DUAL DRILLING CO /DE/, 10-K405, 1997-03-27

DUAL DRILLING CO /DE/
10-K405, 1997-03-27
DRILLING OIL & GAS WELLS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-K
(Mark One) -------------
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from . . . . . . . . . . to . . . . . . . . . .

Commission File Number 0-22078

Dual Holding Company (formerly DUAL DRILLING COMPANY)
(Exact name of registrant as specified in its charter)

DELAWARE 51-0327704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2700 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2792
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 922-1500

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]

The registrant meets the conditions set forth in General Instruction
J(1)(a) and (b) and is therefore filing this Form with the reduced
disclosure format.

Aggregate market value of voting stock held by non-affiliates of the
registrant: None

Number of shares outstanding at March 19, 1997: Common Stock: 1,000
===========================================================================<PAGE>

TABLE OF CONTENTS

PAGE
----

PART ITEMS 1. AND 2. BUSINESS AND PROPERTIES . . . . . . . . . . 1
I General . . . . . . . . . . . . . . . . . . . . . 1
Merger with ENSCO . . . . . . . . . . . . . . . . 1
Contract Drilling Operations . . . . . . . . . . 1
Jackup Rigs . . . . . . . . . . . . . . . . . . . 2
Platform Rigs . . . . . . . . . . . . . . . . . . 2
Contracts . . . . . . . . . . . . . . . . . . . . 2
Major Customers . . . . . . . . . . . . . . . . . 3
Industry Conditions and Competition . . . . . . . 3
Governmental Regulation . . . . . . . . . . . . . 3
Environmental Matters . . . . . . . . . . . . . . 3
Operational Risks and Insurance . . . . . . . . . 4
International Operations . . . . . . . . . . . . 4
Other Properties . . . . . . . . . . . . . . . . 5
Employees . . . . . . . . . . . . . . . . . . . . 5
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . . 5
________________________________________________________________________

PART ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
II RELATED STOCKHOLDER MATTERS . . . . . . . . . . . 6
ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL
AND OPERATIONS DATA . . . . . . . . . . . . . . . 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . 7
General . . . . . . . . . . . . . . . . . . . . . 7
Merger . . . . . . . . . . . . . . . . . . . . . 7
Results of Operations . . . . . . . . . . . . . . 7
Liquidity and Capital Resources . . . . . . . . . 9
Private Securities Litigation Reform Act of 1995 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . 33
________________________________________________________________________

PART ITEMS 10-13.
III DIRECTORS AND EXECUTIVE OFFICERS, EXECUTIVE
COMPENSATION, SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . 34
________________________________________________________________________

PART ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
IV REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 35

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 39

- i - <PAGE>

PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

General

Dual Holding Company ("Dual" or the "Company") is a domestic and
international offshore drilling contractor. The Company currently owns or
operates a fleet of 18 offshore drilling rigs, consisting of 10 jackup rigs
and eight platform rigs. The Company's strategy is to market and operate
quality jackup and platform drilling rigs in geographically diverse
markets.

On June 12, 1996, the Company was acquired by ENSCO International
Incorporated ("ENSCO") in a purchase acquisition (the "Merger"), and became
a wholly-owned subsidiary of ENSCO on that date. The Company was formerly
known as DUAL DRILLING COMPANY prior to the Merger. From 1990 to 1993, the
Company was wholly-owned by Dual Invest AS ("Dual Invest"), a Norwegian
corporation. In August 1993, the Company completed an initial public
offering of shares of its common stock, which reduced Dual Invest's
ownership interest in the Company to approximately 59.6% of the Company's
outstanding common stock.

Merger with ENSCO

The Merger was approved by the stockholders of the Company who received
0.625 shares of ENSCO common stock in exchange for each share of the
Company's common stock. The Company's stockholders received, in the
aggregate, approximately 10.1 million shares of ENSCO common stock in
connection with the Merger, resulting in an acquisition price of
approximately $218.4 million.

The Company used the purchase method of accounting to record the Merger.
The purchase price allocation has been based on preliminary estimates of
fair value of the assets acquired and liabilities assumed and is subject to
adjustment as additional information becomes available and is evaluated.
The primary areas subject to further purchase price adjustment are reserves
associated with insurance related matters and taxes.

Contract Drilling Operations

The Company's fleet of 18 offshore drilling rigs are located in North
America and Asia. At December 31, 1996, the Company's North America
drilling rigs consisted of five jackup rigs and seven platform rigs located
in the Gulf of Mexico. The Company's Asia jackup rigs consisted of two
jackup rigs located offshore India, one offshore Indonesia and one each in
shipyards in Malaysia and Sharjah undergoing modifications and
enhancements. The Company operates one platform rig off the coast of
China, which is not owned but managed by the Company.

In May 1996, the Company purchased one jackup rig, which the Company
previously operated in the Gulf of Mexico under a charter agreement, for
$21.3 million. In September 1996, the Company retired two platform rigs
previously located off the coast of California. The rigs were dismantled

1<PAGE>

and their major components were sold to ENSCO at fair market value as spare
capital assets.

Financial information regarding the Company's geographic operations is
presented in Note 9 to the Consolidated Financial Statements included in
"Item 8. Financial Statements and Supplementary Data." Additional
financial information regarding the Company's operations is presented in
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Jackup Rigs

Jackup rigs are mobile self-elevating drilling platforms equipped with legs
that can be lowered to the ocean floor to provide a foundation for
supporting a drilling platform and to allow the drilling platform to be
elevated above the water. The entire drilling platform is self-contained
with the rig hull incorporating the drilling equipment and derrick, the
jacking system for the legs, crew quarters, storage and loading facilities,
helicopter landing pad and related equipment. All of the Company's jackup
rigs are of the independent leg design which are the most versatile and can
accommodate most drilling sites on which a jackup rig can be used.

Platform Rigs

A platform rig consists of drilling equipment and machinery arranged in
modular packages which are transported to, assembled, and then installed on
fixed offshore platforms owned by the customer. Fixed offshore platforms
are steel tower-like structures which stand on the ocean floor, with the
top portion, or platform, being above the water level and providing the
foundation upon which the platform rig is placed. A self-contained
platform rig contains living quarters for the crew, power generating units,
and facilities for storing drilling fluid and well tubular supplies to
sustain drilling operations between resupplyings.

Contracts

The drilling services provided by the Company are conducted on a contract
basis. The Company generally provides services on a "daywork" basis.
Under daywork contracts, the Company receives a fixed amount per day for
drilling the well and the customer bears a major portion of the out-of-
pocket costs of drilling. The customer may pay the cost of moving the
equipment to and from the job site and assembling and dismantling the
equipment.

Effective June 13, 1996, the Company's domestic drilling rigs in the Gulf
of Mexico were bareboat chartered to a wholly-owned subsidiary of ENSCO to
achieve operating and marketing efficiencies. The terms of the bareboat
charter agreements provide for fixed daily rates to be paid to the Company,
which the Company believes are reasonable and representative of the
environment in which the rigs operate. Each respective bareboat charter
rate is increased for any capital expenditures made by the Company for a
chartered rig and the rate is reduced to 50% of the normal rate if a rig is
idle for more than 30 consecutive days. The initial term of each bareboat
charter agreement is one year, with automatic one year extensions, unless
either party gives at least one month's notice of termination. At December

2<PAGE>

31, 1996, the Company had two jackup rigs and seven platform rigs under
bareboat charter to ENSCO.

Major Customers

The Company's customer base consists of major international oil and gas
companies, independent oil and gas companies, government-owned oil and gas
companies and ENSCO. In 1996, the Company's customers which individually
accounted for more than 10% of the Company's consolidated revenues
consisted of Oil & Natural Gas Corporation (18%), Sonat Inc. (14%), ARCO
(12%), and ENSCO (11%).

Industry Conditions and Competition

After several years of depressed market conditions resulting from the
supply of offshore drilling rigs exceeding demand, uncertainty over low oil
and gas prices and reductions in expenditures by oil and gas companies, the
offshore contract drilling market has shown distinct improvement over the
last two years, but most significantly in 1996. Worldwide drilling
activity increased significantly from 1995 to 1996 with current demand
absorbing substantially all of the drilling rigs that are in working
condition and being actively marketed in the major offshore drilling
markets throughout the world. With projected capital expenditure increases
for major and independent oil companies in 1997, the Company anticipates
that the offshore drilling markets will remain strong through at least the
end of 1997 unless there is a significant deterioration of oil and natural
gas prices.

The contract drilling business is highly competitive and Dual competes with
other drilling contractors on the basis of quality of service, price,
equipment suitability and availability, reputation and technical expertise.
Competition is usually on a regional basis, but drilling rigs are mobile
and may be moved from one region to another in response to demand.
Drilling operations are generally conducted throughout the year with some
seasonal declines in winter months.

Governmental Regulation

The Company's business is affected by political developments and by
federal, state, foreign and local laws and regulations that relate directly
to the oil and gas industry. The industry is also affected by changing tax
laws, price controls and other laws affecting the energy business. The
adoption of laws and regulations curtailing exploration and development
drilling for oil and gas for economic, environmental or other policy
reasons adversely affects the Company's operations by limiting available
drilling and other opportunities in the energy service industry, as well as
increasing the costs of operations.

The Company and its rigs are subject to federal, state, local and foreign
laws and regulations relating to engineering, design, structural, safety
and operational and inspection standards.

3<PAGE>

Environmental Matters

The Company's operations are subject to federal, state and local laws and
regulations controlling the discharge of materials into the environment or
otherwise relating to the protection of the environment. Laws and
regulations specifically applicable to the Company's business activities
could impose significant liability on the Company for damages, clean-up
costs and penalties in the event of the occurrence of oil spills or similar
discharges of pollutants into the environment in the course of the
Company's operations, although, to date, such laws and regulations have not
had a material adverse effect on the Company's results of operations, nor
has the Company experienced an accident that has exposed it to material
liability for discharges of pollutants into the environment. In addition,
events in recent years have heightened environmental concerns about the oil
and gas industry in general. From time to time, legislative proposals have
been introduced which would materially limit or prohibit offshore drilling
in certain areas. To date, no proposals which would materially limit or
prohibit offshore drilling in the Company's principal areas of operation
have been enacted into law. If laws are enacted or other governmental
action is taken that restrict or prohibit offshore drilling in the
Company's areas of operation or impose environmental protection
requirements that materially increase the cost of offshore exploration,
development or production of oil and gas, the Company could be materially
adversely affected.

The United States Oil Pollution Act of 1990 ("OPA '90") and similar
legislation in Texas, Louisiana and other coastal states address oil spill
prevention and control and significantly expand liability exposure across
all segments of the oil and gas industry. OPA '90, such similar
legislation and related regulations impose a variety of obligations on the
Company related to the prevention of oil spills and the liability for
resulting damages. OPA '90 imposes strict and, with limited exceptions,
joint and several liability upon each responsible party for oil removal
costs and a variety of damages. OPA '90 imposes ongoing financial
responsibility requirements. A failure to comply with OPA '90 may subject
a party to civil or criminal enforcement action. The U.S. Minerals
Management Service is required to promulgate regulations to implement the
financial responsibility requirements of OPA '90. These regulations could
increase the cost of doing business in U.S. waters and adversely affect the
ability of some of the Company's customers to operate in U.S. waters.

Operational Risks and Insurance

Contract drilling and oil and gas operations are subject to various risks
including blowouts, craterings, fires and explosions, each of which could
result in damage to or destruction of drilling rigs and oil and gas wells,
personal injury and property damage, suspension of operations or
environmental damage through oil spillage or extensive, uncontrolled fires.
The Company generally insures its drilling rigs for amounts not less than
the estimated fair market value thereof. The Company also maintains
liability insurance coverage in amounts and scope which the Company
believes are comparable to the levels of coverage carried by other energy
service companies. To date, the Company has not experienced difficulty in
obtaining insurance coverage. While the Company believes its insurance
coverages are customary for the energy service industry, the occurrence of

4<PAGE>

a significant event not fully insured against could have a material adverse
effect on the Company. Also, there can be no assurance that any particular
insurance claim will be paid or that the Company will be able to procure
adequate insurance coverage at commercially reasonable rates in the future.

International Operations

A significant portion of the Company's operations are conducted in foreign
countries. Revenues from international operations were 63% of the
Company's total revenues in 1996. The Company's international operations
are subject to political, economic, and other uncertainties, such as the
risks of expropriation of its equipment, expropriation of a customer's
property or drilling rights, repudiation of contracts, adverse tax
policies, general hazards associated with international sovereignty over
certain areas in which the Company operates and fluctuations in
international economies.

Other Properties

Prior to the Merger the Company leased office space for its corporate
headquarters in Dallas, Texas. This space is no longer occupied by the
Company and has been sublet under the lease agreement which extends through
February 1999. The Company leases minimal space for its offices in
Houston, Texas; Bombay, India; Jakarta, Indonesia; Al Khobar, Saudi Arabia;
Doha, Qatar; and Ciudad del Carmen, Mexico. In addition, the Company owns
a facility in Broussard, Louisiana, which is for sale.

Employees

As of December 31, 1996, the Company had no employees. In connection with
the Merger, all of the Company's employees who were retained became
employees of ENSCO. The Company has a Master Services Agreement with ENSCO
for shorebase and corporate support services under which the Company pays
ENSCO a monthly fee of $400,000 for accounting, treasury, human resources,
engineering, insurance administration, management information systems,
purchasing, safety and legal services. Either party may cancel this
agreement upon 30 days notice. In addition, ENSCO provides contract labor
for all of the Company's international drilling rigs at cost.

ITEM 3. LEGAL PROCEEDINGS

The Company is currently not involved in any litigation which, in the
opinion of management, would have a material adverse effect on its
financial condition or results of operations.

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

Not required under the reduced disclosure format.

5<PAGE>

PART II

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

All of the common stock of the Company is owned by ENSCO. The shares were
acquired by ENSCO on June 12, 1996 as a result of the Merger in a
transaction exempt from the registration requirements of the Securities Act
of 1933, as amended, pursuant to section 4(2) thereof. As such, there is
no established public trading market for the Company's common stock.

The Company has never declared any cash dividends on its common stock and
does not anticipate paying dividends on the common stock in the foreseeable
future. The Company's ability to pay dividends is restricted by certain
provisions contained in the indenture to which its publicly traded notes
were issued, and by certain provisions in the agreements related to the
Company's bank financing. See Note 4 to the Consolidated Financial
Statements.

ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATIONS DATA

Not required under the reduced disclosure format.

6<PAGE>

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

The information presented herein is only intended to present a narrative
analysis of material changes in operating results and financial position
between 1996 and 1995. This reduced analysis is in accordance with the
reduced disclosure format set forth in General Instruction J(1)(a) and (b).

GENERAL

The Company owns offshore drilling rigs which are contracted for use in the
Gulf of Mexico and Asia. Worldwide drilling activity increased
significantly in 1996 from 1995 with current demand absorbing substantially
all of the rigs that are in working condition and being actively marketed
in the major offshore drilling markets throughout the world.

MERGER

On June 12, 1996, the Company was acquired by ENSCO in the Merger. The
Merger was approved on that date by the stockholders of the Company who
received 0.625 shares of ENSCO common stock for each share of the Company's
common stock. The Company's stockholders of record as of June 12, 1996
received, in the aggregate, approximately 10.1 million shares of ENSCO
common stock in connection with the acquisition, resulting in an
acquisition price of approximately $218.4 million.

In conjunction with the Merger, the Company charged $22.0 million against
operating results for certain items. These items included compensation
paid in the ordinary course of business as well as other costs directly
related to the Merger. These expenses are included as Change in Control
expenses in the consolidated statement of operations for the period January
1, 1996 to June 12, 1996. See Note 2 to the Company's Consolidated
Financial Statements.

Effective June 13, 1996, each of the Company's domestic rigs in the Gulf of
Mexico were bareboat chartered to a wholly owned subsidiary of ENSCO to
achieve operating and marketing efficiencies. At December 31, 1996, the
Company had two jackup rigs and seven platform rigs which were bareboat
chartered to ENSCO. The terms of the bareboat charter agreements provide
for fixed daily rates to be paid to the Company, which the Company believes
are reasonable and representative of the environment in which the rigs
operate. Each respective bareboat charter rate is increased for any capital
expenditures made by the Company on a chartered rig and the rate is reduced
to 50% of the normal rate if a rig is idle for more than 30 consecutive
days. The initial term of the bareboat charter agreement is one year, with
automatic one year extensions, unless either party gives at least one
month's prior notice of termination.

RESULTS OF OPERATIONS

As a result of the Merger, the comparisons presented below of changes
between periods reflect the results of the Company during the period
(January 1, 1996 to June 12, 1996) prior to the Merger ("Predecessor"
entity) as well as the period (June 13, 1996 to December 31, 1996)
subsequent to the Merger ("Successor" entity). The financial statements of

7<PAGE>

the Predecessor and Successor entities are not comparable in certain
respects because of differences between the cost bases of the assets and
liabilities held by the Predecessor entity compared to that of the
Successor entity, as well as the effect on the Successor's operations for
adjustments to depreciation and amortization, interest income, interest
expense, and income taxes. For comparative analysis between years, the
1996 amounts presented below include the combined results of the
Predecessor and Successor entities.

The schedule below provides a summary of the Company's operating results
for the years indicated (in thousands, except utilization data).

Year Ended December 31,
-----------------------
1996 1995
Combined
-------- --------
Revenues
Jackup Rigs - North America $35,201 $30,907
Jackup Rigs - Asia 44,549 28,157
Platform Rigs 17,417 26,825
Total $97,167 $85,889

Operating Margin (1)
Jackup Rigs - North America $20,267 $ 7,990
Jackup Rigs - Asia 16,121 6,989
Platform Rigs 4,868 10,681
Total $41,256 $25,660

Utilization 89% 70%

(1) Defined as operating revenues less operating expenses,
exclusive of depreciation and amortization, change in control,
and general and administrative expenses.

1996 Compared to 1995:
Combined consolidated revenues (combining the Predecessor and Successor
entities for comparative purposes) were $97.2 million for 1996, an increase
of 13% over 1995 revenue. Combined operating margin improved to $41.3
million in 1996, an increase of $15.6 million, or 61%, over the 1995
margin. The improved 1996 combined revenue and operating margin results
from increased utilization of the Company's drilling rigs and a worldwide
increase in operating day rates paid for rental of drilling rigs.
Utilization of the Company's rig fleet improved to 89% for 1996 compared to
70% for 1995. Conversely, the Company's operating margin in 1996 was
negatively impacted by the sale of a platform rig located off the coast of
China in August 1995 that operated for the first half of 1995. The Company
now operates this rig under a management contract that provides for a
competitive day rate during the periods the rig is operating and a reduced
day rate when the rig is idle. Also, in September 1996, the Company
retired two platform rigs previously located off the coast of California
that operated for all of 1995 and the first part of 1996.

8<PAGE>

Depreciation and amortization expense in 1996 increased by $2.5 million, or
13%, from 1995 due primarily to the increase in drilling rig values and
goodwill recorded in the Merger.

Change in Control expenses of $22.0 million recorded in the Predecessor
entity's consolidated statement of operations for the period from January
1, 1996 to June 12, 1996 relates to compensation paid in the ordinary
course of business as well as other costs incurred by the Company directly
related to the Merger. See Note 2 "Merger" to the Company's Consolidated
Financial Statements.

General and administrative expenses in 1996 decreased $1.2 million, or 15%,
from 1995 due primarily to efficiencies achieved in the Merger. In
connection with the Merger, the Company entered into a Management Services
Agreement with ENSCO for shorebase and corporate support services under
which the Company pays ENSCO a monthly fee of $400,000 for accounting,
treasury, human resources, engineering, insurance administration,
management information systems, purchasing, safety and legal services.
Either party may cancel this agreement upon 30 days notice.

In 1995 the Company recorded a gain on the sale of assets of $5.1 million,
net, from the sale of a jackup rig located in the Gulf of Mexico, a 51%
interest in a jackup rig located in Asia and a platform rig also located in
Asia.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow and Capital Expenditures

The Company's cash provided by (used by) operations and capital
expenditures for the years ended December 31, 1996 and 1995 were as follows
(in thousands):
1996 1995
Combined
-------- --------
Cash provided by (used by) operations $13,942 $(2,441)
Capital expenditures 31,758 30,668

Combined cash flow from operations increased by $16.4 million in 1996 as
compared to 1995. Approximately $12.0 million of the 1996 increase was a
result of changes in working capital accounts and the remaining $4.4
million change was due to improved operating results in 1996, excluding
change in control charges.

Capital expenditures in 1996 primarily related to the purchase of a jackup
rig located in the Gulf of Mexico for $21.3 million. The remaining 1996
capital expenditures were for ongoing capital improvements to the Company's
drilling rigs. Capital expenditures of $22.5 million in 1995 related to
the purchase of a jackup rig and an additional $8.2 million related to
ongoing capital improvements to the Company's drilling rigs.

Net cash used by investing activities was $31.6 million in 1996 as compared
to net cash provided by investing activities of $29.8 million in 1995. In
1995, the Company received net proceeds of $38.8 million from the sale of
property and equipment and invested $30.7 million in property and equipment

9<PAGE>

additions. Also included as cash provided by investing activities in the
1995 Statement of Cash Flows was $22.0 million previously restricted for
rig purchases at December 31, 1994.

Net cash used by financing activities was $15.8 million in 1996 as compared
to $4.5 million in 1995, primarily representing reductions in long-term
borrowings.

Financing and Capital Resources

The Company's long-term debt, total capital and debt to capital ratios are
summarized below (in thousands, except percentages):

1996 1995
-------- --------
Long-term debt $134,387 $138,163
Total capital 356,882 278,309
Long-term debt to total capital 38% 50%

The Company's long-term debt at December 31, 1996 consisted of $99.4
million ($95.0 million face amount) of the Company's 9 7/8% senior
subordinated notes (the "Notes") due January 2004, and $35.0 million
outstanding under the Company's revolving credit facility. In connection
with the Merger, the Company refinanced its outstanding bank debt of $41.8
million with proceeds of $45.0 million from a new $50.0 million credit
facility (the "Sub-Facility") established under the terms of ENSCO's
amended and restated $150.0 million revolving credit facility with a group
of international banks. In November 1996, the Company repaid $10.0 million
of borrowings under the Sub-Facility and in December 1996 reduced the
availability under the Sub-Facility to $35.0 million. Also in connection
with the Merger, the Company assigned a $5.0 million premium to the Notes
as a result of purchase accounting. In July 1996, the Company redeemed $5.0
million (face amount) of the Notes pursuant to an offer required to be made
under the terms of the Notes as a result of the Merger.

Total capital increased in 1996 from 1995, due primarily to the
recapitalization of the Company in connection with the Merger in which the
$218.4 million purchase price was attributed to the net stockholder's
equity of the Company.

The Company's liquidity position is summarized below (in thousands, except
ratios):

1996 1995
-------- --------
Cash and cash equivalents $ 9,397 $42,830
Working capital 14,219 55,612
Current ratio 1.8 3.6

Based on current industry conditions, management believes cash flow from
operations, the Company's existing debt facility and the Company's working
capital should be sufficient to fund the Company's short and long-term
liquidity needs.

10<PAGE>

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. Generally,
forward-looking statements include words or phrases such as "management
anticipates", "the Company believes", "the Company anticipates" and words
and phrases of similar impact. The forward-looking statements are made
pursuant to safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The factors that could cause actual results to differ
materially from the forward looking statements include the following: (i)
industry conditions and competition, (ii) cyclical nature of the industry,
(iii) worldwide expenditures for oil and gas drilling, (iv) operational
risks and insurance, (v) risks associated with operating in foreign
jurisdictions, (vi) environmental liabilities which may arise in the future
which are not covered by insurance or indemnity, (vii) the impact of
current and future laws and government regulation, as well as repeal or
modification of same, affecting the oil and gas industry and the Company's
operations in particular, and (viii) the risks described from time to time
in the Company's reports to the Securities and Exchange Commission.
Significant and unexpected deterioration in oil and natural gas prices
could adversely affect the level of offshore drilling activity the Company
believes is sustainable in 1997.

11<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

Financial Statements: Page

Reports of Independent Accountants ................................ 13
Consolidated Balance Sheet at December 31, 1996 and 1995 .......... 14
Consolidated Statement of Operations for the periods
June 13, 1996 to December 31, 1996, January 1, 1996 to
June 12, 1996 and for the two years ended December 31, 1995 .... 15
Consolidated Statement of Cash Flows for the period
June 13, 1996 to December 31, 1996, January 1, 1996 to
June 12, 1996 and for the two years ended December 31, 1995 .... 16
Notes to Consolidated Financial Statements ........................ 17

The Financial Statement Schedules are omitted because they are not
applicable or the required information is shown in the financial statements
or notes thereto.

12<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Directors of Dual Holding Company

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and of cash flows listed under Item 8
of this Form 10-K present fairly, in all material respects, the financial
position of Dual Holding Company and its subsidiaries (Successor entity) at
December 31, 1996, and the results of their operations and their cash flows
for the period June 13, 1996 to December 31, 1996 in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Successor entity's management; our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above.

/s/ Price Waterhouse LLP
Dallas, Texas
January 28, 1997, except as to Note 4, which is as of February 27, 1997

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Directors of Dual Holding Company

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and of cash flows listed under Item 8
of this Form 10-K present fairly, in all material respects, the financial
position of Dual Holding Company and its subsidiaries (Predecessor entity)
at December 31, 1995, and the results of their operations and their cash
flows for the period January 1, 1996 to June 12, 1996 and for each of the
two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Predecessor entity's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/s/ Price Waterhouse LLP
Dallas, Texas
January 28, 1997

13<PAGE>

DUAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except for share amounts)

DECEMBER 31,
-----------------------
1996 | 1995
--------- | -----------
SUCCESSOR | PREDECESSOR
ASSETS |
CURRENT ASSETS |
Cash and cash equivalents . . . . . . . . . $ 9,397 | $ 42,830
Accounts receivable, net . . . . . . . . . . 11,713 | 22,015
Other current assets . . . . . . . . . . . . 10,009 | 12,400
Total current assets . . . . . . . . . . 31,119 | 77,245
|
PROPERTY AND EQUIPMENT, AT COST . . . . . . . . 285,536 | 282,310
Less accumulated depreciation . . . . . . . (12,053)| (85,881)
Property and equipment, net . . . . . . . 273,483 | 196,429
|
OTHER ASSETS, NET . . . . . . . . . . . . . . . 99,655 | 30,088
$404,257 | $303,762
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
CURRENT LIABILITIES |
Accounts payable . . . . . . . . . . . . . . $ 1,267 | $ 5,069
Accrued liabilities and other . . . . . . . 15,633 | 10,026
Current maturities of long term debt . . . . - | 6,538
Total current liabilities . . . . . . . . 16,900 | 21,633
|
LONG TERM DEBT . . . . . . . . . . . . . . . . 134,387 | 138,163
DEFERRED INCOME TAXES . . . . . . . . . . . . . 19,485 | 1,796
OTHER LIABILITIES . . . . . . . . . . . . . . . 10,990 | 2,024
|
COMMITMENTS AND CONTINGENCIES . . . . . . . . . |
|
STOCKHOLDERS' EQUITY |
Common stock ($.10 par value, 10,000 shares |
authorized and 1,000 shares issued and |
outstanding at December 31, 1996 and $.01 |
par value, 50 million shares authorized |
and 15.8 million shares issued and |
outstanding at December 31, 1995) . . . . - | 158
Additional paid in capital . . . . . . . . . 218,431 | 173,793
Retained earnings (deficit) . . . . . . . . 4,064 | (33,386)
Treasury stock at cost . . . . . . . . . . . - | (419)
Total stockholders' equity . . . . . . . 222,495 | 140,146
$404,257 | $303,762

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

14<PAGE>

<TABLE>
<CAPTION>
DUAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)

</TABLE>

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

15<PAGE>

<TABLE>
<CAPTION>
DUAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)

JUNE 13, | JANUARY 1,
1996 TO | 1996 TO YEAR ENDED YEAR ENDED
DECEMBER 31, | JUNE 12, DECEMBER 31, DECEMBER 31,
1996 | 1996 1995 1994
SUCCESSOR | PREDECESSOR PREDECESSOR PREDECESSOR
<S> <C> | <C> <C> <C>
OPERATING ACTIVITIES |
Net income (loss)....................... $ 4,064 | $(24,332) $ (9,238) $(17,196)
Adjustments to reconcile net income |
(loss) to net cash provided (used) by |
operating activities: |
Depreciation and amortization....... 13,351 | 8,768 19,608 24,943
Deferred income tax benefit......... (2,725) | (645) (892) (2,281)
Gain on disposition of assets....... - | (167) (5,127) (994)
Recognition of deferred income...... - | (2,941) (4,191) (4,966)
Recognition of deferred expense..... 29 | 1,357 1,597 2,545
Non-cash compensation expense....... - | 9,667 - 1,179
Other............................... (352) | 58 - -
Changes in operating assets and |
liabilities: |
(Increase) decrease in accounts |
receivable................... 9,943 | (3,985) (3,067) 9,022
(Increase) decrease in other |
current assets................ (654) | 5,584 (424) 879
Increase (decrease) in accounts |
payable....................... (699) | (4,777) 485 (8,373)
Increase (decrease) in accrued |
liabilities................... (9,372) | 11,770 (1,192) 782
Increase (decrease) in customer |
prepayments................... - | - - 6,911
Net cash provided (used) by |
operating activities...... 13,585 | 357 (2,441) 12,451
|
INVESTING ACTIVITIES |
Additions to property and equipment..... (8,609) | (23,149) (30,668) (67,543)
Cash segregated for rig purchases....... - | - 22,000 (2,200)
Proceeds from sale of assets............ 1,622 | 208 38,804 914
Other................................... - | (1,688) (288) -
Net cash provided (used) by |
investing activities................ (6,987) | (24,629) 29,848 (68,829)
|
FINANCING ACTIVITIES |
Issuance of Senior Subordinated debt.... - | - - 100,000
Proceeds from long-term borrowings...... 45,000 | - - 49,000
Reduction of long-term borrowings....... (57,097) | (2,586) (4,299) (86,550)
Cash (pledged) received for letters |
of credit............................. 6,367 | (7,443)
Debt issuance costs..................... - | - - (4,325)

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

17<PAGE>

DUAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

Dual Holding Company was acquired by ENSCO on June 12, 1996, at which
time the Company became a wholly-owned subsidiary of ENSCO. See Note 2
"Merger." From 1990 to 1993, the Company was wholly-owned by Dual Invest,
a Norwegian corporation. In August 1993, the Company completed an initial
public offering of shares of its common stock, which reduced Dual Invest's
ownership interest in the Company to approximately 59.6% of the outstanding
common stock.

The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The consolidated financial statements
included herein present the results of the Company during the period
(January 1, 1996 to June 12, 1996) prior to the Merger ("Predecessor"
entity) as well as the period (June 13, 1996 to December 31, 1996)
subsequent to the Merger ("Successor" entity). The financial statements of
the Predecessor and Successor entities are not comparable in certain
respects because of differences between the cost bases of the assets and
liabilities held by the Predecessor compared to that of the Successor as
well as the effect on the Successor's operations for adjustments to
depreciation and amortization, interest income, interest expense, and
income taxes. The accounting policies apply to both the Predecessor entity
and the Successor entity unless otherwise noted.

Pervasiveness of 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
related revenues and expenses, and disclosure of gain and loss
contingencies at the date of the financial statements. Actual results
could differ from those estimates.

Cash Equivalents

For purposes of the consolidated balance sheet and statement of cash
flows, the Company considers all highly liquid investments to be cash
equivalents if they have maturities of three months or less at the date of
purchase.

Foreign Currency Translation

The U.S. dollar is the functional currency for all of the Company's
foreign operations. Exchange gains and losses were not significant in any
period presented.

18<PAGE>

Property and Equipment

Under the Successor entity, depreciation on drilling rigs and related
equipment is computed using the straight line method over estimated useful
lives ranging from 4 to 12 years. Depreciation of other equipment is
computed using the straight line method over estimated useful lives ranging
from 2 to 6 years.

Under the Predecessor entity, certain assumptions were modified
effective January 1, 1995 for the capitalization and depreciation of
property and equipment to reflect a change in (i) the estimated useful
lives of its rig fleet and betterments and major overhauls to such rigs
and, (ii) the estimated salvage value of the rigs. The change in estimate
provided for the depreciation of platform rigs on a straight-line basis for
a period up to 12 years from the date the rig first entered service, or up
to 10 years from the date of a major refurbishment to the rig. Jackup rigs
were depreciated on a straight-line basis for a period up to 25 years from
the date the rigs first entered service. An estimated salvage value of 10%
and 15% was assumed for platform rigs and jackup rigs, respectively. The
change in estimated useful lives of the Company's rig fleet decreased
annual depreciation expense in 1995 by $5.9 million, or $.37 per share.

Maintenance and repair costs are charged to expense as incurred. Major
renewals and improvements are capitalized. Upon retirement or replacement
of assets, the related cost and accumulated depreciation are removed from
the accounts and the resulting gain or loss is included in income.

Goodwill

Goodwill arising from the acquisition by ENSCO is amortized on the
straight-line basis over a period of 40 years. See Note 2 "Merger."
Predecessor goodwill resulted from the acquisition by Dual Invest in June
1990 and was written-off in 1996 as a result of purchase accounting.
Amortization of goodwill was $1.2 million for the period June 13, 1996 to
December 31, 1996, $770,000 for the period January 1, 1996 to June 12,
1996, and $1.7 million for each of the years 1995 and 1994. Accumulated
amortization of goodwill at December 31, 1996 and 1995 was $1.2 million and
$9.5 million, respectively. On a periodic basis the Company estimates the
undiscounted future cash flows to be generated by the Company's operations
to ensure the carrying value of goodwill has not been impaired.

Impairment of Assets

In 1996, the Company adopted Statement of Financial Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," which did not have an impact upon the
Company. As required, the Company evaluates the realizability of its long-
lived assets, including property and equipment and goodwill, based upon
expectations of undiscounted cash flows before interest.

Revenue Recognition

The Company's drilling contracts generally provide for payment on a day
rate basis, and revenues are recognized as the work is performed.

19<PAGE>

Income Taxes

Deferred tax liabilities and assets are recognized for the anticipated
future tax effects of temporary differences between the financial statement
basis and the tax basis of the Company's assets and liabilities using the
enacted tax rates in effect at year end. A valuation allowance for
deferred tax assets is recorded when it is more likely than not that the
benefit from the deferred tax asset will not be realized.

Income Per Share

Income per share has been computed based on the weighted average number
of common shares outstanding during the applicable period. See Note 5
"Stockholders' Equity."

Stock Based Employee Compensation

In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which establishes
accounting and reporting standards for various stock based compensation
plans. SFAS No. 123 encourages the adoption of a fair value based method
of accounting for employee stock options, but permits continued application
of the accounting method prescribed by Accounting Principles Board Opinion
No. 25 ("Opinion 25"), "Accounting for Stock Issued to Employees." The
Company has elected to continue to apply the provisions of Opinion 25.
Under Opinion 25, if the exercise price of the Company's stock options
equals the market value of the underlying stock on the date of grant, no
compensation expense is recognized. SFAS No. 123 requires disclosure of
pro forma information regarding net income and earnings per share as if the
Company had accounted for its employee stock options under the fair value
method of the statement.

Reclassifications

Certain previously reported amounts have been reclassified to conform
to the 1996 presentation.

2. MERGER

On June 12, 1996, the Company was acquired by ENSCO in a purchase
acquisition. The Merger was approved on that date by the stockholders of
the Company who received 0.625 shares of ENSCO common stock for each share
of the Company's common stock. The Company's stockholders of record as of
June 12, 1996 received, in the aggregate, approximately 10.1 million shares
of ENSCO common stock in connection with the acquisition, resulting in an
acquisition price of $218.4 million.

In conjunction with the Merger, the Company charged $22.0 million against
operating results for certain items. These items included compensation
paid in the ordinary course of business as well as other costs directly
related to the Merger process. The primary items composing the $22.0
million of operating charges were as follows (in thousands):

20<PAGE>

Cashless exercise of stock options $ 9,667
Compensation and severance payments
to employees 8,773
Fee paid to investment advisor 3,000
Other 565
Total $22,005

The Company used the purchase method to record the Merger. The purchase
price allocation has been based on preliminary estimates of fair value of
the assets acquired and liabilities assumed and is subject to adjustment as
additional information becomes available and is evaluated. The primary
areas subject to further purchase price adjustment are reserves associated
with insurance related matters and taxes. The excess of purchase price
over net assets acquired approximated $100.7 million and is being amortized
over 40 years.

In connection with the Merger, the name of the Company was changed from
DUAL DRILLING COMPANY to Dual Holding Company and the capital structure of
the Company was changed. Prior to the Merger, the Company was authorized
to issue 50.0 million shares of its $.01 par value common stock, of which
16.1 million shares were outstanding as of June 12, 1996, and 10.0 million
shares of its preferred stock, of which none were outstanding as of June
12, 1996. Under the terms of the Company's restated certificate of
incorporation filed June 12, 1996, the Company is only authorized to issue
10,000 shares of its $.10 par value common stock. As of December 31, 1996,
the Company had issued 1,000 shares of its $.10 par value common stock, all
of which were held by ENSCO.

The following unaudited pro forma information shows the consolidated
results of operations for the years ended December 31, 1996 and 1995 based
upon adjustments to the historical financial statements of the Company to
give effect to the Merger as if such Merger had occurred on January 1, 1995
(in thousands, except per share data):
1996 1995
-------- ----------
Operating revenues $97,167 $ 91,016
Operating income (loss) 9,966 (1,958)
Net income (loss) 145 (12,363)
Net income (loss) per share 145 (12,363)

The pro forma consolidated results of operations are not necessarily
indicative of the actual results that would have occurred had the
acquisition occurred on January 1, 1995, or of results that may occur in
the future.

21<PAGE>

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1996 and 1995 consisted of the
following (in thousands):
1996 1995
Successor Predecessor
--------- -----------
Drilling rigs and equipment $282,130 $279,946
Other 65 2,364
Work in progress 3,341 -
$285,536 $282,310

In September 1996, the Company retired two platform rigs located off the
coast of California. The rigs were dismantled and their major components
were sold to ENSCO at fair market value as spare capital assets.

In May 1996, the Company purchased a jackup rig located in the Gulf of
Mexico, which the Company previously operated under a charter agreement,
for $21.3 million. Proceeds from certain asset sales in 1995 that were
previously disclosed as restricted for purchase of replacement assets or
repurchase of indebtedness were used to purchase the rig.

During May 1995, the Company sold a jackup rig to an unrelated third party
for cash totaling $19.4 million. At the time of the sale, the jackup was
operated by the Company in the Gulf of Mexico. The Company realized a gain
of $4.1 million from the sale of the rig.

In June 1995, the Company purchased a jackup rig for approximately $22.5
million from an unrelated third party. Proceeds of $22.0 million received
from the Company's credit facilities, which were previously restricted for
rig acquisitions, were applied to the purchase of the rig. Also in June
1995, the Company sold a 51% undivided interest in a jackup rig to a
Malaysian company for cash of $13.8 million. The Company recorded a gain
of $2.2 million from the sale of the interest in the rig.

In August 1995, the Company sold a platform rig to an unrelated third party
under a purchase option agreement entered into by the Company in May 1993.
The rig was sold for cash of $6.8 million and the Company recognized a loss
of $1.2 million on the sale. Concurrent with the sale, the Company entered
into a 46-month contract to manage and operate the rig.

During 1994, the Company recognized a deferred gain on the sale of assets
of $1.0 million. The gain resulted from the earlier sale and charter-back
by the Company of two jackup rigs, one each in 1991 and 1990. The sale and
charter-back transactions generated a gain of $10.0 million and $8.8
million in 1991 and 1990, respectively. These amounts were deferred and
recognized over the primary terms of the respective rig charter agreements.
As of December 31, 1994, the deferred gains resulting from the two rig
transactions had been fully recognized.

22<PAGE>

4. LONG-TERM DEBT

Long-term debt at December 31, 1996 and 1995 consists of the following (in
thousands):
1996 1995
Successor Predecessor
--------- -----------
Revolving credit facility $ 35,000 $ -
Secured term loans - 44,701
Senior subordinated notes due 2004 94,986 100,000
Premium on senior subordinated notes 4,401 -
134,387 144,701
Less current maturities - (6,538)
Total long-term debt $134,387 $138,163

The Company's bank debt outstanding prior to the Merger was refinanced on
June 13, 1996. The Company borrowed $45.0 million in accordance with the
terms of a $50 million revolving credit facility (the "Sub-Facility")
established under the terms of ENSCO's amended and restated $150.0 million
revolving credit facility with a group of international banks (the
"Facility"). Substantially all of the proceeds from the $45.0 million of
borrowings were used to refinance $41.8 million of the Company's bank debt.
In November 1996, the Company repaid $10.0 million of borrowings under the
Sub-Facility and in December 1996 reduced the availability under the Sub-
Facility to $35.0 million. The Facility provides the option to increase or
decrease the availability under the Sub-Facility by transferring between
sub-facilities available amounts up to $15.0 million at the discretion of
ENSCO and the Company. The interest rate on the Sub-Facility is tied to
London InterBank Offered Rates and at December 31, 1996 the interest rate
on the $35.0 million outstanding under the Sub-Facility was 6.785%. The
Sub-Facility is collateralized by certain of the Company's jackup rigs,
which had a combined net book value of $100.2 million at December 31, 1996.
The balance outstanding under the Facility, and Sub-Facility, is due in
October 2001.

On February 27, 1997, ENSCO further amended and restated its revolving
credit facility which increased the overall availability under the Facility
to $200.0 million and reduced the interest rate margin under the Facility.
As a result of this amendment, the Company's availability under the Sub-
Facility increased from $35.0 million to $50.0 million.

In January 1994, the Company completed an offering of 9 7/8% senior
subordinated notes (the "Notes") with an aggregate principal amount of
$100.0 million. The Notes are due January 2004 and interest is payable
semiannually. The Notes are unsecured obligations of the Company, and, as
such, are subordinated to the Company's obligations under its bank credit
facilities. The Notes are guaranteed by substantially all of the Company's
principal subsidiaries. The Notes' indenture contains certain covenants,
including limitation on restricted payments, indebtedness, disposition of
proceeds of asset sales, transactions with affiliates, payments of
dividends and other payment restrictions, sale-leaseback transactions and
restrictions on mergers, consolidations and transfer of assets. The Notes
are redeemable at the option of the Company, in whole or in part, at any
time on or after January 15, 1999.

23<PAGE>

In July 1996, the Company redeemed $5.0 million (face amount) of the Notes
pursuant to an offer required to be made under the terms of the Notes
following the Merger. Additionally, as of December 31, 1996, ENSCO had
purchased $23.2 million (face amount) of the Notes on the open market. The
full $95.0 million (face amount) of the Company's Notes and related premium
are shown as outstanding in the Company's consolidated balance sheet as of
December 31, 1996.

Maturities of long-term debt, excluding the premium on the Notes, are as
follows: $35.0 million in 2001 and $95.0 million in 2004.

5. STOCKHOLDERS' EQUITY (in thousands)
<TABLE>
<CAPTION>
$.10 par $.10 par $.01 par $.01 par
Common Common Common Common Additional Retained
Stock Stock Stock Stock Paid-In Earnings Treasury
Shares Amount Shares Amount Capital (Deficit) Stock
-------- -------- -------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993.......... 15,807 $ 158 $172,485 $ (6,952)
Net loss.......................... (17,196)
Amortization of deferred compen-
sation.......................... 1,179
Reclassification of IPO expense... 129
Purchase of treasury stock........ (41) $ (419)

BALANCE AT DECEMBER 31, 1994.......... 15,766 158 173,793 (24,148) (419)
Net loss.......................... (9,238)

BALANCE AT DECEMBER 31, 1995.......... 15,766 158 173,793 (33,386) (419)
Cashless exercise of stock options 1,048 10 20,166
Purchase of treasury stock........ (710) (13,583)
Net loss through June 12, 1996.... (24,332)
Change of control................. 1,000 $ - (16,104) (168) 24,472 57,718 14,002
Net income June 13, 1996 to
December 31, 1996............... 4,064

BALANCE AT DECEMBER 31, 1996.......... 1,000 $ - - $ - $218,431 $ 4,064 $ -
</TABLE>
See Note 2 "Merger."

6. EMPLOYEE BENEFIT PLANS

Incentive Stock Plans

Prior to the Merger, the 1993 Long-Term Incentive Plan (the "1993 Plan")
provided for the granting of any or all of the following types of awards:
(i) stock options, including Incentive stock options and non-qualified
stock options, (ii) stock appreciation rights ("SARs"), in tandem with
stock options or freestanding, (iii) restricted stock, (iv) performance
share awards, and (v) stock value equivalent awards. In conjunction with
the Merger, the 1993 Plan was terminated and all outstanding shares granted
pursuant to the 1993 Plan were exchanged for ENSCO common stock.

24<PAGE>

Stock Options - The table below summarizes the transactions relating to
stock options. (shares in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- ------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES
------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Outstanding, beginning of year . . . . . . . . . 1,059 $10.04 830 $12.75 300
Granted . . . . . . . . . . . . . . . . . . . . - 1,059 10.04 550
Exercised . . . . . . . . . . . . . . . . . . . (1,048) 10.04 - - -
Exchanged for ENSCO common stock in Merger . . . (11) 9.83 - - -
Canceled or forfeited . . . . . . . . . . . . . - - (830) 12.75 (20)
Outstanding, end of year . . . . . . . . . . . . - - 1,059 $10.04 830
</TABLE>

25<PAGE>

In August 1995, the Compensation Committee of the Company's Board of
Directors (the "Committee") approved the cancellation of 806,000 then
outstanding management options and the issuance of 951,000 options. The
options cancelled had been granted by the Committee in August 1993 (270,000
options) and October 1994 (536,000 options) at exercise prices of $14.000
and $12.125, respectively. The options granted in August 1995 were issued
at $10, the market price of the common stock on the date of the grant.

In connection with the Merger, the 1993 Plan was amended to allow for the
cashless exercise of outstanding stock options prior to the Merger date or
the exchange of options for shares of ENSCO common stock on the Merger
date. As a result of this change, the Company recorded a charge of
approximately $9.7 million which is included in Change in Control expense
in the consolidated statement of operations.

Under SFAS No. 123, the Company is required to disclose information related
to net income and earnings per share as if it had accounted for its
employee stock options under the fair value provisions of that statement.
For the options granted by the Company in 1995, the Company determined that
such grants accounted for under the provisions of the SFAS No. 123 did not
have a material impact on net income or earnings per share in 1995. As
discussed above, the Company amended the 1993 Plan in connection with the
Merger which resulted in a charge recorded by the Company in accordance
with the provisions of Opinion 25 and related authoritative
interpretations. The Company determined that the expense recognized under
SFAS No. 123 in 1996 would not have been materially different than that
recognized under Opinion 25.

Restricted Stock - The 1993 Plan provided that shares of common stock
subject to certain restrictions may be awarded to eligible employees from
time to time as determined by the Compensation Committee of the Board of
Directors. In 1993, 55,210 shares of Restricted Stock were granted to key
employees. As of December 31, 1995, all but 30,000 of the shares were
fully vested. As a result of the Merger, all shares of Restricted Stock
were immediately vested and were exchanged for ENSCO common stock. Non-
cash compensation expense in the amount of approximately $600,000 was
recognized during 1994 relating to these shares. As of December 31, 1994
all compensation expense related to the 55,210 share grant had been
recognized.

Dual Invest AS Stock Option Compensation Plan - Certain key employees were
granted options in December 1991 to purchase Dual Invest AS shares pursuant
to the Dual Invest AS Plan. In connection with the initial public offering
of Dual equity securities in 1993, such employees relinquished their
options under the Dual Invest Plan in exchange for direct grants by Dual
Invest of shares of common stock of the Company owned by Dual Invest. Dual
Invest granted an aggregate of 117,647 shares of common stock pursuant to
this plan. All shares awarded under the Dual Invest Plan were fully vested
as of December 31, 1994. Non-cash compensation expense recognized during
1994 for these awards was approximately $600,000.

Defined Contribution Plan

Effective June 30, 1996, the DUAL DRILLING COMPANY Thrift and 401(k)
Retirement and Savings Plan (the "Retirement Plan") was frozen. All

26<PAGE>

participants who remained employees of the Company after the Merger were
allowed to become participants in the ENSCO Savings Plan. As soon as
regulatory approvals are obtained, the Retirement Plan will be merged into
the ENSCO Savings Plan. Costs incurred by the Company for matching
contributions under the Retirement Plan were approximately $300,000 for
1996 and $600,000 for each of the years 1995 and 1994.

Health Care and Life Insurance Benefits

Prior to the Merger, the Company provided certain health care and life
insurance benefits for substantially all its active and retired employees.
Health care benefits were self-insured up to specified limits per incident
and were made available on a contributory basis. Effective June 30, 1996,
all Company health care and life insurance benefit plans were terminated.
Company employees who were retained by ENSCO subsequent to the Merger were
provided health care and life insurance benefits through ENSCO's plans.
ENSCO does not provide any contributory health care or life insurance
benefits to its retired employees.

Statement of Accounting Standards No. 106, "Employer's Accounting for Post-
Retirement Benefits Other Than Pensions" requires that the estimated cost
of such benefits be accrued during the employee's active service period.
The Company had historically recognized the cost of certain post-retirement
benefits on an accrual basis consistent with the requirements of SFAS No.
106. The net health care costs accrued in 1996 were immaterial and the
recorded liability at June 12, 1996 was eliminated as a result of the
Merger and related termination of the Company's health care and life
insurance benefit plans. The components of net post-retirement health care
costs for the years ended December 31, 1995 and 1994 are detailed below (in
thousands):
1995 1994
---- ----
Service cost - benefits earned during the period.. $ 65 $ 71
Interest cost on accumulated post-retirement
benefit obligation.............................. 42 32
Net post-retirement health care cost.......... $107 $103

Benefits under the Company's post-retirement health care plan were not
funded. The status of the plan as of December 31, 1995 was as follows (in
thousands):
1995
Actuarial present value of accumulated post- ----
retirement benefit obligation:
Retirees and dependents........................... $ 84
Active employees eligible for benefits............ 173
Active employees not yet eligible for benefits.... 317
Accrued post-retirement health care liability... $574

The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 13% for 1995, gradually declining to
5% by the year 2003 and remaining at that level thereafter. The effect of
a one percentage point increase in the assumed health care cost trend rate
for each future year on (i) the portion of the accumulated post-retirement
benefit obligation applicable to health care benefits as of December 31,
1995 and (ii) the net post-retirement health care cost for the year then

27<PAGE>

ended would not be material. The assumed discount rate used in determining
the accumulated post-retirement benefit obligation was 7.25% for 1995.

Supplemental Executive Retirement Plan

In June 1993, the Company implemented the Supplemental Executive Retirement
Plan (the "Plan"), a defined benefit pension plan covering certain of its
executive officers. In conjunction with the Merger, the Company, ENSCO and
the Plan participants agreed to terminate the Plan and distribute an
aggregate $2.3 million to the participants. As such, the Company recorded
pension cost related to the Plan of approximately $1.7 million in 1996, of
which $1.2 million is recorded in Change in Control expenses in the
consolidated statement of operations. The Plan termination liability of
$2.3 million was recorded in Accrued Liabilities and Other at December 31,
1996 and was subsequently paid in January 1997.

The components of net pension cost for the years ended December 31, 1995
and 1994 are detailed below (in thousands).
1995 1994
---- ----
Service cost - benefits earned during the period.. $207 $212
Interest cost on projected benefit obligation..... 71 15
Net amortization and deferral..................... 30 4
Net pension cost............................... $308 $231

The following table outlines the funded status of the Plan and the amounts
recognized in the Company's consolidated balance sheet as of December 31,
1995 (in thousands).
1995
Actuarial present value of plan benefits --------
Vested...................................... $ 868
Non-vested.................................. 98
Accumulated benefit obligation.............. 966
Effect of projected salary increases........ 46
Projected benefit obligation (PBO)............ 1,012
Plan assets at fair value..................... 0
Projected benefit obligation in excess of
plan assets................................. (1,012)
Unrecognized net gain......................... (200)
Prior service cost not yet recognized in net
periodic pension cost....................... 543
Adjustment required to recognize minimum
liability................................... (297)
Pension liability included in Other
Liabilities on the Consolidated Balance
Sheet....................................... $ (966)

The assumed rate of increase in future compensation was 3% for 1995. The
discount rate used to calculate the actuarial present value of the
projected benefit obligation was 7.5% for 1995.

28<PAGE>

7. INCOME TAXES

The Company had income (loss) of $(13.7) million, $(33.6) million, $(6.7)
million and $(4.1) million from its operations before income taxes in the
United States and income (loss) of $16.7 million, $9.9 million, $(1.7)
million and $(13.0) million from its operations before income taxes in
foreign countries for the period June 13, 1996 to December 31, 1996,
January 1, 1996 to June 12, 1996 and for the years ended December 31, 1995
and 1994, respectively.

The provisions for income taxes for the years ended December 31, 1996, 1995
and 1994 are summarized as follows (in thousands):

1996 1996
Successor Predecessor 1995 1994
--------- ----------- ------ --------
Current:
Federal............... $ - $ - $ - $ 171
State................. - - 24 -
Foreign............... 1,581 1,273 1,753 2,157
Total current...... 1,581 1,273 1,777 2,328

Deferred:
Federal............... (4,113) (645) - (2,341)
Foreign............... 1,388 - (892) 56
Total deferred..... (2,725) (645) (892) (2,285)

Total.................... $(1,144) $ 628 $ 885 $ 43

29<PAGE>

Deferred income tax assets and liabilities as of December 31, 1996 and
1995 are summarized as follows (in thousands):

1996 1995
Successor Predecessor
Deferred tax assets: -------- ----------
Domestic:
Deferred interest deduction............ $ - $ 250
Deferred compensation.................. 4,045 621
Net operating loss carryforward........ 17,153 13,454
Liabilities not deductible for tax
purposes............................ 3,225 -
Other.................................. 2,829 502
Foreign:
Net operating loss carryforward........ 90 178
Gross deferred tax assets................. 27,342 15,005
Valuation allowance....................... - (5,757)
Net deferred tax assets................... $ 27,342 $ 9,248

Deferred tax liabilities:
Domestic:
Excess of net book basis over tax basis $ 33,429 $ 5,113
Deferred installment gain.............. 3,186 3,186
Undistributed foreign earnings......... 771 771
Foreign:
Excess of net book basis over tax basis 5,288 1,974
Total deferred tax liability.............. 42,674 11,044
Less: Net deferred tax assets............ (27,342) (9,248)
Net deferred tax liability................ 15,332 1,796
Add: Current deferred tax asset.......... 4,153
Long term deferred tax liability.......... $ 19,485 $ 1,796

The following is a reconciliation of the provision for income taxes
calculated at the U.S. federal income tax rate to the income taxes
reflected in the consolidated statement of operations:

1996 1996
Successor Predecessor 1995 1994
Current: --------- ----------- -------- --------
Income tax expense (benefit)
at U.S. federal tax rate.... $ 1,022 $(8,296) $(2,924) $(5,878)
Increase (decrease) in tax
resulting from:
Effects of foreign taxes.. (2,804) 1,845 1,868 2,909
Goodwill amortization..... 434 272 604 587
Change in valuation
allowance............... - 6,807 2,082 3,675
Non-deductible
expenditures............ - - - 879
Items not related to
current year operations. - - (946) (2,052)
Other..................... 204 - 201 (77)
Income tax expense
(benefit)............... $(1,144) $ 628 $ 885 $ 43

30<PAGE>

At December 31, 1996, the Company had regular and alternative minimum tax
net operating loss carryforwards of approximately $49.0 million and $21.7
million, respectively, and foreign tax credit carryforwards of $1.0
million. If not utilized, the regular and alternative minimum tax net
operating loss carryforwards expire in 2009 and 2010. The foreign tax
credit carryforward expires in 2001.

As a result of the Merger, the Company is now included in the ENSCO U.S.
consolidated tax return. The Merger also results in the utilization of the
Company's net operating loss carryforwards being subject to limitations
imposed by the Internal Revenue Code of 1986. However, the Company does
not expect such limitations to have an effect upon its ability to utilize
its net operating loss carryforwards.

It is the policy of the Company to consider that income generated in
foreign subsidiaries is permanently invested. A significant portion of the
Company's undistributed foreign earnings at December 31, 1996 were
generated by controlled foreign corporations. A portion of the
undistributed foreign earnings were taxed, for U.S. tax purposes, in the
year that such earnings arose. Upon distribution of foreign earnings in
the form of dividends or otherwise, the Company may be subject to
additional U.S. income taxes. However, deferred taxes related to the
future remittance of these funds are not expected to be significant to the
financial statements of the Company.

31<PAGE>

8. COMMITMENTS AND CONTINGENCIES

Leases and Contracts

The Company is obligated under leases for certain of its offices and
equipment. Rental expense relating to operating leases was $532,000 for
the period June 13 through December 31, 1996, $407,000 for the period
January 1 through June 12, 1996, and $1.1 million and $1.2 million for the
years ended December 31, 1995 and 1994, respectively. Future minimum
rental payments under the Company's noncancellable operating lease
obligations having initial or remaining lease terms in excess of one year
are as follows: $564,200 in 1997; $415,800 in 1998 and $53,400 in 1999.

The Company's domestic rigs are bareboat chartered to ENSCO Offshore
Company, a wholly owned subsidiary of ENSCO. Fixed daily rates are paid to
the Company under one year bareboat charter agreements. See Note 10
"Related Party Transactions."

One of the Company's rigs is owned 49% by the Company and 51% by a
Malaysian company ("Malaysian Company"). Under terms of an operating
agreement between the Company and the Malaysian Company, the Company makes
a charter payment to the Malaysian Company when the rig is operating under
a drilling contract.

The Company makes payments to ENSCO under a Master Services Agreement
for support services for the Company's operations. See Note 10 "Related
Party Transactions."

Insurance

Prior to the Merger, the Company was self-insured for its maritime
claims exposure that provided for self-insured limits of up to $500,000 for
each claim. Effective June 12, 1996, the Company's insurance coverage was
increased to levels consistent with ENSCO's policies which, among other
things, limits the exposure to maritime claims to $25,000 for each claim.
Based on current information, the Company has provided adequate reserves
for such claims.

Letters of Credit

The Company maintains legally restricted cash balances with a bank as
collateral for letters of credit issued by the bank for providing bid bonds
and performance bonds required on drilling contracts in which the Company
may bid or be awarded. These restricted cash balances aggregated $1.1
million at December 31, 1996 and are included in Other Current Assets.

At December 31, 1996, there were no other contingencies, claims, or
lawsuits against the Company, which, in the opinion of management, would
have a material effect on its financial condition or results of operations.

32<PAGE>

9. GEOGRAPHIC REGION INFORMATION AND MAJOR CUSTOMERS

The Company's 10 jackup rigs and eight platform rigs (including one
which is managed but not owned) are located in the Gulf of Mexico and
throughout Asia. Business levels for the Company and for the offshore
contract drilling industry, in general, are significantly affected by
worldwide expenditures for oil and gas drilling. Expenditures for oil and
gas drilling activity fluctuate based upon many factors, including world
economic conditions, the legislative environment in the U.S. and other
major countries, production levels and other activities of OPEC and other
oil and gas producers, and the impact that these and other events have on
the current and expected future pricing of oil and natural gas.

The following shows geographic region information for the Successor
period June 13, 1996 to December 31, 1996, the Predecessor period January
1, 1996 to June 12, 1996, and for the years ended December 31, 1995 and
1994 (in thousands):
<TABLE>
<CAPTION> GEOGRAPHIC REGION

North South Corporate
America Asia America & Other Total
<S> <C> <C> <C> <C> <C>
June 13,1996 - December 31, 1996 (Successor)
Revenues . . . . . . . . . . . . . . . . . . . $ 19,093 $ 24,532 $ $ $ 43,625
Operating income (loss) . . . . . . . . . . . . 8,314 3,395 (2,640) 9,069
Identifiable assets . . . . . . . . . . . . . . 280,968 123,289 404,257

January 1, 1996 - June 12,1996 (Predecessor)
Revenues . . . . . . . . . . . . . . . . . . . $ 32,424 $ 21,118 $ $ $ 53,542
Operating income (loss) . . . . . . . . . . . . 2,189 5,239 (25,762) (18,334)

1995
Revenues . . . . . . . . . . . . . . . . . . . $ 47,106 $ 38,783 $ $ $ 85,889
Operating income (loss) . . . . . . . . . . . . 358 5,694 (7,563) (1,511)
Identifiable assets . . . . . . . . . . . . . . 180,069 123,500 191 2 303,762

1994
Revenues . . . . . . . . . . . . . . . . . . . $ 62,719 $ 39,348 $ 2,198 $ $104,265
Operating income (loss) . . . . . . . . . . . . 6,241 (5,886) 409 (8,992) (8,228)
Identifiable assets . . . . . . . . . . . . . . 213,900 108,518 192 11 322,621
</TABLE>
During the period June 13, to December 31, 1996, revenues from four
customers accounted for 24%, 23%, 15% and 13% of total revenues.

During the period January 1, to June 12, 1996, revenues from one
customer accounted for 15% of total revenues and revenues from two
customers each accounted for 13% of total revenues.

During 1995, revenues from three customers accounted for 17%, 14% and
11% of total revenues.

During 1994, revenues from two customers each approximated 12% of
total revenues.

33<PAGE>

10. RELATED PARTY TRANSACTIONS

Effective June 13, 1996, each of the Company's domestic rigs,
currently consisting of two jackup rigs and seven platform rigs, were
bareboat chartered to ENSCO Offshore Company ("ENSCO Offshore"), a wholly
owned subsidiary of ENSCO, to achieve certain operating and marketing
efficiencies. The terms of the bareboat charter agreements with ENSCO
Offshore provide for fixed daily rates to be paid to the Company, which the
Company believes are reasonable and representative of the environment in
which the rigs operate. Each respective bareboat charter rate is increased
for any capital expenditures made by the Company on a chartered rig and the
rate is reduced to 50% of the normal rate if a rig is idle for more than 30
days. The initial term of the bareboat charter agreements is one year,
with automatic one year extensions, unless either party gives at least one
month's prior notice of termination. Revenues relating to the bareboat
charter agreements were $10.5 million for the period June 13, 1996 to
December 31, 1996.

On June 13, 1996, the Company entered into a Master Services Agreement
with ENSCO. Under the terms of the Master Services Agreement, ENSCO
provides certain shorebase and corporate support services for the Company's
domestic and foreign operations. The Company pays ENSCO a monthly fee for
these services under the Master Services Agreement, which the Company
believes is reasonable for the services provided. General and
administrative expense relating to the Master Services Agreement was $2.6
million for the period from June 13, 1996 to December 31, 1996.

ENSCO holds a portion of the Company's Notes as of December 31, 1996.
See Note 4 "Long-Term Debt." Interest expense relating to the 9 7/8% Notes
held by ENSCO was $1.2 million for the year ended December 31, 1996.

At December 31, 1996, the Company had a net liability due to ENSCO of
approximately $859,000 which is recorded in Accounts Payable.

During 1994, the Company received assistance in securing insurance
coverage from Mosvold Brokers AS, a Norwegian company that was associated
with Dual Invest until late 1995. For its assistance, Mosvold Brokers AS
received brokerage commissions from insurance underwriters totaling
approximately $0.2 million.

The Company has performed contract drilling services for Newfield
Exploration Company ("Newfield"), from which revenues earned totaled
approximately $3.0 million during the year ended December 31, 1994. A
former director of the Company from August 1993 to May 1995, serves as
Chairman and Chief Executive Officer of Newfield.

34<PAGE>

11. SUPPLEMENTAL FINANCIAL INFORMATION

Consolidated Balance Sheet Information. Accounts receivable, net at
December 31, 1996 and 1995 consisted of the following (in thousands):

1996 1995
Successor Predecessor
--------- -----------
Trade . . . . . . . . . . . . . . . . . $11,518 $19,338
Other . . . . . . . . . . . . . . . . . 343 3,022
11,861 22,360
Allowance for doubtful accounts . . . . (148) (345)
$11,713 $22,015

Other current assets at December 31, 1996 and 1995 consisted of the
following (in thousands):
1996 1995
Successor Predecessor
--------- -----------
Trust-Supplemental executive retirement
plan . . . . . . . . . . . . . . . . . $ 2,292 $ -
Refundable foreign withholding tax . . - 3,878
Deposits . . . . . . . . . . . . . . . 1,224 207
Prepaid taxes . . . . . . . . . . . . 1,416 472
Prepaid expenses . . . . . . . . . . . 509 1,623
Inventory . . . . . . . . . . . . . . . - 5,603
Current deferred tax asset . . . . . . 4,153 -
Other . . . . . . . . . . . . . . . . . 415 617
$10,009 $12,400

Other assets at December 31, 1996 and 1995 consisted of the following (in
thousands):
1996 1995
Successor Predecessor
--------- -----------
Goodwill . . . . . . . . . . . . . . . $99,410 $25,032
Other . . . . . . . . . . . . . . . . . 245 5,056
$99,655 $30,088

Accrued liabilities at December 31, 1996 and 1995 consisted of the
following (in thousands):
1996 1995
Successor Predecessor
--------- -----------
Operating expenses . . . . . . . . . . $ 7,303 $ 5,033
Payroll . . . . . . . . . . . . . . . . 3,091 2,443
Taxes . . . . . . . . . . . . . . . . . 2,378 864
Insurance . . . . . . . . . . . . . . . 2,500 -
Other . . . . . . . . . . . . . . . . . 361 1,686
$15,633 $10,026

35<PAGE>

Consolidated Statement of Operations Information. Maintenance and repairs
expense for the years ended December 31, 1996, 1995 and 1994 are as follows
(in thousands):

1996 1996
Successor Predecessor 1995 1994
--------- ----------- -------- --------
Maintenance and repairs . . . $ 3,029 $ 5,911 $10,295 $10,388

Consolidated Statement of Cash Flows Information. The 1996 consolidated
statement of cash flows excludes the non cash issuance of common stock in
the merger of the Company with ENSCO as described in Note 2 "Merger."

Cash paid for interest and income taxes for the years ended December 31,
1996, 1995 and 1994 are as follows (in thousands):

1996 1996
Successor Predecessor 1995 1994
--------- ----------- -------- --------
Interest. . . . . . . . . . . $ 6,326 $ 6,915 $14,147 $8,280
Income taxes. . . . . . . . . 1,317 1,696 2,011 2,962

Fair Value of Financial Instruments. The following disclosure of the
estimated fair value of financial instruments is made in accordance with
the requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by the Company, using available
market information and appropriate valuation methodologies. However,
considerable judgement is required in interpreting market data to develop
the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts. The carrying amounts and estimated fair
values at December 31, 1996 and 1995 are as follows (in thousands):

December 31, 1996 December 31, 1995
Successor Predecessor
------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
Liabilities - long-term debt,
including current maturities $134,387 $137,867 $144,701 $139,201

The estimated fair values were determined as follows:

Quoted market price for the Notes and interest rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities are used to estimate fair value for bank debt issues.

The estimated fair value of the Company's cash and cash equivalents, short-
term investments, receivables, trade payables and other liabilities

36<PAGE>

approximated their carrying values at December 31, 1996 and 1995.

Concentration of Credit Risk. Financial instruments which subject the
Company to concentrations of credit risk consist principally of cash and
cash equivalents and trade receivables. At December 31, 1996, the
Company's trade receivables are predominantly from major international oil
companies and government-owned oil companies. The Company's cash and cash
equivalents are maintained in major banks and high grade investments. As a
result, the Company believes the credit risk in such instruments is
minimal.

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

None.

37<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Not required under the reduced disclosure format.

ITEM 11. EXECUTIVE COMPENSATION

Not required under the reduced disclosure format.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Not required under the reduced disclosure format.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not required under the reduced disclosure format.

38<PAGE>

PART IV

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

(a) Financial statements, financial statement schedules and exhibits
filed as part of this report:
Page
(1) Financial Statements of Dual Holding Company
Reports of Independent Accountants 13
Consolidated Balance Sheet 14
Consolidated Statement of Operations 15
Consolidated Statement of Cash Flows 16
Notes to the Consolidated Financial Statements 17

(2) Exhibits

The following instruments are included as exhibits to this
report. Exhibits incorporated by reference are so indicated
by parenthetical information.

EXHIBIT NO. DESCRIPTION

2 - Agreement and Plan of Merger among ENSCO International
Incorporated, DDC Acquisition Company and DUAL
DRILLING COMPANY dated March 21, 1996 (incorporated by
reference to exhibit (C)(1) to the Company's Form 8-K
as filed with the Securities and Exchange Commission
on April 1, 1996).
2.1 - Principal Stockholders Agreement between ENSCO
International Incorporated and Dual Invest AS dated
March 21, 1996 (incorporated by reference to Appendix
D to the ENSCO (File No. 1-8097) Registration
Statement on Form S-4, as amended, filed with the
Securities and Exchange Commission on May 10, 1996).
2.2 - Amendment No. 1 to Agreement and Plan of Merger dated
May 7, 1996, between ENSCO International Incorporated,
DDC Acquisition Company and DUAL DRILLING COMPANY
(incorporated by reference to exhibit 2.2 of Amend-
ment No. 1 to the ENSCO International Incorporated
Registration Statement on Form S-4 filed May 10, 1996,
Registration No. 333-3411).
3 - Certificate of Merger of DDC Acquisition Company
merging into DUAL DRILLING COMPANY (incorporated by
reference to exhibit No. 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996).
3.1 - Certificate of Incorporation of DDC Acquisition
Company, as amended (incorporated by reference to
exhibit No. 3.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended June 30,
1996).

39<PAGE>

EXHIBIT NO. DESCRIPTION

10 - Amendment No. 1 dated as of June 13, 1996 to the
Amended and Restated Credit Facility Agreement dated
as of September 27, 1995 by and among ENSCO Offshore
Company and ENSCO Offshore U.K. Limited, as borrowers,
and Christiania Bank OG Kreditkasse, New York Branch,
and den Norske Bank AS, New York Branch, as the Banks
(incorporated by reference to exhibit No. 10.25 to
the ENSCO International Incorporated (File No. 1-8097)
Form 10-Q for the quarterly period ended June 30,
1996).
10.1 - First Preferred Fleet Mortgage dated June 13, 1996 by
ENSCO Offshore Company II and Bankers Trust Company,
as trustee for the benefit of Christiania Bank OG
Kreditkasse, New York Branch, and den Norske Bank AS,
New York Branch (incorporated by reference to exhibit
No. 10.27 to the ENSCO International Incorporated
(File No. 1-8097) Form 10-Q for the quarterly period
ended June 30, 1996).
10.2 - Form of Standard Bareboat Charter between ENSCO
Offshore Company and the Company (incorporated by
reference to exhibit No. 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996).
10.3 - Form of Standard Platform Charter between ENSCO
Offshore Company and the Company (incorporated by
reference to exhibit No. 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996).
10.4 - Master Services Agreement between ENSCO International
Incorporated and the Company (incorporated by
reference to exhibit No. 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996).
10.5 - DUAL DRILLING COMPANY Employees Tax Deferred/Thrift
Savings Plan and Trust (filed as exhibit 10.2 to the
Company's Registration Statement on Form S-1 (No. 33-
64550) and incorporated herein by reference).
10.6 - Long Term Team Incentive Program (filed as exhibit
10.3 to the Company's Registration Statement on Form
S-1 (No. 33-64550) and incorporated herein by
reference).
10.7 - MOSVOLD SHIPPING AS Stock Option Compensation Plan
(filed as exhibit 10.4 to the Company's Registration
Statement on Form S-1 (No. 33-64550) and incorporated
herein by reference).

40<PAGE>

EXHIBIT NO. DESCRIPTION

10.8 - Benefit Restoration Plan (filed as exhibit 10.5 to the
Company's Registration Statement on Form S-1 (No.
33-72744) and incorporated herein by reference).
10.9 - 1993 Long Term Incentive Plan (filed as exhibit 10.6
to the Company's Registration Statement on Form S-1
(No. 33-72744) and incorporated herein by reference).
10.10 - Supplemental Executive Retirement Plan (filed as
exhibit 10.7 to the Company's Registration Statement
on Form S-1 (No. 33-72744) and incorporated herein by
reference).
10.11 - Office Lease, dated as of October 12, 1998, between
Sherry Lane Associates and DUAL DRILLING COMPANY
(filed as exhibit 10.14 to the Company's Registration
Statement on Form S-1 (No. 33-64550) and incorporated
herein by reference).
10.12 - Dual Drilling Company Non-Employee Director
Compensation Plan (filed as exhibit 4.3 to the
Registrant's Registration Statement on Form S-8 (No.
33-87634) filed on December 24, 1994 and incorporated
herein by reference).
10.13 - Indenture dated January 15, 1994, between DUAL
DRILLING COMPANY and Merrill Lynch & Co., with respect
to the issuance of Senior Subordinated Notes due 2004.
10.14 - Dual Drilling Company 1993 Long-Term Incentive Plan
(filed as exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 (No. 33-75528) filed on February
18, 1994 and incorporated herein by reference).
10.15 - Memorandum of Agreement, dated March 28, 1995, between
SEADRILL 97, INC. and Egyptian Drilling Company for
sale of DUAL RIG 97 (filed as exhibit 25.2 to the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1995 and incorporated
herein by reference).
10.16 - Sale and Purchase Agreement, dated April 10, 1995,
between DUAL DRILLING COMPANY and Global Marine
Australia, Inc., for the purchase of DUAL RIG 88
(filed as exhibit 25.3 to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended
March 31, 1995 and incorporated herein by reference).
10.17 - Severance Pay Plan dated August 21, 1995 for Office
Employees (filed as exhibit 10.38 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
10.18 - Severance Pay Plan dated August 21, 1995 for Key
Operating & Support Staff Employees (filed as exhibit
10.39 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated
herein by reference).
10.19 - Severance Pay Plan dated August 21, 1995 for Key
Operating & Engineering Managers (filed as exhibit
10.40 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated
herein by reference).

41<PAGE>

EXHIBIT NO. DESCRIPTION

10.20 - Employment Agreement of Robert F. Chrone dated
February 15, 1995 and as amended February 15, 1995 and
August 21, 1995 (filed as exhibit 10.41 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by
reference).
*27 - Financial Data Schedule
_______________

* Filed herewith

(b) No Current Reports on Form 8-K were filed by the Company during the
fourth quarter of the year ended December 31, 1996.

42<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
March 25, 1997.

Dual Holding Company
(formerly DUAL DRILLING COMPANY)
(Registrant)

By: /s/ C. CHRISTOPHER GAUT
---------------------------
C. Christopher Gaut
President

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

Signatures Title Date

/s/ C. CHRISTOPHER GAUT President and Director March 25, 1997
-----------------------------
C. Christopher Gaut

/s/ RICHARD A. WILSON Vice President and March 25, 1997
----------------------------- Director
Richard A. Wilson

/s/ H. E. MALONE Secretary and Director March 25, 1997
-----------------------------
H. E. Malone

43<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<PERIOD-START> JAN-01-1996
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996

<FN>
<F1> THE COMPANY WAS ACQUIRED BY ENSCO INTERNATIONAL INCORPORATED
ON JUNE 12, 1996. THE RESULTS OF OPERATIONS INFORMATION
REFLECTED ABOVE INCLUDES THE PERIOD PRIOR TO AND SUBSEQUENT
TO THE ACQUISITION. AS THE CAPITAL STRUCTURE OF THE COMPANY
WAS CHANGED IN THE ACQUISITION, EARNINGS PER SHARE INFORMATION
FOR THE YEAR IS NOT RELEVANT.
/FN
<PAGE>

</TABLE>