

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

F-23

PRIDE PETROLEUM SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
------------------------
1996 1995
----------- -----------

OPERATING ACTIVITIES
Net earnings....................... $ 2,780 $ 3,012
Adjustments to reconcile net
earnings to net cash provided
(used) by operating
activities --
Depreciation and
amortization................. 4,774 3,578
Deferred interest............. -- 894
Gain on sale of assets........ (109) (55)
Effect of exchange rates...... 43 6
Deferred tax provision........ 319 303
Changes in assets and
liabilities, net of effects
of acquisitions --
Trade receivables........ (179) (5,023)
Parts and supplies....... (1,072) (679)
Other current assets..... (3,415) (3,852)
Accounts payable......... 6,707 (1,815)
Accrued expenses and
other................. (4,545) 154
----------- -----------
Net cash provided
(used) by
operating
activities...... 5,303 (3,477)
----------- -----------
INVESTING ACTIVITIES
Purchase of net assets of acquired
entities, including acquisition
costs,
less cash acquired.............. -- (1,662)
Purchases of property and
equipment....................... (14,732) (11,841)
Proceeds from sales of short-term
investments..................... 2,560 1,000
Proceeds from sales of property and
equipment....................... 371 124
Other.............................. (34) 69
----------- -----------
Net cash used in investing
activities................... (11,835) (12,310)
----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of common
stock........................... 1,126 --
Proceeds from issuance of
convertible subordinated
debentures...................... 77,585 --
Proceeds from debt borrowings...... 3,965 15,023
Reduction of debt.................. (10,821) (1,829)
Other.............................. 41 113
----------- -----------
Net cash provided by
financing activities......... 71,896 13,307
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 65,364 (2,480)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 9,295 5,970
----------- -----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 74,659 $ 3,490
=========== ===========

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

F-24

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, 1995. 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 (except for thirteen of its largest domestic land
rigs), and other equipment. 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. Nineteen of the Company's 23 offshore
platform rigs and all of its 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 $100,000 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.

As of March 31, 1996 and December 31, 1995, the Company had accrued
approximately $6,296,000 and $7,249,000, respectively, for estimated claims
liabilities, of which $3,510,000 and $3,940,000, respectively, was included in
current liabilities and $2,786,000 and $3,309,000, respectively, was included in
other long-term liabilities in the accompanying unaudited consolidated balance
sheet. As of March 31, 1996, the Company had letters of credit outstanding
totaling $8,540,000. These letters of credit guarantee principally the funding
of the Company's share of insured claims.

F-25

PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. DEBT

LONG-TERM DEBT

Long-term debt at March 31, 1996 and December 31, 1995 consists of the
following:

MARCH 31, DECEMBER 31,
1996 1995
--------- ------------

(IN THOUSANDS)
Limited-recourse collateralized term
loans.............................. $ 41,504 $ 42,320
Secured term loans................... 7,660 8,200
Secured revolver..................... 850 8,850
Notes payable........................ 8,088 6,225
Acquisition note payable............. 4,772 5,070
Revolving line of credit............. 1,696 762
--------- ------------
64,570 71,427
Less: current portion................ 11,858 10,291
--------- ------------
$ 52,712 $ 61,136
========= ============

A portion of the proceeds from the public sale of convertible subordinated
debentures was used to retire $10,000,000 of debt during the first quarter of
1996, including $8,000,000 under the secured revolver and $2,000,000 of other
debt.

CONVERTIBLE SUBORDINATED DEBENTURES

4. ACQUISITIONS

In February 1996, the Company acquired substantially all the assets of a
competitor in Freer, Texas for aggregate consideration of approximately
$1,879,000, consisting of $1,850,000 cash and 4,200 restricted shares of common
stock. The assets acquired included seven workover rigs, hauling and anchor
trucks and other support assets.

5. INCOME TAXES

During the first quarter of 1996, the Company recognized the current tax
benefits from the utilization of approximately $638,000 of foreign net operating
loss carryforwards. The Company had

F-26

PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
previously provided a valuation allowance for the tax benefits of such foreign
net operating loss carryforwards.

6. NET EARNINGS PER SHARE

Primary 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 has been computed based on the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period, as if the convertible subordinated debentures
were converted into common stock on the date of sale, after giving retroactive
effect to the elimination of interest expense, net of income tax effect,
applicable to the convertible subordinated debentures.

The following table presents information necessary to calculate fully
diluted net earnings per share:

THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
---------- ----------

(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net earnings......................... $ 2,780 $ 3,012
Interest on convertible subordinated
debentures......................... 962 --
Income tax effect.................... (346) --
---------- ----------
Net earnings applicable to
common stock............. $ 3,396 $ 3,012
========== ==========
Weighted average number of common
shares outstanding................. 24,846 24,210
Additional shares assuming conversion
of:
Convertible subordinated
debentures.................... 4,700 --
Stock options and warrants...... 1,505 769
---------- ----------
Weighted average common
shares and common share
equivalents
outstanding.............. 31,051 24,979
========== ==========
Fully diluted net earnings
per share................ $ .11 $ .12
========== ==========

F-27

PRIDE PETROLEUM SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. SEGMENT INFORMATION

The following table sets forth certain consolidated information with
respect to the Company and its subsidiaries by operating segment:
<TABLE>
<CAPTION>
DOMESTIC DOMESTIC
LAND OFFSHORE INTERNATIONAL TOTAL
----------- --------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1996
Revenues............................. $ 27,861 $ 12,376 $ 25,998 $ 66,235
Earnings from operations............. 1,097 1,221 3,040 5,358
Identifiable assets.................. 152,269(1) 58,867 129,432 340,568
Capital expenditures, including
acquisitions....................... 2,817 7,111 4,804 14,732
Depreciation and amortization........ 1,393 874 2,507 4,774
THREE MONTHS ENDED MARCH 31, 1995
Revenues............................. $ 26,753 $ 13,058 $ 22,701 $ 62,512
Earnings from operations............. 1,163 1,873 2,685 5,721
Identifiable assets.................. 79,698 50,938 102,455 233,091
Capital expenditures, including
acquisitions....................... 10,955 4,830 6,523 22,308
Depreciation and amortization........ 1,275 645 1,658 3,578
</TABLE>

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

(1) Includes $67,585,000 remaining net proceeds from the public sale of
convertible subordinated debentures after repayment of $10,000,000 of
debt.

8. SUBSEQUENT EVENTS

In April 1996, the Company acquired all of the outstanding capital stock of
Quitral-Co S.A.I.C. ("Quitral-Co") from Perez Companc S.A., Astra C.A.P.S.A.
and other shareholders for aggregate consideration of $140,000,000, consisting
of $110,000,000 cash and a note payable to the sellers for $30,000,000.
Quitral-Co operates 23 drilling and 56 workover rigs in Argentina and 7 drilling
and 23 workover rigs in Venezuela. For its fiscal year ended June 30, 1995,
Quitral-Co generated revenues of approximately $180 million. For the nine month
period ended March 31, 1996, Quitral-Co's revenues were approximately $150
million. The acquisition of Quitral-Co will be accounted for as a purchase.
Accordingly, the results of operations of Quitral-Co will be included in the
Company's consolidated results of operations from April 30, 1996, the date of
the acquisition.

Also in April 1996, the Company completed two separate financing
arrangements with lending institutions pursuant to which it borrowed an
aggregate amount of $40,000,000, net of repayment of $5,000,000 of borrowings to
one of the lenders. The loans bear interest initially at a floating rate of
prime plus 1/2% and are repayable in monthly installments of principal and
interest over a period of five to six years. The Company may elect to convert
the interest payable to a fixed rate basis at any time during the term of the
loans. The loans are collateralized by substantially all of the Company's
domestic land-based rig fleet and ancillary equipment. Proceeds from the loans
were used to fund a portion of the cash consideration for the acquisition of
Quitral-Co, discussed above.

F-28

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
QUITRAL-CO S.A.I.C.

We have audited the accompanying consolidated balance sheets of QUITRAL-CO
S.A.I.C. (an Argentine Corporation) and its subsidiary as of June 30, 1995 and
1994, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended June 30, 1995, 1994 and
1993, all expressed in thousands of constant Argentine pesos as of June 30, 1995
(Note 2). These financial statements are the responsibility of Quitral-Co's
management. Our responsibility is to express an opinion on those financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in Argentina, which are in substantial agreement with those in the
United States of America. 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
statements 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 QUITRAL-CO
S.A.I.C. and its subsidiary as of June 30, 1995 and 1994 and the consolidated
results of its operations and its cash flows for the years ended June 30, 1995,
1994 and 1993, in conformity with generally accepted accounting principles
applicable to consolidated financial statements in Argentina, applied on a
consistent basis after giving retroactive effect to the change, with which we
concur, in valuation of property, plant and equipment in an affiliate company
carried at equity method as discussed in Note 4.a).

Accounting practices used by Quitral-Co in preparing the accompanying
consolidated financial statements conform with generally accepted accounting
principles used in Argentina for consolidated financial statements, but do not
conform with generally accepted accounting principles in the United States of
America. A description of the significant differences and the approximate effect
of those differences on the reconciliation of shareholders' equity and net
income as of and for the years ended June 30, 1995 and 1994, respectively, are
set forth in Note 12 to the consolidated financial statements.

PISTRELLI, DIAZ Y ASOCIADOS
C.P.C.E.C.F. VOL. 1-F8
ENRIQUE C. GROTZ
Partner
Certified Public Accountant UBA
C.P.C.E.C.F. Vol. 136-F149

Buenos Aires, Argentina
May 20, 1996

F-29

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1995 AND 1994
(STATED IN THOUSANDS OF CONSTANT ARGENTINE PESOS AS OF JUNE 30, 1995 -- NOTE 2)

1995 1994
---------- ----------

CURRENT ASSETS
Cash.................................. 2,346 1,326
Investments (Note 5.a)................ 1,566 272
Trade receivables (Note 5.b).......... 35,452 27,060
Other receivables (Note 5.c).......... 6,137 3,525
Parts and supplies (Note 5.d)......... 14,623 12,847
Discontinued operations (Note 7)...... 2,522 2,362
---------- ----------
Total current assets............... 62,646 47,392
---------- ----------
NONCURRENT ASSETS
Other receivables (Note 5.c).......... 678 325
Parts and supplies (Note 5.d)......... 5,392 7,122
Investments (Note 5.a)................ 230 6,532
Property and equipment (Note 11.a).... 68,371 56,474
Discontinued operations (Note 7)...... 43,873 47,152
---------- ----------
Total noncurrent assets............ 118,544 117,605
---------- ----------
Total assets....................... 181,190 164,997
========== ==========
CURRENT LIABILITIES
Accounts payable (Note 5.e)........... 13,893 10,673
Loans (Note 5.f)...................... 19,269 18,482
Payroll and social security taxes..... 4,846 4,112
Taxes payable......................... 4,649 3,059
Other liabilities (Note 5.g).......... 1,640 1,859
Discontinued operations (Note 7)...... 1,320 1,280
---------- ----------
Total current liabilities.......... 45,617 39,465
---------- ----------
NONCURRENT LIABILITIES
Loans (Note 5.f)...................... 7,363 2,541
Other liabilities (Note 5.g).......... 3,778 3,792
Reserves (Note 11.b).................. 2,318 1,837
---------- ----------
Total noncurrent liabilities....... 13,459 8,170
---------- ----------
Total liabilities.................. 59,076 47,635
MINORITY INTEREST IN SUBSIDIARY......... 475 2,186
SHAREHOLDERS' EQUITY (per corresponding
statement)............................ 121,639 115,176
---------- ----------
Total liabilities and shareholders'
equity............................ 181,190 164,997
========== ==========

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

F-30

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(STATED IN THOUSANDS OF CONSTANT ARGENTINE PESOS AS OF JUNE 30, 1995 -- NOTE 2)

1995 1994 1993
----------- ----------- ----------

NET SALES............................ 175,313 143,178 106,763
COST OF SALES (Note 11.c)............ (158,767) (126,516) (89,387)
----------- ----------- ----------
Gross income.................... 16,546 16,662 17,376
OPERATING EXPENSES (Note 11.e)....... (11,624) (7,875) (6,146)
OTHER (EXPENSES) INCOME, net (Note
5.h)................................. (620) (800) (1,985)
FINANCIAL INCOME (EXPENSE) AND
HOLDING GAINS (LOSSES), net (Note
5.i)............................... (3,709) (271) (112)
----------- ----------- ----------
Income from continuing
operations before income tax
and minority interest......... 593 7,716 9,133
INCOME TAX........................... (4,044) (2,528) (1,164)
----------- ----------- ----------
(Loss) Income from continuing
operations.................... (3,451) 5,188 7,969
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS (Note 7), plus tax
carryforward of 349, 639 and 193,
respectively....................... 12,385 (108) (1,197)
MINORITY INTEREST IN SUBSIDIARY...... 1,770 224 --
----------- ----------- ----------
Net income...................... 10,704 5,304 6,772
=========== =========== ==========

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

F-31

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(STATED IN THOUSANDS OF CONSTANT ARGENTINE PESOS AS OF JUNE 30, 1995 -- NOTE 2)
<TABLE>
<CAPTION>

STOCK
----------------------------------- APPRAISAL
ADJUSTMENT ADDITIONAL REVALUATION UNAPPROPRIATED
CAPITAL TO CAPITAL PAID IN RESERVE-EQUITY LEGAL RETAINED
STOCK STOCK CAPITAL INVESTMENTS RESERVE EARNINGS
------- ---------- ---------- --------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of June 30, 1992......... 12,138 8,586 28,638 9,537 1,142 48,781
Reversal of Petroqumica Cuyo's
appraisal revaluation reserve (Note
4a)................................ -- -- -- (9,537) -- --
------- ---------- ---------- ------- -------- -------
Modified balances as of beginning of
year............................... 12,138 8,586 28,638 -- 1,142 48,781
Appropriation to Legal reserve....... -- -- -- -- 334 (334)
Capital increase..................... 914 88 -- -- -- --
Additional paid in capital........... -- -- 6,496 -- -- --
Other................................ -- -- -- -- -- (99)
Net income........................... -- -- -- -- -- 6,772
------- ---------- ---------- ------- -------- -------
Balances as of June 30, 1993......... 13,052 8,674 35,134 -- 1,476 55,120
Appropriation to Legal reserve....... -- -- -- -- 341 (341)
Cash dividends (Ps. 0.25 per
share)............................. -- -- -- -- -- (3,262)
Other................................ -- -- -- -- -- (322)
Net income........................... -- -- -- -- -- 5,304
------- ---------- ---------- ------- -------- -------
Balances as of June 30, 1994......... 13,052 8,674 35,134 -- 1,817 56,499
Appropriation to Legal reserve....... -- -- -- -- 260 (260)
Cash dividends (Ps. 0.32 per
share)............................. -- -- -- -- -- (4,241)
Net income........................... -- -- -- -- -- 10,704
------- ---------- ---------- ------- -------- -------
Balances June 30, 1995............... 13,052 8,674 35,134 -- 2,077 62,702
======= ========== ========== ======= ======== =======
</TABLE>

TOTAL
SHAREHOLDERS'
EQUITY
--------------

Balances as of June 30, 1992......... 108,822
Reversal of Petroqumica Cuyo's
appraisal revaluation reserve (Note
4a)................................ (9,537)
--------------
Modified balances as of beginning of
year............................... 99,285
Appropriation to Legal reserve....... --
Capital increase..................... 1,002
Additional paid in capital........... 6,496
Other................................ (99)
Net income........................... 6,772
--------------
Balances as of June 30, 1993......... 113,456
Appropriation to Legal reserve....... --
Cash dividends (Ps. 0.25 per
share)............................. (3,262)
Other................................ (322)
Net income........................... 5,304
--------------
Balances as of June 30, 1994......... 115,176
Appropriation to Legal reserve....... --
Cash dividends (Ps. 0.32 per
share)............................. (4,241)
Net income........................... 10,704
--------------
Balances June 30, 1995............... 121,639
==============

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

F-32

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(STATED IN THOUSANDS OF CONSTANT ARGENTINE PESOS AS OF JUNE 30, 1995 -- NOTE 2)

1995 1994 1993
---------- ---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................... 10,704 5,304 6,772
Adjustments to reconcile net income
to cash provided by operating
activities:
Minority interest in profits.... (1,770) (224) --
Depreciation of property and
equipment..................... 10,504 8,175 8,694
Gain (loss) on sale of property
and equipment................. (226) (310) (584)
Increase (decrease) in
allowances/reserves........... 481 (101) 316
Increase in allowance for obsolescence of parts and
supplies.. 1,730 -- 1,417
Discontinued operations......... 2,369 5,335 3,783
Income on the sale of
discontinued operations of
joint venture interests....... (5,743) -- --
Income from discontinued
operations of equity
investments................... (9,679) (419) 2,207
Changes in assets and liabilities:
Trade receivables............... (4,655) (8,186) 1,668
Other receivables............... (2,965) (261) 676
Parts and supplies.............. (8,063) (8,833) (6,723)
Accounts payable................ 5,614 2,666 (2,804)
Payroll and social security
taxes......................... 734 1,291 (505)
Taxes payable................... 1,077 1,361 (512)
Other liabilities............... 1,070 4,038 (1,626)
Discontinued operations......... 3,321 (5,798) (1,059)
Other........................... 261 759 (690)
---------- ---------- ----------
Cash flows provided by
operating activities..... 4,764 4,797 11,030
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to related companies...... 1,670 -- --
Short term investments.......... 135 124 149
Acquisition of property and
equipment..................... (18,791) (13,746) (1,350)
Sales of property and
equipment..................... 510 624 1,170
Sale of temporary investments... 492 -- --
Proceeds from sale of
discontinued operations....... 16,170 -- --
Discontinued operations......... (2,744) (5,147) --
---------- ---------- ----------
Cash flows used in
investing activities..... (2,558) (18,145) (31)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term loans, net........... (461) 18,947 (9,168)
Long-term loans................. 4,822 2,541 --
Dividends....................... (4,242) (7,196) (1,753)
---------- ---------- ----------
Cash flows provided by
(used in) financing
activities............... 119 14,292 (10,921)
---------- ---------- ----------
Net increase in cash and cash
equivalents................... 2,325 944 78
Cash and cash equivalents at the
beginning of year............. 1,587 643 565
---------- ---------- ----------
Cash and cash equivalents at the
end of year................... 3,912 1,587 643
========== ========== ==========

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

F-33

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1995, 1994 AND 1993
(STATED IN THOUSANDS OF CONSTANT ARGENTINE PESOS AS OF JUNE 30, 1995 -- NOTE 2)

1. MAIN COMPANY BUSINESS AND REORGANIZATION

Quitral-Co S.A.I.C. ("Quitral-Co") was formed in Argentina in 1960.
Quitral-Co and its subsidiary Perforaciones Quitral-Co de Venezuela S.A.
("Quitral-Co de Venezuela" or the "Subsidiary") provide oil and gas well
drilling, completion, repair, and workover services, which are predominantly
rendered in Argentina and Venezuela. Each of these countries forms an activity
center and provides services in their respective countries with their own
machinery, materials warehouses, and administrative facilities. Quitral-Co is
headquartered in Buenos Aires.

Pursuing its strategic aim of concentrating business in the area of oil
field services, during the year ended June 30, 1995, Quitral-Co sold its working
interests in oil producing joint ventures in Argentina. Additionally, in
September 1995, Quitral-Co de Venezuela divested its 10% interest in the
Oritupano-Leona oil producing area (see Note 7). The assets, liabilities and
results related to the interests in those joint ventures, are presented as
discontinued operations for all the years presented.

Events subsequent to the year ended June 30, 1995:

-- During September 1995, Quitral-Co acquired the remaining 30% of the
capital stock of Quitral-Co de Venezuela, thus becoming the sole
owner of the aforementioned Company's shares (see Note 7).

-- At the General Shareholders' Meeting of April 29, 1996, the
shareholders approved the distribution of all of its equity
interests in Petroqumica Cuyo S.A.I.C., Packingplast S.A., and
Jojoba S.A. as a dividend distribution in kind at their book value.
The assets, liabilities and results related to these investments are
presented as discontinued operations for all the years presented
(see Note 7). In addition, at this General Shareholders' Meeting,
the shareholders approved distribution of 32,600 in cash dividends.

-- On April 29, 1996, Pride Petroleum Services, Inc. ("Pride"), a US
based company, extended a non-current loan of 32,600 to Quitral-Co
to increase its working capital. On April 30, 1996, Pride acquired
100% of Quitral-Co's shares, thus gaining control of Quitral-Co.

-- In April 1996, far-reaching changes were made to Venezuela's
economic policy. The exchange market was freed causing the Bolivar
to be devalued by about 80%.

-- In addition, on May 2, 1996, by decision of the shareholders at the
General Shareholders' Meeting held on that date, a new Board of
Directors was elected. The new management is undertaking an analysis
of Quitral-Co's organizational structure to define and implement
short-term strategies and actions intended to position the business
for future success. This analysis may include several dismissals for
estimated termination costs of approximately 3,000.

Quitral-Co is organized under the laws of Argentina and its operations are
conducted in Argentina and Venezuela through its subsidiary; it is therefore
subject to certain investment considerations not typically associated with
investments in equity securities of United States companies. These factors
mainly include: dependence on oil and gas industry conditions, the Argentine and
Venezuelan economy and corporate governance in Argentina and the regulatory
environment Quitral-Co operates within. Quitral-Co is subject also to various
environmental and labor laws and regulations that are different from those which
would apply to a company in the United States of America. For further
information, see "Risk Factors" in the accompanying Prospectus which
information is incorporated herein.

F-34

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. BASIS OF PRESENTATION

The consolidated financial statements of Quitral-Co have been prepared in
accordance with generally accepted accounting principles in Argentina
("Argentine GAAP"), and regulations of the Inspeccion General de
Justicia -- "IGJ" (governmental regulatory agency for nonpublic companies),
which differ in certain respects from generally accepted accounting principles
in the United States of America (U.S. GAAP). A description of the significant
differences between Argentine and U.S. GAAP, and the approximate effect of
differences on Quitral-Co's consolidated net income and shareholders' equity are
set forth in Note 12 to the consolidated financial statements.

PURPOSE OF THE FINANCIAL STATEMENTS

These consolidated financial statements have been prepared with the
purposes of being included in the Form S-3 to be filed by Pride with the
Securities and Exchange Commission of the United States of America (the
"SEC"). The consolidated financial statements also include certain
reclassifications and additional disclosures necessary to conform more closely
with the form and content required by the SEC.

RESTATEMENT OF FINANCIAL STATEMENTS IN CONSTANT ARGENTINE PESOS

In accordance with the method of restatement established in Technical
Resolution No. 6 of the Argentine Federation of Professional Councils in
Economic Sciences (FACPCE) and current legislation, the financial statements of
Quitral-Co were stated in constant Argentine pesos as of the end of each year.
In addition, all amounts have been restated in constant Argentine pesos as of
June 30, 1995. This restatement does not change the valuation of the assets and
liabilities in the financial statements, except for the adjustment required to
state the reported amounts in constant pesos as of June 30, 1995. In accordance
with these requirements, translation factors derived from the general level
wholesale price index issued by the National Institute of Statistics and Census
have been used to arrive at the constant Argentine pesos financial statements.

The conversion factors used to restate the financial statements in constant
Argentine pesos were 1.0, 1.081, and 1.0836 as of June 30, 1995, 1994, and 1993,
respectively.

Resolution No. 8/95 of IGJ dated September 12, 1995, requires companies to
discontinue, beginning September 1, 1995, the restatement of financial
statements for the effect of inflation. On March 29, 1996, the FACPCE approved
Resolution No. 140/96 which determined an annual variation of up to 8% in the
index provided by Resolution No. 6 allowing as an alternative criterion, the
historical currency as reporting currency for preparing financial statements.

ARGENTINE LEGAL REQUIREMENTS

In accordance with Argentine GAAP and current Argentine legislation, the
presentation of the parent company's individual financial statements is
required. Consolidated financial statements need only be included as
supplementary information. For the purpose of this filing, individual financial
statements have been omitted since they are not required for SEC reporting
purposes.

Additionally, certain disclosures related to formal legal requirements for
reporting in Argentina have been omitted for purposes of these financial
statements since they are not required for SEC reporting purposes.

TRANSLATION OF FOREIGN OPERATIONS

The financial statements of Quitral-Co de Venezuela have been translated
into constant Argentine pesos, using that currency as the functional currency.
Thus, monetary assets and liabilities were translated at the exchange rate
prevailing as of year-end, while nonmonetary items were translated at historical
exchange rates and subsequently restated in constant Argentine pesos. Income
statement

F-35

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounts were converted at the average exchange rate for each month and restated
as indicated above, except for depreciation and other consumption of nonmonetary
assets, which were valued in terms of the converted amounts of those assets.
Translation gains or losses related to the effect of devaluation or revaluation
of monetary assets and liabilities were charged or credited to income under
Financial income (expense) and holding gains (losses).

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with the rules and regulations established by Technical
Resolution No. 4 of the FACPCE, Quitral-Co (the controlling company) has made a
line by line consolidation of its balance sheets as of June 30, 1995 and 1994,
and the related statements of income and cash flows for the years then ended
with the financial statements of Quitral-Co de Venezuela from the date it was
purchased in December 1993.

The table below presents the ownership and voting interest in Quitral-Co de
Venezuela:

<TABLE>
<CAPTION>
% OWNERSHIP AND
VOTING INTEREST
------------------
AS OF AS OF
COMPANY 6/30/95 6/30/94 YEAR END REGISTERED OFFICE
- ---------------------------------------- ------- ------- ------------ ----------------------

<S> <C> <C> <C>
Quitral-Co de Venezuela................. 70% 70% December 31 Caracas FD, Venezuela
</TABLE>

In order to comply with Argentine GAAP and properly apply the consolidation
method, the Subsidiary prepared special financial statements as of June 30, 1995
and 1994. The financial statements of the Subsidiary have been prepared to
conform the accounting policies to those applied by Quitral-Co in preparing its
financial statements. All significant intercompany transactions and balances
have been eliminated in consolidation. The participation of minority
shareholders in the Subsidiary has been presented in the consolidated statements
under minority interest.

USE OF ESTIMATES

The preparation of financial statements in conformity with Argentine GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Subsequent resolution of
some matters could differ from those estimates.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, Quitral-Co considers all highly
liquid investments with original maturity of three months or less as cash
equivalents.

The table below presents the amount of interest and taxes paid for the
years ended June 30, 1995, 1994 and 1993:

1995 1994 1993
--------- --------- ---------

Interest paid........................ 969 577 483
Income taxes paid.................... 4,840 1,565 910

F-36

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In the consolidated statements of cash flows for the years ended June 30,
1995, 1994 and 1993, cash and cash equivalents are comprised of:

1995 1994 1993
--------- --------- ---------

Cash................................. 2,346 1,326 87
Foreign currency certificates of
deposit............................ 13 116 77
Government securities................ 6 -- --
Financial investment with
subsidiaries and affiliates........ 1,547 145 479
--------- --------- ---------
3,912 1,587 643
========= ========= =========

VALUATION CRITERIA

The main valuation criteria used by Quitral-Co for the preparation of the
consolidated financial statements are as follows:

a) CASH, RECEIVABLES AND PAYABLES:

-- In local currency: at nominal value including, if applicable, interest
accrued through each year-end according to the specific clauses of the
transaction.

-- In foreign currency: converted at the exchange rates in effect at each
year-end for the settlement of these transactions including, if
applicable, interest accrued through each year-end according to the
specific clauses of the transaction. Any exchange differences have been
charged or credited to income of each year. The respective detail is
set forth in Note 11.d).

b) SHORT-TERM INVESTMENTS:

-- Foreign-currency deposit certificates: at the rate of exchange
prevailing on each year-end plus any interest accrued as of then.

-- Government securities: at market value current as of each year-end.

-- Financial investments with related companies: at nominal value
including, if applicable, interest accrued through each year-end
according to the specific clauses of the transaction.

c) PARTS AND SUPPLIES:

-- Materials and spares: with high turnover at replacement cost;
slow-moving and minor items at latest purchase price restated in
constant pesos at each year-end.

-- Materials in transit: at the specific cost of each import shipment plus
expenses accrued as of each year-end; amounts were translated from
foreign currency at exchange rates prevailing on those dates for
settlement of the relevant transaction.

Inventories include, when applicable, an allowance for reduction of their
value to their estimated recoverable value.

d) NONCURRENT INVESTMENTS:

-- Financial investments with related companies: at nominal value
including, if applicable, interest accrued through each year-end
according to the specific clauses of the transaction.

e) PROPERTY AND EQUIPMENT:

Property and equipment are carried at acquisition cost restated in constant
Argentine pesos as of each year-end less related accumulated depreciation. 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. When assets are sold or retired, the remaining costs and related
accumulated

F-37

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
depreciation are removed from the accounts and any resulting gain or loss is
included in income. Depreciation of property and equipment is calculated by the
straight line method based upon expected useful lives of each class of assets
(see Note 11.a).

The book value of property and equipment, considered as a whole, does not
exceed its recoverable value.

f) DISCONTINUED OPERATIONS:

Parts and supplies and property and equipment related to discontinued
operations of joint venture interests (see Note 7) were valued at acquisition
cost restated in constant Argentine pesos as of each year-end, less related
accumulated depreciation which does not exceed its realizable value, and
discontinued operations of noncurrent investments were valued at equity method
as of each year-end. Liabilities have been recorded to meet the obligations
arising from discontinued operations.

g) INCOME TAX:

Quitral-Co and its subsidiary calculate income tax on a separate-company
basis at the current rate of 30% in Argentina and 34% in Venezuela,
respectively, without taking in consideration the effect of any temporary
differences between book and taxable income.

As of June 30, 1995, Quitral-Co de Venezuela has an accumulated net
operating loss carryforward of about 7,568, which calculated at the current tax
rate represents a contingent asset of about 2,573, which may be used to offset
future income taxes in that subsidiary.

h) ALLOWANCES AND RESERVES:

-- Deducted from assets:

o Allowance for obsolescence: assessed on the basis of an individual
analysis of items considered technically obsolete.

-- Included in liabilities:

o Reserves for contingencies: established to provide for
contingencies that might involve Quitral-Co in losses whose final
outcome depends on one or more future events. Contingent
liabilities are evaluated by management and Quitral-Co's legal
counsel based on available facts.

The contingencies include outstanding lawsuits or claims for possible
damage to third parties arising from Quitral-Co's business, as well as
third-party claims stemming from issues of interpreting current legislation.

The activity in the allowance and reserve accounts is presented in Note
11.b).

i) SHAREHOLDERS' EQUITY ACCOUNTS:

The shareholders' equity accounts are restated in year-end constant
Argentine pesos, with the exception of the "Capital stock" account, which has
been maintained at its original value. The adjustment resulting from restatement
thereof in year-end constant Argentine pesos is included in the "Adjustment to
capital stock" account.

j) INCOME STATEMENT ACCOUNTS:

All accounts have been restated in constant Argentine pesos as of each
year-end by applying the respective conversion factors for the month of accrual
to the historical amounts, with the exception of charges for nonmonetary assets
consumed, which were determined based on the inflation-adjusted amount of the
assets involved.

F-38

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

-- The caption "Financial income (expense) and holding gains (losses)"
includes:

o Nominal financial income and expense generated on assets and
liabilities, restated in constant Argentine pesos.

o The effects of general inflation on monetary assets and
liabilities, not included in the preceding paragraph.

o Holding gains or losses resulting from the revaluation
of inventories carried at current value.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT
RISK

Quitral-Co has not used financial instruments to manage its exposure to
fluctuations in foreign currencies or interest rates, and accordingly, has not
entered into transactions that would create off-balance sheet risk associated
with such instruments.

Quitral-Co's cash equivalents and current investments are deposit
certificates and securities placed with financial and commercial institutions.
This investment policy limits Quitral-Co's exposure to concentration of credit
risk. Quitral-Co's customer base consists primarily of major integrated and
international oil companies as well as smaller independent oil and gas
producers. Management believes the credit quality of its customers is generally
high. Revenues from YPF S.A. and Perez Companc S.A. represent 28.3% and 24.6%
for the year ended June 30, 1995; 18.6% and 28.9% for the year ended June 30,
1994 and 21.0% and 39.9% for the year ended June 30, 1993, respectively.

4. CHANGES IN FINANCIAL STATEMENT PRESENTATION

a) Reversal of Petroqumica Cuyo's appraisal revaluation reserve

Quitral-Co adjusted its equity investment in Petroquimica Cuyo
(presented as a discontinued operation) eliminating the property, plant
and equipment appraisal revaluation carried out by this affiliate and
the appraisal revaluation reserve included in net worth. This change in
accounting principle was applied retroactively to these financial
statements for the years ended June 30, 1995, 1994 and 1993 and had no
effect in the consolidated statements of income.

b) Presentation of the statements of cash flows

Beginning with the financial statements for the interim period ended
September 30, 1994, Quitral-Co prepares its statements of cash flows in
accordance with the indirect method, starting with the year's net
income and adding to or subtracting from it, as applicable, those items
comprised in its determination that did not affect the operating cash
flows, and disclosing separately any changes in assets and liabilities,
as well as the cash provided by or used in investing and financing
activities.

c) Assets and liabilities of discontinued operations

For the purpose of these financial statements, assets and liabilities
from the operations conducted in Al Norte de la Dorsal, Aguada
Villanueva, Piedras Coloradas, Cacheuta, Canadon Amarillo and
Altiplanicie del Payun oil fields, as well as those from the indirect
interest held by Quitral-Co in the Oritupano-Leona oil area, and the
equity investments in Petroquimica Cuyo S.A., Packingplast S.A. and
Jojoba S.A. as of June 30, 1995 and 1994 and the results of operations
and cash flows for the years ended June 30, 1995, 1994 and 1993, are
shown in the account "Discontinued operations" (see Note 7).

For the purpose of these financial statements and in accordance with
Argentine GAAP, the balances as of June 30, 1994 and 1993, which are presented
for comparative purposes, have been prepared after giving effect to the changes
described above.

F-39

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Additionally, certain reclassifications were made to the amounts presented
as of June 30, 1994 and 1993 to conform their presentation to the
classifications made as of June 30, 1995.

5. BREAKDOWN OF SIGNIFICANT ACCOUNTS

The significant balance sheet and income statement accounts are detailed as
follows:

1995 1994
--------- ---------

a) INVESTMENTS:
SHORT-TERM:
Foreign currency certificates of
deposit............................ 13 116
Government securities.............. 6 11
Financial investment with related
companies (Note 10)................ 1,547 145
--------- ---------
1,566 272
========= =========
NONCURRENT:
Financial investment with related
companies (Note 10)................ 230 6,107
Other.............................. -- 425
--------- ---------
230 6,532
========= =========
b) TRADE RECEIVABLES:
Trade accounts receivables......... 26,407 18,388
Related companies (Note 10)........ 9,032 8,672
Notes receivable................... 13 --
--------- ---------
35,452 27,060
========= =========

c) OTHER RECEIVABLES:
CURRENT:
Tax credits........................ 1,017 801
Prepaid expenses................... 424 60
Advances to vendors................ 2,823 570
Advances to personnel.............. 927 960
Insurance claims................... 32 323
Other.............................. 914 811
--------- ---------
6,137 3,525
========= =========
NONCURRENT:
Guarantee deposits................. 314 8
Other.............................. 364 317
--------- ---------
678 325
========= =========
d) PARTS AND SUPPLIES:
CURRENT:
Materials and spares............... 13,289 12,058
Materials in transit............... 1,883 1,338
Allowance for obsolescence of
materials and spares (Note
11.b)........................... (549) (549)
--------- ---------
14,623 12,847
========= =========
NONCURRENT:
Materials and spares............... 7,122 7,122
Allowance for obsolescence of
materials and spares (Note
11.b)........................... (1,730) --
--------- ---------
5,392 7,122
========= =========

F-40

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1995 1994
--------- ---------
e) ACCOUNTS PAYABLE:

Vendors............................ 13,336 10,117
Related companies (Note 10)........ 557 556
--------- ---------
13,893 10,673
========= =========

f) LOANS:
CURRENT:
Foreign currency loans:
Related companies (Note 10)........ 7,000 --
Bank loans:
-- Lloyds Bank.................... -- 1,620
-- Supervielle Societe Generale... -- 2,160
-- Frances........................ -- 1,485
-- J. P. Morgan................... -- 2,160
-- Credit Lyonnais Argentina
S.A............................. -- 1,074
-- Provincial S.A.I.C.A.
(Venezuela)..................... 3,206 6,328
-- Mercantil C.A.S.A.C.A.
(Venezuela)..................... 2,054 --
-- Citibank (Venezuela)........... 2,936 --
-- Bank of Boston (Venezuela)
(Note 6)........................ 1,928 3,352
-- Other.......................... 1,641 303
--------- ---------
18,765 18,482
Local currency loans:
Overdrafts......................... 504 --
--------- ---------
19,269 18,482
========= =========
NONCURRENT:
Foreign currency loans:
Banks (Note 6)..................... 7,363(1) 2,541
========= =========

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

(1) Includes a 4,543 loan of Quitral-Co de Venezuela at a cost of LIBOR plus
1.80% per annum and payable in 10 semi-annual installments and a 2,820 loan
of Quitral-Co (Note 6).

1995 1994
--------- ---------

g) OTHER LIABILITIES:
CURRENT:
International Finance
Corporation..................... 1,133 --
Directors' fees payable............ 47 50
Other.............................. 460 1,809
--------- ---------
1,640 1,859
========= =========
NONCURRENT:
International Finance
Corporation..................... 1,688 3,039
Other.............................. 2,090(2) 753(2)
--------- ---------
3,778 3,792
========= =========

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

(2) Non-interest bearing liabilities arising under the Collective Labor
Agreement with the Oil Industry Workers Union and employment legislation in
force in Venezuela.

F-41

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1995 1994 1993
--------- --------- ---------

h) OTHER (EXPENSES) INCOME, NET:
Gain on sale of property and
equipment -- net................... 226 310 584
Tax and social security
amnesties.......................... (416) -- --
Other non-operating losses......... (600) (491) (187)
Other -- net....................... 170 (619) (2,382)
--------- --------- ---------
(620) (800) (1,985)
========= ========= =========

i) FINANCIAL INCOME (EXPENSE) AND
HOLDING GAINS
(LOSSES) -- NET:

Exchange rate differences.......... (306) 14 150
Interest........................... (4,046) 61 (383)
Income (loss) on exposure to
inflation, and gains
(losses) on holding and
translation of financial
statements...................... 1,065 (42) 294
Other financial expenses, net...... (422) (304) (173)
--------- --------- ---------
(3,709) (271) (112)
========= ========= =========

6. LOANS

Quitral-Co has provided a guarantee on a credit line negotiated by
Quitral-Co de Venezuela with The First National Bank of Boston, to be used for
the purchase and importation of equipment manufactured in the United States. The
facility extended to Quitral-Co de Venezuela is for US$6.5 million, at a cost of
LIBOR plus 1.80% per annum. The entire loan had been drawn as of June 30, 1995.

Under the major restrictive covenants of this loan renegotiated during the
current year, Quitral-Co (guarantor) is required to maintain certain ratios, as
follows: liquidity ratio (total current assets to total current liabilities)
equal to or above 0.85 through June 30, 1995, 1.00 from July 1, 1995 through
June 30, 1996 and 1.15 from July 1, 1996 through June 30, 1999; and a debt to
equity ratio equal to or not less than 1.10, both ratios to be calculated on the
basis of consolidated financial statements. Quitral-Co further agreed not to
collateralize or otherwise encumber its assets existing as of the date of the
loan agreement.

The First National Bank of Boston may declare the entire outstanding
principal plus interest and relevant charges immediately due and payable upon
any event of nonperformance of the above covenants.

On June 30, 1995, Quitral-Co provided a guarantee for a total US$7.5
million to banks in the Republic of Venezuela, to secure performance under
certain credit lines extended to Quitral-Co de Venezuela. About US$6.1 million
of those credit lines had been drawn as of June 30, 1995.

In addition to the guarantee and other security interests described above,
as of June 30, 1995 Quitral-Co de Venezuela had an open letter of credit for the
benefit of Corpoven S.A., for about US$7.4 million. The letter of credit was
opened to secure performance of the Minimum Work Program committed in respect of
its interest in Oritupano-Leona oilfield.

During the year ended June 30, 1995, Quitral-Co executed a US$5 million
loan agreement with the First National Bank of Boston to finance the purchase
and import of goods manufactured in the United States. The loan accrues interest
at LIBOR plus 1.40% per annum and should be repaid in not more than 10
half-yearly installments. The U.S. Eximbank provided political risks insurance
on this loan.

F-42

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the terms of the loan agreement, Quitral-Co agreed to be bound by
similar restrictive covenants and defaults to those described above, in default
whereof all outstanding moneys under the loan can be declared immediately due
and payable.

The first disbursements under the loan, for an approximate US$3.6 million,
had been received as of June 30, 1995, of which 2,820 was classified as
noncurrent.

The maturities of the noncurrent loans as of June 30, 1995 are as follows:

FROM 1 FROM 2 FROM 3 OVER
TO 2 YEARS TO 3 YEARS TO 4 YEARS 5 YEARS TOTAL
----------- ----------- ----------- -------- ---------

Loans....... 2,209 1,718 1,718 1,718 7,363
=========== =========== =========== ======== =========

7. DISCONTINUED OPERATIONS

Pursuing the strategic aim of concentrating business in the area of
oilfield services, in November and December, 1994, Quitral-Co sold its working
interests in oil producing joint ventures.

In November, 1994, Quitral-Co and Perez Companc S.A., owners of a 43.75%
and a 56.25% interest, respectively, in the Al Norte de la Dorsal and Aguada
Villanueva oil fields, executed an agreement to assign to Chauvco Resources
(Argentina) S.A. all of their rights and obligations with respect to oil and gas
production and the possibility to explore other oil and/or gas deposits in those
areas, including in the assignment the capital goods and inventories owned by
the joint ventures in question. The sales price related to Quitral-Co's interest
was approximately US$12.6 million.

Furthermore, in December 1994, Quitral-Co assigned to Perez Companc S.A.
its 5% interests in the Piedras Coloradas and Cacheuta blocks and its 20%
interests in Canadon Amarillo and Altiplanicie del Payun. The sales price was
US$2.8 million, and included the assignment of all of Quitral-Co's rights and
obligations with respect to oil and gas production and the possibility to
explore other oil and/or gas deposits in the areas, further including in the
assignment the equipments and inventories owned by Quitral-Co in the above
areas.

These sales generated a gain, net of income tax of 5,743, and was credited
to income during the year ended June 30, 1995 under "Discontinued operations".

On the other hand, the subsidiary, Quitral-Co de Venezuela has carried out
the following transactions during September 1995, effective January 1, 1995:

a) Quitral-Co de Venezuela sold to Perez Companc S.A. all its
recorded assets and liabilities related to production covering 10% of the
area Oritupano-Leona and settled the US$4.6 million payable to Perez
Companc S.A.

b) Quitral-Co acquired from Perez Companc S.A. the remaining 30% of
the capital stock of Quitral-Co de Venezuela, thus becoming the sole owner
of the aforesaid company's shares.

In the light of the situation described in a) and b) above, all service
income generated from January 1, 1995 was recognized as accruing to Quitral-Co,
while all income generated by the Oritupano-Leona oilfield was excluded.

The transaction described in b) generated an income from discontinued
operations in the quarter ended as of September 30, 1995, of 2,699.

At the Quitral-Co's General Shareholders' Meeting of April 29, 1996, the
shareholders approved the distribution of all of its equity interests in
Petroqumica Cuyo S.A.I.C., Packingplast S.A. and Jojoba S.A., these equity
investments and their results as of June 30, 1995, 1994 and 1993, have been
presented retroactively as "Discontinued operations".

F-43

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Below are the assets and liabilities of the operations discontinued by the
above joint ventures and Quitral-Co's indirect interest in the Oritupano-Leona
area and the equity investments dividended in April, 1996, that were presented
in the financial statements as discontinued operations:

1995 1994
----------------------- -----------------------
JOINT EQUITY JOINT EQUITY
VENTURES INVESTMENTS VENTURES INVESTMENTS
-------- ----------- -------- -----------

CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and cash equivalents.......... 597 3 194 6
Trade receivables.................. 577 -- 627 --
Other receivables.................. 407 323 576 353
Parts and supplies................. 606 9 595 11
-------- ----------- -------- -----------
Total current assets from
discontinued
operations.................... 2,187 335 1,992 370
======== =========== ======== ===========

NONCURRENT ASSETS:
Other receivables.................. 91 -- 1,925 --
Property and equipment............. 3,548 4,067 15,726 3,025
Investments........................ -- 36,167 -- 26,476
-------- ----------- -------- -----------
Total noncurrent assets from
discontinued operations....... 3,639 40,234 17,651 29,501
======== =========== ======== ===========
CURRENT LIABILITIES:
Accounts payable................... 949 12 673 1
Loans.............................. -- 18 -- --
Payroll and social security
taxes.............................. 40 15 55 106
Taxes payable...................... 24 -- 74 --
Other liabilities.................. 262 -- 371 --
-------- ----------- -------- -----------
Total current liabilities from
discontinued operations....... 1,275 45 1,173 107
======== =========== ======== ===========
</TABLE>

The detail of income (losses) on operations and sale of these interests,
for the years ended June 30, 1995, 1994 and 1993 is as follows:

1995 1994 1993
--------- --------- ---------

(Losses) income on discontinued
operations of joint ventures and
Oritupano-Leona oilfield........... (3,037) (527) 1,010
Income on the sale of joint
venture............................ 5,743 -- --
--------- --------- ---------
Income (losses) from discontinued
operations of joint ventures....... 2,706 (527) 1,010
Income (losses) from discontinued
operations of equity investments... 9,679 419 (2,207)
--------- --------- ---------
12,385 (108) (1,197)
========= ========= =========

8. CAPITAL STOCK

As of June 30, 1995, Quitral-Co's issued, subscribed for, paid in, and
registered capital stock was 13,052. Movements in capital stock during the year
are presented in the consolidated statements of changes in shareholders' equity.

F-44

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. RESTRICTION ON UNAPPROPRIATED EARNINGS

The legal reserve of Quitral-Co represents earnings restricted from the
payments of dividends in accordance with Argentine law. The law dictates that
with respect to income in any one year, an amount equal to 5% of the net income
of Quitral-Co after offsetting prior years' losses, must be set aside until the
cumulative legal reserve equals 20% of capital stock.

10. TRANSACTIONS AND BALANCES WITH RELATED COMPANIES

The outstanding balances as of June 30, 1995 and 1994 from transactions
with related companies are as follows:

RELATED COMPANY 1995 1994
- ---------------------------------------- --------- ---------

INVESTMENTS:
SHORT TERM:
Perez Companc S.A..................... 1,412 --
Other................................. 135 145
--------- ---------
1,547 145
========= =========
NONCURRENT:
Perez Companc S.A..................... -- 5,733
Other................................. 230 374
--------- ---------
230 6,107
========= =========
TRADE RECEIVABLES:
Perez Companc S.A..................... 7,027 7,352
Petrolera Perez Companc S.A........... 1,225 1,043
Servicios Especiales San Antonio
S.A................................ 769 235
Other................................. 11 42
--------- ---------
9,032 8,672
========= =========
ACCOUNTS PAYABLE:
CURRENT:
Perez Companc S.A..................... 159 305
Servicios Especiales San Antonio
S.A................................ 160 133
Sade Ingeniera y Construcciones
S.A................................ 238 118
--------- ---------
557 556
========= =========

LOANS:
CURRENT:
Perez Companc S.A..................... 7,000 --
========= =========

F-45

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The significant transactions made during the year ended June 30, 1995,
include:

NET INTEREST
RELATED COMPANY NET SALES INCOME PURCHASES
- ------------------------------------- --------- ------------- ---------

Perez Companc S.A.................... 43,201 218 578
Petrolera Perez Companc S.A.......... 4,508 -- --
Servicios Especiales San Antonio
S.A................................ 7,881 -- 1,482
Sade Ingeniera y Construcciones
S.A................................ -- -- 1,388
Other................................ 104 44 --
--------- ------ ---------
55,694 262 3,448
========= ====== =========

The significant transactions made during the year ended June 30, 1994,
include:

NET INTEREST
RELATED COMPANY NET SALES (LOSS) INCOME PURCHASES
- ------------------------------------- --------- ------------- ---------

Perez Companc S.A.................... 41,367 313 325
Maipu Inversora S.A.................. -- (173) --
Petrolera Perez Companc S.A.......... 4,505 -- --
Servicios Especiales San Antonio
S.A................................ 1,819 -- 1,649
Sade Ingeniera y Construcciones
S.A................................ -- -- 1,319
Other................................ 14 28 2
--------- ------ ---------
47,705 168 3,295
========= ====== =========

The significant transactions made during the year ended June 30, 1993,
include:

NET INTEREST
RELATED COMPANY NET SALES (LOSS) INCOME PURCHASES
- ------------------------------------- --------- ------------- ---------

Perez Companc S.A.................... 42,636 (73) 610
Petrolera Perez Companc S.A.......... 7,061 -- --
Servicios Especiales San Antonio
S.A................................ 257 -- 2,524
Sade Ingeniera y Construcciones
S.A................................ -- -- 2,421
Other................................ -- 27 795
--------- ------ ---------
49,954 (46) 6,350
========= ====== =========

F-46

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. OTHER FINANCIAL STATEMENT INFORMATION

The following tables present additional financial statement disclosures
required under Argentine GAAP; this information is not a required part of the
basic financial statements under U.S. GAAP:

a) Property and equipment

b) Allowances and reserves

c) Cost of sales

d) Foreign currency assets and liabilities

e) Expenses incurred

A) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>

1995
-------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
----------------------------------------------
FOR THE YEAR
COST ----------------------------------
------------------------------------------
AT DECREASE AT INCREASE
BEGINNING AND AT END BEGINNING -----------------------
MAIN ACCOUNTS OF YEAR INCREASE TRANSFERS OF YEAR OF YEAR RATE % AMOUNT DECREASE
- ---------------------------------------- --------- -------- -------- -------- --------- ------------- ------- --------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real property........................... 5,317 121 (238 ) 5,200 585 10 and 3 181 --
Furniture and facilities................ 2,311 3,898 (2,582 ) 3,627 1,370 20 and 10 343 (3)
Rigs, tools, and equipment.............. 88,446 17,309 (503 ) 105,252 43,534 10, 33 and 50 8,524 (84)
Transportation equipment................ 8,277 1,415 (779 ) 8,913 5,651 10 and 33 1,129 (449)
Base camps and offices.................. 3,784 189 -- 3,973 1,555 10 327 --
Construction projects in
process............................... 1,016 4,217 (2,784 ) 2,449 -- -- -- --
Advances to vendors..................... 18 1,620 (18 ) 1,620 -- -- -- --
--------- -------- -------- -------- --------- ------- --------
Total 1995.......................... 109,169 28,769 (6,904 ) 131,034 52,695 10,504 (536)
========= ======== ======== ======== ========= ======= ========
Total 1994.......................... 95,027 16,147 (2,005 ) 109,169 45,224 8,175 (704)
========= ======== ======== ======== ========= ======= ========
</TABLE>

1994
--------
AT END NET BOOK NET BOOK
MAIN ACCOUNTS OF YEAR VALUE VALUE
- ---------------------------------------- ------- -------- --------
Real property........................... 766 4,434 4,732
Furniture and facilities................ 1,710 1,917 941
Rigs, tools, and equipment.............. 51,974 53,278 44,912
Transportation equipment................ 6,331 2,582 2,626
Base camps and offices.................. 1,882 2,091 2,229
Construction projects in
process............................... -- 2,449 1,016
Advances to vendors..................... -- 1,620 18
------- -------- --------
Total 1995.......................... 62,663 68,371
======= ========
Total 1994.......................... 52,695 56,474
======= ========

F-47

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

B) ALLOWANCES AND RESERVES

DEDUCTED FROM ASSETS INCLUDED IN LIABILITIES
--------------------- -----------------------
OBSOLESCENCE CONTINGENCIES
--------------------- -----------------------
CURRENT NONCURRENT NONCURRENT
------- ---------- -----------------------
<S> <C> <C>
Balance at beginning of year............ 549 -- 1,837
Net increase............................ -- 1,730 481
------- ---------- -------
Balance as of June 30, 1995............. 549 1,730 2,318
======= ========== =======
Balance as of June 30, 1994............. 549 -- 1,837
======= ========== =======
</TABLE>

C) COST OF SALES

1995 1994 1993
---------- ---------- ----------

Parts and supplies -- balances at
beginning of year..................... 19,969 15,654 13,731
Purchases for the year.................. 42,621 32,659 17,724
Cost as per Note 11.e).................. 131,906 105,362 76,907
Consumption included under property and
equipment............................. (15,744) (6,676) (3,392)
Holding gains (losses)(1)............... 30 (514) 71
Parts and supplies -- balances at end of
year.................................. (20,015) (19,969) (15,654)
---------- ---------- ----------
158,767 126,516 89,387
========== ========== ==========

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

(1) Presented in the income statement under "Financial income (expense) and
holding gains (losses)".

F-48

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

D) FOREIGN CURRENCY ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
1994 1995
---------------- -----------------------------------------
BOOK IN
THOUSANDS
OF PESOS
FOREIGN CURRENCY AND EXCHANGE ----------
ACCOUNTS AMOUNT (IN THOUSANDS) RATE(1)
- ------------------------------------- ----------------------------------- --------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash................................. US$ 193 US$ 522 1.00(1) 522
BVS 21,213 BVS 62,390 170(1) 367
Investments.......................... US$ 188 US$ 149 1.00(1) 149
BVS 9,829 BVS 680 170(1) 4
Trade receivables.................... US$ 24,114 US$ 31,063 1.00(1) 31,063
BVS 212,071 BVS 687,650 170(1) 4,045
Other receivables.................... US$ 446 US$ 2,745 1.00(1) 2,745
BVS 175,322 BVS 242,760 170(1) 1,428
----------
40,323
----------
NONCURRENT ASSETS
Investments.......................... US$ 346 US$ 230 1.00(1) 230
Other receivables.................... US$ 223 US$ 271 1.00(1) 271
BVS 87,737 BVS 6,630 170(1) 39
Advances to vendors.................. US$ -- US$ 1,405 1.00(1) 1,405
----------
1,945
----------
42,268
==========
CURRENT LIABILITIES
Accounts payable..................... US$ 1,990 US$ 2,359 1.00(1) 2,359
BVS 340,977 BVS 452,030 170(1) 2,659
Loans................................ US$ 18,113 US$ 12,898 1.00(1) 12,898
BVS 327,302 BVS 965,260 170(1) 5,678
Payroll and social security taxes.... US$ -- US$ 1,327 1.00(1) 1,327
BVS 175,818 BVS 206,040 170(1) 1,212
Taxes payable........................ BVS 92,004 BVS 166,090 170(1) 977
----------
27,110
NONCURRENT LIABILITIES
Loans................................ US$ -- US$ 7,363 1.00(1) 7,363
Other liabilities.................... US$ 2,814 US$ 1,688 1.00(1) 1,688
----------
9,051
----------
36,161
==========
</TABLE>

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

US$ United States dollars.

BVS Bolvares

(1) Buying and selling exchange rates as of June 30, 1995.

F-49

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

E) EXPENSES INCURRED

1995
------------------------------------ 1994 1993
OPERATING COST OF ---------- ---------
DESCRIPTION EXPENSES SERVICES TOTAL TOTAL TOTAL
- ------------------------------------- ---------- --------- ---------- ---------- ---------

<S> <C> <C> <C> <C> <C>
Payroll.............................. 2,361 34,090 36,451 31,481 25,067
Social security taxes................ 3,031 29,738 32,769 24,729 20,038
Director's compensation.............. 371 -- 371 449 638
Fees and compensation for services... 641 219 860 596 588
Supplies and other services.......... 2,893 46,283 49,176 38,319 22,774
Maintenance and repairs.............. 13 8,723 8,736 4,989 3,514
Taxes, rates and assessments......... 992 170 1,162 960 648
Depreciation of property and
equipment............................ 243 10,261 10,504 8,175 8,694
Insurance............................ 127 881 1,008 933 736
Other operating costs................ 952 907 1,859 1,881 356
Accrual for contingencies............ -- 634 634 725 --
---------- --------- ---------- ---------- ---------
Total for the year ended June 30,
1995................................. 11,624 131,906 143,530
========== ========= ==========
Total for the year ended June 30,
1994................................. 7,875 105,362 113,237
========== ========= ==========
Total for the year ended June 30,
1993................................. 6,146 76,907 83,053
========== ========= =========
</TABLE>

12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
FOLLOWED BY QUITRAL-CO AND U.S. GAAP

The accompanying financial statements have been prepared in accordance with
Argentine GAAP which differs in certain respects from U.S. GAAP. The approximate
significant differences on the shareholders' equity and net income as of and for
the years ended June 30, 1995 and 1994, are reflected in the summary provided
below and principally relate to the items discussed in the following paragraphs.
Similar differences would exist for the period ended June 30, 1993, but they
were not quantified as allowed pursuant to SEC rules for foreign businesses
acquired.

As discussed in Note 2, in accordance with Argentine GAAP and current
Argentine legislation, the presentation of parent Company's individual financial
statements is required. Consolidated financial statements need only be included
as supplementary information. For the purposes of this filing, parent financial
statements have been omitted since they are not required for SEC reporting
purposes.

A) RESTATEMENT OF FINANCIAL STATEMENTS FOR GENERAL PRICE-LEVEL CHANGES

As explained in Note 2, Argentine GAAP requires the restatement of all
financial statements to constant Argentine pesos as of the date of the most
recent financial statements presented. This restatement only updates the
financial statements amounts to constant Argentine pesos as of the date of the
most recent financial statements presented and does not change prior period
financial statements in any other way. All nonmonetary assets and income
statement amounts have been restated to reflect changes in the Argentine general
wholesale price index, from the date the assets were acquired or the transaction
took place, to the year-end. The gain (loss) on exposure to inflation included
in income (loss) reflects the effect of Argentine inflation on the monetary
liabilities of Quitral-Co during the year, net of the loss resulting from the
effect of inflation on monetary assets held.

F-50

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cumulative inflation of over 100% over a three-year period up to February 1994,
therefore, up to such date amounts were remeasured as if the functional currency
were the U.S. dollar. Thus non-monetary accounts were converted at the exchange
rate when the transaction took place, and since such date, the monetary accounts
were translated at the current exchange rate.

Current exchange rates as of June 30, 1995 and 1994 are approximately Ps 1
= US$1.

Accordingly, the reconciliation to U.S. GAAP of net income and
shareholders' equity shown below reflects as a difference the elimination of the
effect of the general price level restatement and the conversion into U.S.
dollars.

B) INCOME TAXES

As discussed in Note 3.g), under Argentine GAAP income tax expense is
recognized based upon the estimate of the current income taxes payable. When
income and expense recognition for income tax purposes does not occur in the
same period as for financial statements purposes, the resulting temporary
differences are not considered in the computation of income tax expense for the
year.

Under U.S. GAAP, the liability method is used to calculate the income tax
expense. Under this method, deferred taxes are recognized for temporary
differences between the financial and tax basis of assets and liabilities at the
statutory rate. The deferred tax asset generated by the tax loss carryforward of
Quitral-Co de Venezuela has been offset in full by the establishment of a
valuation allowance.

C) VALUATION OF PARTS AND SUPPLIES

As described in Note 3.c), Quitral-Co values its parts and supplies in
stock at replacement cost. Under U.S. GAAP, these inventories should be valued
at the lower of cost or realizable value. As of June 30, 1995 and 1994, there
were no significant differences in the valuation of parts and supplies under
Argentine and U.S. GAAP and thus this effect was not included in the
reconciliation to U.S. GAAP shown below.

D) VACATION ACCRUAL

Under Argentine GAAP, there are no specific requirements governing the
recognition of the accrual for vacations. The acceptable practice in Argentina
is to expense vacations when taken and to accrue only the amount of vacation in
excess of the normal remuneration. Under U.S. GAAP, vacation expense is fully
accrued in the period the employee renders service to earn such vacation.

E) ACCOUNTING FOR POSTRETIREMENT BENEFITS

During May 1991, an employee retirement plan that basically provided for
payments of pension income in addition to statutory retirement was approved.
This additional income is assessed in terms of the payee's age, years of service
to Quitral-Co, and wage upon retirement. Subsequently during 1996, this benefit
was terminated for all Company active workers. The benefit remained in force
only in respect of retired employees.

The plan is financed exclusively by Quitral-Co, which follows the
accounting practice of recording the cost of this benefit as it is paid.

Under Argentine GAAP, there are no strict requirements governing the
recognition of an employer's liability for retirement benefits granted to
employees. Quitral-Co follows the accounting practice of recording the cost of
the benefits under the plan as it is paid. In the U.S., the accounting for these
benefits is governed by Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirements Benefits Other than Pensions" and
the U.S. GAAP reconciliation recognizes the effect of adjusting the recorded
pension cost and liability to retirees to the amounts required under U.S. GAAP.

F-51

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F) ELIMINATION OF THE INCREASED VALUE OF PROPERTY AND EQUIPMENT

In order to expand and consolidate Quitral-Co's oilfield services business,
in December 1991 Perez Companc S.A. (Quitral-Co's parent company in 1991) made
an in-kind capital contribution of property and equipment at market value. For
the purpose of adapting Quitral-Co's balances to US GAAP, the net book values of
the assets contributed by Perez Companc S.A. have been written down to the cost
recorded in the latter's books, adjusting the related depreciation accordingly.

G) INVESTMENTS DIVIDENDED TO FORMER SHAREHOLDERS

As discussed in Notes 1 and 7 to the consolidated financial statements, at
the General Shareholders' Meeting of April 29, 1996, the shareholders approved
the distribution of all its equity interests in Petroqumica Cuyo S.A.,
Packingplast S.A. and Jojoba S.A. as a dividend distribution in kind at their
book value under Argentine GAAP. Due to this distribution to former
shareholders, and for the purpose of reconciling net income and shareholders'
equity to U.S. GAAP, these investments have been excluded.

H) RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY TO U.S. GAAP

The following is a summary of the approximate significant adjustments to
net income for the years ended June 30, 1995 and 1994, and to shareholders'
equity as of June 30, 1995 and 1994 which would be required if U.S. GAAP had
been applied instead of Argentine GAAP in the accompanying financial statements.

Amounts are stated in thousands, except for per share amounts (see a)
above).

1995 1994
--------------- ----------------

Net income in accordance with
Argentine GAAP..................... Ps. 10,704 Ps. 5,304
Less: income of investments
dividended to former
shareholders....................... (9,679) (419)
--------- ---------
Net income in accordance with
Argentine GAAP excluding income of
investments dividended............. Ps. 1,025 Ps. 4,885
--------- ---------
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the
restatement for inflation and
conversion into U.S.
dollars....................... 3,308 (1,228)
Deferred income tax............. US$ 439 US$ (38)
Benefits under employee
retirement plan............... (101) (102)
Effect on depreciation of the
increased value of property
and equipment................. 1,270 1,551
Vacation accrual................ (1,014) (975)
--------- ---------
APPROXIMATE NET INCOME IN ACCORDANCE
WITH U.S. GAAP....................... US$ 4,927 US$ 4,093
---- -----
Approximate net income from
discontinued operations in
accordance with U.S. GAAP.......... (2,607) (633)
Approximate net income from
continuing operations in accordance
with U.S. GAAP..................... 2,320 3,460
========= =========
NET EARNINGS PER SHARE:
Amounts based on accompanying
financial statements.......... Ps. 0.82 Ps. 0.41
Approximate amounts under U.S.
GAAP.......................... US$ 0.38 US$ 0.31
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS:
Amounts based on accompanying
financial statements.......... Ps. (0.13) Ps. 0.41
Approximate amounts under U.S.
GAAP.......................... US$ 0.18 US$ 0.27

F-52

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Common shares considered for the purpose of calculating income per share
were 13,051,613 shares.

<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
<S> <C> <C>
Shareholders' equity in accordance with Argentine GAAP....................... Ps. 121,639 Ps. 115,176

Less: noncurrent investments dividended to the former shareholders.......... (41,246) (30,988)
---------- ----------
Shareholders' equity excluding noncurrent investments dividended............. Ps. 80,393 Ps. 84,188
---------- ----------
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the restatement for inflation and translation
into U.S. dollars..................................................... (6,460) (10,588)
Property and equipment.................................................. US$ (7,101) US$ (8,337)
Deferred income tax..................................................... 353 (86)
Benefits under employee retirement plan................................. (2,518) (2,536)
Vacation accrual........................................................ (2,082) (983)
---------- ----------
APPROXIMATE SHAREHOLDERS' EQUITY IN ACCORDANCE WITH U.S. GAAP................ US$ 62,585 US$ 61,658
========== ==========
</TABLE>

I) OTHER SIGNIFICANT U.S. GAAP DISCLOSURE REQUIREMENTS

1) The following table presents the components of Quitral-Co's deferred
income tax balances as of the end of each year:

1995 1994
---------------- ----------------
<S> <C> <C>
DEFERRED TAX ASSETS
Tax loss carryforwards in Quitral-Co de Venezuela................... US$ 2,573 US$ 985
Valuation allowance................................................. (2,573) (985)
Vacation accrual.................................................... 625 295
Benefits under employee retirement plan............................. 714 730
Reserve for contingencies........................................... 186 --
Others, not individually significant................................ 26 --
---------- ----------
US$ 1,551 US$ 1,025
---------- ----------
DEFERRED TAX LIABILITIES
Difference between tax and accounting property and equipment
depreciation...................................................... US$ (900) US$ (997)
Others, not individually significant................................ (298) (114)
---------- ----------
(1,198) (1,111)
---------- ----------
Net deferred tax asset (liability).................................. US$ 353 US$ (86)
========== ==========
</TABLE>

F-53

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The reconciliation of pre-tax income at the statutory rate, to the income
tax presented in the financial statements for the years ended June 30, 1995,
1994, computed in accordance with U.S. GAAP, is as follows:

1995 1994
---------------- ----------------
<S> <C> <C>
Approximate pre-tax income in accordance with U.S. GAAP................... US$ 8,183 US$ 6,020

Statutory tax rate........................................................ 30% 30%
--------- ---------
Statutory tax rate applied to pre-tax income.............................. 2,455 1,806
Permanent differences:
Assets tax........................................................... (499) (249)
Book vs. tax basis difference of Quitral-Co's investment in
Quitral-Co de Venezuela............................................ 1,319 333
Others, not individually significant................................. (501) 37
--------- ---------
US$ 2,774 US$ 1,927
========= =========
</TABLE>

2) Disclosures about fair value of financial investments:

U.S. GAAP requires disclosures of the estimated fair value of Quitral-Co's
financial instruments. The carrying amounts of cash, cash equivalents,
marketable securities, current receivables, payables, bank and financial loans
having variable interest rates are considered to approximate their fair market
value.

F-54

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)

1995 1994
---------- ----------

CURRENT ASSETS
Cash............................ 2,030 1,196
Investments..................... 134 15,863
Trade receivables............... 32,714 34,924
Other receivables............... 11,080 4,844
Parts and supplies.............. 15,175 12,367
Discontinued operations......... 1,772 2,588
---------- ----------
Total current assets....... 62,905 71,782
---------- ----------
NONCURRENT ASSETS
Other receivables............... 241 543
Parts and supplies.............. 4,842 6,650
Investments..................... 115 242
Property and equipment.......... 76,001 61,143
Discontinued operations......... 31,506 38,386
---------- ----------
Total noncurrent assets.... 112,705 106,964
---------- ----------
Total assets............... 175,610 178,746
========== ==========
CURRENT LIABILITIES
Accounts payable................ 13,207 15,292
Loans........................... 8,376 26,719
Payroll and social security
taxes.......................... 5,555 3,722
Taxes payable................... 5,020 5,418
Other liabilities............... 2,890 576
Discontinued operations......... 28 2,515
---------- ----------
Total current
liabilities.............. 35,076 54,242
---------- ----------
NONCURRENT LIABILITIES
Loans........................... 8,805 3,693
Other liabilities............... 3,519 3,523
Reserves........................ 2,740 1,592
---------- ----------
Total noncurrent
liabilities.............. 15,064 8,808
---------- ----------
Total liabilities.......... 50,140 63,050
---------- ----------
MINORITY INTEREST IN SUBSIDIARIES.... 46 475
SHAREHOLDERS' EQUITY (per
corresponding statement)........... 125,424 115,221
---------- ----------
Total liabilities and
shareholders' equity..... 175,610 178,746
========== ==========

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

F-55

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)

1995 1994
---------- ----------

NET SALES............................... 101,240 83,280
COST OF SALES........................... (90,834) (74,806)
---------- ----------
Gross income.......................... 10,406 8,474
OPERATING EXPENSES...................... (5,589) (6,541)
OTHER INCOME (EXPENSES), net............ 3,889 (961)
FINANCIAL INCOME (EXPENSE) AND HOLDING
GAINS
(LOSSES), net......................... 244 (3,209)
---------- ----------
Income (loss) from continuing
operations before income tax and
minority interest.................. 8,950 (2,237)
INCOME TAX.............................. (2,682) (3,906)
---------- ----------
Income (loss) from continuing
operations......................... 6,268 (6,143)
INCOME FROM DISCONTINUED OPERATIONS..... 1,974 8,227
MINORITY INTEREST IN SUBSIDIARIES....... 63 1,746
---------- ----------
Net income for the period............. 8,305 3,830
========== ==========

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

F-56

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)

<TABLE>
<CAPTION>
1995
----------------------------------------------------------------------------
STOCK ACCUMULATED EARNINGS
----------------------------------- -------------------------
ADJUSTMENT ADDITIONAL UNAPPROPRIATED 1994
CAPITAL TO CAPITAL PAID IN LEGAL RETAINED --------
STOCK STOCK CAPITAL RESERVE EARNINGS TOTAL TOTAL
------- ---------- ---------- ------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at beginning of year........... 13,052 8,759 35,273 2,085 62,950 122,119 115,753
Appropriations directed by Special
Shareholders' Meeting of September 22,
1995 and October 20, 1994
-- Legal reserve...................... -- -- -- 535 (535) -- --
-- Cash dividends (Ps. 0.38 per
share).............................. -- -- -- -- (5,000) (5,000) (4,362)
Net income for the period............... -- -- -- -- 8,305 8,305 3,830
------- ---------- ---------- ------- ------- -------- --------
Balances as of December 31, 1995........ 13,052 8,759 35,273 2,620 65,720 125,424
======= ========== ========== ======= ======= =========
Balances as of December 31, 1994........ 13,052 8,759 35,273 2,085 56,052 115,221
======= ========== ========== ======= ======= ========
</TABLE>

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

F-57

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)

1995 1994
---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................... 8,305 3,830
Adjustments to reconcile net income
to net cash provided by
operating activities:
Minority share in profits....... (63) (1,746)
Depreciation of property and
equipment...................... 6,572 4,968
Dividends collected............. 8,000 --
Loss on sale of property and
equipment...................... (205) (112)
Increase (decrease) in
allowances..................... 414 (250)
Increase in allowance for
obsolescence of materials and
spares......................... 698 500
Income on financial
investments.................... (5,348) --
Losses from discontinued
operations..................... (1,705) (5,369)
Changes in assets and liabilities:
Trade receivables............... 2,877 (6,347)
Other receivables............... (4,479) (312)
Parts and supplies.............. (5,593) (1,312)
Accounts payable................ 120 6,684
Payroll and social security
taxes.......................... 690 (406)
Taxes payable................... 353 2,347
Other liabilities............... 970 (1,574)
Other........................... (108) --
Discontinued operations......... 132 252
---------- ----------
Cash flows provided by
operating activities..... 11,630 1,153
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to related companies...... -- 180
Noncash investments............. 119 (58)
Acquisition of property and
equipment...................... (10,161) (12,936)
Sales of property and
equipment...................... 236 150
Sale of temporary investments... -- 496
Proceeds from sale of
discontinued operations........ (907) 16,219
---------- ----------
Cash flows (used in)
provided by investing
activities............... (10,713) 4,051
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term loans (repaid)
taken.......................... 836 7,627
Long-term loans taken........... 1,364 1,145
Dividends and other payments.... (5,000) (4,362)
---------- ----------
Cash flows (used in)
provided by financing
activities............... (2,800) 4,410
---------- ----------
Net (decrease) increase in cash and
cash equivalents................... (1,883) 9,614
Cash and cash equivalents at
beginning of year.................. 3,927 1,593
---------- ----------
Cash and cash equivalents at end of
period............................. 2,044 11,207
========== ==========

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

F-58

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
(STATED IN THOUSANDS OF ARGENTINE PESOS -- NOTE 3)

1. BASIS OF PRESENTATION

The unaudited consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles in Argentina and the U.S. have been condensed or
omitted, pursuant to such rules and regulations. These unaudited consolidated
financial statements should be read in conjunction with Quitral-Co S.A.I.C.'s
("Quitral-Co") audited consolidated financial statements and notes thereto
included in this registration statement on Form S-3 for the year ended June 30,
1995.

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 Quitral-Co's
financial position, results of operations and cash flows for the interim period
presented. The results of operations for the interim period presented herein are
not necessarily indicative of the results to be expected for full years.

2. EVENTS SUBSEQUENT TO THE PERIOD ENDED DECEMBER 31, 1995:

-- At the General Shareholders' Meeting of April 29, 1996, the
shareholders approved the distribution of all of its equity interests
in Petroqumica Cuyo S.A.I.C., Pakingplast S.A., and Jojoba S.A. as a
dividend distribution in kind at their book value. The assets,
liabilities and results related to these investments are presented as
discontinued operations. In addition, at this General Shareholders
Meeting, the shareholders approved distribution of 32,600 in cash
dividends.

-- On April 29, 1996, Pride Petroleum Services, Inc. ("Pride"), a U.S.
based company, extended a non-current loan of 32,600 to Quitral-Co to
increase its working capital. On April 30, 1996, Pride acquired 100% of
Quitral-Co's shares, thus gaining control of Quitral-Co.

-- In April 1996 far-reaching changes were made to Venezuela's economic
policy. The exchange market was freed causing the Bolivar to be
devalued by approximately 80%.

-- In addition, on May 2, 1996, by decision of the shareholders at the
General Shareholders' Meeting held on that date, a new Board of
Directors was elected. The new Management is undertaking an analysis of
Quitral-Co's organizational structure to define and implement short-
term strategies and actions intended to position the business for
future success. This analysis may include several dismissals for
estimated termination costs of approximately 3,000.

3. RESTATEMENT IN CONSTANT MONEY

Technical Resolution No. 6 of the Argentine Federation of Professional
Councils in Economic Sciences (FACPCE) requires financial statements to be
stated in constant pesos as of the respective period-end by applying conversion
factors derived from the general level wholesale price index published by the
National Institute of Statistics and Census.

On August 22, 1995, the Federal Executive Power passed Decree No. 316/95
instructing control agencies not to admit financial statements prepared in
constant pesos. Pursuant to this instruction, the Inspeccion General de Justicia
(governmental regulatory agency for nonpublic companies), required

F-59

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that application of the method of restatement in constant pesos be discontinued
as of September 1, 1995, while ratifying the restatement reported until such
date. The effects of this new method are:

a) The financial statements as of December 31, 1995, only include the
effect of restatement in constant money for inflation accumulated until
August 31, 1995 at a conversion factor of 1.0.

b) The financial statements as of December 31, 1994, have been
restated for comparative purposes, only until August 31, 1995 at a
conversion factor of 1.04.

On March 29, 1996, the FACPCE approved Resolution No. 140/96 by which an
annual variation up to the 8% in the index established by Technical Resolution
No. 6 authorizes to accept as an alternative method the use of the nominal
currency as unit of measurement for the preparation of the financial statements.
As of December 31, 1995, accumulated inflation from the beginning of the fiscal
year, calculated on the above mentioned index, is 1.1%.

4. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING
PRINCIPLES FOLLOWED BY QUITRAL-CO AND U.S. GAAP

The accompanying financial statements have been prepared in accordance with
Argentine GAAP which differs in certain respects from U.S. GAAP. The approximate
significant differences on the shareholders' equity and net income as of and for
the six months ended December 31, 1995, are reflected in the summary provided
below and principally relate to the items discussed in the following paragraphs.
Similar differences would exist for the six months ended December 31, 1994, but
they were not quantified as allowed pursuant to SEC rules for foreign businesses
acquired.

In accordance with Argentine GAAP and current Argentine legislation, the
presentation of parent company's individual financial statements is required.
Consolidated financial statements need only be included as supplementary
information. For the purposes of this filing, parent financial statements have
been omitted since they are not required for SEC reporting purposes.

A) RESTATEMENT OF FINANCIAL STATEMENTS FOR GENERAL PRICE-LEVEL CHANGES

Argentine GAAP requires the restatement of all financial statements to
constant Argentine pesos as of the date of the most recent financial statements
presented. This restatement only updates the financial statements amounts to
constant Argentine pesos as of the date of the most recent financial statements
presented and does not change prior period financial statements in any other
way. All nonmonetary assets and income statement amounts have been restated to
reflect changes in the Argentine general wholesale price index, from the date
the assets were acquired or the transaction took place, to the year-end. The
gain (loss) on exposure to inflation included in income (loss) reflects the
effect of Argentine inflation on the monetary liabilities of Quitral-Co during
the year, net of the loss resulting from the effect of inflation on monetary
assets held until August 31, 1995 (see Note 3).

Under U.S. GAAP, account balances and transactions are stated in the units
of currency of the period when the transactions originated. This accounting
model is commonly known as the historical cost basis of accounting.
Shareholders' equity and the net income as of and for the six months ended
December 31, 1995, have been converted into U.S. dollars in accordance with U.S.
GAAP. Argentina had cumulative inflation of over 100% over a three-year period
up to February 1994, therefore, up to such date amounts were remeasured as if
the functional currency were the U.S. dollar. Thus non-monetary accounts were
converted at the exchange rate when the transaction took place, and since such
date, the monetary accounts were translated at the current exchange rate.

Current exchange rates as of December 31, 1995 are approximately Ps 1 =
US$1.

F-60

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

B) INCOME TAXES

Under Argentine GAAP income tax expense is recognized based upon the
estimate of the current income taxes payable. When income and expense
recognition for income tax purposes does not occur in the same period as for
financial statements purposes, the resulting temporary differences are not
considered in the computation of income tax expense for the year.

C) VALUATION OF PARTS AND SUPPLIES

Quitral-Co values its parts and supplies in stock at replacement cost.
Under U.S. GAAP, these inventories should be valued at the lower of cost or
realizable value. As of December 31, 1995, there were no significant differences
in the valuation of parts and supplies under Argentine and U.S. GAAP, and thus
this effect was not included in the reconciliation to U.S. GAAP shown below.

D) VACATION ACCRUAL

E) ACCOUNTING FOR POSTRETIREMENT BENEFITS

The plan is financed exclusively by Quitral-Co, which follows the
accounting practice of recording the cost of this benefit as it is paid.

Under Argentine GAAP, there are no strict requirements governing the
recognition of an employer's liability for retirement benefits granted to
employees. Quitral-Co follows the accounting practice of recording the cost of
the benefits under the plan as it is paid. In the U.S., the accounting for these
benefits is governed by Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirements Benefits Other Than Pensions", and
the U.S. GAAP reconciliation recognizes the effect of adjusting the recorded
pension cost and liability to retirees to the amounts required under U.S. GAAP.

F) ELIMINATION OF THE INCREASED VALUE OF PROPERTY AND EQUIPMENT

In order to expand and consolidate Quitral-Co's oilfield services business,
in December 1991, Perez Companc S.A. (Quitral-Co's parent company in 1991) made
an in-kind capital contribution of property and equipment at market value. For
the purpose of adapting Quitral-Co's balances to U.S.

F-61

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GAAP, the net book values of the assets contributed by Perez Companc S.A. have
been written down to the cost recorded in the latter's books, adjusting the
related depreciation accordingly.

G) INVESTMENTS DIVIDENDED TO FORMER SHAREHOLDERS

As discussed in Notes 1 and 7 to the annual consolidated financial
statements, at the General Shareholders' Meeting of April 29, 1996, the
shareholders approved the distribution of all its equity interests in
Petroqumica Cuyo S.A., Packingplast S.A. and Jojoba S.A. as a dividend
distribution in kind at their book value under Argentine GAAP. Due to this
distribution to former shareholders, and for the purpose of reconciling net
income and shareholders' equity to U.S. GAAP, these investments have been
excluded.

(H) RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY TO U.S. GAAP

The following is a summary of the approximate significant adjustments to
net income for the six months ended December 31, 1995, and to shareholders'
equity as of December 31, 1995, which would be required if U.S. GAAP had been
applied instead of Argentine GAAP in the accompanying financial statements.

Amounts are stated in thousands, except for per share amounts (see a)
above).

1995
---------------

Net income in accordance with Argentine
GAAP.................................... Ps. 8,305
Less: income of investments dividended
to former shareholders................ 725
---------
Net income in accordance with Argentine
GAAP excluding income of investments
dividended............................ Ps. 9,030
---------
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the restatement for inflation and conversion into U.S.
dollars................................. 1,852
Deferred income tax..................... US$ (62)
Benefits under employee retirement
plan.................................. (51)
Effect on depreciation of the increased
value of property and equipment....... 657
Vacation accrual........................ (768)
---------
APPROXIMATE NET INCOME IN ACCORDANCE
WITH U.S. GAAP........................ US$ 10,658

Approximate net income from discontinued
operations in accordance with U.S.
GAAP.................................. (2,100)
---------
Approximate net income from continuing
operations in accordance with U.S.
GAAP.................................. 8,558
=========
NET EARNINGS PER SHARE:
Amounts based on accompanying financial
statements............................ Ps. 0.64
Approximate amounts under U.S. GAAP..... US$ 0.82
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS:
Amounts based on accompanying financial
statements............................ Ps. 0.48
Approximate amounts under U.S. GAAP..... US$ 0.66

Common shares considered for the purpose of calculating income per share
were 13,051,613 shares.

F-62

QUITRAL-CO S.A.I.C. AND SUBSIDIARY
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1995
-----------------

Shareholders' equity in accordance with
Argentine GAAP........................ Ps. 125,424
Less: noncurrent investments dividended
to the former shareholders............ (32,893)
----------
Shareholders' equity excluding
noncurrent investments dividended..... Ps. 92,531
U.S. GAAP ADJUSTMENTS
Increase (decrease) due to:
Effects of eliminating the
restatement for inflation and
translation into U.S. dollars..... (4,876)
Property and equipment............. US$ (6,342)
Deferred income tax................ 291
Benefits under employee retirement
plan.............................. (2,511)
Vacation accrual................... (2,850)
----------
APPROXIMATE SHAREHOLDERS' EQUITY IN
ACCORDANCE WITH U.S. GAAP............. US$ 76,243(1)
==========

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

(1) Includes US$8,000 in cash dividends, collected during the period from
investments dividended to former shareholders.

I) OTHER SIGNIFICANT U.S. GAAP DISCLOSURE REQUIREMENTS

1) The following table presents the components of Quitral-Co's deferred
income tax balances as of the end of the period:

1995
----------------

DEFERRED TAX ASSETS
Tax loss carryforwards in
Quitral-Co de Venezuela........... US$ 998
Valuation allowance................ (998)
Vacation accrual................... 855
Benefits under employee retirement
plan.............................. 738
---------
1,593
---------
DEFERRED TAX LIABILITIES
Difference between tax and
accounting property and equipment
depreciation...................... (1,302)
---------
Net deferred tax asset............. US$ 291
=========

The reconciliation of pre-tax income at the statutory rate, to the income
tax presented in the financial statements for the six months ended December 31,
1995, computed in accordance with US GAAP, is as follows:

1995
----------------

Approximate pre-tax income in
accordance with US GAAP........... US$ 13,917
Statutory tax rate................. 30%
---------
Statutory tax rate applied to
pre-tax income.................... 4,175
Permanent differences:
Book vs. tax basis difference of
Quitral-Co's investment in
Quitral-Co de Venezuela........... US$ (2,863)
Non deductible depreciation........ 997
Other, not individually
significant....................... 311
---------
US$ 2,620
=========

2) Disclosures about fair value of financial investments:

F-63

Quitral-Co diesel-electric drilling
rig with 15,000 1/4 depth capacity,
acquired in April 1996, operating in
Argentina.

Diesel-electric platform rig working from barge location in inland
waters of Louisiana.

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY 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. 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 ITS DATE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE COMMON
STOCK 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.

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

TABLE OF CONTENTS

PAGE
----

Prospectus Summary............................. 3
Risk Factors................................... 7
Price Range of the Common Stock and Dividend
Policy....................................... 10
Use of Proceeds................................ 11
Capitalization................................. 12
uNAUDITED Pro Forma Financial Statements....... 13
Selected Historical Financial Data............. 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 29
Management..................................... 40
Security Ownership of Management and Certain
Beneficial Owners............................ 42
Description of Capital Stock................... 43
Underwriting................................... 46
Legal Matters.................................. 47
Independant Public Accountants................. 47
Available Information.......................... 48
Incorporation of Certain Documents by
Reference.................................... 48
Index to Financial Statements.................. F-1

5,000,000 SHARES

[PRIDE LOGO]
COMMON STOCK
(NO PAR VALUE)

SALOMON BROTHERS INC

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

ROBERT W. BAIRD & CO.
INCORPORATED

MORGAN KEEGAN & COMPANY, INC.

PROSPECTUS

DATED , 1996

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

All expenses in connection with the offering described in this Registration
Statement will be paid by the Company. The estimated expenses are as follows:

Securities and Exchange Commission
registration fee................... $ 34,327

Printing expenses.................... *
Accounting fees and expense.......... *
Legal fees and expenses.............. *
Blue Sky fees and expenses........... *
Transfer Agent fees.................. *
NASD fees............................ *
NASDAQ National Market System fees... *
Miscellaneous........................ *
-----------
Total........................... $ *
===========

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

* To be provided by amendment

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 83 of the Business Corporation Law of the State of Louisiana gives
corporations the power to indemnify officers and directors under certain
circumstances. Article IX of the Company's Restated Articles of Incorporation
and Section 13 of the Company's Bylaws contain provisions that provide for
indemnification of certain persons (including officers and directors).

ITEM 16. EXHIBITS

EXHIBIT NO. DOCUMENT
- ------------------------ ------------------------------------------------------

**1 -- Form of Underwriting Agreement.
*4.1 -- Restated Articles of Incorporation of the Company
(Form S-1, Registration No. 33-33233, Exhibit 3(a)).
*4.2 -- Amendment to Restated Articles of Incorporation
(Form S-3, Registration No. 33-76310, Exhibit 4.2).
*4.3 -- Bylaws of the Company (Form S-1, Registration No.
33-33233, Exhibit 3(b)).
4.4 -- Loan Agreement dated as of April 30, 1996 among The
CIT Group/Equipment Financing, Inc., as agent, The CIT
Group/Equipment Financing, Inc. and The Frost National
Bank, as borrowers, and the Company, Pride Petroleum
Services of California, Inc. and Pride Petroleum
Services of Louisiana, Inc.
4.5 -- Loan Agreement dated as of April 30, 1996 among Heller
Financial Inc., the Company, Pride Petroleum Services
of California, Inc. and Pride Petroleum Services of
Louisiana, Inc.
**5.1 -- Opinion of Baker & Botts, L.L.P.
**5.2 -- Opinion of McGlinchey Stafford Lang.
*10 -- Stock Purchase Agreement dated April 20, 1996 among
the Company, Perez Companc S.A., Astra C.A.P.S.A., et
al. (Form 8-K filed May 15, 1996, Exhibit 2)
15.1 -- Awareness Letter of Coopers & Lybrand, L.L.P.
23.1 -- Consent of Coopers & Lybrand, L.L.P.
23.2 -- Consent of Johnson, Miller & Co.
23.3 -- Consent of Pistrelli, Diaz y Asociados.
**23.4 -- Consent of Baker & Botts, L.L.P. (contained in Exhibit
5.1).
**23.5 -- Consent of McGlinchey Stafford Lang (contained in
Exhibit 5.2).
24 -- Powers of Attorney (included on the signature page of
the Registration Statement).

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

* Incorporated by reference as indicated.

** To be filed by amendment.

II-1

ITEM 17. UNDERTAKINGS

The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

The Company hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;

PROVIDED, HOWEVER, that paragraphs (i) and (ii) above do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Company
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the Registration
Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

The Company hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 15 above, or otherwise,
the Company has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless, in the opinion of its counsel, the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-2

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF HOUSTON, THE STATE OF TEXAS, ON JUNE 3, 1996.

PRIDE PETROLEUM SERVICES, INC.
By: /s/ RAY H. TOLSON
RAY H. TOLSON,
CHAIRMAN OF THE BOARD, PRESIDENT
AND
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

Each person whose signature appears below appoints Ray H. Tolson, Paul A.
Bragg and Robert W. Randall, and each of them, each of whom may act without the
joinder of the others, as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any registration
statement for the same offering filed pursuant to Rule 462 under the Securities
Act of 1933, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully and for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their
substitutes, may lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JUNE 3, 1996.

SIGNATURE TITLE
- -------------------------------- ----------------------------------------

/s/RAY H. TOLSON Chairman of the Board, President and
RAY H. TOLSON Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)

/s/PAUL A. BRAGG Vice President, Chief Financial Officer
PAUL A. BRAGG and Treasurer
(PRINCIPAL FINANCIAL OFFICER)

/s/EARL W. McNEILL Chief Accounting Officer
EARL W. MCNIEL
(PRINCIPAL ACCOUNTING OFFICER)

/s/JAMES B. CLEMENT Director
JAMES B. CLEMENT

/s/JORGE E. ESTRADA M. Director
JORGE E. ESTRADA M.

/s/RALPH D. McBRIDE Director
RALPH D. MCBRIDE

/s/THOMAS H. ROBERTS, JR. Director
THOMAS H. ROBERTS, JR.

_______________________ Director
JAMES T. SNEED

II-3

Exhibit 4.4

LOAN AGREEMENT

AMONG

THE CIT GROUP/EQUIPMENT FINANCING, INC., AS AGENT,

THE CIT GROUP/EQUIPMENT FINANCING, INC.,

AND

THE FROST NATIONAL BANK, AS LENDERS,

PRIDE PETROLEUM SERVICES, INC., PRIDE PETROLEUM
SERVICES OF LOUISIANA, INC. AND PRIDE PETROLEUM
SERVICES OF CALIFORNIA, INC., AS BORROWERS

DATED AS OF APRIL 30, 1996

TABLE OF CONTENTS

ARTICLE I.......................................................... 5

The Loan........................................................... 5
Section 1.01 AMOUNT....................................... 5
Section 1.02 MANNER OF DRAWDOWN........................... 5
Section 1.03 REPAYMENT.................................... 6
Section 1.04 INTEREST..................................... 6
Section 1.05 PAYMENTS..................................... 8
Section 1.06 PREPAYMENT................................... 9
Section 1.07 SECURITY..................................... 11
Section 1.08 COMMITMENT FEE............................... 11

ARTICLE II......................................................... 11

Conditions Precedent............................................... 11
Section 2.01 CONDITIONS PRECEDENT......................... 11
Section 2.02 WAIVER OF CONDITIONS PRECEDENT............... 13

ARTICLE III........................................................ 13

Representations, Warranties and Covenants.......................... 13
Section 3.01 REPRESENTATIONS OF THE BORROWERS............. 13
Section 3.02 COVENANTS OF THE BORROWERS................... 16

ARTICLE IV......................................................... 22

Events of Default.................................................. 22

ARTICLE V.......................................................... 24

Agent and Lenders.................................................. 24
Section 5.01 OBLIGATIONS SEVERAL.......................... 24
Section 5.02 APPOINTMENT AND DUTIES OF AGENT.............. 24
Section 5.03 DISCRETION AND LIABILITY OF AGENT............ 25
Section 5.04 EVENT OF DEFAULT............................. 25
Section 5.05 CONSULTATION................................. 25
Section 5.06 COMMUNICATIONS TO AND FROM AGENT............. 26
Section 5.07 LIMITATIONS OF AGENCY........................ 26
Section 5.08 NO REPRESENTATIONS OR WARRANTY............... 26
Section 5.09 LENDER CREDIT DECISION....................... 26

(i)

Section 5.10 INDEMNITY.................................... 27
Section 5.11 RESIGNATION.................................. 27
Section 5.12 DISTRIBUTION................................. 27

ARTICLE VI......................................................... 27

Miscellaneous...................................................... 27
Section 6.01 NOTICES...................................... 27
Section 6.02 AGENT FOR BORROWERS.......................... 29
Section 6.03 NO WAIVER.................................... 29
Section 6.04 APPLICABLE LAW AND JURISDICTION.............. 29
Section 6.05 SEVERABILITY................................. 30
Section 6.06 AMENDMENT.................................... 30
Section 6.07 ASSIGNMENT AND PARTICIPATION................. 30
Section 6.08 COSTS, EXPENSES AND TAXES.................... 30
Section 6.09 MINIMUM VALUE, EVALUATION AND
ADDITIONAL SECURITY..................................... 31
Section 6.10 COUNTERPARTS................................. 32
Section 6.11 SECTION HEADINGS............................. 32
Section 6.12 ENTIRE AGREEMENT............................. 32

Schedule 1 LENDER COMMITMENTS............................... 35
------------------

Schedule 2 DESCRIPTION OF RIGS.............................. 36
-------------------

Exhibit A PROMISSORY NOTE..................................A-1

Exhibit B SECURITY AGREEMENT .............................B-1

Exhibit C NOTICE OF DRAWING ...............................C-1

Exhibit D UTILIZATION REPORT ..............................D-1

(ii)

THIS LOAN AGREEMENT dated as of April 30, 1996 among PRIDE PETROLEUM
SERVICES, INC., a Louisiana corporation ("PPSI"), PRIDE PETROLEUM SERVICES OF
LOUISIANA, INC., a Texas corporation ("PPSL"), PRIDE PETROLEUM SERVICES OF
CALIFORNIA, INC. ("PPSC"), a Texas corporation (individually, a "Borrower" and
collectively, the "Borrowers"), THE CIT GROUP/EQUIPMENT FINANCING, INC., a New
York corporation, as Agent for the Lenders named herein (the "Agent"), THE CIT
GROUP/EQUIPMENT FINANCING, INC., a New York corporation (with its successors and
assigns "CIT") and THE FROST NATIONAL BANK, a national banking association (with
its successors and assigns "Frost") (CIT and Frost, collectively the "Lenders").
Capitalized terms used herein and not otherwise defined herein are used with the
meanings ascribed thereto in the Definitions Section of this Agreement.

R E C I T A L S:

1. The Borrowers are the owners of the land workover rigs described in
Schedule 2 attached hereto (each a "Rig" and collectively, the "Rigs").

2. The Borrowers have requested a loan from the Lenders in the
principal amount of up to Thirty-five Million United States Dollars (USD
35,000,000) (as more specifically described in Section 1.01 hereof, the "Loan")
in order to (i) partially fund the acquisition by PPSI of Quitral-Co. S.A.I.C.
and (ii) refinance all amounts outstanding under the Loan and Security Agreement
dated as of May 5, 1995 between PPSI and The CIT Group/Equipment Financing, Inc.
(the "1995 Loan Agreement"), all upon the terms and conditions contained herein
and in the Notes.

3. The Loan shall be evidenced by the secured promissory notes made by
the Borrowers to the Lenders (the "Notes") substantially in the form of Exhibit
A annexed hereto and made a part hereof.

4. In order to secure their obligations hereunder and under the Notes,
the Borrowers have agreed to grant to the Agent a first priority security
interest in all of their right, title and interest in the Rigs.

NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:

DEFINITIONS

The following terms shall have the following meanings for all purposes
of this Agreement and shall be equally applicable to both the singular and the
plural forms of the terms herein defined.

"Agreement", "this Agreement", "herein", "hereunder" or other like
words mean this Loan Agreement as originally executed or as modified, amended or
supplemented from time to time pursuant to the provisions hereof.

"Business Day" means a day other than a Saturday or a Sunday or a day
on which commercial banks are authorized to be closed in the State of New York
or the State of Texas.

"Cash Flow Coverage Ratio" means (i) the sum of PPSI's consolidated net
income plus depreciation and amortization, less dividends paid and extraordinary
items of income and loss (as determined in accordance with generally accepted
United States accounting principles) divided by (ii) the sum of the current
portion of long term debt and capitalized lease obligations as of the last day
of the fiscal quarter ending on such date. At the time of the first instance in
which the Cash Flow Coverage Ratio is measured the determination of (i) above
shall only be with reference to the six month period commencing April 1, 1996
and ending September 30, 1996 on an annualized basis. Further, at the time of
the second instance in which the Cash Flow Coverage Ratio is measured, the
determination of (i) above shall only with reference to the nine month period
commencing April 1, 1996 and ending December 31, 1996 on an annualized basis.
Thereafter, the determination of (i) above shall be with reference to the
preceding four fiscal quarters.

"CIT Treasury Rate" means the interpolated rate per annum for a U.S.
Treasury security with a maturity equal to the average life of the remaining
term of the Loan at the time the Borrowers elect to use the Fixed Rate. The CIT
Treasury Rate will be determined at the close of business on the third Business
Day after the Borrowers elect to use the Fixed Rate based on the yields to
maturity for U.S. Treasury securities reported on page 5 ("U.S. Treasury and
Money Markets") of the information ordinarily provided by Telerate Systems
Incorporated.

"Closing Date" has the meaning set forth in Section 1.02(b) of this
Agreement.

"Collateral Value" has the meaning set forth in Section 1.06(a)(ii).

"Commitments" means a maximum of USD 35,000,000 and "Commitment" means
each Lender's portion of the Commitments as indicated on Schedule 1 to this
Agreement.

"Dollars" or "USD" means lawful currency of the United States of
America.

"Event of Default" has the meaning set forth in Article IV of this
Agreement.

"Excluded Income Taxes" has the meaning set forth in Section 1.05(a) of
this Agreement.

"Fair Market Value" has the meaning set forth in Section 1.06(a)(iii)
of this Agreement.

"Fixed Rate" means as to CIT the lesser of (i) the Maximum Rate or (ii)
the CIT Treasury Rate plus 2.75% and as to Frost the lesser of (i) the Maximum
Rate or (ii) the Frost Treasury Rate plus 2.75%.

"Floating Rate" means the lesser of (i) the Maximum Rate or (ii) the
Prime Rate plus .50% as adjusted monthly.

"Frost Treasury Rate" means the interpolated rate per annum for a U.S.
Treasury security with a maturity equal to the average life of the remaining
term of the Loan at the time the Borrowers elect to use the Fixed Rate. The
Frost Treasury Rate will be determined at 10:00 a.m. Houston time one (1)
Business Day after the Borrower's elect to use the Fixed Rate based on the
yields to maturity for U.S. Treasury securities reported on the USD screen on
Bloomberg Financial Markets System.

"Governmental Agencies" means any government or any state, department
or other political subdivision thereof or governmental body, agency, authority,
department or commission having jurisdiction over the Borrowers or their
properties (including without limitation any court or tribunal) exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and any corporation, partnership or other entity
directly or indirectly owned by the foregoing.

"Hazardous Substances" means petroleum and used oil, or any other
pollutant or contaminant, hazardous, dangerous or toxic waste, substance or
material as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. Sec. 9601, ET SEQ. (hereinafter
called "CERCLA"); the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Sec. 6901, ET SEQ. (hereinafter called "RCRA"); the Toxic Substances
Control Act, as amended, 15 U.S.C. Sec. 2601, ET SEQ. (hereinafter called
"TSCA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Sec.
1801, ET SEQ. (hereinafter called "HMTA"); the Oil Pollution Act of 1990, Pub.L.
No. 101-380, 104 Stat. 484 (1990) (hereinafter called "OPA"); or any other
statute, law, ordinance, code or regulation of any Governmental Agency relating
to or imposing liability or standards of conduct concerning the use, production,
generation, treatment, storage, recycling, handling, transportation, release,
threatened release or disposal of any hazardous, dangerous or toxic waste,
substance or material, currently in effect or at any time hereafter adopted.

"Interest Period" means each respective and successive monthly period
commencing on the Closing Date or the Payment Date in respect of the immediately
preceding Interest Period as the case may be, provided, however, that no
Interest Period shall commence on, or extend past, the Maturity Date.

"Interest Rate" has the meaning set forth in Section 1.04(b) of this
Agreement.

"Limited Recourse Debt" means (a) the MNS Venezuela Lake Maracaibo
Barge Financings; or (b) any other liability of the Borrowers approved by the
Lenders for classification

as Limited Recourse Debt. The Lenders agree that they will promptly review any
proposed financing submitted by the Borrowers for purposes of classifying such
proposed financing as Limited Recourse Debt. The approval of the Lenders shall
not be unreasonably withheld if such proposed financing is substantially similar
to the MNS Venezuela Lake Maracaibo Barge Financings.

"Loan" has the meaning set forth in Section 1.01 of this Agreement.

"Loan Documents" means the Notes, this Loan Agreement and the Security
Agreement and any other documents required by them.

"Material Adverse Effect" means to affect in a material manner the
financial condition, operations or business of the Borrowers, taken as a whole.

"Maturity Date" means April 30, 2002.

"Maximum Rate" means the maximum rate of nonusurious interest permitted
from day to day by applicable law, including as to Article 5069-1.04, Vernon's
Texas Civil Statutes (and as the same may be incorporated by reference in other
Texas statutes), but otherwise without limitation, that rate based upon the
"indicated rate ceiling" and calculated after taking into account any and all
relevant fees, payments, and other charges in respect of the Loan which are
deemed to be interest under applicable law.

"MNS Venezuelan Lake Maracaibo Barge Financings" shall mean the
financings by Perforaciones Western, C.A., a wholly-owned subsidiary of PPSI, of
the drill barges PRIDE I and PRIDE II, evidenced by the contracts dated November
30, 1994 and December 27, 1994, respectively.

"Notes" has the meaning set forth in paragraph 3 of the Recitals of
this Agreement.

"Notice of Drawing" means the notice of drawing given by the Borrowers
pursuant to Section 1.02 substantially in the form of Exhibit C attached hereto.

"Payment Date" means the last day of each month.

"Prime Rate" means with respect to any Interest Period, the rate
publicly announced in New York, New York from time to time as the prime rate of
The Chase Manhattan Bank, N.A. (or any successor thereof) ("Chase Bank"). The
Prime Rate shall be determined by the Lenders at the close of business on the
last day of each month. The Prime Rate is not intended to be the lowest rate of
interest charged by Chase Bank in connection with extensions of credit to any
debtor.

"Responsible Officer" means, as to the Borrowers, PPSI's chief
executive officer, chief financial officer or any other officer having principal
responsibility for the financial affairs of such company.

"Security Agreement" means the agreement between the Agent and the
Borrowers creating a security interest in favor of the Agent in the Rigs and
related equipment substantially in the form of Exhibit B hereto.

"Special Maracaibo Financings" means financings incurred by the
Borrowers after the date of this Agreement which do not, in the aggregate,
exceed USD 20,000,000.00 which are similar to the MNS Lake Maracaibo Barge
financings and which are not classified by the Lenders as Limited Recourse Debt.

"Tangible Net Worth" means, at a particular date, the sum of PPSI's
consolidated shareholders' equity as defined by generally accepted United States
accounting principles plus convertible subordinated debt less the amount of
intangible assets and any obligations due from employees, shareholders or
affiliates.

"Taxes" has the meaning set forth in Section 1.05(a) of this Agreement.

"Total Liabilities" means indebtedness of the Borrowers which would in
accordance with generally accepted United States accounting principles be
classified as current and long term liabilities of a corporation conducting a
business the same as or similar to the Borrowers; provided however, that all
deferred charges shall be taken into account but Limited Recourse Debt, Special
Maracaibo Financings and convertible subordinated debt shall be excluded.

"Total Loss" has the meaning set forth in Section 1.06(a) of this
Agreement.

ARTICLE I

The Loan

Section 1.01 AMOUNT. Subject to the terms and conditions of Section
2.01 of this Agreement, the Lenders agree to make the Loan to the Borrowers in
an aggregate principal amount equal to the lesser of (1) 70% of the Collateral
Value determined in accordance with Section 1.06(a)(ii) and as substantiated by
the appraisal to be delivered to the Agent pursuant to Section 2.01(j) hereof
and (2) USD 35,000,000 (the "Loan"). Each of the Borrowers shall be jointly and
severally liable for repayment of the Loan, all interest thereon and all costs,
fees and expenses due and payable under this Agreement and the Notes.

Section 1.02 MANNER OF DRAWDOWN.

(a) Each Lender agrees to make its share of the Loan to the Borrowers
on any Business Day in an aggregate amount not to exceed the amount of the Loan
available to the Borrowers referred to in Section 1.01 hereof.

(b) The Borrowers shall make a request for the Loan by sending to the
Agent a written Notice of Drawing not later than 11:00 a.m., Houston Time, one
(1) Business Day prior to the date the Loan is requested setting forth the date
the Loan is requested, the amount of the requested Loan, and the bank account or
accounts to which the Loan is to be remitted. The Notice of Drawing shall be
received by the Agent no later than one (1) Business Day immediately preceding
the Closing Date. The Notice of Drawing shall be irrevocable. As used in this
Agreement, the term "Closing Date" shall mean any Business Day occurring on or
prior to June 30, 1996 which shall be the day on which the Loan is made as
designated by the Borrowers in their Notice of Drawing.

Section 1.03 REPAYMENT.

(a) The Borrowers shall repay the principal amount of the Notes in
seventy-two (72) consecutive equal monthly payments of USD 486,111.11 each
divided between the Notes pursuant to the percentages referred to in Schedule 1
attached hereto, each such installment to be paid by the Borrowers to the
Lenders on a Payment Date commencing May 31, 1996 and ending on the Maturity
Date, PROVIDED, HOWEVER, that the final installment shall be sufficient to pay
all accrued and unpaid interest, unpaid principal and unpaid premium,
outstanding under this Agreement and the Notes.

(b) The Loan shall be evidenced by and repayable in accordance with the
terms hereof and of the Notes.

Section 1.04 INTEREST.

(a) The Borrowers shall pay interest, in arrears, on the unpaid
principal amount of the Loan from the Closing Date until the principal amount of
the Loan is paid in full on each Payment Date at a rate of interest per annum
(computed on the basis of a 365-day year and actual days elapsed) at the
Floating Rate or the Fixed Rate, as provided below, PROVIDED, HOWEVER, that all
interest accrued on the Loan and unpaid on the Maturity Date shall be paid on
the Maturity Date.

(b) The Borrowers may elect to pay interest on the Loan at either the
Floating Rate or the Fixed Rate on the following terms:

(i) If no election is received by the Agent, the Borrowers shall pay
interest on the Loan at the Floating Rate.

(ii) Any election by the Borrowers to pay interest at the
Fixed Rate must be made by written notice, in the case of CIT three (3)
Business Days in advance, and in the case of Frost, by 11:00 a.m.
Houston time, one (1) Business Day in advance.

(iii) Any election by the Borrowers to pay interest at the
Fixed Rate shall be irrevocable and shall be effective for the
remaining term of the Loan.

(iv) The Fixed Rate shall be evidenced by letter agreement
sent by the Lender to the Borrowers within three (3) Business Days
after the Borrowers' notice to such Lender of its election to pay
interest at the Fixed Rate.

(c) Any amount of principal or any other amount due hereunder which is
not paid when due, whether at stated maturity, by acceleration or otherwise,
shall bear interest from the date when due until such amount is paid in full,
payable on demand, at a rate per annum equal at all times to two percent (2%)
above the Fixed Rate or the Floating Rate, whichever is then in effect.

(d) In no event shall any interest rate provided for in this Agreement
or the Notes exceed the Maximum Rate. It is the intention of the parties hereto
to strictly comply with applicable usury laws; accordingly, it is agreed that,
notwithstanding any provision to the contrary in this Agreement, in the Notes,
or in the other Loan Documents, in no event shall this Agreement, the Notes, or
the other Loan Documents be construed to charge, contract for or require the
payment or permit the collection of interest in excess of the Maximum Rate. If
any such excess interest is contracted for, charged or received under this
Agreement, the Notes or the other Loan Documents, or in the event that all of
the principal balance shall be prepaid, so that under any of such circumstances
the amount of interest contracted for, charged or received on the principal
balance shall exceed the Maximum Rate, then in such event (i) the provisions of
this Section 1.04(d) shall govern and control, (ii) neither the Borrowers nor
any other person or entity now or hereafter liable for the payment thereof shall
be obligated to pay the amount of such interest to the extent that it is in
excess of the Maximum Rate, (iii) any such excess which may have been collected
shall be either applied as a credit against the then unpaid principal balance or
refunded to the Borrowers, at the option of the Lenders, and (iv) the effective
rate or interest shall be automatically reduced to the Maximum Rate. It is
further agreed that without limitation of the foregoing, all calculations of the
rate of interest contracted for, charged or received under this Agreement, the
Notes and the other Loan Documents which are made for the purpose of determining
whether such rate exceeds the Maximum Rate, shall be made, to the extent
permitted by applicable law, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the indebtedness
evidenced hereby, all interest at any time contracted for, charged or received
from the Borrowers or otherwise by the Lenders in connection with such
indebtedness; PROVIDED, HOWEVER, that if any applicable state law is amended or
the law of the United States of America preempts any applicable state law, so
that it becomes lawful for the Lenders to receive a greater simple interest per
annum rate than is presently allowed, the Borrowers agree that, on the effective
date of such amendment or preemption as the case may

be, the Maximum Rate shall be increased to the maximum simple interest per annum
rate allowed by the higher of the amended state law or the law of the United
States of America.

Section 1.05 PAYMENTS.

(a) The payment obligations of the Borrowers under the Notes and all
other amounts payable under this Agreement to the Lenders shall be paid to the
Lenders at the addresses set forth for the Lenders in Section 6.01 of this
Agreement or at such other place as the Lenders may designate (not less than
three (3) Business Days prior to the due date therefor), not later than the
close of business on the due date thereof, in lawful money of the United States.
All payments shall be made (i) without set-off, counterclaim or condition and
(ii) free and clear of, and without deduction for or on account of, any present
or future taxes, levies, duties, imposts, charges, fees, deductions or
withholdings of any nature ("Taxes"), unless the Borrowers are required by law
or regulation to make payment subject to any Taxes. In the event that the
Borrowers are required by law or regulation to make any deduction or withholding
on account of any Taxes from any payment due under this Agreement, then: (x) the
Borrowers shall notify the Lenders promptly as soon as they become aware of such
requirement and shall remit promptly the amount of such Taxes to the appropriate
taxation authority, and in any event prior to the date on which penalties attach
thereto; and (y) such payment shall be increased by such amount as may be
necessary to ensure that the Lenders receive a net amount, free and clear of all
Taxes, equal to the full amount which the Lenders would have received had such
payment not been subject to such Taxes (other than Excluded Income Taxes as such
term is defined below). Notwithstanding the foregoing, the Borrowers shall not
be liable for, or required to pay, any Taxes which are overall income or
franchise taxes imposed at any time on either Lender in the United States of
America or any state or local government or taxing authority in any state in
which the Lender conducts business ("Excluded Income Taxes"). Each such payment
or reimbursement by the Borrowers shall be net of any credit or the value of any
deduction received by the Lenders thereon to the extent that the same can be
determined by the Lenders (as certified by the effected Lender to the Borrowers,
such certificate to be conclusive absent manifest error). The Borrowers shall
indemnify the Lenders against any liability of the Lenders in respect of such
Taxes and shall supply copies of applicable tax receipts.

(b) If any payment to be made by the Borrowers shall become due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day.

(c) Each payment to be made on a Payment Date and all prepayments and
other payments shall be applied first to the payment of accrued and unpaid
interest on the Notes, then to the payment of all other amounts due under this
Agreement and the other Loan Document, and the balance shall be applied to the
payment of principal due under the Notes.

(d) The Borrowers shall indemnify the Agent and the Lenders on demand
against all costs, expenses, liabilities and losses (including funding losses
but excluding loss of profit) sustained or incurred by the Agent and the Lenders
as a result of or in connection with: (a) the occurrence and/or continuance of
any Event of Default (or event which, with the giving of notice

and/or lapse of time or other applicable condition might constitute an Event of
Default); and/or (b) any judgment or order which relates to any sum due
hereunder being expressed in a currency other than the currency expressed to be
due hereunder and as a result of a variation in rates of exchange between the
rate at which such amount is converted into such other currency for the purposes
of such judgment or order and the rate prevailing on the date of actual payment
of such amount pursuant thereto; and/or (c) any postponement of the Closing Date
occurring after the Notice of Drawing is received by the Agent because of one or
more of the conditions precedent set forth in Article II shall not have been
satisfied or waived; and/or (d) any payment of principal of or interest on the
Notes made on a date which is not a Payment Date. The above indemnities are
separate and independent obligations of the Borrowers and apply irrespective of
any indulgence granted by the Agent or the Lenders.

Section 1.06 PREPAYMENT.

(a) MANDATORY PREPAYMENT.

(i) TOTAL LOSS. If there shall have occurred a Total Loss as
herein defined, on the earlier of (x) three (3) Business Days after the
insurance proceeds are received by the owner of the lost Rig or Rigs or
(y) seventy five (75) days after the date of occurrence of the Total
Loss, unless the Borrowers shall have replaced the lost Rig with a Rig
of equal or greater Fair Market Value during such period, the Borrowers
shall (A) prepay the outstanding principal balance under the Notes in
an amount equal to the outstanding principal amount of the Loan on the
date of prepayment (without counting any amount being prepaid on such
date), multiplied by a fraction, the numerator of which is Fair Market
Value of the lost Rig as determined under Section 1.06(a)(iii) and the
denominator of which is the Collateral Value most recently determined
under Section 1.06(a)(ii) (including the lost Rig), and (B) pay accrued
interest thereon to the date of such prepayment together with any other
amount due hereunder or under any Loan Document. The Lenders shall
apply payments received pursuant to this Section 1.06(a)(i) in
accordance with Section 1.05(c) hereof except that all prepayments
shall be applied to remaining installments of the Loan in inverse order
of maturity. No prepayment premium shall be payable with respect to any
Mandatory Prepayments made by the Borrowers pursuant to this Section
1.06(a)(i). "Total Loss" means in respect of a Rig (i) actual or
constructive or compromised total loss of such Rig; or (ii) requisition
for title or other compulsory acquisition of such Rig otherwise than by
reduction for rental; or (iii) seizure, attachment, detention or
confiscation of such Rig by any government or by persons acting or
purporting to act on behalf of any government unless such Rig is
released from such seizure, attachment, detention or confiscation
within thirty (30) days of the occurrence thereof. A Total Loss shall
be deemed to have occurred (a) in the event of an actual total loss of
a Rig, on the date of such loss, (b) in the event of damage to a Rig
which results in a constructive or compromised total loss of such Rig,
on the date of the occurrence of the event giving rise to such damage,
or (c) in the case of any event referred to in clauses (ii) or (iii)
above, on the date of the occurrence of such event. In the event of any
Total Loss or requisition of a Rig, the Borrowers shall give written or
telefax notice to the

Agent not later than ten (10) days after a Responsible Officer of the
Borrowers has actual knowledge of such occurrence.

(ii) COLLATERAL VALUE. On or before the Closing Date and as
provided in Section 6.09 below, the Lenders shall arrange to have the
Fair Market Value of each of the Rigs determined at the Borrowers'
expense by an independent drilling rig brokering firm or asset
appraisal firm selected by the Agent. Each such valuation shall be
based on the Fair Market Value of each Rig. The aggregate of the most
recent valuations of all Rigs is hereinafter referred to as the
"Collateral Value".

(iii) FAIR MARKET VALUE. The "Fair Market Value" of any Rig
shall be the value determined by the independent drilling rig brokering
firm or asset appraisal firm chosen by the Agent in accordance with
clause (ii) above on the basis of an arm's-length purchase by a willing
buyer from a willing seller and without consideration of any drilling
contract, or other rig employment contract. The drilling rig brokering
firm's or asset appraisal firm's valuation shall be made without
physical inspection, unless otherwise required by the Agent.

(b) VOLUNTARY PREPAYMENT WHEN FLOATING RATE IS IN EFFECT. When the
Floating Rate is in effect, the Borrowers may prepay, in full or in part in
amounts of not less than USD 500,000, their indebtedness under the Notes on any
Payment Date following the eighteenth (18th) Payment Date by giving the Agent
irrevocable written notice at least thirty (30) days prior to such prepayment.
Prepayments under this Section 1.06(b) prior to the third anniversary of the
Closing Date shall be subject to a premium in an amount equal to one percent
(1%) of the aggregate principal amount prepaid.

(c) VOLUNTARY PREPAYMENT WHEN FIXED RATE IS IN EFFECT. When the Fixed
Rate is in effect, the Borrowers may prepay in full or in part in amounts of not
less than USD 500,000 amounts outstanding under the Loan on any Payment Date
following the thirty-sixth (36th) Payment Date by giving the Agent irrevocable
written notice thirty (30) Business Days prior to such prepayment. Prepayments
under this Section 1.06(c) shall be subject to a premium in an amount equal to
three percent (3%) of the aggregate amount prepaid on the thirty-seventh (37th)
Payment Date and declining monthly on a straight line basis for the remainder of
the term of the Loan.

(d) APPLICATION OF PREPAYMENTS. The Lenders shall apply payments
received pursuant to Section 1.06(b) and Section 1.06(c) in accordance with
Section 1.05(c) hereof except that all prepayments shall be applied to remaining
installments of the Loan in inverse order of maturity.

(e) PRO RATA APPLICATION. All payments received pursuant to this
Section 1.06 shall be applied pro rata to the Notes.

Section 1.07 SECURITY. All amounts due hereunder and under the Notes
shall be secured by the Security Agreement substantially in the form of Exhibit
B attached hereto.

Section 1.08 COMMITMENT FEE. The Borrowers shall pay to the Lenders on
or before the Closing Date commitment fees as follows:

(a) USD 100,000.00 to CIT, USD 50,000.00 of which, less the costs,
expenses, liabilities and losses described in Sections 1.05(d)
and 6.08 hereof incurred by such Lender and the Agent, shall
be refunded to the Borrowers in the event the acquisition
referred to in Recital 2 of this Agreement shall not be
completed; and

(b) USD 50,000.00 to Frost, USD 25,000.00 of which, less the
costs, expenses, liabilities and losses described in Sections
1.05(d) and 6.08 hereof incurred by such Lender, shall be
refunded to the Borrowers in the event the acquisition
referred to in Recital 2 of this Agreement shall not be
completed.

Section 1.09 RELOCATION OR REMOVAL FROM SERVICE. Notwithstanding
anything else contained in this Agreement (other than the provisions of Section
6.09) or any other Loan Document, the Borrowers shall have the right, if no
Event of Default or event which with the giving of notice or the passage of time
would constitute an Event of Default shall have occurred or be continuing, upon
prior written notice to the Agent to relocate out of the United States or to
remove from service up to USD 1,500,000.00 in Fair Market Value of Rigs in any
calendar year. Such relocation or removal from service shall not be considered a
Total Loss of such Rigs under Section 1.06(a)(i) above. If requested in writing
by the Borrowers, the Agent shall execute and deliver to the Borrowers for
filing any releases or other termination documents prepared by the Borrowers
releasing such relocated or removed Rigs from the security interest created by
the Security Agreement.

ARTICLE II

Conditions Precedent

Section 2.01 CONDITIONS PRECEDENT. The Agent's and the Lenders'
execution and delivery of this Agreement and the making of the Loan by the
Lenders is subject to the following conditions having been satisfied on or prior
to the Closing Date:

(a) Each of this Agreement and the other Loan Documents shall have been
duly authorized and executed with original counterparts thereof delivered to the
Agent.

(b) The Borrowers shall have delivered to the Agent evidence of good
standing, certificates of incumbency and duly certified resolutions of their
Boards of Directors and all such other corporate documentation authorizing them
to enter into the transactions contemplated by this Agreement and the other Loan
Documents.

(c) The Lenders shall have received opinions from Bracewell &
Patterson, L.L.P., counsel to the Borrowers and an opinion of their special
counsel, Gardere Wynne Sewell & Riggs, L.L.P., each in form and substance
satisfactory to the Lenders.

(d) The representations and warranties contained in Article III of this
Agreement and in each other Loan Document shall be true in all material respects
on the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date, and no Event of Default
specified in Article IV hereof and no event which, with the lapse of time or the
notice and lapse of time specified in Article IV hereof, would become such an
Event of Default, shall have occurred and be continuing or shall have occurred
at the completion of the making of the Loan, and the Agent shall have received
satisfactory certificates signed by a Responsible Officer of the Borrowers, as
to this condition.

(e) There shall have been no material adverse change in the business,
financial condition or operations of the Borrowers since December 31, 1995.

(f) The Agent shall have received a certificate of the Borrowers signed
by an officer in charge of environmental affairs and safety as to compliance by
the Borrowers with all material environmental, safety and public health laws and
regulations applicable to the Borrowers, without limitation of the foregoing,
all other material laws and regulations affecting or relating to the Rigs, the
non-compliance with which would have a material adverse effect on the business,
properties or condition (financial or otherwise) of the Borrowers.

(g) The Borrowers shall have provided evidence of insurance maintained
by the Borrowers and approved by the Agent on the Rigs as required by Article 5
of the Security Agreement.

(h) The Security Agreement shall have been duly executed and delivered
and shall create a first priority lien on the Rigs.

(i) Financing statements or other documents necessary to perfect the
Agent's security interests under the Security Agreement in the jurisdictions of
incorporation of the Borrowers and any other relevant jurisdiction shall have
been filed and/or due provision for such filings shall have been made.

(j) The Agent shall have received a report appraising the Fair Market
Value of the Rigs prepared by M.E.L. Valuations, Inc. in form and substance
satisfactory to the Lenders.

(k) None of the Rigs shall have been the subject of a Total Loss and
none of them shall have sustained any material damage to their condition since
the date of the inspection and survey reports therefor delivered to the Agent
pursuant to Section 2.01(j), or materially decreased in value from the value
attributed thereto as set forth in the appraisal report therefor delivered to
the Agent pursuant to Section 2.01(j).

(l) The Agent shall have received evidence satisfactory to it of the
termination of the 1995 Loan Agreement, the repayment of all amounts outstanding
under the 1995 Loan Agreement and the release of all security interests created
by such agreement.

(m) The Agent shall have received such other documents and instruments
it may reasonably request, in each case in form and substance reasonably
satisfactory to it.

Section 2.02 WAIVER OF CONDITIONS PRECEDENT. All of the conditions
precedent contained in this Article II are for the sole benefit of the Lenders
and the Lenders may waive any or all of them in their absolute discretion.

ARTICLE III

Representations, Warranties and Covenants

Section 3.01 REPRESENTATIONS OF THE BORROWERS. Each Borrower represents
and warrants that:

(a) It is a corporation, duly organized and validly existing in good
standing under the laws of the state of its incorporation and has the requisite
power and authority (i) to carry on its business as presently conducted, (ii) to
enter into and perform its obligations under each Loan Document, (iii) to borrow
moneys, and (iv) to grant a security interest on the Rigs and give the security
provided in the Loan Documents.

(b) The execution, delivery and performance by such Borrower of each
Loan Document, and any other instrument or agreement provided for by this
Agreement, have been duly authorized by all necessary corporate action, do not
require stockholder approval other than such as has been duly obtained or given,
do not or will not contravene any of the terms of its articles of incorporation
or by-laws, and will not violate any provision of law or of any order of any
court or governmental agency or constitute (with or without notice or lapse of
time or both) a default under, or result (except as contemplated by this
Agreement) in the creation of any security interest, lien, charge or encumbrance
upon any of its properties or assets pursuant to, any agreement, indenture or
other material instrument to which it is a party or by which it may be bound;
this Agreement and each Loan Document to which it is a party has been duly
executed and delivered by such Borrower and constitutes its legal, valid and
binding agreement or instrument, enforceable in accordance with the respective
terms thereof subject to laws affecting creditors' rights generally and
applicable equitable principles.

(c) There are no suits or proceedings pending or to its knowledge
threatened against or affecting such Borrower could reasonably be expected to
have a material adverse effect upon its financial condition, operations or
business taken as a whole.

(d) The principal place of business of the Borrowers and the place
where all records relating to the transactions contemplated hereby, including
records relating to the operations of the Rigs, are kept is 1500 City West
Blvd., Suite 400, Houston, Texas 77042.

(e) Other than such as have been obtained, no license, consent,
approval of or filing or registration with any Governmental Agency or other
regulatory authority is required for the execution, delivery and performance of
this Agreement or any Loan Document or any instrument contemplated herein or
therein.

(f) Each Borrower is the holder of all certificates and authorizations
of governmental authorities required by law to enable it to engage in the
business transacted by it of which the failure to hold would have a Material
Adverse Effect.

(g) No part of the proceeds of the Loan will be used for any purpose
that violates the provisions of any of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System or any other regulation of such Board of
Governors. Such Borrower is not engaged in the business of extending credit to
others for the purpose of purchasing or carrying margin stock within the meaning
of Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System. If requested by the Agent, such Borrower will furnish to the Agent in
connection with the Loan hereunder a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in said Regulation U. Such
Borrower is not an "investment company" or a company "controlled" by an
"investment company" (as each of such terms is defined or used in the Investment
Company Act of 1940, as amended). No proceeds of the Loan will be used to
acquire any security in any transaction which is subject to Sections 13 and 14
of the Securities Exchange Act of 1934, as amended.

(h) The Rigs are and will be on the Closing Date: (i) owned by the
Borrower listed on Schedule 2 attached hereto, free and clear of all liens,
charges and rights of others except as provided in the Security Agreement and
liens being released on the Closing Date and (ii) in the condition indicated on
the appraisal referred to in Section 2.01(j) above.

(i) Such Borrower has filed or caused to be filed all tax returns
required by any applicable jurisdiction which are required to be filed and has
paid or caused to be paid all taxes as shown on such returns or on any
assessment received by it to the extent that such taxes have become due and
except as to such taxes being contested in good faith by appropriate proceedings
for which adequate reserves are being maintained. The Borrowers have established
reserves to the extent believed by it to be adequate for the payment of
additional taxes for years which have not been audited by the respective tax
authorities.

(j) Other than as disclosed to the Agent in writing, the Borrowers have
no subsidiaries.

(k) (i) Each Borrower has duly complied with, and the Rigs owned by it
and its other properties and operations are in compliance with, the provisions
of all applicable

environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder of all Governmental Agencies which the
failure to comply could reasonably be expected to cause a Material Adverse
Effect unless such compliance would violate the laws or regulations of the
jurisdiction in which the Rigs are operating.

(ii) As of the date of this Agreement, such Borrower has
received no notice from any Governmental Agency, and has no knowledge,
of any fact(s) which constitute a violation of any applicable
environmental, health or safety laws, codes or ordinances, and any
rules or regulations promulgated thereunder of all Governmental
Agencies, which relate to the use or ownership of the Rigs or other
properties owned or operated by such Borrower which violation could
reasonably be expected to cause a Material Adverse Effect.

(iii) Such Borrower has been issued all required permits,
licenses, certificates and approvals of all Governmental Agencies
relating to (a) air emissions, (b) discharges to surface water or
ground water, (c) noise emissions, (d) solid or liquid waste disposal,
(e) the use, generation, storage, transportation, treatment, recycling
or disposal of Hazardous Substances or (f) other environmental, health
or safety matters which are material and necessary for the ownership or
operation of the Rigs or other properties owned or operated by such
Borrower of which the failure to obtain could reasonably be expected to
cause a Material Adverse Effect and such permits, licenses,
certificates and approvals are in full force and effect on the date of
this Agreement.

(iv) To the best of such Borrower's knowledge, except in
accordance with a valid governmental permit, license, certificate or
approval, there has been no spill or unauthorized discharge or release
of any Hazardous Substance to the environment at, from, or as a result
of any operations on the Rigs or other properties and operations owned
or operated by such Borrower required to be reported to any
Governmental Agency which could reasonably be expected to cause a
Material Adverse Effect.

(v) Except as disclosed to the Agent in writing, there has
been no material complaint, compliance order, notice of citation or
other similar notice from any applicable environmental agency which
concerns the operations of the Rigs or other properties owned or
operated by such Borrower.

(l) All representations and warranties made by the Borrowers herein or
pursuant to any Loan Document or made in any certificate or written statement
delivered pursuant hereto or thereto (i) do not contain any untrue statement of
or omit to state a material fact necessary to make the statements contained
herein or therein not misleading and (ii) shall survive the making of the Loan
hereunder and the execution and delivery to the Lenders of the Notes and any
other Loan Document.

(m) None of the Rigs located in Texas (other than Rig 278), New Mexico
or Louisiana have, or are required to have, certificates of title.

Section 3.02 COVENANTS OF THE BORROWERS. After the date of execution of
this Agreement and until payment in full of the Notes and performance by the
Borrowers of their obligations under this Agreement and the other Loan
Documents, each Borrower agrees that it will:

(a) promptly inform the Agent of any event which constitutes or will
constitute, by giving of notice or lapse of time, or both, an Event of Default
or adversely affect its ability to fully perform its obligations under this
Agreement and the Loan Documents;

(b) pay and discharge, or cause to be paid and discharged, any taxes,
assessments and governmental charges or levies that may be imposed upon such
Borrower or upon its income or profits or upon any of its properties prior to
the date on which penalties attach thereto and all lawful claims which, if
unpaid, might become a lien or charge upon its properties; PROVIDED, HOWEVER,
that this provision shall not be deemed to require payment of any taxes,
assessments, governmental charges, levies or claims while such Borrower contests
the validity thereof by appropriate proceedings in good faith and so long as it
shall have set aside on its books adequate reserves with respect thereto;

(c) preserve and maintain, or cause to be preserved or maintained, (i)
its existence in good standing in the jurisdiction where it is incorporated and
in all jurisdictions where it conducts business, and (ii) all its rights,
privileges and franchises thereunder;

(d) file or cause to be filed in such offices as shall be required or
appropriate under any applicable Uniform Commercial Code of any State or any
other statute of any other jurisdiction, and in such manner and form as the
Agent may require or as may be reasonably necessary or appropriate under
applicable law, any financing statement or statements or other instruments that
may be reasonably necessary or desirable or that the Agent may request in order
to create, perfect, preserve, continue, validate or satisfy the Agent's liens on
and security interests and rights in collateral arising out of or related to
this Agreement and any Loan Document;

(e) promptly notify the Agent of any change in its name or its assumed
name, location of its registered place of business or the office where its
records are kept or any principal place of business, stated in Section 3.01(d)
hereof;

(f) promptly obtain and upon the reasonable request, deliver to the
Agent all material authorizations, approvals, consents and licenses and renewals
thereof required under any applicable law or regulation with respect to this
Agreement, the Loan Documents, and the Rigs and it shall comply with the terms
of the same;

(g) promptly notify the Agent of any suit or proceedings brought
against such Borrower or, to the knowledge of such Borrower, threatened against
or affecting it which, if adversely determined, would have a material adverse
effect upon the financial condition, operations or business of such Borrower
taken as a whole;

(h) upon the request of a Lender, give such Lender or any
representative of such Lender access during normal business hours to, and permit
such Lender or such representative to inspect, all properties belonging to such
Borrower and permit such representative to examine, copy and make extracts from
such books, records and documents in the possession of such Borrower, relating
to the affairs of such Borrower, as such representative may reasonably request;

(i) comply with and use its best efforts to cause its agents,
contractors and subcontractors (while such persons are acting within the scope
of their contractual relationship with such Borrower) to so comply with all
material, applicable environmental, health and safety laws, codes and
ordinances, and all rules and regulations promulgated thereunder of all
Governmental Agencies of which the failure to comply could reasonably be
expected to cause a Material Adverse Effect; and with the terms and conditions
of all applicable permits, licenses, certificates and approvals of all
Governmental Agencies now or hereafter granted or obtained with respect to the
Rigs or other properties owned or operated by such Borrower unless such
compliance would violate the laws or regulations of the jurisdictions in which
the Rigs are operating of which the failure to comply could reasonably be
expected to cause a Material Adverse Effect.

(i) Such Borrower will use its best efforts and safety
practices to prevent the unauthorized release, discharge, disposal,
escape or spill of Hazardous Substances on or about the Rigs or other
properties owned or operated by such Borrower.

(ii) Such Borrower shall notify the Agent, in writing, within
five (5) Business Days after any of the following events occurring
after the date of this Agreement:

(A) Any written notification made by such Borrower to
any federal, state or local environmental agency required
under any federal, state or local environmental statute,
regulation or ordinance relating to any material spill or
unauthorized discharge or release of any Hazardous Substance
to the environment at, from, or as a result of any operations
on, the Rigs or other properties and operations owned or
operated by such Borrower which could reasonably be expected
to cause a Material Adverse Effect;

(B) Knowledge by a Responsible Officer of such
Borrower of receipt of service by such Borrower of any
complaint, compliance order, compliance schedule, notice
letter, notice of violation, citation or other similar notice
or any judicial demand by any court, federal, state or local
environmental agency, alleging (i) any material spill,
unauthorized discharge or release of any Hazardous Substance
to the environment from, or as a result of the operations on,
the Rigs or other properties owned or operated by such
Borrower which could reasonably be expected to cause a
Material Adverse Effect; or (ii) violations of applicable
laws, regulations or permits regarding the generation,
storage, handling, treatment, transportation, recycling,
release or disposal of Hazardous Substances on or as a result
of operations on the Rigs or other properties and operations
owned or

operated by such Borrower which could reasonably be expected
to cause a Material Adverse Effect;

(C) It is understood by the parties hereto that the
aforementioned notices are solely for the Agent's and the
Lenders' information, may not otherwise be required by any
federal, state or local environmental laws, regulations or
ordinances, and are to be considered confidential information
by the Agent and the Lenders.

(D) The term "environmental agency" as used herein
shall include, but not be limited to, the United States
Environmental Protection Agency, the Texas Railroad
Commission, the United States Minerals Management Service, the
United States Department of Transportation (in its
administration of the Hazardous Materials Transportation Act,
49 U.S.C. Sec. 1801, ET SEQ.) and other analogous or similar
Governmental Agencies regulating or administering statutes,
regulations or ordinances relating to or imposing liability or
standards of conduct concerning the generation, storage, use,
production, transportation, handling, treatment, recycling,
release or disposal of any Hazardous Substance.

(iii) Each Borrower hereby agrees to indemnify and hold the
Agent and the Lenders harmless from and against any and all claims,
losses, liability, damages and injuries of any kind whatsoever asserted
against the Agent or the Lenders with respect to or as a direct result
of the presence, escape, seepage, spillage, release, leaking, discharge
or migration from any Rig or other properties owned or operated by the
Borrowers of any Hazardous Substance, including without limitation, any
claims asserted or arising under any applicable environmental, health
and safety laws, codes and ordinances, and all rules and regulations
promulgated thereunder of all Governmental Agencies, regardless of
whether or not caused by or within the control of the Borrowers subject
to the following:

(A) It is the parties' understanding that the Agent
and the Lenders do not now, have never and do not intend in
the future to exercise any operational control or maintenance
over the Rigs or any other properties and operations owned or
operated by the Borrowers, nor have they in the past,
presently, or intend in the future to, maintain an ownership
interest in the Rigs or any other properties owned or operated
by the Borrowers except as may arise upon enforcement of the
Agent's rights under the Security Agreement.

(B) Should, however, the Agent or the Lenders
hereafter exercise any ownership interest in or operational
control over the Rigs or any other properties owned or
operated by the Borrowers, e.g., including but not limited to,
through foreclosure, then the above stated indemnity and hold
harmless shall be limited with respect to any actions or
failures to act by the Agent and the Lenders subsequent to
exercising such interest or operational control, to the extent
such action or inaction by the Agent or the Lenders is found
by a court or

Governmental Agency with competent jurisdiction to have caused
or made worse any condition for which liability is asserted,
including but not limited to, the presence, escape, seepage,
spillage, leaking, discharge or migration on or from the Rigs
or other properties owned or operated by the Borrowers of any
Hazardous Substance.

(C) The indemnity and hold harmless contained in this
Section 3.02(i) shall not extend to the Agent or either Lender
in its capacity as an equity investor in any Borrower or as an
owner of any property or interest as to which any Borrower is
also owner but only to its capacity as a lender, a holder of
security interests, or a beneficiary of security interests.

(j) not, without the prior written consent of the Agent, (i) subject to
Section 1.09 above, sell, transfer, lend, lease or otherwise dispose of any
Rigs, the whole or, in the opinion of the Agent, any substantial part of its
business, property or other assets, whether by a single transaction or by a
series of transactions, (related or not), or (ii) commit a Rig to a contract for
a period longer than twelve months (including any committed extensions or
renewals) with an entity not an affiliate of the Borrowers if the effect of such
contract is to transfer control and operation of such Rig to an entity not
affiliated with the Borrowers.

(k) not, other than pursuant to or permitted by the Loan Documents
create, assume or permit to exist any encumbrance upon the Rigs, or any of its
property or assets described in the Security Agreement (whether now owned or
hereafter acquired);

(l) not, without the prior written consent of the Agent (which consent
shall not be unreasonably withheld) liquidate or dissolve or consolidate or
amalgamate with, or merge into, any other entity, except that the Borrowers may
be involved in a merger in which the surviving entity is PPSI;

(m) deliver to the Agent as soon as it is available but in any case
within thirty (30) days of the end of each month, a report as to the utilization
of the Rigs substantially in the form of Exhibit D attached hereto;

(n) forthwith upon demand by the Agent and at the Borrowers' sole cost
and expense, execute and provide all such assurances and do all acts and things
as the Agent or any receiver in its absolute discretion may reasonably require
for: (i) perfecting or protecting the security created (or intended to be
created) by any of the Loan Documents, including, without limitation, granting
in favor of the Agent a security interest covering the security created (or
intended to be created) by any of the Loan Documents with respect to any
obligations of the Borrowers hereafter owing to the Lenders under this Agreement
or the Notes; or (ii) preserving or protecting any of the rights of the Agent or
the Lenders under any of the Loan Documents; or (iii) facilitating the
appropriation or realization of any of the collateral assigned or granted to the
Agent under any of the Loan Documents and enforcing the security constituted by
any of the Loan Documents on

or at any time after the same shall have become enforceable; or (iv) the
exercise of any power, authority or discretion vested in the Agent or the
Lenders under any of the Loan Documents;

(o) deliver to the Agent such financial or other information relating
to the Borrowers, any of the transactions contemplated by this Agreement or any
of the Loan Documents, as may be reasonably requested by the Agent;

(p) upon the request of the Agent, give the Agent or any representative
of the Lender at any reasonable time, access to the Rigs and permit the Agent or
such representative to inspect the Rigs and any part thereof, as the Agent or
such representative may reasonably request;

(q) deliver, or shall cause to be delivered, to the Lenders at least
two copies and as many additional copies as the Lenders may reasonably require
from time to time of, (i) PPSI's audited annual consolidated financial
statements (including the balance sheet and income statement of PPSI), in a form
consistent with generally accepted United States accounting principles and
practices consistently applied, as soon as is practicable after the same have
been issued but in any case within one hundred twenty (120) days of the end of
its fiscal year certified by a firm of nationally recognized certified public
accountants or other auditors as may be acceptable to the Lenders that the
consolidated financial statements present fairly, in all material respects, the
financial position of PPSI as of the date thereof, (ii) its quarterly
consolidated financial statements (including the balance sheet and income
statement of PPSI) in a form consistent with generally accepted United States
accounting principles and practices consistently applied, as soon as is
practicable after the end of each financial quarter but in any case within
ninety (90) days of the end of its financial quarter certified by the chief
financial officer of PPSI that the consolidated financial statements present
fairly, in all material respects, the financial position of PPSI as of the date
thereof and, (iii) such financial or other information relating to it, any of
the transactions contemplated by this Agreement or any of the other Loan
Documents, as may reasonably be requested by the Agent or generally made
available to its other creditors, its shareholders or to any Governmental
Agency;

(r) maintain a consolidated Cash Flow Coverage Ratio of at least
1.5:1.0;

(s) maintain, on a consolidated basis, Tangible Net Worth of at least
USD 185,000,000.00;

(t) maintain, on a consolidated basis, a ratio of Total Liabilities to
Tangible Net Worth not greater than 1.3:1.0;

(u) maintain all permits and certificates which are material and
necessary under all applicable environmental, safety and public health laws and
regulations applicable to the Borrowers and the Rigs, and all other laws and
regulations affecting or relating to the Rigs; and

(v) deliver to the Agent, contemporaneously with the delivery to the
Agent of the annual and quarterly financial statements specified in clause (r)
above, its certificate (in form and

substance reasonably satisfactory to the Agent), signed by PPSI's chief
financial officer, (i) stating that such officer has reviewed the relevant terms
of this Agreement, the other Loan Documents and all other agreements of the
Borrowers which evidence indebtedness for borrowed money, lease or other
financial obligations (the "Financial Obligation Agreements") and has made or
caused to be made under his supervision, a review of the transactions and
condition of the Borrowers during the relevant fiscal quarter or year, as the
case may be, and that such review has not disclosed the existence during such
period, nor does such officer have knowledge of the existence as at the date of
such certificate, of any condition or event which constitutes an event of
default under any of the Loan Documents or Financial Obligation Agreements, or
which, after notice or lapse of time or both would constitute an event of
default under any of the Loan Documents or Financial Obligation Agreements, or
if any such condition or event existed or exists, specifying the nature and
period of existence thereof and what action the Borrower has taken or proposes
to take with respect thereto, (ii) setting forth in form and detail satisfactory
to the Agent the calculations respecting compliance with the financial covenants
of this Agreement and (iii) for purposes of the annual certificate only,
attaching and certifying as true and correct a certificate evidencing the
insurance in place with respect to the Rigs and their operation by the
Borrowers.

ARTICLE IV

Events of Default

If any of the following events shall occur and be continuing, (each an
"Event of Default"):

A. the Borrowers shall fail to pay any principal of or interest on the
Notes, which failure shall continue for five (5) Business Days after the date
when due;

B. any representation or warranty made by any Borrower herein or made
in any certificate or financial statement furnished to the Agent or the Lenders
hereunder or under any of the Loan Documents shall prove to have been incorrect
in any material respect;

C. the Borrowers shall (i) fail to perform or observe any covenant
contained in Section 3.02(j), (k), (l), (r), (s), or (t) above or Section
6.09(c) below or (ii) fail to perform or observe any other term or covenant set
forth in this Agreement or in any other Loan Document which is not covered by
clause (i) above or any other provision of this Article IV if such failure shall
remain unremedied for 30 days after the earlier of written notice of such
default shall have been given to the Borrowers by the Agent or a Responsible
Officer's actual knowledge of such default;

D. an event of default under any loan agreement, credit agreement,
security agreement, guaranty agreement, lease agreement or other agreement now
existing or hereafter entered into by the Borrower shall not have been remedied
within any stated grace periods during such time as USD 3,000,000 or more is
outstanding under such agreement; provided, however, that Limited Recourse Debt
shall not be taken into account in determining such cross defaults;

E. any license, consent or approval of any governmental body or other
regulatory authority required for the making and performance of this Agreement
or any instrument contemplated hereby or thereby shall have been revoked,
withdrawn, materially modified or withheld or shall otherwise fail to remain in
full force and effect;

F. any of the following events shall occur:

(i) any Borrower commences a voluntary case under Title 11 of
the United States Code as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or

(ii) an involuntary case is commenced against any Borrower
under the Bankruptcy Code and relief is ordered against such Borrower
or the petition is controverted but is not dismissed or stayed within
sixty (60) days after the commencement of the case; or

(iii) a custodian (as defined in the Bankruptcy Code) or a
similar official is appointed for, or takes charge of, all or
substantially all of the property of any Borrower and such appointment
is not terminated within sixty (60) days; or

(iv) any Borrower commences any other proceeding under any
reorganization, arrangement, readjustment of debt, relief of debtors,
dissolution, insolvency, liquidation or similar law of any jurisdiction
relating to such Borrower (whether now or hereafter in effect), or
there is commenced against any Borrower any such proceeding which
remains undismissed or unstayed for a period of sixty (60) days or any
Borrower is adjudicated insolvent or bankrupt; or any Borrower fails to
controvert in a timely manner any such case under the Bankruptcy Code
or any such proceeding, or any order of relief or other order approving
any such case or proceeding is entered; or

(v) any Borrower by any act or failure to act indicates its
consent to, approval of or acquiescence in any such case or proceeding
or in the appointment of any custodian of or for it or any substantial
part of its property or suffers any such appointment to continue
undischarged or unstayed for a period of sixty (60) days; or

(vi) any Borrower makes a general assignment for the benefit
of creditors; or

(vii) any corporate action is taken by any Borrower for the
purpose of effecting any of the foregoing; or

G. an order, judgment or decree shall be entered, without the
application, approval or consent of any Borrower by any court of competent
jurisdiction, approving a petition seeking reorganization of such Borrower or
seizure or attachment of all or a substantial part of such Borrower's assets,
and such order, judgment or decree shall continue unstayed and in effect for any
period of sixty (60) consecutive days; or

H. judgments or orders for the payment of monies in excess of USD
750,000 in aggregate shall be rendered against any Borrower, and such judgments
or orders shall continue unsatisfied, unstayed or unbonded for a period of
thirty (30) days;

then the Agent may by written notice to the Borrowers (1)
immediately terminate the commitment of the Lenders hereunder; (2) declare, on
behalf of the Lenders, the principal of, and interest accrued to the date of
such declaration on, the Notes together with all other amounts due hereunder or
under any of the Loan Documents, to be forthwith due and payable, whereupon the
same shall become forthwith due and payable (provided, however, no notice or
declaration shall be required and such amounts shall be immediately due and
payable upon the occurrence of an event described in Article IV(F) or (G)
hereof) and (3) exercise any remedies to which it or the Lenders may be entitled
by any Loan Document or by applicable law.

Any repayment of the Loan which occurs as a result of acceleration
following an Event of Default shall for all purposes be deemed a prepayment
which is subject to the prepayment premiums as would be required if such
prepayments were being made pursuant to Sections 1.06(b), 1.06(c) or
6.09(b)(ii), as applicable.

ARTICLE V

Agent and Lenders

Section 5.01 OBLIGATIONS SEVERAL. The obligations of the Lenders
hereunder shall be several and the failure of one Lender to perform hereunder
shall not relieve any other Lender from such other Lender's obligation to
perform, nor shall such other Lender be required to increase its obligation
hereunder.

Section 5.02 APPOINTMENT AND DUTIES OF AGENT. (a) The parties hereto
agree that The CIT Group/Equipment Financing, Inc. shall act, subject to the
terms and conditions of this Article V as the Agent for the Lenders, and to the
extent set forth herein each of the Lenders hereby irrevocably appoints,
authorizes, empowers and directs the Agent to take such action on its behalf and
to exercise such powers as are specifically delegated to the Agent herein or are
reasonably incidental thereto in connection with the administration of and the
enforcement of any rights or remedies with respect to this Agreement, the Notes
and the other Loan Documents. It is expressly understood and agreed that the
obligations of the Agent under the Loan Documents are only those expressly set
forth in this Agreement. The Agent shall use reasonable diligence to examine the
face of each document received by it hereunder to determine whether each such
document, on its face, appears to be what it purports to be. However, the Agent
shall not be under any duty to examine into and pass upon the validity or
genuineness of any documents received by it hereunder and the Agent shall be
entitled to assume that any of the same which appears regular on its face is
genuine and valid and what it purports to be.

(b) In its role as Agent, the Agent shall be responsible for giving and
receiving all notices and demands under the Loan Documents and receiving and
distributing all documents and information.

(c) Except as specifically provided in Section 5.04 below, the Agent
shall act pursuant to the instructions of the Lenders in all matters relating to
this Agreement and the other Loan Documents.

Section 5.03 DISCRETION AND LIABILITY OF AGENT. Subject to Sections
5.04 and 5.06 hereof, the Agent shall be entitled to use its discretion with
respect to exercising or refraining from exercising any rights which may be
vested in it under any of the Loan Documents or otherwise, or with respect to
taking or refraining from taking any action or actions which it may be able to
take under any of the Loan Documents. Neither the Agent nor any of its
directors, officers, employees, agents or representatives shall be liable for
any action taken or omitted by them hereunder or in connection herewith, except
for their own gross negligence or willful misconduct. The Agent shall incur no
liability under, or in respect of this Agreement, by acting upon a notice,
certificate, warranty or other paper or instrument reasonably believed by it to
be genuine or authentic or to be signed by the proper party or parties, or with
respect to anything which it may do or refrain from doing in the reasonable
exercise of its judgment, or which may seem to it to be necessary or desirable
in the premises.

Section 5.04 EVENT OF DEFAULT.

(a) The Agent shall be entitled to assume that no Event of Default or
event which would constitute an Event of Default after notice or lapse of time,
or both, has occurred and is continuing, unless the Agent has actual knowledge
of such facts or has received notice from a Lender in writing that such Lender
considers that an Event of Default or event which would constitute an Event of
Default after notice or lapse of time, or both, has occurred and is continuing
and which specifies the nature thereof.

(b) In the event that the Agent shall acquire actual knowledge of any
Event of Default or event which would constitute an Event of Default after
notice or lapse of time, or both, the Agent shall promptly notify (either orally
or in writing) the Lenders of such Event of Default or event and (i) in the case
of default under Article IV.A. above may, or if instructed in writing by any
Lender shall, take such action and assert such rights as are permitted under
applicable law or under any of the Loan Documents and (ii) in the case of any
other default under Article IV above may in an emergency, or if requested in
writing by the Lenders shall, take such action and assert such rights as are
permitted under applicable law or under any of the Loan Documents. The Agent
shall be indemnified pro rata by the Lenders against any liability or expenses,
including, but not limited to, travel expenses and internal and external counsel
fees and expenses, incurred in connection with taking such action. The Agent may
refrain from acting in accordance with any instructions from the Lenders until
it shall have been indemnified to its satisfaction

against any and all costs and expenses which it will or may expend or incur in
complying with such instructions.

Section 5.05 CONSULTATION. When acting in connection with this
Agreement, the Agent may engage and pay for the advice and services of any
lawyers, accountants, surveyors or other experts whose advice or services may
appear necessary, expedient or desirable to it, and the Agent shall be entitled
to fully rely upon any opinion or such advice so obtained.

Section 5.06 COMMUNICATIONS TO AND FROM AGENT. When any notice,
approval, consent, waiver or other communication or action is required or may be
delivered by the Lenders hereunder, action by the Agent shall be effective for
all purposes hereunder; provided, that upon any occasion requiring or permitting
an approval, consent, waiver, election or other action on the part of the
Lenders, unless action by the Agent alone, or only upon instruction of all of
the Lenders, is expressly permitted or required hereunder, action shall be taken
by the Agent for and on behalf of or for the benefit of all the Lenders upon the
direction of the Lenders. The Borrower may rely on any communication from the
Agent hereunder and need not inquire into the propriety of or authorization for
such communication. Upon receipt by the Agent from the Borrower or any Lender of
any communication calling for an action on the part of the Lenders, it will, in
turn, promptly inform the other Lenders in writing of the nature of such
communication.

Section 5.07 LIMITATIONS OF AGENCY. Notwithstanding anything in the
Loan Documents, expressed or implied, it is agreed by the parties hereto, that
the Agent will act under the Loan Documents as Agent solely for the Lenders and
only to the extent specifically set forth herein, and will, under no
circumstances, be considered to be an agent or fiduciary of any nature
whatsoever in respect to any other person. The Agent may generally engage in any
kind of financing business with the Borrowers or any of their affiliates as if
it was not the Agent.

Section 5.08 NO REPRESENTATIONS OR WARRANTY.

(a) No Lender (including the Agent) makes to any other Lender any
representation or any warranty, expressed or implied, or assumes any
responsibility with respect to the Loan or the execution, construction or
enforceability of the Loan Documents or any instrument or agreement executed by
the Borrowers or any other person in connection therewith.

(b) The Agent takes no responsibility for the accuracy or completeness
of any information concerning the Borrowers distributed by the Agent in
connection with the Loan nor for the truth of any representation or warranty
given or made herein, nor for the validity, effectiveness, adequacy or
enforceability of this Agreement or any of the other Loan Documents.

Section 5.09 LENDER CREDIT DECISION. Each Lender acknowledges that it
has independent of and without reliance upon any other Lender (including the
Agent) or any information provided by any other Lender (including the Agent) and
based on the financial statements of the Borrowers and such other documents and
information as it has deemed appropriate, made its own credit

analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independent of and without reliance upon any other
Lender (including the Agent) and based on such documents and information as it
shall deem appropriate at that time, continue to make its own credit decisions
in taking or not taking action under this Agreement and any other documents
relating thereto.

Section 5.10 INDEMNITY. Notwithstanding any of the provisions hereof,
to the extent the Agent has not been so indemnified by the Borrowers, the
Lenders shall severally indemnify the Agent against any and all losses, costs,
liabilities, damages or expenses, including but not limited to, reasonable
travel expenses and internal and external counsel's reasonable fees and
expenses, arising from, or in connection with, its performance as Agent
hereunder and not caused by the Agent's gross negligence or willful misconduct.

Section 5.11 RESIGNATION. The Agent may resign as such at any time upon
at least thirty (30) days' prior written notice to the Borrowers and the
Lenders, provided that such resignation shall not take effect until a successor
agent has been appointed. Upon such resignation, the Lenders shall appoint a
successor agent and such successor agent shall be acceptable to the Borrowers,
such consent not to be unreasonably withheld.

Section 5.12 DISTRIBUTION. The Agent shall be responsible for promptly
distributing each Lender's pro rata share of any amounts received by it under
this Agreement or any of the other Loan Documents. Each Lender shall be
responsible for designating by written notice to the Agent the account to which
such distribution shall be deposited.

ARTICLE VI

Miscellaneous

Section 6.01 NOTICES. All notices, requests and demands shall be in
writing (including telecopier transmission) given to or made upon the respective
parties hereto as follows:

In the case of the Borrowers, at:

Pride Petroleum Services, Inc.
1500 City West Blvd., Suite 400
Houston, Texas 77042
Attention: Chief Financial Officer
Telecopier: (713) 789-1430

In the case of the Agent, at:

The CIT Group/Equipment Financing, Inc.

1211 Avenue of the Americas, 21st Floor
New York, New York 10036
Attention: Senior Vice President - Credit
Telecopier: (212) 536-1358

with a copy to:

The CIT Group/Equipment Financing, Inc.
300 South Grand Avenue, 3rd Floor
Los Angeles, California 90071
Attention: Vice President - Legal
Telecopier: (213) 628-7083

In the case of the Lenders, at:

The CIT Group/Equipment Financing, Inc.
1211 Avenue of the Americas, 21st Floor
New York, New York 10036

Attention: (a) Senior Vice President - Credit
Telecopier: (212) 536-1385

(b) Legal Department
Telecopier: (212) 536-1388

with a copy to:

The CIT Group/Equipment Financing, Inc.
300 South Grand Avenue, 3rd Floor
Los Angeles, CA 90071

Attention: Vice President - Legal
Telecopier: (213) 628-7083

The Frost National Bank
P.O. Box 1315
Houston, Texas 77251-1315
Attention: Scott Baxter
Telecopier: (713) 652-7607

with a copy to:

The Frost National Bank
P.O. Box 1600
San Antonio, Texas 78296
Attention: Cynthia C. Zunker
Loan Documentation Department, RB-2
Telecopier: (210) 220-4258

or in such other manner as any party hereto shall designate by written notice to
the other parties hereto. All such notices shall be effective upon delivery or
three (3) days after being deposited in the United States mail with postage
prepaid certified, return receipt requested in a correctly addressed wrapper, or
upon receipt if delivered to Federal Express or similar courier company or
transmitted by telefax during normal business hours, except that all notices,
requests and demands to the Agent shall not be effective until received by the
Agent. All notices, demands, requests, communications and other documents
delivered hereunder or under the Loan Documents, unless submitted in the English
language, shall be accompanied by certified English translation thereof.

Section 6.02 AGENT FOR BORROWERS.

(a) The Borrowers agree that PPSI shall be the true and lawful agent
and attorney-in-fact of the Borrowers hereunder in connection with all of the
rights, powers and duties of the Borrowers hereunder, including, without
limitation, the giving or withholding and the receipt of consents and notices.

(b) The Agent and the Lenders shall be entitled to and agree to treat
any notice given or action taken by PPSI, acting in its capacity as agent, as a
notice from or an action by the Borrowers.

Section 6.03 NO WAIVER. No failure on the part of the Agent or the
Lenders to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise by the
Agent or the Lenders of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right.

Section 6.04 APPLICABLE LAW AND JURISDICTION. (a) This Agreement and
the Loan Documents provided for herein (including, but not limited to, the
validity and enforceability hereof and thereof) shall be governed by, and
construed in accordance with, the laws of the State of Texas, other than
conflict of laws rules thereof. Any legal action or proceeding against the
Borrowers with respect to this Agreement or any Loan Document may be brought in
the courts of the State of Texas, the U.S. Federal Courts in such state, sitting
in Harris County, or in the courts of any other jurisdiction where such action
or proceeding may be properly brought, and the Borrowers hereby irrevocably
accept the jurisdiction of such courts for the purpose of any action or
proceeding. The Borrowers irrevocably consent to the service of process out of
said courts by the mailing thereof by the Agent by U.S. registered or certified
mail postage prepaid to the party to be served at their address designated in
Section 6.01. The Borrowers agree that

a final judgment in any action or proceeding shall be conclusive and may be
enforced in any other jurisdiction by suit on the judgment or in any other
manner provided by law. Nothing in this Section 6.04 shall affect the right of
the Agent or the Lenders to serve legal process in any other manner permitted by
law or affect the right of the Agent or the Lenders to bring any action or
proceeding against the Borrowers or their respective properties in the courts of
any other jurisdiction. To the extent that the Borrowers have or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service of notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to either themselves or
their property, the Borrowers hereby irrevocably waive such immunity in respect
of their obligations under this Agreement and the other Loan Documents. The
Borrowers hereby irrevocably waive any objection which they may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or any Loan Document brought in the District Court of
the State of Texas, Harris County or the U.S. District Court for the Southern
District of Texas, and hereby further irrevocably waive any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.

(b) THE AGENT, THE LENDERS AND THE BORROWERS IRREVOCABLY WAIVE ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

Section 6.05 SEVERABILITY. In the event that any provision of this
Agreement is held to be void or unenforceable in any jurisdiction, all other
provisions shall remain unaffected and be enforceable in accordance with their
terms in such jurisdiction, and all provisions of this Agreement shall remain
unaffected and shall be enforceable in accordance with their terms in all other
jurisdictions.

Section 6.06 AMENDMENT. Neither this Agreement nor any provision
hereof, including without limitation this Section 6.06, may be amended,
modified, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the amendment,
modification, waiver, discharge or termination is, sought. This Agreement shall
be binding upon and inure to the benefit of the Borrowers, the Agent and the
Lenders and their respective successors and assigns, except that the Borrowers
shall not have the right to assign their rights hereunder or any interest herein
without the prior written consent of the Agent.

Section 6.07 ASSIGNMENT AND PARTICIPATION. The Lenders shall have the
right, provided they comply with all applicable state and federal securities
laws, to assign or grant participations in all or any portion of the Loan
outstanding under this Agreement or the Notes to any affiliate of the Lenders or
to any foreign, federal or state banking institution, savings and loan
institution or finance company upon thirty (30) days written notice to the
Borrowers of such assignment or participation.

Section 6.08 COSTS, EXPENSES AND TAXES. The Borrowers agree to pay on
demand all reasonable fees, costs and expenses in connection (i) with the
preparation, execution, delivery, administration, amendment and enforcement of
this Agreement, the Notes, the other Loan Documents and any other documents to
be delivered hereunder and thereunder (including, without limitation, the
appraisal and inspection reports required hereunder) and any amendment,
modification or supplement hereto or thereto, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Agent and the
Lenders, and any special counsel associated with them and the filing of any
document or instrument in connection with any of the foregoing, (ii) with
respect to reasonable fees and out of pocket expenses of counsel for advising
the Agent and the Lenders as to their rights and responsibilities under this
Agreement and the transactions contemplated thereby after an Event of Default or
an event which, with the giving of notice or lapse of time, or both, shall have
occurred, and (iii) with any filing or recording of any document or instrument.
In addition, the Borrowers shall pay any and all stamp and other taxes
(including, without limitation penalties and interest assessed thereon) other
than Excluded Taxes payable or determined to be payable in connection with the
execution, delivery or performance of this Agreement and the Loan Documents and
any other documents to be delivered hereunder and thereunder and agrees to save
the Agent and the Lenders harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.

Section 6.09 MINIMUM VALUE, EVALUATION AND ADDITIONAL SECURITY.

(a) MINIMUM VALUE. The outstanding amount of the Loan at any
time shall not be more than 70% of the Collateral Value of the Rigs as
determined pursuant to Section 6.09(b) below.

(b) EVALUATION. If the Agent shall have received in any
calendar year notice from the Debtors that USD 1,500,000.00 or more of
the Rigs have been relocated outside of the United States or removed
from service by the Borrowers as permitted by Section 1.09 of this
Agreement, the Agent shall, at any Lender's request, no more than once
every eighteen (18) months, obtain at the Borrowers' expense an
evaluation of the Collateral Value of the remaining Rigs by the
appraiser referred to in Section 1.06 (a)(iii) above. In the event that
any such evaluation establishes that the Collateral Value of the
remaining Rigs is less than the amount required by Section 6.09(a)
above at the time of the evaluation, the Borrowers shall within twenty
(20) days of the request of the Agent (but at the Borrowers' option)
either:

(i) provide additional security acceptable to the
Lenders to insure that the Collateral Value of the Rigs as
determined pursuant to this Section 6.09(b) and such
additional security is equal to at least the amount required
by Section 6.09(a) above; or

(ii) reduce the amount of the Loan outstanding in the
manner provided for in Section 1.06(b) or 1.06(c), whichever
is then applicable, hereof in an

amount as is necessary to insure that the Collateral Value of
the Rigs as determined pursuant to this Section 6.09(b) is at
least the amount required by Section 6.09(a) above after such
reductions have been made; provided, however, that if any such
prepayment made during the time when the Fixed Rate is in
effect and prepayment is not otherwise permitted such
prepayment shall be subject to a prepayment premium of six
percent (6%) if such prepayment occurs in the first year of
the Loan and declining one percent (1%) per year thereafter
until the beginning of the fourth year of the Loan at which
time the prepayment premium set forth in Section 1.06(c) shall
be in effect; or

(iii) a combination of (i) and (ii) above which shall
result in the Collateral Value of the Rigs as determined
pursuant to this Section 6.09(b) being at least the amount
required by Section 6.09(a) above.

(c) FAILURE TO MAINTAIN MINIMUM VALUE. The failure of the
Borrowers to take action under Section 6.09(b)(i),(ii) or (iii) above
after having been requested to do so by the Agent, which failure shall
result in the Collateral Value of the Rigs as determined pursuant to
Section 6.09(b) above remaining below the amount required by Section
6.09(a) above for twenty (20) or more days after the date of the
Agent's request shall constitute an Event of Default under Article
IV.C. of this Agreement and shall give the Agent the right to
immediately exercise any or all of its rights under such Article IV.

Section 6.10 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.

Section 6.11 SECTION HEADINGS. The headings of the various Sections and
subsections of this Agreement are for convenience of reference only and shall
not define or limit any of the terms or provisions hereof.

Section 6.12 ENTIRE AGREEMENT. THIS WRITTEN LOAN AGREEMENT, TOGETHER
WITH THE OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

PRIDE PETROLEUM SERVICES, INC.

By: /s/ JAMES BYERLOTZER
Name: James Byerlotzer
Title: Vice President

PRIDE PETROLEUM SERVICES OF LOUISIANA, INC.

By: /s/ JAMES BYERLOTZER
Name: James Byerlotzer
Title: President

PRIDE PETROLEUM SERVICES OF CALIFORNIA, INC.
By: /s/ JAMES BYERLOTZER
Name: James Byerlotzer
Title: President

THE CIT GROUP/EQUIPMENT FINANCING, INC.,
As Agent

By: /s/ JOSEPH M. PITCH
Name: Joseph M. Pitch
Title: Vice President

THE CIT GROUP/EQUIPMENT FINANCING, INC.

By: /s/ JOSEPH M. PITCH
Name: Joseph M. Pitch
Title: Vice President

THE FROST NATIONAL BANK

By: /s/ SCOTT W. BAXTER
Name: Scott W. Baxter
Title: Senior Vice President

Exhibit 4.5

LOAN AGREEMENT
AMONG
HELLER FINANCIAL, INC.,
AND
PRIDE PETROLEUM SERVICES, INC.,
PRIDE PETROLEUM SERVICES OF CALIFORNIA, INC.
AND
PRIDE PETROLEUM SERVICES OF LOUISIANA, INC. AS BORROWERS
DATED AS OF APRIL 30, 1996

TABLE OF CONTENTS

ARTICLE I ................................................................. 4

The Loan .................................................................. 5
Section 1.01 AMOUNT .............................................. 5
Section 1.02 MANNER OF DRAWDOWN .................................. 5
Section 1.03 REPAYMENT ........................................... 5
Section 1.04 INTEREST ............................................ 5
Section 1.05 PAYMENTS ............................................ 7
Section 1.06 PREPAYMENT .......................................... 8
Section 1.07 SECURITY ............................................ 9
Section 1.08 CLOSING FEE ......................................... 9

ARTICLE II ................................................................ 10

Conditions Precedent ...................................................... 10
Section 2.01 CONDITIONS PRECEDENT ................................ 10
Section 2.02 WAIVER OF CONDITIONS PRECEDENT ...................... 11

ARTICLE III ............................................................... 11

Representations, Warranties and Covenants ................................. 11
Section 3.01 REPRESENTATIONS OF THE BORROWERS .................... 11
Section 3.02 COVENANTS OF THE BORROWERS .......................... 14

ARTICLE IV ................................................................ 20

Events of Default ......................................................... 20

ARTICLE V ................................................................. 22

Miscellaneous ............................................................. 22
Section 5.01 NOTICES ............................................. 22
Section 5.02 AGENT FOR BORROWERS ................................. 23
Section 5.03 NO WAIVER ........................................... 23
Section 5.04 APPLICABLE LAW AND JURISDICTION ..................... 23
Section 5.05 SEVERABILITY ........................................ 24
Section 5.06 AMENDMENT ........................................... 24
Section 5.07 ASSIGNMENT AND PARTICIPATION ........................ 24
Section 5.08 COSTS, EXPENSES AND TAXES ........................... 24
Section 5.09 COUNTERPARTS ........................................ 25

(i)

Section 5.10 SECTION HEADINGS ............................................. 25
Section 5.11 MERGER ....................................................... 25

Exhibit A....................................................................A-1

Exhibit B....................................................................A-4

SCHEDULE 1 - LIST OF EQUIPMENT..............................................B-14

Exhibit C....................................................................C-1

(ii)

THIS LOAN AGREEMENT dated as of April 30, 1996 among PRIDE PETROLEUM
SERVICES, INC., a Louisiana corporation ("PPSI"), PRIDE PETROLEUM SERVICES OF
CALIFORNIA, INC., a Texas corporation ("PPS California") and PRIDE PETROLEUM
SERVICES OF LOUISIANA, INC., a Texas corporation ("PPS Louisiana"; individually
a "Borrower" and collectively the "Borrowers"), and HELLER FINANCIAL, INC., a
Delaware corporation (along with its successors and assigns, the "Lender").
Capitalized terms used herein and not otherwise defined herein are used with the
meanings ascribed thereto in the Definitions Section of this Agreement.

R E C I T A L S:

1. The Borrowers are the owners of the equipment listed in Schedule 1
attached hereto (the "Equipment").

2. The Borrowers have requested a loan from the Lender in the principal
amount of up to Ten Million United States Dollars (USD 10,000,000) (as more
specifically described in Section 1.01 hereof, the "Loan") in order to partially
fund the acquisition by PPSI of Quitral-Co. S.A.I.C., all upon the terms and
conditions contained herein and in the Note.

3. The Loan shall be evidenced by the secured promissory note made by
the Borrowers to the Lender (the "Note") substantially in the form of Exhibit A
annexed hereto and made a part hereof.

4. In order to secure its obligations hereunder and under the Note, the
Borrowers have agreed to grant to the Lender a first priority security interest
in all of their right, title and interest in the Equipment and any additional
equipment purchased with the proceeds of the Loan.

NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:

DEFINITIONS

The following terms shall have the following meanings for all purposes
of this Agreement and shall be equally applicable to both the singular and the
plural forms of the terms herein defined.

"Base Rate" means with respect to any Interest Period, a variable rate
of interest per annum equal to the highest of the "prime rate", "reference
rate", "base rate," "corporate base rate" or other similar rate announced from
time to time by The First National Bank of Chicago (or any successor thereof)
("FNBC"). If no rate is announced by FNBC, the Base Rate shall mean a variable
rate of interest equal to the rate of interest from time to time published by
the Board of Governors of the

Federal Reserve System as the Bank Prime Loan rate in Federal Reserve
statistical release H.15(519) entitled "Selected Interest Rates" or any
successor publication of the Federal Reserve System reporting the Bank Prime
Loan rate or its equivalent. The Base Rate shall be determined by the Lender
effective immediately upon any changes in the Base Rate. The Base Rate is not
intended to be the lowest rate of interest charged by FNBC in connection with
extensions of credit to any debtor or the lowest rate announced by the Federal
Reserve.

"Business Day" means a day other than a Saturday or a Sunday or a day
on which commercial banks are authorized to be closed in the State of New York
or the State of Texas.

"Cash Flow Coverage Ratio" means as of the date of its determination
(i) the sum of PPSI's consolidated net income, plus depreciation and
amortization, less dividends paid and extraordinary items of income and loss (as
determined in accordance with generally accepted United States accounting
principles) divided by (ii) the sum of the current portion of long-term debt and
capitalized lease obligations as of the last day of the fiscal quarter ending on
such date. At the time the first instance in which the Cash Flow Coverage Ratio
is measured the determination of (i) above shall only be with reference to the
six-month period commencing April 1, 1996 and ending September 30, 1996 on an
annualized basis. Further, at the time the second instance in which the Cash
Flow Coverage Ratio is measured, the determination of (i) above shall only be
with reference to the nine-month period commencing April 1, 1996 and ending
December 31, 1996 on an annualized basis. Thereafter, the Cash Flow Coverage
Ratio shall be with reference to the preceding four fiscal quarters.

"Closing Date" has the meaning set forth in Section 1.02(b) of this
Agreement.

"Collateral Value" has the meaning set forth in Section 1.06(a)(ii).

"Commitment" means a maximum of USD 10,000,000.

"Dollars" or "USD" means lawful currency of the United States of
America.

"Event of Default" has the meaning set forth in Article IV of this
Agreement.

"Excluded Income Taxes" has the meaning set forth in Section 1.05(a) of
this Agreement.

"Fair Market Value" has the meaning set forth in Section 1.06(a)(iii)
of this Agreement.

"Fixed Rate" means the Treasury Rate plus 2.75%.

"Floating Rate" means the Base Rate plus .50% as adjusted monthly.

tribunal) exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and any corporation,
partnership or other entity directly or indirectly owned by the foregoing.

"Interest Rate" has the meaning set forth in Section 1.04(b) of this
Agreement.

"Limited Recourse Debt" means (a) the MNS Venezuela Lake Maracaibo
Barge Financings or (b) any liability of any Borrower incurred as a guarantor or
otherwise which such the Lender has reviewed and classified as Limited Recourse
Debt. The Lender agrees that it will promptly review any proposed financing
submitted by the Borrowers for purposes of classifying such proposed financing
as Limited Recourse Debt.

"Loan" has the meaning set forth in Section 1.01 of this Agreement.

"Loan Documents" means the Note, this Loan Agreement and the Security
Agreement and any other documents required by them.

"Material Adverse Effect" means to affect in a material manner the
financial condition, operations or business of the Borrowers, taken as a whole.

"Maturity Date" means April 30, 2001.

"MNS Venezuelan Lake Maracaibo Barge Financings" shall mean the
financings by Perforaciones Western, C.A., a wholly-owned subsidiary of PPSI, of
the drill barges PRIDE I and

PRIDE II, evidenced by the contracts dated November 30, 1994 and December 27,
1994, respectively.

"Note" has the meaning set forth in paragraph 3 of the Recitals of this
Agreement.

"Notice of Drawing" means the notice of drawing given by the Borrowers
pursuant to Section 1.02 substantially in the form of Exhibit C attached hereto.

"Payment Date" means the last day of each month.

"Responsible Officer" means, as to a Borrower, the chief executive
officer, chief financial officer or any other officer having principal
responsibility for the financial affairs of such company.

"Security Agreement" means the agreement between the Lender and the
Borrowers creating a security interest in favor of the Lender in the Equipment
substantially in the form of Exhibit B hereto.

"Tangible Net Worth" means, at a particular date, the sum of PPSI's
consolidated shareholders' equity, as defined by generally accepted United
States accounting principles plus convertible subordinated debt subordinated to
the Loan less the amount of intangible assets and any obligations due from
employees, shareholders or affiliates.

"Taxes" has the meaning set forth in Section 1.05(a) of this Agreement.

"Total Liabilities" means (a) indebtedness of the Borrowers which would
in accordance with generally accepted United States accounting principles be
classified as current and long term liabilities of a corporation conducting a
business the same as or similar to the Borrowers; provided however, that all
deferred charges shall be taken into account, and (b) without duplication,
guarantees of liabilities of non-consolidated entities of the type referred to
in clause (a) of this definition; but Limited Recourse Debt and convertible
subordinated debt which is subordinated to the Loan shall be excluded.

"Total Loss" has the meaning set forth in Section 1.06(a) of this
Agreement.

"Treasury Rate" means the rate per annum for a U.S. Treasury security
with a term at least equal to the term of the Loan, measured from the Closing
Date to the Maturity Date. The Treasury Rate will be determined at the close of
business one Business Day after the date notice of conversion of the Loan to the
Fixed Rate is given and shall be based on the yields to maturity for U.S.
Treasury securities reported on page 5 ("U.S. Treasury and Money Markets") of
the information ordinarily provided by Telerate Systems Incorporated.

ARTICLE I
The Loan

Section 1.01 AMOUNT. Subject to the terms and conditions of Section
2.01 of this Agreement, the Lender agrees to the loan to the Borrowers the
principal amount of USD 10,000,000 (the "Loan"). Each of the Borrowers shall be
jointly and severally liable for repayment of the Loan, all interest thereon and
all costs, fees and expenses due and payable under this Agreement and the Note.

Section 1.02 MANNER OF DRAWDOWN.

(a) The Lender will make the Loan available to the Borrowers on the
Closing Date.

(b) The Borrowers shall make a request for the Loan by sending to the
Lender a written Notice of Drawing not later than 11:00 a.m., Chicago Time, one
(1) Business Day prior to the date the Loan is requested setting forth the date
the Loan is requested, the amount of the requested Loan, and the bank account or
accounts to which the Loan is to be remitted. The Notice of Drawing shall be
received by the Lender no later than one (1) Business Day immediately preceding
the Closing Date. The Notice of Drawing shall be irrevocable. As used in this
Agreement, the term "Closing Date" shall mean any Business Day occurring on or
prior to June 30, 1996, which shall be the day on which the Loan is to be made
as designated by the Borrowers in their Notice of Drawing.

Section 1.03 REPAYMENT.

(a) The Borrowers shall repay the principal amount of the Note in sixty
(60) consecutive equal monthly installments of USD 166,666.66 each, each such
installment to be paid by the Borrowers to the Lender on a Payment Date
commencing May 31, 1996 and ending on the Maturity Date, PROVIDED, HOWEVER, that
the final installment shall be sufficient to pay all accrued and unpaid
interest, unpaid principal and unpaid premium, outstanding under this Agreement
and the Note.

(b) The Loan shall be evidenced by and repayable in accordance with the
terms hereof and of the Note.

Section 1.04 INTEREST.

(b) The Borrowers may elect to pay interest on the Loan at either the
Floating Rate or the Fixed Rate on the following terms:

(i) If no election is received by the Lender, the Borrowers
shall pay interest on the Loan at the Floating Rate.

(ii) The Fixed Rate shall be fixed as of the first Business
Day following receipt of written notice by the Lender of the Borrowers'
election, and shall be effective as of the first Payment Date following
the expiration of thirty (30) days after such receipt of written
notice.

(iii) Any election by the Borrowers to pay interest at the
Fixed Rate shall be irrevocable and shall be effective for the
remaining term of the Loan.

(iv) The Fixed Rate shall be evidenced by letter agreement
sent by the Lender to the Borrowers within three (3) Business Days
after the Borrowers' notice to the Lender of their election to pay
interest at the Fixed Rate.

(d) In no event shall any interest rate provided for in this Agreement
or the Note exceed the maximum rate permitted by the then applicable law. It is
the intention of the parties hereto to strictly comply with applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Agreement, in the Note, or in the other Loan Documents, in no
event shall this Agreement, the Note, or the other Loan Documents be construed
to charge, contract for or require the payment or permit the collection of
interest in excess of the maximum amount permitted by applicable law. If any
such excess interest is contracted for, charged or received under this
Agreement, the Note or the other Loan Documents, or in the event that all of the
principal balance shall be prepaid, so that under any of such circumstances the
amount of interest contracted for, charged or received on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (i) the provisions of this Section 1.04(d) shall govern and control,
(ii) none of the Borrowers nor any other person or entity now or hereafter
liable for the payment thereof shall be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of interest
permitted by applicable law, (iii) any such excess which may have been collected
shall be either applied as a credit against the then unpaid principal balance or
refunded to the Borrowers, at the option of the Lender, and (iv) the effective
rate of interest shall be automatically reduced to the maximum lawful contract
rate allowed under applicable law as now or hereafter construed by the courts
having jurisdiction thereof. It is further agreed that without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received under this Agreement, the Note and the other Loan Documents which are
made for the purpose of determining whether such rate exceeds the maximum lawful
contract rate, shall be made, to the extent permitted by applicable law, by
amortizing, prorating, allocating and spreading in equal parts during the period
of the full stated term of the indebtedness evidenced hereby, all interest at
any time contracted for, charged or received from the Borrowers or otherwise by
the Lender in connection

with such indebtedness; PROVIDED, HOWEVER, that if any applicable state law is
amended or the law of the United States of America preempts any applicable state
law, so that it becomes lawful for the Lender to receive a greater simple
interest per annum rate than is presently allowed, the Borrowers agree that, on
the effective date of such amendment or preemption as the case may be, the
lawful maximum hereunder shall be increased to the maximum simple interest per
annum rate allowed by the higher of the amended state law or the law of the
United States of America.

Section 1.05 PAYMENTS.

(a) The payment obligations of the Borrowers under the Note and all
other amounts payable under this Agreement to the Lender shall be paid to the
Lender at the address set forth for the Lender in Section 5.01 of this Agreement
or at such other place as the Lender may designate (not less than one (1)
Business Day prior to the due date therefor), not later than the close of
business on the due date thereof, in lawful money of the United States. All
payments shall be made (i) without set-off, counterclaim or condition and (ii)
free and clear of, and without deduction for or on account of, any present or
future taxes, levies, duties, imposts, charges, fees, deductions or withholdings
of any nature ("Taxes"), unless the Borrowers are required by law or regulation
to make payment subject to any Taxes. In the event that the Borrowers are
required by law or regulation to make any deduction or withholding on account of
any Taxes from any payment due under this Agreement, then: (x) the Borrowers
shall notify the Lender promptly as soon as they become aware of such
requirement and shall remit promptly the amount of such Taxes to the appropriate
taxation authority, and in any event prior to the date on which penalties attach
thereto; and (y) such payment shall be increased by such amount as may be
necessary to ensure that the Lender receives a net amount, free and clear of all
Taxes, equal to the full amount which the Lender would have received had such
payment not been subject to such Taxes (other than Excluded Income Taxes as such
term is defined below). Notwithstanding the foregoing, the Borrowers shall not
be liable for, or required to pay, any Taxes which are overall income or
franchise taxes imposed at any time on Lender in the United States of America or
any state or local government or taxing authority in any state in which the
Lender conducts business ("Excluded Income Taxes"). Each such payment or
reimbursement by the Borrowers shall be net of any credit or the value of any
deduction received by the Lender thereon to the extent that the same can be
determined by the Lender (as certified by the Lender to the Borrowers, such
certificate to be conclusive absent manifest error). The Borrowers shall
indemnify the Lender against any liability of the Lender in respect of such
Taxes and shall supply copies of applicable tax receipts.

(b) If any payment to be made by the Borrowers shall become due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day.

(c) Each payment to be made on a Payment Date and all prepayments and
other payments shall be applied first to the payment of accrued and unpaid
interest on the Note, then to the payment of all other amounts due under this
Agreement and the other Loan Documents, and the balance shall be applied to the
payment of principal due under the Note.

(d) The Borrowers shall indemnify the Lender on demand against all
costs, expenses, liabilities and losses (including funding losses but excluding
loss of profit) sustained or incurred by the Lender as a result of or in
connection with: (a) the occurrence and/or continuance of any Event of Default
(or event which, with the giving of notice and/or lapse of time or other
applicable condition might constitute an Event of Default); and/or (b) any
judgment or order which relates to any sum due hereunder being expressed in a
currency other than the currency expressed to be due hereunder and as a result
of a variation in rates of exchange between the rate at which such amount is
converted into such other currency for the purposes of such judgment or order
and the rate prevailing on the date of actual payment of such amount pursuant
thereto; and/or (c) any postponement of the Closing Date after the Notice of
Drawing is received by the Lender occurring because of one or more of the
conditions precedent set forth in Article II shall not have been satisfied or
waived; and/or (d) any payment of principal of or interest on the Note made on a
date which is not a Payment Date. The above indemnities are separate and
independent obligations of the Borrowers and apply irrespective of any
indulgence granted by the Lender.

Section 1.06 PREPAYMENT.

(a) MANDATORY PREPAYMENT.

(i) TOTAL LOSS. If, on or after the date hereof, an item or
items of Equipment, having an aggregate Fair Market Value of USD
300,000 or more, shall be lost or materially damaged, on the earlier of
(x) three (3) Business Days after the insurance proceeds are received
for such loss or damage or (y) seventy five (75) days after the date of
occurrence of the loss or damage, unless the Borrowers shall have
replaced the lost or damaged Equipment with Equipment of equal or
greater Fair Market Value during such period, the Lender may, by
written notice, require the Borrowers to (A) prepay the outstanding
principal balance under the Note in an amount equal to the outstanding
principal amount of the Loan on the date of prepayment (without
counting any amount being prepaid on such date), multiplied by a
fraction, the numerator of which is Fair Market Value of the lost or
damaged item of Equipment as most recently determined under Section
1.06(a)(iii) and the denominator of which is the Collateral Value most
recently determined under Section 1.06(a)(ii) (including the lost or
damaged item of Equipment), and (B) pay accrued interest thereon to the
date of such prepayment together with any other amount due hereunder or
under any Loan Document. The Lender shall apply payments received
pursuant to this Section 1.06(a)(i) in accordance with Section 1.05(c)
hereof, except that all prepayments shall be applied to remaining
installments of the Loan in inverse order of maturity. No prepayment
premium shall be payable with respect to any Mandatory Prepayments made
by the Borrowers pursuant to this Section 1.06(a)(i).

(ii) COLLATERAL VALUE. On or before the Closing Date, the
Lender shall arrange to have the Fair Market Value of the Equipment
determined at the Borrowers' expense by an independent asset appraisal
firm selected by the Lender. The aggregate of the most recent
valuations of the Equipment wholly owned by the Borrowers is
hereinafter referred to as the "Collateral Value".

(iii) FAIR MARKET VALUE. The "Fair Market Value" of any item
of Equipment shall be the value determined by the independent asset
appraisal firm chosen by the Lender in accordance with clause (ii)
above on the basis of an arm's-length purchase by a willing buyer from
a willing seller and without consideration of any drilling contract, or
other rig employment contract. The asset appraisal firm's valuation
shall be made without physical inspection, unless otherwise required by
the Lender.

(b) VOLUNTARY PREPAYMENT WHEN FLOATING RATE IS IN EFFECT. When the
Floating Rate is in effect, the Borrowers may prepay in full or in part in
amounts of not less than USD 500,000, their indebtedness under the Note on any
Payment Date following the twenty-fourth (24th) Payment Date by giving the
Lender irrevocable written notice at least thirty (30) Business Days prior to
such prepayment. Prepayments under this Section 1.06(b) prior to and including
the third anniversary of the Closing Date shall include a premium in an amount
equal to one percent (1%) of the aggregate principal amount prepaid.

(c) VOLUNTARY PREPAYMENT WHEN FIXED RATE IS IN EFFECT. When the Fixed
Rate is in effect, the Borrowers may prepay in full or in part in amounts of not
less than USD 500,000 amounts outstanding under the Loan on any Payment Date
following the thirtieth (30th) Payment Date by giving the Lender irrevocable
written notice thirty (30) Business Days prior to such prepayment. Prepayments
under this Section 1.06(c) shall include a premium in an amount equal to three
percent (3%) of the aggregate amount prepaid on the thirty-first (31st) Payment
Date and declining on a straight line basis for the remainder of the term of the
Loan.

(d) APPLICATION OF PREPAYMENTS. The Lender shall apply payments
received pursuant to Section 1.06(b) and Section 1.06(c) in accordance with
Section 1.05(c) hereof, except that all prepayments shall be applied to
remaining installments of the Loan in inverse order of maturity.

Section 1.07 SECURITY. All amounts due hereunder and under the Note
shall be secured by the Security Agreement substantially in the form of Exhibit
B attached hereto.

Section 1.08 CLOSING FEE. The Borrowers shall pay to the Lender on or
before the Closing Date, for distribution to the Lender, a closing fee equal to
USD 50,000; provided, however that any amounts remaining of Borrowers' due
diligence deposit on the Closing Date shall be applied to the closing fee.

ARTICLE II
Conditions Precedent

Section 2.01 CONDITIONS PRECEDENT. The Lender's execution and delivery
of this Agreement and the making of the Loan is subject to the following
conditions having been satisfied in the opinion of the Lender on or prior to the
Closing Date:

(a) Each of this Agreement and the other Loan Documents shall have been
duly authorized and executed with original counterparts thereof delivered to the
Lender.

(b) The Borrowers shall have delivered to the Lender evidence of good
standing, certificates of incumbency and duly certified resolutions of its Board
of Directors and all such other corporate documentation authorizing it to enter
into the transactions contemplated by this Agreement and the other Loan
Documents.

(c) The Lender shall have received opinions from counsel to the
Borrowers and an opinion of their special counsel, Gardere Wynne Sewell & Riggs,
L.L.P., each in form and substance satisfactory to the Lender.

(d) The representations and warranties contained in Article III of this
Agreement and in each other Loan Document shall be true in all material respects
on the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date, and no Event of Default
specified in Article IV hereof and no event which, with the lapse of time or the
notice and lapse of time specified in Article IV hereof, would become such an
Event of Default, shall have occurred and be continuing or shall have occurred
at the completion of the making of the Loan, and the Lender shall have received
satisfactory certificates signed by a Responsible Officer of each of the
Borrowers, as to this condition.

(e) There shall have been no material adverse change in the business,
financial condition or operations of the Borrowers since December 31, 1995.

(f) The Lender shall have received a certificate of each Borrower
signed by an officer in charge of environmental affairs and safety as, to his
knowledge, to compliance by such Borrower with all material environmental,
safety and public health laws and regulations applicable to the Borrowers,
without limitation of the foregoing, all other material laws and regulations
affecting or relating to the Equipment, the non-compliance with which would have
a material adverse effect on the business, properties or condition (financial or
otherwise) of such Borrower.

(g) The Borrowers shall have provided evidence of insurance maintained
by the Borrowers and approved by the Lender on the Equipment as required by
Article 5 of the Security Agreement.

(h) The Security Agreement shall have been duly executed and delivered
and shall create a first priority lien on the Equipment under the laws of the
State of Illinois.

(i) Financing statements or other documents necessary to perfect the
Lender's security interests under the Security Agreement in the jurisdictions of
incorporation of the Borrowers or any other relevant jurisdiction shall have
been filed and/or due provision for such filings shall have been made.

(j) The Lender shall have received a report appraising the Fair Market
Value of the Equipment at no less than USD 16,758,300 and prepared by M.E.L.
Valuations, Inc. in form and substance satisfactory to the Lender.

(k) The Equipment shall not have sustained any material damage to its
condition since the date of the inspection and survey reports therefor delivered
to the Lender pursuant to Section 2.01(l), or materially decreased in value from
the value attributed thereto as set forth in the appraisal report therefor
delivered to the Lender pursuant to Section 2.01(l).

(l) The Lender shall have received such other documents and instruments
it may reasonably request, in each case in form and substance reasonably
satisfactory to it.

Section 2.02 WAIVER OF CONDITIONS PRECEDENT. All of the conditions
precedent contained in this Article II are for the sole benefit of the Lender
and the Lender may waive any or all of them in its absolute discretion.

ARTICLE III
Representations, Warranties and Covenants

Section 3.01 REPRESENTATIONS OF THE BORROWERS. Each Borrower represents
and warrants that:

(a) It is a corporation, duly organized and validly existing in good
standing under the laws of the state of its incorporation and has the requisite
power and authority (i) to carry on its business as presently conducted, (ii) to
enter into and perform its obligations under each Loan Document, (iii) to borrow
moneys, and (iv) to grant a security interest on the Equipment and give the
security provided in the Loan Documents.

(b) The execution, delivery and performance by each of the Borrowers of
each Loan Document, and any other instrument or agreement provided for by this
Agreement, have been duly authorized by all necessary corporate action, do not
require stockholder approval other than such as has been duly obtained or given,
do not or will not contravene any of the terms of its articles of incorporation
or by-laws, and will not violate any provision of law or of any order of any
court or governmental agency or constitute (with or without notice or lapse of
time or both) a default under, or result (except as contemplated by this
Agreement) in the creation of any security interest, lien, charge or encumbrance
upon any of its properties or assets pursuant to, any agreement, indenture or
other material instrument to which it is a party or by which it may be bound;
this Agreement and each Loan Document to which it is a party has been duly
executed and delivered by each of the Borrowers and constitutes its legal, valid
and binding agreement or instrument, enforceable in accordance with the
respective terms thereof subject to laws affecting creditors' rights generally
and applicable equitable principles.

(c) There are no suits or proceedings pending or to its knowledge
threatened against or affecting such Borrower which could reasonably be expected
to have a Material Adverse Effect.

(d) The principal place of business of the Borrowers and the place
where all records relating to the transactions contemplated hereby, including
records relating to the Equipment are kept is 1500 City West Blvd., Suite 400,
Houston, Texas 77042.

(f) Each Borrower is the holder of all certificates and authorizations
of governmental authorities required by law to enable each to engage in the
business transacted by it of which the failure to hold would have a Material
Adverse Effect.

(g) No part of the proceeds of the Loan will be used for any purpose
that violates the provisions of any of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System or any other regulation of such Board of
Governors. The Borrowers are not engaged in the business of extending credit to
others for the purpose of purchasing or carrying margin stock within the meaning
of Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System. If requested by the Lender, the Borrowers will furnish to the Lender in
connection with the Loan hereunder a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in said Regulation U. The
Borrowers are not an "investment company" or a company "controlled" by an
"investment company" (as each of such terms is defined or used in the Investment
Company Act of 1940, as amended). No proceeds of the Loan will be used to
acquire any security in any transaction which is subject to Sections 13 and 14
of the Securities Exchange Act of 1934, as amended.

(h) The Equipment is and will be on the Closing Date: (i) owned by the
Borrowers, free and clear of all liens, charges and rights of others except as
provided in the Security Agreement and liens being released on the Closing Date
and (ii) in good condition, working order and repair.

(i) Such Borrower has filed or caused to be filed all tax returns
required by any applicable jurisdiction which are required to be filed and has
paid or caused to be paid all taxes as shown on such returns or on any
assessment received by it to the extent that such taxes have become due and
except as to such taxes being contested in good faith by appropriate proceedings
for which adequate reserves are being maintained. The Borrowers have established
reserves to the extent believed by them to be adequate for the payment of
additional taxes for years which have not been audited by the respective tax
authorities.

(j) Other than as disclosed to the Lender in writing, the Borrowers
have no other subsidiaries.

(k) (i) Each Borrower has duly complied with, and the Equipment and its
other properties and operations are in compliance with, the provisions of all
applicable environmental, health and safety laws, codes and ordinances and all
rules and regulations

promulgated thereunder of all Governmental Agencies which failure to comply
could reasonably be expected to cause a Material Adverse Effect unless such
compliance would violate the laws or regulations of the jurisdiction in which
the Equipment is located.

(ii) As of the date of this Agreement, the Borrowers have
received no notice from any Governmental Agency, and have no knowledge,
of any fact(s) which constitute a violation of any applicable
environmental, health or safety laws, codes or ordinances, and any
rules or regulations promulgated thereunder of all Governmental
Agencies, which relate to the use or ownership of the Equipment or
other properties owned or operated by the Borrowers which violation
could reasonably be expected to cause a Material Adverse Effect.

(iii) The Borrowers have been issued all required permits,
licenses, certificates and approvals of all Governmental Agencies
relating to (a) air emissions, (b) discharges to surface water or
ground water, (c) noise emissions, (d) solid or liquid waste disposal,
(e) the use, generation, storage, transportation, treatment, recycling
or disposal of Hazardous Substances or (f) other environmental, health
or safety matters which are material and necessary for the ownership or
operation of the Equipment or other properties owned or operated by the
Borrowers, the failure of which could reasonably be expected to cause a
Material Adverse Effect, and such permits, licenses, certificates and
approvals are in full force and effect on the date of this Agreement.

(iv) Except as disclosed to the Lender in writing, to the best
of the Borrowers' knowledge, except in accordance with a valid
governmental permit, license, certificate or approval, there has been
no spill or unauthorized discharge or release of any Hazardous
Substance to the environment at, from, or as a result of any operations
on the Equipment or other properties and operations owned or operated
by the Borrowers required to be reported to any Governmental Agency
which event could reasonably be expected to cause a Material Adverse
Effect.

(v) Except as disclosed to the Lender in writing, there has
been no material complaint, compliance order, notice of citation or
other similar notice from any applicable environmental agency which
concerns the operations of the Equipment or other properties owned or
operated by such Borrower.

Section 3.02 COVENANTS OF THE BORROWERS. After the date of execution of
this Agreement and until payment in full of the Note and performance by the
Borrowers of their obligations under this Agreement and the other Loan
Documents, the Borrowers agree that they will:

(a) promptly inform the Lender of any event which constitutes or will
constitute, by giving of notice or lapse of time, or both, an Event of Default
or adversely affect their ability to fully perform their obligations under this
Agreement and the Loan Documents;

(b) pay and discharge, or cause to be paid and discharged, any taxes,
assessments and governmental charges or levies that may be imposed upon any
Borrower or upon its income or profits or upon any of its properties prior to
the date on which penalties attach thereto and all lawful claims which, if
unpaid, might become a lien or charge upon its properties; PROVIDED, HOWEVER,
that this provision shall not be deemed to require payment of any taxes,
assessments, governmental charges, levies or claims while such Borrower contests
the validity thereof by appropriate proceedings in good faith and so long as it
shall have set aside on its books adequate reserves with respect thereto;

(c) preserve and maintain, or cause to be preserved or maintained, (i)
their existence in good standing in the jurisdiction where each is incorporated
and in all jurisdictions where they conduct business, and (ii) all their rights,
privileges and franchises thereunder;

(d) file or cause to be filed in such offices as shall be required or
appropriate under any applicable Uniform Commercial Code of any State or any
other statute of any other jurisdiction, and in such manner and form as the
Lender may require or as may be reasonably necessary or appropriate under
applicable law, any financing statement or statements or other instruments that
may be reasonably necessary or desirable or that the Lender may request in order
to create, perfect, preserve, continue, validate or satisfy the Lender's liens
on and security interests and rights in collateral arising out of or related to
this Agreement and any Loan Document;

(e) promptly notify the Lender of any change in the name or assumed
name of a Borrower, location of its registered place of business or the office
where its records are kept or any principal place of business, stated in Section
3.01(d) hereof;

(f) promptly obtain and upon the reasonable request, deliver to the
Lender all material authorizations, approvals, consents and licenses and
renewals thereof required under any applicable law or regulation with respect to
this Agreement, the Loan Documents, and the Equipment and they shall comply with
the terms of the same;

(g) promptly notify the Lender of any suit or proceedings brought
against the Borrowers or, to the knowledge of the Borrowers, threatened against
or affecting them which, if adversely determined, would have a material adverse
effect upon the financial condition, operations or business of the Borrowers
taken as a whole;

(h) upon the request of the Lender, give the Lender or any
representative of the Lender access during normal business hours to, and permit
the Lender or such representative to inspect, all properties belonging to the
Borrowers and permit such representative to examine, copy and make extracts from
such books, records and documents in the possession of the Borrowers, relating
to the affairs of the Borrowers, as such representative may reasonably request.
If requested by the

Borrowers, the Lender will enter into the Lender's standard confidentiality
agreement respecting the affairs of the Borrowers;

(i) comply with and use its best efforts to cause its agents,
contractors and subcontractors (while such persons are acting within the scope
of their contractual relationship with the Borrowers) to so comply with all
material, applicable environmental, health and safety laws, codes and
ordinances, and all rules and regulations promulgated thereunder of all
Governmental Agencies of which the failure to comply could reasonably be
expected to cause a Material Adverse Effect; and with the terms and conditions
of all material applicable permits, licenses, certificates and approvals of all
Governmental Agencies now or hereafter granted or obtained with respect to the
Equipment or other properties owned or operated by the Borrowers unless such
compliance would violate the laws or regulations of the jurisdictions in which
the Borrowers' properties are operating of which the failure to comply could
reasonably be expected to cause a Material Adverse Effect.

(i) The Borrowers will use their best efforts and safety
practices to prevent the unauthorized release, discharge, disposal,
escape or spill of Hazardous Substances on or about the Equipment or
other properties owned or operated by the Borrowers.

(ii) The Borrowers shall notify the Lender, in writing, within
five (5) Business Days after any of the following events occurring
after the date of this Agreement:

(A) Any written notification made by the Borrowers to
any federal, state or local environmental agency required
under any federal, state or local environmental statute,
regulation or ordinance relating to a spill or unauthorized
discharge or release of any Hazardous Substance to the
environment at, from, or as a result of any operations on, the
Equipment or other properties and operations owned or operated
by the Borrowers which could reasonably be expected to cause a
Material Adverse Effect;

(B) Knowledge by a Responsible Officer of the
Borrowers of receipt of service by the Borrowers of any
complaint, compliance order, compliance schedule, notice
letter, notice of violation, citation or other similar notice
or any judicial demand by any court, federal, state or local
environmental agency, alleging (i) any spill, unauthorized
discharge or release of any Hazardous Substance to the
environment from, or as a result of the operations on, the
Equipment or other properties owned or operated by the
Borrowers which could reasonably be expected to cause a
Material Adverse Effect or (ii) violations of applicable laws,
regulations or permits regarding the generation, storage,
handling, treatment, transportation, recycling, release or
disposal of Hazardous Substances on or as a result of
operations on the Equipment or other properties and operations
owned or operated by the Borrowers which could reasonably be
expected to cause a Material Adverse Effect.

(C) It is understood by the parties hereto that the aforementioned
notices are solely for the Lender's information, may not otherwise be required
by any federal,

state or local environmental laws, regulations or ordinances, and are to be
considered confidential information by the Lender.

(D) The term "environmental agency" as used herein shall include, but
not be limited to, the United States Environmental Protection Agency, the Texas
Railroad Commission, the United States Minerals Management Service, the United
States Department of Transportation (in its administration of the Hazardous
Materials Transportation Act, 49 U.S.C. Sec. 1801, ET SEQ.) and other analogous
or similar Governmental Agencies regulating or administering statutes,
regulations or ordinances relating to or imposing liability or standards of
conduct concerning the generation, storage, use, production, transportation,
handling, treatment, recycling, release or disposal of any Hazardous Substance.

(iii) The Borrowers hereby agree to indemnify and hold the
Lender harmless from and against any and all claims, losses, liability,
damages and injuries of any kind whatsoever asserted against the Lender
with respect to or as a direct result of the presence, escape, seepage,
spillage, release, leaking, discharge or migration from any item of
Equipment or other properties owned or operated by the Borrowers of any
Hazardous Substance, including without limitation, any claims asserted
or arising under any applicable environmental, health and safety laws,
codes and ordinances, and all rules and regulations promulgated
thereunder of all Governmental Agencies, regardless of whether or not
caused by or within the control of the Borrowers subject to the
following:

(A) It is the parties' understanding that the Lender
does not now, has never and does not intend in the future to
exercise any operational control or maintenance over the
Equipment or any other properties and operations owned or
operated by the Borrowers, nor has it in the past, presently,
or intend in the future to, maintain an ownership interest in
the Equipment or any other properties owned or operated by the
Borrowers except as may arise upon enforcement of the Lender's
rights under the Security Agreement.

(B) Should, however, the Lender hereafter exercise
any ownership interest in or operational control over the
Equipment or any other properties owned or operated by the
Borrowers, e.g., including but not limited to, through
foreclosure, then the above stated indemnity and hold harmless
shall be limited with respect to any actions or failures to
act by the Lender subsequent to exercising such interest or
operational control, to the extent such action or inaction by
the Lender is found by a court or Governmental Agency with
competent jurisdiction to have caused or made worse any
condition for which liability is asserted, including but not
limited to, the presence, escape, seepage, spillage, leaking,
discharge or migration on or from the Equipment or other
properties owned or operated by the Borrowers of any Hazardous
Substance.

(C) The indemnity and hold harmless contained in this
Section 3.02(i) shall not extend to the Lender in its capacity
as an equity investor in the Borrowers or as an owner of any
property or interest as to which the Borrowers are also owners
but only to its capacity as a lender, a holder of security
interests, or a beneficiary of security interests.

(j) not, without the prior written consent of the Lender, (i) sell,
transfer, lend, lease or otherwise dispose of the Equipment, the whole or, in
the opinion of the Lender, any substantial part of its business, property or
other assets, whether by a single transaction or by a series of transactions,
(related or not) except that (A) Borrowers may sell Equipment having a Fair
Market Value of up to USD 300,000 in any year, and (B) Borrowers may sell
Equipment having an aggregate Fair Market Value in excess of USD 300,000 in any
year if Lender consents thereto in writing and, if required by the Lender in its
sole discretion, such Equipment is promptly replaced with Equipment of equal or
greater Fair Market Value; provided, however, that Lender may require that
Borrowers obtain an appraisal of Equipment replaced pursuant to (B) above from
the appraiser described in Section 1.06(a)(ii), in form and substance
satisfactory to Lender, the costs of which appraisal shall be borne by the
Borrowers, or (ii) commit the Equipment to a contract for a period longer than
twelve months (including any committed extensions or renewals) if the effect of
such contract is to transfer control and operation of such Equipment.

(k) not, other than pursuant to or permitted by the Loan Documents
create, assume or permit to exist any encumbrance upon the Equipment, or any of
its property or assets described in the Security Agreement (whether now owned or
hereafter acquired);

(l) not, without the prior written consent of the Lender (which consent
shall not be unreasonably withheld) liquidate or dissolve or consolidate or
amalgamate with, or merge into, any other entity, except that the Borrowers may
be involved in a merger in which the surviving entity is PPSI;

(m) forthwith upon demand by the Lender and at the Borrowers' sole cost
and expense, execute and provide all such assurances and do all acts and things
as the Lender or any receiver in its absolute discretion may reasonably require
for: (i) perfecting or protecting the security created (or intended to be
created) by any of the Loan Documents, including, without limitation, granting
in favor of the Lender a security interest covering the security created (or
intended to be created) by any of the Loan Documents with respect to any
obligations of the Borrowers hereafter owing to the Lender under this Agreement
or the Note; or (ii) preserving or protecting any of the rights of the Lender or
the Lender under any of the Loan Documents; or (iii) facilitating the
appropriation or realization of any of the collateral assigned or granted to the
Lender under any of the Loan Documents and enforcing the security constituted by
any of the Loan Documents on or at any time after the same shall have become
enforceable; or (iv) the exercise of any power, authority or discretion vested
in the Lender under any of the Loan Documents;

(n) deliver to the Lender such financial or other information relating
to it, any of the transactions contemplated by this Agreement or any of the Loan
Documents, as may be reasonably requested by the Lender;

(o) upon the request of the Lender, give the Lender or any
representative of the Lender at any reasonable time, access to the Equipment and
permit the Lender or such representative to inspect the Equipment and any part
thereof, as the Lender or such representative may reasonably request;

(p) obtain an agreement in form and substance reasonably satisfactory
to the Lender from any person retained by or for the benefit of the Borrowers
relating to the management of the Equipment that any indebtedness incurred by
such person for the benefit of the Equipment and any fees and expenses paid to
such manager shall be subject and subordinate to the lien created by the
Security Agreement;

(q) deliver, or shall cause to be delivered, to the Lender at least two
copies and as many additional copies as the Lender may reasonably require from
time to time of, (i) its audited annual consolidated financial statements
(including the balance sheet, income statement and statement of cash flows of
PPSI), in a form consistent with generally accepted United States accounting
principles and practices consistently applied, as soon as is practicable after
the same have been issued but in any case within one hundred twenty (120) days
of the end of its fiscal year certified by a firm of nationally recognized
public accountants or other auditors as may be acceptable to the Lender that the
consolidated financial statements present fairly, in all material respects, the
financial position of the Borrowers as of the date thereof, (ii) its quarterly
consolidated financial statements (including the balance sheet, income statement
and statement of cash flows of PPSI) in a form consistent with generally
accepted United States accounting principles and practices consistently applied,
as soon as is practicable after the end of each financial quarter but in any
case within forty-five (45) days of the end of its financial quarter, and,
unless PPSI shall have filed a 10-Q Report for such quarter with the Securities
and Exchange Commission, such statements shall include a certificate by the
chief financial officer of PPSI that the consolidated financial statements
present fairly, in all material respects, the financial position of the
Borrowers as of the date thereof, (iii) such financial or other information
relating to it, any of the transactions contemplated by this Agreement or any of
the other Loan Documents, as may reasonably be requested by the Lender or
generally made available to its other creditors, its shareholders or to any
Governmental Agency; PROVIDED, HOWEVER, that all financial statements described
in (i) and (ii) above shall have included the relevant information of all
Borrowers;

(r) maintain a consolidated Cash Flow Coverage Ratio of at least
1.5:1.0;

(s) maintain, on a consolidated basis, Tangible Net Worth of at least
USD 185,000,000.00;

(t) maintain, on a consolidated basis, a ratio of Total Liabilities to
Tangible Net Worth not greater than 1.3:1.0; however, the ratio required by this
subsection (t) will be increased to 1.5:1.0

if PPSI or one of its subsidiaries is successful in obtaining additional Lake
Maracaibo contracts which are financed under terms and conditions substantially
similar to the MNS Venezuelan Lake Maracaibo Barge Financings but which
financings are not classified by the Lender as Limited Recourse Debt;

(u) maintain all permits and certificates which are material and
necessary under all applicable environmental, safety and public health laws and
regulations applicable to the Borrowers and the Equipment, and all other laws
and regulations affecting or relating to the Equipment;

(v) deliver to the Lender, contemporaneously with the delivery to the
Lender of the annual and quarterly financial statements specified in clause (r)
above, its certificate (in form and substance satisfactory to the Lender),
signed by its chief financial officer, (i) stating that such officer has
reviewed the relevant terms of this Agreement, the other Loan Documents and all
other agreements of the Borrowers which evidence indebtedness for borrowed
money, lease or other financial obligations (the "Financial Obligation
Agreements") and has made or caused to be made under his supervision, a review
of the transactions and condition of the Borrowers during the relevant fiscal
quarter or year, as the case may be, and that such review has not disclosed the
existence during such period, nor does such officer have knowledge of the
existence as at the date of such certificate, of any condition or event which
constitutes an event of default under any of the Loan Documents or Financial
Obligation Agreements, or which, after notice or lapse of time or both would
constitute an event of default under any of the Loan Documents or Financial
Obligation Agreements, or if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action the
Borrowers have taken or proposes to take with respect thereto, (ii) setting
forth in form and detail satisfactory to the Lender the calculations respecting
compliance with the financial covenants of this Agreement, (iii) stating whether
there has been any sale or other disposition of, loss of or material damage to
Equipment with aggregate Fair Market Value of USD 300,000 or more, not
previously reported to Lender in that fiscal year, (iv) listing all items of
Equipment that have been removed from a jurisdiction in which a financing
statement covering such Equipment in favor of the Lender has been filed, and (v)
for purposes of the annual certificate only, attaching and certifying as true
and correct a certificate evidencing the insurance in place with respect to the
Equipment and its operation by the Borrowers; and

(w) within sixty (60) days of the Closing Date affix, in a manner
acceptable to the Lender, indelible identification marks to each item of
Equipment as assigned by the appraiser referred to in Section 1.06(a)(ii) and as
listed on Schedule 1 to the Security Agreement; such affixation to be confirmed
to the Lender by such appraiser within such sixty (60) day period. The fees and
expenses of such appraiser in connection with such confirmation shall be paid by
the Borrowers.

ARTICLE IV
Events of Default

If any of the following events shall occur and be continuing, (each an
"Event of Default"):

A. the Borrowers shall fail to pay any principal of or interest on the
Note, which failure shall continue for five Business Days after the date when
due;

B. any representation or warranty made by the Borrowers herein or made
in any certificate or financial statement furnished to the Lender hereunder or
under any of the Loan Documents shall prove to have been incorrect in any
material respect;

C. the Borrowers shall (i) fail to perform or observe any covenant
contained in Section 3.02(j), (k), (l), (r), (s), or (t) above or (ii) fail to
perform or observe any other term or covenant set forth in this Agreement or in
any other Loan Document which is not covered by clause (i) above or any other
provision of this Article IV if such failure shall remain unremedied for 30 days
after the earlier of written notice of such default shall have been given to the
Borrowers by the Lender or a Responsible Officer's actual knowledge of such
default;

D. an event of default under any loan agreement, credit agreement,
security agreement, guaranty agreement, lease agreement or other agreement now
existing or hereafter entered into by any Borrowers shall not have been remedied
within any stated grace periods during such time as USD 3,000,000 or more is
outstanding under such agreement; provided, however, that Limited Recourse Debt
shall not be taken into account in determining such cross defaults;

F. any of the following events shall occur:

(i) any Borrower commences a voluntary case under Title 11 of
the United States Code as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or

(ii) an involuntary case is commenced against a Borrower under
the Bankruptcy Code and relief is ordered against the Borrowers or the
petition is controverted but is not dismissed or stayed within sixty
(60) days after the commencement of the case; or

(iii) a custodian (as defined in the Bankruptcy Code) or a
similar official is appointed for, or takes charge of, all or
substantially all of the property of a Borrower and such appointment is
not terminated within sixty (60) days; or

(iv) a Borrower commences any other proceeding under any
reorganization, arrangement, readjustment of debt, relief of debtors,
dissolution, insolvency, liquidation or similar law of any jurisdiction
relating to the Borrowers (whether now or hereafter in effect), or
there is commenced against a Borrower any such proceeding which remains
undismissed or unstayed for a period of sixty (60) days or a Borrower
is adjudicated insolvent or bankrupt; or a Borrower fails to controvert
in a timely manner any such case under the

Bankruptcy Code or any such proceeding, or any order of relief or other
order approving any such case or proceeding is entered; or

(v) a Borrower by any act or failure to act indicates its
consent to, approval of or acquiescence in any such case or proceeding
or in the appointment of any custodian of or for it or any substantial
part of its property or suffers any such appointment to continue
undischarged or unstayed for a period of sixty (60) days; or

(vi) a Borrower makes a general assignment for the benefit of
creditors; or

(vii) any corporate action is taken by a Borrower for the
purpose of effecting any of the foregoing; or

G. an order, judgment or decree shall be entered, without the
application, approval or consent of a Borrower by any court of competent
jurisdiction, approving a petition seeking reorganization of a Borrower or
seizure or attachment of all or a substantial part of the Borrowers' assets, and
such order, judgment or decree shall continue unstayed and in effect for any
period of sixty (60) consecutive days; or

H. judgments or orders for the payment of monies in excess of USD
750,000 in aggregate shall be rendered against a Borrower, and such judgments or
orders shall continue unsatisfied, unstayed or unbonded for a period of thirty
(30) days;

then the Lender may by written notice to the Borrowers (1) immediately terminate
the commitment of the Lender hereunder; (2) declare the principal of, and
interest accrued to the date of such declaration on, the Note together with all
other amounts due hereunder or under any of the Loan Documents, to be forthwith
due and payable, whereupon the same shall become forthwith due and payable
(provided, however, no notice or declaration shall be required and such amounts
shall be immediately due and payable upon the occurrence of an event described
in Article IV(F) or (G) hereof) and (3) exercise any remedies to which the
Lender may be entitled by any Loan Document or by applicable law.

ARTICLE V
Miscellaneous

Section 5.01 NOTICES. All notices, requests and demands shall be in
writing (including telecopier transmission) given to or made upon the respective
parties hereto as follows:

In the case of the Borrowers, at:

Pride Petroleum Services, Inc.
1500 City West Blvd., Suite 400
Houston, Texas 77042
Attention: Chief Financial Officer

Telecopier: (713) 789-1430

In the case of the Lender, at:

Heller Financial, Inc.
500 West Monroe Street, 16th Floor
Chicago, Illinois 60661

Attention: (a) Vice President-Regional Credit Manager CEFD
Central Region
Telecopier: (312) 441-7519

(b) Legal Department
Tom Hirsh-Group General Counsel
Telecopier: (312) 441-7456

or in such other manner as any party hereto shall designate by written notice to
the other parties hereto. All such notices shall be effective upon delivery or
three (3) days after being deposited in the United States mail with postage
prepaid certified, return receipt requested in a correctly addressed wrapper, or
upon receipt if delivered to Federal Express or similar courier company or
transmitted by telefax during normal business hours, except that all notices,
requests and demands to the Lender shall not be effective until received by the
Lender. All notices, demands, requests, communications and other documents
delivered hereunder or under the Loan Documents, unless submitted in the English
language, shall be accompanied by certified English translation thereof.

Section 5.02 AGENT FOR BORROWERS.

(a) The Borrowers agree that PPSI shall be the true and lawful agent
and attorney-in-fact of the Borrowers hereunder, and under the Note and Security
Agreement, in connection with all of the rights, powers and duties of the
Borrowers hereunder and under the Note and Security Agreement, including,
without limitation, the giving or withholding and the receipt of consents and
notices.

(b) The Lender shall be entitled to and agree to treat any notice given
or action taken by PPSI, acting in its capacity as agent, as a notice from or
action by the Borrowers.

Section 5.03 NO WAIVER. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Lender of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right.

Section 5.04 APPLICABLE LAW AND JURISDICTION. (a) This Agreement and
the Loan Documents provided for herein (including, but not limited to, the
validity and enforceability hereof and thereof) shall be governed by, and
construed in accordance with, the laws of the State of Illinois, other than
conflict of laws rules thereof. Any legal action or proceeding against the
Borrowers with respect

to this Agreement or any Loan Document may be brought in the courts of the State
of Illinois, the U.S. Federal Courts in such state, sitting in Cook County, or
in the courts of any other jurisdiction where such action or proceeding may be
properly brought, and the Borrowers hereby irrevocably accept the jurisdiction
of such courts for the purpose of any action or proceeding. The Borrowers
irrevocably consent to the service of process out of said courts by the mailing
thereof by the Lender by U.S. registered or certified mail postage prepaid to
the party to be served at its address designated in Section 5.01. The Borrowers
agree that a final judgment in any action or proceeding shall be conclusive and
may be enforced in any other jurisdiction by suit on the judgment or in any
other manner provided by law. Nothing in this Section 5.04 shall affect the
right of the Lender to serve legal process in any other manner permitted by law
or affect the right of the Lender to bring any action or proceeding against the
Borrowers or their respective properties in the courts of any other
jurisdiction. To the extent that the Borrowers have or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to either themselves or their
property, the Borrowers hereby irrevocably waive such immunity in respect of its
obligations under this Agreement and the other Loan Documents. The Borrowers
hereby irrevocably waives any objection which they may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating
to this Agreement or any Loan Document brought in a Court of the State of
Illinois, Cook County or the U.S. District Court for the Northern District of
Illinois, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.

(b) THE LENDER AND THE BORROWERS IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

Section 5.05 SEVERABILITY. In the event that any provision of this
Agreement is held to be void or unenforceable in any jurisdiction, all other
provisions shall remain unaffected and be enforceable in accordance with their
terms in such jurisdiction, and all provisions of this Agreement shall remain
unaffected and shall be enforceable in accordance with their terms in all other
jurisdictions.

Section 5.06 AMENDMENT. Neither this Agreement nor any provision
hereof, including without limitation this Section 5.06, may be amended,
modified, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the amendment,
modification, waiver, discharge or termination is, sought. This Agreement shall
be binding upon and inure to the benefit of the Borrowers, the Lender and their
respective successors and assigns, except that the Borrowers shall not have the
right to assign their rights hereunder or any interest herein without the prior
written consent of the Lender.

Section 5.07 ASSIGNMENT AND PARTICIPATION. The Lender shall have the
right, provided it complies with all applicable state and federal securities
laws, to assign or grant participations in all or any portion of the Loan
outstanding under this Agreement or the Note to any affiliate of the

Lender or to any foreign, federal or state banking institution, savings and loan
institution or finance company upon thirty (30) days written notice to the
Borrowers of such assignment or participation.

Section 5.08 COSTS, EXPENSES AND TAXES. The Borrowers agree to pay on
demand all reasonable fees, costs and expenses in connection (i) with the
preparation, execution, delivery, administration, amendment and enforcement of
this Agreement, the Note, the other Loan Documents and any other documents to be
delivered hereunder and thereunder (including, without limitation, the appraisal
and inspection reports required hereunder) and any amendment, modification or
supplement hereto or thereto, including, without limitation, the reasonable fees
and out-of-pocket expenses of counsel for the Lender, and any special counsel
associated with them and the filing of any document or instrument in connection
with any of the foregoing, (ii) with respect to reasonable fees and out of
pocket expenses of counsel for advising the Lender as to their rights and
responsibilities under this Agreement and the transactions contemplated thereby
after an Event of Default or an event which, with the giving of notice or lapse
of time, or both, shall have occurred, and (iii) with any filing or recording of
any document or instrument. In addition, the Borrowers shall pay any and all
stamp and other taxes (including, without limitation penalties and interest
assessed thereon) other than Excluded Taxes payable or determined to be payable
in connection with the execution, delivery or performance of this Agreement and
the Loan Documents and any other documents to be delivered hereunder and
thereunder and agrees to save the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.

Section 5.09 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.

Section 5.10 SECTION HEADINGS. The headings of the various Sections and
subsections of this Agreement are for convenience of reference only and shall
not define or limit any of the terms or provisions hereof.

Section 5.11 ENTIRE AGREEMENT. THIS WRITTEN LOAN AGREEMENT, TOGETHER
WITH THE OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

IN WITNESS WHEREOF, the parties have executed this Agreement as of April 30,
1996.

PRIDE PETROLEUM SERVICES, INC.

By: /s/ JAMES BYERLOTZER
Name: James Byerlotzer
Title: Vice President

PRIDE PETROLEUM SERVICES OF CALIFORNIA, INC.

By: /s/ JAMES BYERLOTZER
Name: James Byerlotzer
Title: President

PRIDE PETROLEUM SERVICES OF LOUISIANA, INC.

By: /s/ JAMES BYERLOTZER
Name: James Byerlotzer
Title: President

HELLER FINANCIAL, INC.

By: /s/ WALTER R. SCHULTZ
Name: Walter R. Schoultz
Title: Vice President

EXHIBIT 15.1

AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Pride Petroleum Services, Inc.
Registration Statement on Form S-3

We are aware that our report dated May 15, 1996 on our review of interim
financial information of Pride Petroleum Services, Inc. for the three-month
periods ended March 31, 1996 and 1995 included in the Company's quarterly report
on Form 10-Q for the quarter then ended is included and incorporated by
reference in this registration statement on Form S-3. Pursuant to Rule 436(c)
under the Securities Act of 1933, this report should not be considered a part of
the registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.

COOPERS & LYBRAND L.L.P.

Houston, Texas
June 4, 1996

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion and incorporation by reference in this
registration statement on Form S-3 of our report dated February 26, 1996, which
includes an explanatory paragraph regarding a change in the accounting for
income taxes in 1993, on our audits of the financial statements of Pride
Petroleum Services, Inc. as of December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995. We also consent to the
reference to our firm under the caption "Independent Public Accountants."

COOPERS & LYBRAND L.L.P.

Houston, Texas
June 4, 1996

EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the incorporation by reference in this registration statement
on Form S-3 of our report dated May 19, 1995, on our audits of the consolidated
financial statements of X-Pert Enterprises, Inc. as of February 28, 1995 and
March 31, 1994, and for the eleven months and year then ended. We also consent
to the reference to our firm under the caption "Independent Public Accountants."

JOHNSON, MILLER & CO.

Hobbs, New Mexico
June 3, 1996

EXHIBIT 23.3

LETTER OF CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report on the consolidated balance sheets of Quitral-Co S.A.I.C. and its
subsidiary as of June 30, 1995 and 1994, and the related consolidated statements
of income, changes in shareholders' equity and cash flows for the years ended
June 30, 1995, 1994 and 1993, included herein and to all references to our firm
included in or made a part of this Registration Statement on Form s-3 by Pride
Petroleum Services, Inc.

PISTRELLI, DIAZ Y ASOCIADOS
ENRIQUE C. GROTZ
Partner

Buenos Aires, Argentina
June 3, 1996