GLOBALSANTAFE CORP (Form: 10-Q, Received: 08/05/2005 15:57:36)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2005

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

Commission File Number 1-14634

GlobalSantaFe Corporation

(Exact name of registrant as specified in its charter)

Cayman Islands

98-0108989

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)


15375 Memorial Drive, Houston, Texas		77079-4101
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (281) 925-6000

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

The number of shares of the registrant’s ordinary shares, par value $.01 per share, outstanding as of July 31, 2005, was 241,820,361.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS TO FORM 10-Q

QUARTER ENDED JUNE 30, 2005


		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

Report of Independent Registered Public Accounting Firm		3

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2005 and 2004		4

Condensed Consolidated Balance Sheets as of June 30, 2005, and December 31, 2004		5

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004		7

Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended June 30, 2005		8

Notes to Condensed Consolidated Financial Statements		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	34

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	36

Item 4.	Submission of Matters to a Vote of Security Holders	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

SIGNATURE		38

FORWARD-LOOKING STATEMENTS

Under the Private Securities Litigation Reform Act of 1995, companies are provided a “safe harbor” for discussing their expectations regarding future performance. We believe it is in the best interests of our shareholders and the investment community to use these provisions and provide such forward-looking information. We do so in this report and in other communications. Forward-looking statements are often but not always identifiable by the use of words such as “anticipate,” “believe,” “budget,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “predict,” “project,” and “should.”

Our forward-looking statements include statements about the following subjects:

•

our expectation that, if required, any additional payments made under certain fully defeased financing leases would not be material to our financial position or results of operations in any given year;

•

our expectations regarding realization of contract drilling backlogs during the remainder of 2005;

•

our expectations regarding commencement and value of certain contracts;

•

our anticipated estimated effective tax rate for financial reporting purposes for 2005;

•

our estimation of the capitalized cost, capital spares, startup expenses, customer-required modifications, mobilization costs, and capitalized interest for our two new semisubmersibles, the GSF Development Driller I and GSF Development Driller II;

•

our estimation of the expected delay in commencement of initial operations of our two new semisubmersibles due to thruster defects, estimated costs to remediate the defects, expectation regarding who will bear those costs and expectation that the delay will have an adverse impact on our results of operations;

•

our expectation that we will fund all remaining construction and startup costs of our two new semisubmersibles from our existing cash, cash equivalents and marketable securities balances, and future cash flow from operations;

•

our expectation that our effective tax rate will continue to fluctuate from year to year as our operations are conducted in different taxing jurisdictions;

•

expectations regarding pension plan funding obligations;

•

our expectations regarding future conditions in various geographic markets in which we operate and the prospects for future work, contract terms and dayrates in those markets;

•

our expectations regarding equipment supply and demand in various geographic markets;

•

our expectations regarding the impact of the entry into service of new rigs under construction, and rigs being upgraded or reactivated;

•

our expectation that further new rig construction announcements are likely;

•

our estimate of the third quarter pretax loss resulting from unforeseen difficulties on a turnkey project;

•

estimated costs for drilling management services;

•

that we expect to redeem all remaining Zero Coupon Convertible Debentures in the third quarter of 2005 at a redemption price equal to $594.25 plus an additional amount reflecting the 3.5% issue discount accrued from June 23, 2005 to the date of redemption and will fund the redemption price from our existing cash, cash equivalents and marketable securities balances;

•

our expectations regarding the costs and date of completion for the reactivation of the GSF Artic II ;

•

our estimated capital expenditures in 2005;

•

our expectation that we will fund various commitments, primarily related to our debt and capital lease obligations, leases for office space and other property and equipment with existing cash and cash equivalents, and future cash flow from operations;

•

our ability to meet all of our current obligations, including working capital requirements, capital expenditures, lease obligations, construction and development commitments and debt service from our existing cash, cash equivalents and marketable securities balances, and future cash flow from operations;

•

our beliefs regarding the outcome, impact on our financial position, results of operations and cash flows, and availability of insurance in respect of pending litigation, and

any other statements that are not historical facts.

Our forward-looking statements speak only as of the date of this report and are based on available industry, financial and economic data and our operating and financing plans as of that date. They are also inherently uncertain, and investors must recognize that events could turn out to be materially different from what we expect.

Factors that could cause or contribute to such differences include, but are not limited to (a) general economic and business conditions; (b) the cyclical nature of the drilling business; (c) oil and natural gas price fluctuations and related market expectations; (d) the political environment of oil-producing regions; (e) our ability to hire and retain qualified personnel; (f) additional new rig construction; (g) delays, due to adverse weather conditions or other complications, in the remediation of thruster defects on our two new semisubmersibles; and (h) such other risk factors as may be discussed herein, in the “Risk Factors” section under Items 1 and 2 and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2004, and subsequent reports filed with the U.S. Securities and Exchange Commission.

You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we disclaim any obligation or undertaking to disseminate any updates or revisions to our statements, forward-looking or otherwise, to reflect changes in our expectations or any change in events, conditions or circumstances on which any such statements are based.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of GlobalSantaFe Corporation

We have reviewed the accompanying condensed consolidated balance sheet of GlobalSantaFe Corporation and its subsidiaries (the Company) as of June 30, 2005, and the related condensed consolidated statements of income for each of the three- and six-month periods ended June 30, 2005 and 2004 and the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2005 and 2004, and the condensed consolidated statement of shareholders’ equity for the six-month period ended June 30, 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

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

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2004, and the related consolidated statements of income, shareholders’ equity, and of cash flows for the year then ended, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 and the effectiveness of the Company’s internal control over financial reporting as of December 31,2004; and in our report dated March 2, 2005 we expressed unqualified opinions thereon. The consolidated financial statements and management’s assessment of the effectiveness of internal control over financial reporting referred to above are not presented herein. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2004, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

August 2, 2005

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

($ in millions, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenues:
Contract drilling	$	403.8		$	274.4		$	738.3		$	543.9
Drilling management services		156.0			102.1			298.0			207.8
Oil and gas		15.0			5.6			27.1			10.4

Total revenues		574.8			382.1			1,063.4			762.1

Expenses and other operating items:
Contract drilling		250.8			211.3			466.0			402.7
Drilling management services		145.1			95.6			277.3			196.0
Oil and gas		2.7			1.7			6.5			3.1
Depreciation, depletion and amortization		68.5			62.8			136.4			127.2
Gain on sale of assets		(1.1	)		—			(1.1	)		(2.7	)
Impairment loss on long-lived assets		—			—			—			1.2
General and administrative		14.3			12.9			30.2			28.8

Total operating expenses and other operating items		480.3			384.3			915.3			756.3

Operating income (loss)		94.5			(2.2	)		148.1			5.8
Other income (expense):
Interest expense		(11.9	)		(16.6	)		(24.2	)		(33.1	)
Interest capitalized		11.7			11.7			21.8			21.6
Interest income		5.6			2.7			10.8			5.7
Loss on early retirement of long-term debt		—			(32.4	)		—			(32.4	)
Other		(0.9	)		1.1			—			(0.8	)

Total other income (expense)		4.5			(33.5	)		8.4			(39.0	)

Income (loss) before income taxes		99.0			(35.7	)		156.5			(33.2	)
Income tax provision (benefit):
Current tax provision		8.7			2.5			13.2			3.2
Deferred tax provision (benefit)		5.2			(12.2	)		8.0			(14.5	)

Total income tax provision (benefit)		13.9			(9.7	)		21.2			(11.3	)

Income (loss) from continuing operations		85.1			(26.0	)		135.3			(21.9	)
Income from discontinued operations, net of tax effect		—			110.0			—			114.6

Net income		85.1			84.0			135.3			92.7
Other comprehensive income (loss)		1.6			(1.5	)		(1.0	)		(0.4	)

Total comprehensive income	$	86.7		$	82.5		$	134.3		$	92.3

Earnings (loss) per ordinary share (Basic):
Income (loss) from continuing operations	$	0.36		$	(0.11	)	$	0.57		$	(0.09	)
Income from discontinued operations		—			0.47			—			0.49

Net income	$	0.36		$	0.36		$	0.57		$	0.40

Earnings (loss) per ordinary share (Diluted):
Income (loss) from continuing operations	$	0.35		$	(0.11	)	$	0.56		$	(0.09	)
Income from discontinued operations		—			0.47			—			0.49

Net income	$	0.35		$	0.36		$	0.56		$	0.40

See notes to condensed consolidated financial statements.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

($ in millions)


	June 30, 2005		December 31, 2004
Current assets:
Cash and cash equivalents	$	274.7	$	606.7
Marketable securities		284.8		201.9
Accounts receivable, net of allowances		389.8		360.8
Costs incurred on turnkey drilling projects in progress		25.3		18.5
Prepaid expenses		28.6		31.7
Other current assets		13.3		5.0

Total current assets		1,016.5		1,224.6

Properties and equipment:
Rigs and drilling equipment, less accumulated depreciation of $1,512.6 at June 30, 2005, and $1,381.9 at December 31, 2004		4,337.7		4,307.0
Oil and gas properties, full-cost method, less accumulated depreciation, depletion and amortization of $21.9 at June 30, 2005, and $17.7 at December 31, 2004		24.9		22.9

Net properties		4,362.6		4,329.9

Goodwill		340.1		338.1
Deferred income taxes		32.4		32.8
Other assets		74.1		72.8

Total assets	$	5,825.7	$	5,998.2

See notes to condensed consolidated financial statements.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

(Unaudited)

($ in millions)


	June 30, 2005			December 31, 2004
Current liabilities:
Accounts payable	$	182.3		$	210.8
Current maturities of long-term debt		0.5			350.7
Accrued compensation and related employee costs		67.4			76.2
Accrued income taxes		—			27.1
Accrued interest		6.4			6.4
Deferred revenue		21.8			23.5
Other accrued liabilities		104.6			78.3

Total current liabilities		383.0			773.0

Long-term debt		558.1			554.4
Capital lease obligations		24.4			31.6
Deferred income taxes		46.7			39.0
Other long-term liabilities		150.3			133.8
Commitments and contingencies (Note 4)		—			—

Shareholders’ equity:
Ordinary shares, $0.01 par value, 600,000,000 shares authorized, 240,737,844 shares and 235,957,481 shares issued and outstanding at June 30, 2005, and December 31, 2004, respectively		2.4			2.4
Additional paid-in capital		3,120.8			3,004.3
Retained earnings		1,582.9			1,501.6
Accumulated other comprehensive loss		(42.9	)		(41.9	)

Total shareholders’ equity		4,663.2			4,466.4

Total liabilities and shareholders’ equity	$	5,825.7		$	5,998.2

See notes to condensed consolidated financial statements.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

($ in millions)


	Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net income	$	135.3		$	92.7
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation, depletion and amortization		136.4			131.2
Deferred income taxes		8.0			(18.9	)
Gain on sale of assets		(1.1	)		(114.7	)
Impairment loss on long-lived assets		—			1.2
Loss on early retirement of long-term debt		—			32.4
(Increase) decrease in accounts receivable		(28.2	)		24.6
(Increase) decrease in prepaid expenses and other
current assets		(10.5	)		16.4
Increase (decrease) in accounts payable		29.2			(13.4	)
Decrease in accrued liabilities		(30.2	)		(36.9	)
Decrease in deferred revenues		(0.8	)		(19.9	)
Increase in other long-term liabilities		13.6			18.2
Payment of imputed interest on the Zero Coupon Bond Debentures		(56.3	)		—
Other, net		10.9			0.4

Net cash flow provided by operating activities		206.3			113.3

Cash flows from investing activities:
Capital expenditures		(228.2	)		(235.6	)
Proceeds from sale of land drilling fleet assets		—			316.5
Proceeds from disposals of properties and equipment		1.4			10.8
Purchases of held-to-maturity marketable securities		—			(169.2	)
Proceeds from maturities of held-to-maturity marketable securities		—			254.0
Purchases of available-for-sale marketable securities		(173.2	)		—
Proceeds from sales of available-for-sale marketable securities		90.5			10.2

Net cash flow (used in) provided by investing activities		(309.5	)		186.7

Cash flows from financing activities:
Dividend payments		(35.7	)		(23.4	)
Payments on long-term debt		(299.8	)		(331.7	)
Payments on capitalized lease obligations		(8.1	)		(8.0	)
Proceeds from issuance of ordinary shares		914.3			18.2
Ordinary Shares repurchased and retired		(799.5	)		—
Other		—			6.1

Net cash flow used in financing activities		(228.8	)		(338.8	)

Decrease in cash and cash equivalents		(332.0	)		(38.8	)
Cash and cash equivalents at beginning of period		606.7			711.8

Cash and cash equivalents at end of period	$	274.7		$	673.0

See notes to condensed consolidated financial statements.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)

($ in millions)


						Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Ordinary Shares
	Shares		Par Value
Balance at December 31, 2004	235,957,481		$	2.4		$	3,004.3		$	1,501.6		$	(41.9	)	$	4,466.4
Net income	—			—			—			135.3			—			135.3
Minimum pension liability adjustment	—			—			—			—			1.0			1.0
Unrealized gain on securities	—			—			—			—			(2.0	)		(2.0	)

Comprehensive income																134.3
Exercise of employee stock options	4,573,796			—			111.2			—			—			111.2
Shares issued under other benefit plans	206,567			—			6.0			—			—			6.0
Shares issued	23,500,000			0.2			798.6			—			—			798.8
Shares repurchased	(23,500,000	)		(0.2	)		(799.3	)		—			—			(799.5	)
Dividends declared	—			—			—			(54.0	)		—			(54.0	)

Balance at June 30, 2005	240,737,844		$	2.4		$	3,120.8		$	1,582.9		$	(42.9	)	$	4,663.2

See notes to condensed consolidated financial statements

Note 1 – Basis of Presentation and Description of Business

GlobalSantaFe Corporation is an offshore oil and gas drilling contractor, owning or operating a fleet of 61 marine drilling rigs. As of June 30, 2005, our fleet included 45 cantilevered jackup rigs, 13 semisubmersibles and three drillships. We operate two of the semisubmersible rigs for third parties under a joint venture agreement. We provide oil and gas contract drilling services to the oil and gas industry worldwide on a daily rate (“dayrate”) basis. We also provide oil and gas drilling management services on either a dayrate or completed-project, fixed-price (“turnkey”) basis, as well as drilling engineering and drilling project management services, and we participate in oil and gas exploration and production activities.

B ASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of GlobalSantaFe Corporation and its consolidated subsidiaries. Intercompany accounts and transactions have been eliminated. Unless the context otherwise requires, the terms “we,” “us” and “our” refer to GlobalSantaFe Corporation and its consolidated subsidiaries. The condensed consolidated financial statements and related footnotes are presented in U.S. dollars and in accordance with accounting principles generally accepted in the United States of America. Certain prior period amounts have been reclassified to conform to the current presentation.

The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. Interim-period results may not be indicative of results expected for the full year. The year-end condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. These interim financial statements should be read in conjunction with our audited financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004.

Our independent registered public accounting firm has performed a review of, and issued a report on, these consolidated interim financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Pursuant to Rule 436(c) under the U.S. Securities Act of 1933, this report should not be considered a part of any registration statement prepared or certified within the meanings of Sections 7 and 11 of the Securities Act.

Gain on Sale of Asset

In September 2004, Challenger Minerals Inc. (“CMI”), one of our wholly owned subsidiaries, completed the sale of a portion of its interest in the Broom Field, a development project in the North Sea. We received net proceeds of $35.9 million in connection with the sale and recorded a gain of $25.1 million ($13.3 million, net of taxes) in 2004. Pursuant to the terms of the sale, if commodity prices exceed a specified amount, we are also entitled to additional post-closing consideration equal to a portion of the proceeds from the production attributable to this interest sold through September 2005. We recorded an additional gain of $1.1 million during the second quarter of 2005, which represents the deferred consideration earned under the sales agreement through June 30, 2005.

S TOCK - BASED COMPENSATION PLANS

We account for our stock-based compensation plans using the intrinsic-value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25. Accordingly, we compute compensation cost for these plans as the amount by which the quoted market price of our ordinary shares on the date of grant exceeds the amount the employee must pay to acquire the shares. The amount of compensation cost, if any, is charged to income over the vesting period. No compensation cost has been recognized for options granted under our employee share purchase plan or for any of our outstanding stock options, all of which have exercise prices equal to or greater than the market price of our ordinary shares on the date of grant. We do, however, recognize compensation cost for all grants of performance-based and other restricted stock awards.

Had compensation cost for our stock-based compensation plans been determined based on fair values as of the dates of grant, our income from continuing operations and earnings per ordinary share would have been reported as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
	(In millions, except per share amounts)
Income (loss) from continuing operations, as reported	$	85.1		$	(26.0	)	$	135.3		$	(21.9	)

Add: Stock-based employee compensation expense included in reported income (loss) from continuing operations, net of related tax effects		1.2			0.1			1.7			0.3
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		(6.5	)		(9.8	)		(12.0	)		(19.2	)

Pro forma income (loss) from continuing operations	$	79.8		$	(35.7	)	$	125.0		$	(40.8	)

Basic earnings (loss) per ordinary share from continuing operations:
As reported	$	0.36		$	(0.11	)	$	0.57		$	(0.09	)
Pro forma	$	0.33		$	(0.15	)	$	0.52		$	(0.17	)
Diluted earnings (loss) per ordinary share from continuing operations:
As reported	$	0.35		$	(0.11	)	$	0.56		$	(0.09	)
Pro forma	$	0.33		$	(0.15	)	$	0.51		$	(0.17	)

Estimates of fair values for stock options granted under our stock-based compensation plans for purposes of calculating the pro forma data in the preceding table are computed using the Black-Scholes option-pricing model. Fair values for performance-based stock awards are determined by the market price of our ordinary shares at the date of grant. The pro forma figures in the preceding table may not be representative of pro forma amounts in future years.

Note 2 - Earnings per Ordinary Share

A reconciliation of the numerators and denominators of the basic and diluted per share computations for net income follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2005		2004			2005		2004
	(In millions, except share and per share amounts)
Numerator:
Income (loss) from continuing operations	$	85.1	$	(26.0	)	$	135.3	$	(21.9	)
Income from discontinued operations		—		110.0			—		114.6

Net income	$	85.1	$	84.0		$	135.3	$	92.7

Denominator:
Ordinary shares- Basic		239,734,342		234,544,941			238,914,851		234,353,149
Add effect of employee stock options		3,766,276		—			3,907,291		—

Ordinary shares - Diluted		243,500,618		234,544,941			242,822,142		234,353,149

Earnings (loss) per ordinary share:
Basic:
Income (loss) from continuing operations	$	0.36	$	(0.11	)	$	0.57	$	(0.09	)
Income from discontinued operations	$	—	$	0.47		$	—	$	0.49

Net income	$	0.36	$	0.36		$	0.57	$	0.40

Diluted:
Income (loss) from continuing operations	$	0.35	$	(0.11	)	$	0.56	$	(0.09	)
Income from discontinued operations	$	—	$	0.47		$	—	$	0.49

Net income	$	0.35	$	0.36		$	0.56	$	0.40

The computation of diluted earnings per ordinary share for the three and six months ended June 30, 2005, excludes outstanding options to purchase GlobalSantaFe ordinary shares with exercise prices greater than the average market price of GlobalSantaFe ordinary shares for the period, because the inclusion of such options would have the effect of increasing diluted earnings per ordinary share (i.e. their effect would be “antidilutive”). Options to purchase a total of 3,458,377 ordinary shares and 3,391,719 ordinary shares were excluded from the computation of diluted earnings per ordinary share for the three and six months ended June 30, 2005, respectively.

The computation of diluted earnings (loss) from continuing operations per ordinary share for the three and six months ended June 30, 2004, excludes options representing 20,287,016 shares, which comprise all of our outstanding stock options at June 30, 2004, because the inclusion of such options would have the effect of decreasing the diluted loss per ordinary share from continuing operations for both of these periods (i.e. their effect would be “antidilutive”).

Diluted earnings per ordinary share presented in the table above also excludes 6,500 potentially dilutive shares for the three and six months ended June 30, 2005 that become issuable upon conversion of our remaining Zero Coupon Convertible Debentures (see Note 5) because the inclusion of such shares would be antidilutive given the level of net income from continuing operations for these periods. Diluted earnings per ordinary share for the three and six months ended June 30, 2004 excludes 4,875,062 potentially dilutive shares that would have become issuable upon conversion of the Zero Coupon Convertible Debentures because the inclusion of such shares would have been antidilutive.

Note 3 - Segment Information

Information by operating segment, together with reconciliations to the consolidated totals, is presented in the following table:


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
	($ in millions)
Revenues from external customers:
Contract drilling	$	403.8		$	274.4		$	738.3		$	543.9
Drilling management services		156.0			102.1			298.0			207.8
Oil and gas		15.0			5.6			27.1			10.4

Consolidated	$	574.8		$	382.1		$	1,063.4		$	762.1

Intersegment revenues:
Contract drilling	$	—		$	0.5		$	3.0		$	3.2
Drilling management services		4.2			3.3			6.5			4.8
Intersegment elimination		(4.2	)		(3.8	)		(9.5	)		(8.0	)

Consolidated	$	—		$	—		$	—		$	—

Total revenues:
Contract drilling	$	403.8		$	274.9		$	741.3		$	547.1
Drilling management services		160.2			105.4			304.5			212.6
Oil and gas		15.0			5.6			27.1			10.4
Intersegment elimination		(4.2	)		(3.8	)		(9.5	)		(8.0	)

Consolidated	$	574.8		$	382.1		$	1,063.4		$	762.1

Segment income:
Contract drilling	$	88.4		$	2.7		$	143.6		$	18.6
Drilling management services		10.9			6.5			20.7			11.8
Oil and gas		10.2			2.9			16.4			5.5
Gain on sale of assets		1.1			—			1.1			2.7
Impairment loss on long-lived assets		—			—			—			(1.2	)

Total segment income		110.6			12.1			181.8			37.4
Corporate expenses		(16.1	)		(14.3	)		(33.7	)		(31.6	)

Operating income (loss)		94.5			(2.2	)		148.1			5.8
Loss on early retirement of long-term debt		—			(32.4	)		—			(32.4	)
Other income (expense)		4.5			(1.1	)		8.4			(6.6	)

Income (loss) before income taxes	$	99.0		$	(35.7	)	$	156.5		$	(33.2	)

Turnkey drilling projects often involve numerous subcontractors and third party vendors and, as a result, the actual final project cost is typically not known at the time a project is completed. We typically rely on detailed cost estimates created by our project engineering staff to compute and record profits on turnkey drilling projects based on revenues due upon completion of the project. These cost estimates are adjusted when final actual project costs have been determined, which may result in adjustments to previously recorded amounts. Results for the three and six months ended June 30, 2005 and 2004, were favorably affected by downward revisions to cost estimates for certain wells completed in prior periods. Such revisions increased segment operating income by $4.1 million and $2.7 million for the three and six months ended June 30, 2005, respectively, and by $4.3 million and $3.9 million, respectively, for the three and six months ended June 30, 2004. The effect of these revisions, however, was offset by the deferral of turnkey drilling profit totaling $3.1 million and $3.8 million for the three and six months ended June 30, 2005, respectively, and by $4.6 million and $6.9 million, respectively, for the three and six months ended June 30, 2004,

related to wells in which CMI was either the operator or held a working interest. This deferred turnkey profit has been credited to our full cost pool of oil and gas properties and will be recognized through a lower depletion rate as reserves are produced. Estimated costs included in 2005 drilling management services operating results totaled approximately $36.6 million at June 30, 2005. To the extent that actual costs differ from estimated costs, results in future periods will be affected by revisions to this amount. Estimated costs included in 2004 drilling management services operating results totaled approximately $27.2 million at June 30, 2004.

Note 4 – Commitments and Contingencies

C APITAL COMMITMENTS

During the first quarter of 2005, we took delivery of our two ultra-deepwater semisubmersibles ordered from PPL Shipyard PTE, Ltd. of Singapore (“PPL”), the GSF Development Driller I and the GSF Development Driller II . Construction costs for the GSF Development Driller I are expected to total approximately $309 million, excluding an estimated $95 million of capital spares, startup expenses, customer-required modifications and mobilization costs, $24 million related to the thruster defect discussed below, and $60 million of capitalized interest. We have incurred approximately $383 million of capitalized costs related to the GSF Development Driller I, excluding capitalized interest, as of June 30, 2005. Construction costs for the GSF Development Driller II are expected to total approximately $310 million, excluding an estimated $75 million of capital spares, startup expenses, customer-required modifications and mobilization costs, $21 million related to the thruster defect discussed below, and $44 million of capitalized interest. We have incurred approximately $372 million of capitalized costs related to the GSF Development Driller II, excluding capitalized interest, as of June 30, 2005.

We recently discovered a defect in the thruster nozzles on the GSF Development Driller I and the GSF Development Driller II , which caused damage to the nozzles. Based on our preliminary assessment, we expect the correction of this defect could delay the start of the initial drilling contracts for the GSF Development Driller II until September 2005 and the GSF Development Driller I until October 2005, which will have an adverse impact on our results of operations. The delay could be longer if the magnitude of the defect is greater than that expected based on our preliminary assessment or if the remediation is delayed. As noted above, we currently expect that the cost of corrections to the equipment, exclusive of continued capitalized interest, will be approximately $45 million and will be added to the capitalized costs of the rigs to the extent not recovered from the manufacturer or insurance underwriters.

C ONTINGENCIES

In 1998, we entered into fixed-price contracts for the construction of two dynamically positioned, ultra-deepwater drillships, the GSF C.R. Luigs and the GSF Jack Ryan, which began operating in April and December 2000, respectively. Pursuant to two 20-year capital lease agreements, we subsequently novated the construction contracts for the drillships to two financial institutions (the “Lessors”), which now own the drillships and lease them to us. We have deposited with three large foreign banks (the “Payment Banks”) amounts equal to the progress payments that the Lessors were required to make under the construction contracts, less a lease benefit of approximately $62 million (the “Defeasance Payment”). In exchange for the deposits, the Payment Banks have assumed

liability for making rental payments required under the leases and the Lessors have legally released us as the primary obligor of such rental payments. Accordingly, we have recorded no capital lease obligations on our balance sheet with respect to the two drillships.

We have interest rate risk in connection with these fully defeased financing leases for the GSF Jack Ryan and GSF C. R. Luigs. The Defeasance Payment earns interest based on the British Pound Sterling three-month LIBOR, which approximated 8.00% at the time of the agreement. Should the Defeasance Payment earn less than the assumed 8.00% rate of interest, we will be required to make additional payments as necessary to augment the annual payments made by the Payment Banks pursuant to the agreements. If the June 30, 2005, LIBOR rate of 4.80% were to continue over the next eight years, we would be required to fund an additional estimated $48 million during that period. Any additional payments made by us pursuant to the financing leases would increase the carrying value of our leasehold interest in the rigs and therefore be reflected in higher depreciation expense over their then-remaining useful lives. We do not expect that, if required, any additional payments made under these leases would be material to our financial position, results of operations or cash flows in any given year.

L EGAL P ROCEEDINGS

One of our subsidiaries filed suit in February 2004 against its insurance underwriters in the Superior Court of San Francisco County, California, seeking a declaration as to its rights to insurance coverage and the proper allocation among its insurers of liability for claims payments in order to assist in the future management and disposition of certain claims described below. The subsidiary is continuing to receive payment from its insurers for claim settlements and legal costs, and expects to continue to receive such payments during the pendency of this action.

The insurance coverage in question relates to lawsuits filed against the subsidiary arising out of its involvement in the design, construction and refurbishment of major industrial complexes. The operating assets of the subsidiary were sold and its operations discontinued in 1989, and the subsidiary has no remaining assets other than the insurance policies involved in the litigation and funds received from the cancellation of certain insurance policies. The subsidiary has been named as a defendant, along with numerous other companies, in lawsuits alleging personal injury as a result of exposure to asbestos. The subsidiary has been named as a defendant in approximately 4,640 lawsuits, the first of which was filed in 1990, and a substantial number of which are currently pending. Approximately $31 million has been expended to resolve claims with the subsidiary having expended $4 million of that amount due to insurance deductible obligations, all of which have now been satisfied. Insurers have funded the balance of the settlement costs and all legal costs associated therewith. The subsidiary continues to be named as a defendant in additional lawsuits and we cannot predict the number of additional cases in which it may be named a defendant nor can we predict the potential costs to resolve such additional cases or to resolve the pending cases. However, the subsidiary has in excess of $1 billion in insurance limits. Although not all of that will be available due to the insolvency of certain insurers, we believe that the subsidiary will have sufficient insurance available to respond to these claims. We do not believe that these claims will have any material impact on our consolidated financial position, results of operations or cash flows.

defend and indemnify it pursuant to the terms of contracts entered into for the construction of the refinery. On March 24, 2005, Union filed a motion requesting permission from the Court to add GlobalSantaFe Corporation as a defendant in the pending litigation. Union intends to attempt to establish liability against GlobalSantaFe Corporation as the alter ego of, and successor in interest to, its subsidiary and on the basis of a fraudulent conveyance of the subsidiary’s assets, and seeks to pierce the corporate veil between the subsidiary and GlobalSantaFe Corporation. We believe that the allegations of the lawsuit are without merit and intend to vigorously defend against the lawsuit, but cannot provide any assurance as to its ultimate outcome.

On July 11, 2005, one of our subsidiaries was served with a lawsuit filed on behalf of three landowners in Louisiana in the 12 ^th Judicial District Court for the Parish of Avoyelles, State of Louisiana. The lawsuit names nineteen other defendants, all of whom are alleged to have contaminated the plaintiffs’ property with naturally occurring radioactive material, produced water, drilling fluids, chlorides, hydrocarbons, heavy metals and other contaminants as a result of oil and gas exploration activities. The lawsuit specifies sixty-five wells drilled on the property in question beginning in 1939, and alleges that our subsidiary was the operator or non-operating partner in thirteen of the wells during certain periods of time. The plaintiffs allege that the defendants are liable on the basis of strict liability, breach of contract, breach of the mineral leases, negligence, nuisance, trespass, improper handling of toxic or hazardous substances, that their storage and disposal of toxic and hazardous substances constituted an ultra hazardous activity, and for the violation of various state statutes. The lawsuit seeks unspecified amounts of compensatory and punitive damages, payment of funds sufficient to conduct an environmental assessment of the property in question, damages for diminution of property value and injunctive relief requiring that defendants restore the property to its prior condition and prevent the migration of toxic and hazardous substances. We do not have sufficient information at this time to form an opinion as to the merits of the lawsuit or its potential liability, if any, but intend to vigorously defend against the lawsuit.

For a further discussion of our commitments and contingencies, including legal proceedings and environmental matters, see Note 5 to the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2004.

Note 5 – Long-term Debt

On June 23, 2005, we repurchased $599.2 million principal amount at maturity of the then outstanding $600 million principal amount at maturity of Global Marine Inc.’s Zero Coupon Convertible Debentures due June 23, 2020, for a total purchase price of $356.1 million, representing $299.8 million in principal payment and $56.3 million in imputed interest. Global Marine accepted all surrendered debentures for repurchase at a purchase price of $594.25 per $1,000 of principal amount at maturity. We funded the repurchase price from our existing cash, cash equivalents and marketable securities balances. Upon completion of this purchase, debentures totaling $800,000 of principal amount at maturity ($0.5 million at June 30, 2005) remain outstanding.

Long-term debt at June 30, 2005, and December 31, 2004, consisted of the following (in millions):


	June 30, 2005		December 31, 2004
5% Notes due 2013, net of unamortized discount of $0.5 million and $0.5 million at June 30, 2005, and December 31, 2004, respectively (1)	$	261.0	$	257.4
7% Notes due 2028, net of unamortized discount of $2.9 million and $3.0 million at June 30, 2005, and December 31, 2004, respectively		297.1		297.0
Zero Coupon Convertible Debentures due 2020, net of unamortized discount of $0.3 million and $249.3 million at June 30, 2005, and December 31, 2004, respectively		0.5		350.7

Total long-term debt, including current maturities		558.6		905.1
Less current maturities		0.5		350.7

Long-term debt	$	558.1	$	554.4

(1)	Balances at June 30, 2005, and December 31, 2004, include mark-to-market adjustments totaling $11.5 million and $7.9 million, respectively, as part of fair-value hedge accounting related to fixed-for-floating interest rate swaps.

Note 6 – Retirement Plans

We have defined benefit pension plans in the United States and the United Kingdom covering all of our U.S. employees and a portion of our non-U.S. employees. These plans are designed and operated to be in compliance with applicable U.S. tax-qualified requirements and U.K. tax requirements for funded plans and, as such, the trust earnings are not subject to income taxes. For the most part, benefits are based on the employee’s length of service and eligible earnings. Substantially all benefits are paid from established trust funds. We are the sole contributor to the plans, with the exception of our contributory plans in the U.K.

The components of net periodic pension benefit cost for our pension plans for the three and six months ended June 30, 2005 and 2004, were as follows:


	Three Months Ended June 30,
	2005						2004
	U.S. Plans			U.K. Plans			U.S. Plans			U.K. Plans
Service cost - benefits earned during the period	$	2.7		$	3.5		$	2.9		$	3.1
Interest cost on projected benefit obligation		4.9			2.5			5.0			2.0
Expected return on plan assets		(6.1	)		(2.4	)		(4.2	)		(2.0	)
Recognized actuarial loss		2.0			1.1			2.1			0.8
Settlement loss		1.0			—			—			—
Amortization of prior service cost		1.0			—			1.1			—

Net periodic pension cost	$	5.5		$	4.7		$	6.9		$	3.9


	Six Months Ended June 30,
	2005						2004
	U.S. Plans			U.K. Plans			U.S. Plans			U.K. Plans
Service cost - benefits earned during the period	$	5.8		$	7.0		$	5.7		$	6.2
Interest cost on projected benefit obligation		10.1			5.0			9.9			4.0
Expected return on plan assets		(12.1	)		(4.8	)		(8.3	)		(4.0	)
Recognized actuarial loss		4.5			2.2			4.2			1.6
Settlement loss		1.0			—			—			—
Amortization of prior service cost		2.0			—			2.3			—

Net periodic pension cost	$	11.3		$	9.4		$	13.8		$	7.8

Our funding objective is to fund participants’ benefits under the plans as they accrue. Although we expect that there will be no minimum required pension contribution to our plans for 2005, we have funded the plans in the past on a regular basis, including contributions to our U.S. plans in 2004 totaling $59.6 million. Accordingly, we may continue to make discretionary contributions, which will be determined after the 2005 actuarial valuations are complete.

We also sponsor a defined contribution (“401(k)”) savings plan in which substantially all of our U.S. employees are eligible to participate. Our contributions to the 401(k) savings plan are based on the amount of employee contributions. We match 100% of each participant’s first six percent of compensation contributed to the plan. Charges to expense with respect to this plan totaled $1.9 million and $3.7 million for the three and six months ended June 30, 2005, respectively, and $1.6 million and $3.4 million for the three and six months ended June 30, 2004, respectively. We also sponsor various defined contribution plans for certain of our U. K. employees. Charges to expense for these plans totaled $0.4 million and $0.7 million for the three and six months ended June 30, 2005, respectively, and $0.3 million and $0.5 million for the three and six months ended June 30, 2004, respectively

Note 7 – Supplemental Cash Flow Information – Noncash Financing Activity

Cash payments for capital expenditures for the six months ended June 30, 2005, include $63.9 million that was accrued but unpaid at December 31, 2004. Cash payments for capital expenditures for the six months ended June 30, 2004, include $16.6 million that was accrued but unpaid at

December 31, 2003. Accrued but unpaid capital expenditures at June 30, 2005, totaled $6.1 million. This amount is included in Accounts payable on the Condensed Consolidated Balance Sheet at June 30, 2005.

In June 2005, our Board of Directors declared a regular quarterly cash dividend for the second quarter of 2005 of $0.15 per ordinary share, payable to shareholders of record as of the close of business on June 30, 2005. This second quarter dividend in the amount of $36.1 million was paid on July 15, 2005.

Note 8 – Share Repurchase

In April 2005, we issued 23,500,000 ordinary shares at a price, net of the underwriting discount, of $34.02 per ordinary share, in an offering under a registration statement filed in September 2003. We immediately used the net proceeds from the offering totaling approximately $799.5 million to repurchase an equal number of our ordinary shares from a subsidiary of Kuwait Petroleum Corporation at a price per share equal to the net proceeds per share we received in the offering. In connection with this transaction we incurred $0.7 million of costs associated with the filing, which were recorded as a reduction of additional paid in capital. There was no change in the number of our outstanding shares as a result of the transactions as the shares repurchased from Kuwait Petroleum Corporation were immediately cancelled.

Note 9 – Transactions with Affiliates

In connection with its initial public offering, Santa Fe International entered into an intercompany agreement with Kuwait Petroleum Corporation (“KPC”) and its wholly owned subsidiary, SFIC Holdings (Cayman), Inc. (“SFIC Holdings”), which agreement was amended in connection with the November 2001 merger between Global Marine Inc. and Santa Fe International. The intercompany agreement, as amended, generally provides that as long as KPC and its affiliates own at least 7.5% of our outstanding ordinary shares, SFIC Holdings has the right to designate for election two directors. If SFIC Holdings’ interest is reduced to less than 7.5% and equal to or greater than 4%, the number of directors that SFIC Holdings may designate for election is generally reduced to one. If SFIC Holdings’ interest is reduced to less than 4%, it will not have the right to designate any directors for election to our Board.

Following the share repurchase discussed in Note 8, SFIC Holdings, a wholly owed subsidiary of KPC, currently owns 20,000,000 of our ordinary shares. This reflects a reduction in SFIC Holdings’ ownership interest to approximately 8.3% of the total shares outstanding at June 30, 2005 from approximately 18.4% at December 31, 2004.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are an offshore oil and gas drilling contractor, owning or operating a fleet of 61 marine drilling rigs. Our fleet includes 45 cantilevered jackup rigs, 13 semisubmersibles and three drillships. We operate two of the semisubmersible rigs for third parties under a joint venture agreement.

We provide offshore oil and gas contract drilling services to the oil and gas industry worldwide on a daily rate (“dayrate”) basis. We also provide oil and gas drilling management services on either a dayrate or completed-project, fixed-price (“turnkey”) basis, as well as drilling engineering and drilling project management services, and we participate in oil and gas exploration and production activities, principally in order to facilitate the acquisition of turnkey contracts for our drilling management services operations.

We derive substantially all of our revenues from our contract drilling and drilling management services operations, which depend on the level of activity in offshore oil and natural gas exploration and development drilling in markets worldwide. These operations are subject to a number of risks, many of which are outside our control. For a discussion of these risks, see “Items 1. and 2. Business and Properties — Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2004.

C RITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. These estimates and assumptions affect the carrying values of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the period. Actual results could differ from such estimates and assumptions. For a discussion of the critical accounting policies and estimates that we use in the preparation of our condensed consolidated financial statements, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2004.

Operating Results

S UMMARY

Data relating to our continuing operations by business segment follows (dollars in millions):


	Three Months Ended June 30,						Increase / (Decrease)		Six Months Ended June 30,						Increase / (Decrease)
	2005			2004			Increase / (Decrease)		2005			2004			Increase / (Decrease)
Revenues:
Contract drilling	$	403.8		$	274.9		47	%	$	741.3		$	547.1		35	%
Drilling management services		160.2			105.4		52	%		304.5			212.6		43	%
Oil and gas		15.0			5.6		168	%		27.1			10.4		161	%
Less: Intersegment revenues		(4.2	)		(3.8	)	11	%		(9.5	)		(8.0	)	19	%

	$	574.8		$	382.1		50	%	$	1,063.4		$	762.1		40	%

Operating income (loss):
Contract drilling	$	88.4		$	2.7		3,174	%	$	143.6		$	18.6		672	%
Drilling management services		10.9			6.5		68	%		20.7			11.8		75	%
Oil and gas		10.2			2.9		252	%		16.4			5.5		198	%
Gain on sale of assets		1.1			—		100	%		1.1			2.7		(59	)%
Impairment loss		—			—		—	%		—			(1.2	)	(100	)%
Corporate expenses		(16.1	)		(14.3	)	13	%		(33.7	)		(31.6	)	7	%

	$	94.5		$	(2.2	)	N/A		$	148.1		$	5.8		2,453	%

Operating income increased by $96.7 million from a $2.2 million loss in the second quarter of 2004 to operating income of $94.5 million in the second quarter of 2005, due primarily to higher dayrates and utilization for the drilling fleet, better turnkey operating performance, and increases in oil production. These factors were offset in part by higher depreciation expense, due in part to the addition of the GSF Constellation II cantilevered jackup to our fleet in third quarter 2004 and higher depletion expense due to increased oil production. Operating income for the second quarter of 2005 includes a $1.1 million gain related to deferred consideration earned under the sales agreement Challenger Minerals Inc, (“CMI”), one of our wholly owned subsidiaries, entered when it sold a percentage of its interest in the Broom Field, a development project in the North Sea, in the third quarter of 2004.

Operating income for the six months ended June 30, 2005, increased by $142.3 million, to $148.1 million from $5.8 million for the comparable period in 2004, due primarily to higher dayrates and utilization for the drilling fleet, better turnkey operating performance, and increases in oil production, offset by higher depreciation expense, due to the addition of the GSF Constellation II cantilevered jackup to our fleet in third quarter 2004 and higher depletion expense due to increased oil production. Included in operating income for 2004 is a gain of $2.7 million recognized on the sale of our interest in an oil and gas drilling lease offshore Mauritania, West Africa, offset in part by an impairment loss of $1.2 million recognized in the first quarter of 2004 on the sale of the platform rig Rig 82 in April 2004.

Our contract drilling backlog at June 30, 2005, totaled approximately $2.5 billion, $0.8 billion of which is expected to be realized during the remainder of 2005. Our contract drilling backlog at December 31, 2004, was $1.7 billion.

C URRENT MARKET CONDITIONS AND TRENDS

Although market conditions continue to improve in all of the world’s major offshore markets, historically the offshore drilling business has been cyclical, marked by periods of low demand,

excess rig supply and low dayrates, followed by periods of high demand, short rig supply and increasing dayrates. These cycles have been volatile and have traditionally been influenced by a number of factors, including oil and gas prices, the spending plans of our customers and the highly competitive nature of the offshore drilling industry. Even when rig markets appear to have stabilized at a certain level of utilization and dayrates or appear to be improving, these markets can change swiftly, making it difficult to predict trends or conditions in the market. The relocation of rigs from weak markets to stable or strong markets may also have a significant impact on utilization and dayrates in the affected markets. A summary of current market conditions and trends in our areas of operations follows:

Worldwide

Our current worldwide market outlook for the remainder of 2005 is one of continuing increases in demand, the result of which should be higher utilization and dayrates for our drilling rigs with available uncontracted time.

As market conditions improve further, we expect that a number of our competitors’ jackups and mid-water depth semisubmersibles that are currently “cold-stacked” (i.e. minimally crewed with little or no scheduled maintenance being performed) will continue to reenter the market. In addition, orders for the construction of as many as 42 jackup rigs have been announced with delivery dates ranging from 2005 to 2009. Most of these units are cantilevered units capable of drilling in water depths in the 300 - 400 ft. range, and are considered to be premium units. In the ultra deepwater sector, there have been announcements of as many as eight new high-specification semisubmersible rigs, one ultra-deepwater drillship, and the upgrade of as many as three other semisubmersibles to ultra deepwater units, with delivery forecast to occur from the third quarter of 2006 through 2009. A number of the contracts for units currently under construction provide for options for the construction of additional units and we believe further new construction announcements are likely for all classes of rigs pursuant to the exercise of one or more of these options or otherwise. During prior periods of newbuild construction, the entry into service of newly constructed, upgraded and reactivated rigs created an oversupply of drilling units and a decline in utilization and dayrates, sometimes for extended periods of time as rigs were absorbed into the active fleet. We do not currently anticipate that this increase in the number of active units will have a significant adverse effect on dayrates in the near future as there are indications of increased demand for these units over the course of the next few years. Any further increase in construction of new drilling units, however, may exacerbate any adverse effect on utilization and dayrates.

Deepwater and Ultra-Deepwater Market

Dayrates for deepwater and ultra-deepwater rigs have increased significantly for new contracts made during the second quarter 2005, in some cases reaching historical highs for such units. All deepwater units in the U.S. Gulf of Mexico are fully contracted for work through 2005 and the majority of these are contracted well into 2006. These same conditions also exist in international markets. A number of new short-term and long-term projects are seeking ultra-deepwater and deepwater rigs and these requirements are likely to be met only through rig farmouts from existing contracts. If suitable rigs are not available through farmouts, the projects will need to be deferred until late 2006 or into 2007. The overall market tightness in the ultra-deepwater and deepwater fleet in the U.S. Gulf of Mexico, West Africa and Brazil, along with other drilling markets, is anticipated to result in continued increases in dayrates for the foreseeable future.

U.S. Gulf of Mexico

Utilization for the jackup fleet in the U.S. Gulf of Mexico market has remained at or near the 95% level for the second quarter 2005, with associated increases in dayrates. All marketed semisubmersibles in the U.S. Gulf of Mexico are currently fully employed and we believe this condition is likely to remain through the third quarter of 2005. The terms of contracts are also steadily lengthening for all classes of rigs. We expect continued strong demand with increasing dayrates and longer contract terms in this market through the end of 2005.

North Sea

The market for mid-water depth semisubmersibles, cantilevered heavy-duty harsh environment (“HDHE”) jackups and standard cantilevered jackups continues to improve in the North Sea. We believe the market for HDHE and standard-specification jackup rigs will remain strong for 2005 and into 2006 with dayrates for these rigs continuing to increase. Dayrates for marketed semisubmersibles have now surpassed historical highs for work commencing in mid 2006.

West Africa

Demand in each segment of the West Africa market continues to strengthen. The industry jackup fleet in this market is currently fully utilized and, as a result, dayrates have increased significantly. In addition, increasing demand for mid-water semisubmersibles in this market during the second quarter of 2005, together with the relocation of one of our competitors’ units from West Africa to the Mediterranean Sea, have resulted in significant increases in dayrates. Dayrates have reached new all time highs for ultra-deepwater and deepwater rigs in this market and demand remains extremely strong with several programs still outstanding for year 2007 and beyond. There is little to no availability within the present fleet in West Africa, and we expect continuing demand for rigs in this market to lead to several units joining the West Africa fleet over the next 18 months.

Southeast Asia

Although there has been a net increase in rigs in the Southeast Asia market in the first half of 2005, we continue to expect increasing demand to exceed the available supply of rigs for the remainder of this year, creating shortages of available rigs and possibly delaying some drilling programs. Due to increases in demand in other jackup markets, we believe it is unlikely that there will be any significant movements of rigs into this area from other markets in 2005. As a result, we expect continuing upward pressure on dayrates until the possible delivery during the period of late 2005 to 2009 of newbuild rigs currently under construction in Singapore.

Middle East & Mediterranean

We expect the jackup market in the Mediterranean to remain in balance through 2006. By early 2007, we expect the jackup fleet in the Mediterranean to increase by two additional units in order to meet demand requirements associated with future exploration and development projects. The Gulf of Suez continues to remain strong with all ten jackups in this area fully utilized. Dayrates for this sector are at all time highs. Strong market fundamentals remain intact for the Arabian Gulf due primarily to increasing demand offshore Saudi Arabia and Qatar. We anticipate the near-term supply shortages and opportunities for significant increases in dayrates in the Arabian Gulf jackup market to be offset by the delivery of newbuild rigs currently under construction in Singapore.

South America

We expect little additional jackup demand to develop in the South American market through the remainder of 2005. There appears to be additional jackup requirements, however, starting in late 2005 and into the first half of 2006.

Other

The other markets in which we operate, Canada and the Azerbaijan area of the Caspian Sea, remain stable and we expect little change through the remainder of 2005.

Labor Markets

We require highly skilled personnel to operate and provide technical services and support for our business. Competition for the skilled and other labor required for deepwater and other drilling operations, including for our turnkey drilling and drilling management services business, intensifies as the number of rigs activated or added to worldwide fleets or under construction increases. In periods of high utilization, such as the current period, we have found it more difficult to find and retain qualified individuals. We have recently experienced tightening in the relevant labor markets, and if that trend continues, the possibility exists that competition for skilled and other labor for deepwater and other operations could limit our results of operations.

C ONTRACT D RILLING O PERATIONS

Data with respect to our contract drilling operations follows (dollars in millions, except average revenues per day):


	Three Months Ended June 30,						Increase/ (Decrease)		Six Months Ended June 30,						Increase/ (Decrease)
	2005			2004			Increase/ (Decrease)		2005			2004			Increase/ (Decrease)
Contract drilling revenues by area: (1)
U.S. Gulf of Mexico	$	75.7		$	65.8		15	%	$	145.4		$	133.5		9	%
North Sea		77.3			46.2		67	%		129.6			85.7		51	%
West Africa		89.8			50.5		78	%		151.8			108.2		40	%
Southeast Asia		48.2			38.3		26	%		91.9			75.6		22	%
Middle East		28.2			19.7		43	%		52.7			40.2		31	%
Mediterranean		18.3			16.3		12	%		35.6			32.5		10	%
South America		31.4			13.4		134	%		69.8			25.9		169	%
Other		34.9			24.7		41	%		64.5			45.5		42	%

	$	403.8		$	274.9		47	%	$	741.3		$	547.1		35	%

Average rig utilization by area:
U.S. Gulf of Mexico		98	%		87	%	13	%		97	%		88	%	10	%
North Sea		90	%		65	%	38	%		86	%		58	%	48	%
West Africa		99	%		78	%	27	%		93	%		84	%	11	%
Southeast Asia		100	%		99	%	1	%		94	%		99	%	(5	)%
Middle East		95	%		94	%	1	%		95	%		97	%	(2	)%
Mediterranean		100	%		100	%	—	%		100	%		100	%	—	%
South America		99	%		67	%	48	%		100	%		67	%	49	%
Other		75	%		79	%	(5	)%		87	%		73	%	19	%

Total average rig utilization:		95	%		82	%				93	%		82	%

Average revenues per day (2):	$	74,900		$	61,000				$	71,700		$	60,600

(1)	Includes revenues earned from affiliates.

(2)

Average revenues per day is the ratio of rig-related contract drilling revenues divided by the aggregate contract days, adjusted to exclude days under contract at zero dayrate. The calculation of average revenues per day excludes non-rig related revenues, consisting mainly of cost reimbursements, totaling $23.9 million and $35.6 million for the three and six months ended June 30, 2005, respectively, and $7.3 million and $16.8 million, respectively, for the three and six months ended June 30, 2004. Average revenues per day including these reimbursed expenses would have been $79,600 and $75,300 for the three and six months ended June 30, 2005, respectively, and $62,600 and $62,300, respectively, for the three and six months ended June 30, 2004. The calculation of average revenues per day for the three and six months ended June 30, 2005 and 2004, respectively, exclude all contact drilling revenues related to the management fee earned on one of the semisubmersible rigs we operate for a third party.

Three Months Ended June 30, 2005, Compared to Three Months Ended June 30, 2004

Contract drilling revenues increased $128.9 million to $403.8 million for the second quarter of 2005 as compared to $274.9 million for the 2004 second quarter. Higher utilization and dayrates for our drilling fleet accounted for approximately $56.7 million and $50.2 million, respectively, of this increase. The remainder of the increase was due to higher reimbursable and other revenues, which increased by $16.2 million and $5.8 million, respectively. Reimbursable revenues represent reimbursements from customers for certain out-of-pocket expenses incurred and have no effect on operating income. Other revenues include rig mobilization fees and miscellaneous fees including labor, material, rental, handling and incentive bonuses.

The increase in drilling revenues was due primarily to higher utilization and dayrates for the North Sea and West Africa drilling fleet, higher dayrates for our ultra-deepwater rigs and our jackup fleet in the U.S. Gulf of Mexico, higher utilization of the GSF Galaxy II HDHE jackup offshore eastern Canada, which was idle for much of the 2004 second quarter, higher utilization of the GSF Constellation I cantilevered jackup offshore Trinidad and the GSF Adriatic XI cantilevered jackup offshore Vietnam, both of which were idle in the second quarter of 2004, and the addition to our fleet of the GSF Constellation II cantilevered jackup, which began operating under contract offshore Argentina in September 2004. These increases were offset in part by the loss of the GSF Adriatic IV cantilevered jackup offshore Egypt in the third quarter of 2004 and lower utilization of the GSF Explorer drillship which was in the shipyard during second quarter 2005 prior to commencing its contract offshore Turkey.

The mobilization of rigs between the geographic areas shown below also affected each area’s revenues and utilization in the table above. These mobilizations were as follows:


Rig	Rig Type	From	To	Completion Date
GSF Constellation I	Cantilevered Jackup	Southeast Asia	South America	May-04
GSF High Island IX	Cantilevered Jackup	West Africa	Middle East	Jun-04
GSF Constellation II	Cantilevered Jackup	Shipyard	South America	Jun-04
GSF Jack Ryan	Drillship	U.S. Gulf of Mexico	South America	Aug-04
GSF Arctic I	Semisubmersible	U.S. Gulf of Mexico	South America	Aug-04
GSF Adriatic XI	Cantilevered Jackup	North Sea	Southeast Asia	Oct-04
GSF Adriatic X	Cantilevered Jackup	U.S. Gulf of Mexico	Mediterranean	Nov-04
GSF Adriatic II	Cantilevered Jackup	U.S. Gulf of Mexico	West Africa	Nov-04
GSF Jack Ryan	Drillship	South America	West Africa	Mar-05
GSF Adriatic VII	Cantilevered Jackup	South America	U.S. Gulf of Mexico	Apr-05
GSF Explorer	Drillship	U.S. Gulf of Mexico	Other (Black Sea)	May-05

Contract drilling operating expenses before intersegment eliminations reflect the increases in utilization noted above, increasing by $37.9 million to $250.8 million in the second quarter of 2005

from $212.9 million in the 2004 second quarter. The increase was due primarily to higher reimbursable expenses, repairs and maintenance expenses, and labor expenses, offset in part by lower mobilization expenses. Repairs and maintenance expense for the second quarter 2005 includes approximately $6.0 million related to the reactivation of the GSF Arctic II semisubmersible which has been cold-stacked in the North Sea.

Contract drilling depreciation expense for the second quarter of 2005 increased by $4.2 million from the prior year second quarter due primarily to the GSF Constellation II cantilevered jackup, which was placed in service during the third quarter 2004, and to upgrades on several other rigs in our fleet during 2004.

As a result of the increases in dayrates and utilization discussed above, contract drilling operating income and operating margin excluding intersegment revenues increased to $88.4 million and 21.9% for the second quarter of 2005 compared to operating income and operating margin of $2.7 million and 1.0%, respectively, for the second quarter of 2004.

Six Months Ended June 30, 2005, Compared to Six Months Ended June 30, 2004

Contract drilling revenues increased by $194.2 million to $741.3 million for the six months ended June 30, 2005, compared to $547.1 million for the six months ended June 30, 2004. Higher utilization and dayrates for our drilling fleet accounted for $84.3 million and $84.0 million, respectively, of this increase and higher reimbursable and other revenues accounted for $18.9 million and $7.0 million, respectively, of the remainder.

The increase in drilling revenues was due primarily to higher utilization and dayrates for the North Sea and West Africa drilling fleet, higher dayrates for our ultra-deepwater rigs and our jackup fleet in the U.S. Gulf of Mexico, higher utilization of the GSF Galaxy II HDHE jackup offshore eastern Canada and the GSF Adriatic XI cantilevered jackup offshore Vietnam, both of which remained idle for much of the first half of 2004 before resuming operations in late May 2004, higher utilization of the GSF Constellation I cantilevered jackup offshore Trinidad, which was idle for all of first half of 2004, and the addition to our fleet of the GSF Constellation II cantilevered jackup, which began operating under contract offshore Argentina in September 2004. These increases were offset in part by the loss of the GSF Adriatic IV cantilevered jackup offshore Egypt in the third quarter of 2004, lower utilization of the GSF Explorer drillship which was in the shipyard during second quarter of 2005, and the mobilization of the GSF Adriatic VII cantilevered jackup from Trinidad to the U.S. Gulf of Mexico during the second quarter of 2005.

Contract drilling operating expenses before intersegment eliminations for the first half of 2005 increased by $63.1 million to $470.1 million for the six months ended June 30, 2005, from $407.0 million in the comparable prior year period. The increase was primarily due to higher repairs and maintenance expenses, reimbursable expenses, and labor expenses, offset in part by lower mobilization expenses. Repairs and maintenance expense for 2005 includes approximately $7.1 million related to the reactivation of the GSF Arctic II semisubmersible which has been cold-stacked in the North Sea.

Contract drilling depreciation expense increased by $6.1 million for the first six months of 2005 from the same period in 2004 due primarily to the addition of the GSF Constellation II cantilevered jackup, which was placed in service during the third quarter 2004, and to upgrades on several other rigs in our fleet during 2004.

Contract drilling operating income and margin excluding intersegment revenues increased to $143.6 million and 19.5%, respectively, for the first half of 2005 from $18.6 million and 3.4%, respectively, for the comparable period of 2004, due primarily to higher rig utilization and dayrates as discussed above.

D RILLING M ANAGEMENT S ERVICES

Results of operations from our drilling management services segment may be limited by certain factors, in particular our ability to find and retain qualified personnel, to hire suitable rigs at acceptable rates, and to obtain and successfully perform turnkey drilling contracts based on competitive bids. Our ability to obtain turnkey drilling contracts is largely dependent on the number of such contracts available for bid, which in turn is influenced by market prices for oil and gas, among other factors. Accordingly, results of our drilling management service operations may vary widely from quarter to quarter and from year to year.

Three Months Ended June 30, 2005, Compared to Three Months Ended June 30, 2004

Drilling management services revenues increased by $54.8 million to $160.2 million in the second quarter of 2005 from $105.4 million in the 2004 second quarter. This increase consisted of $36.7 million attributable to an increase in turnkey projects completed, a $12.7 million increase in reimbursable revenues, $2.9 million in daywork and other revenues, and an increase of $2.5 million attributable to an increase in average revenues per turnkey project. Reimbursable revenues represent reimbursements received from the client for certain out-of-pocket expenses and have no effect on operating income. We completed 31 turnkey projects in the second quarter of 2005 (24 wells drilled and 7 well completions) as compared to 22 turnkey projects in the second quarter of 2004 (17 wells drilled and 5 well completions).

Drilling management services operating income increased by $4.4 million to $10.9 million in the second quarter of 2005 from $6.5 million in the second quarter of 2004 and operating profit margin excluding intersegment revenues increased to 7.0% in the second quarter of 2005 from 6.4% in the comparable 2004 quarter, due primarily to improved operating performance on our turnkey projects in 2005. Second quarter 2005 results include a $1.7 million loss on a turnkey project that was in progress at the end of the quarter. We incurred losses totaling approximately $2.2 million on three of our 22 projects completed during the second quarter of 2004.

Subsequent to June 30, 2005, we encountered unforeseen difficulties on an additional turnkey project underway at June 30, 2005. This well is still in progress and we estimate this project will result in an estimated third quarter 2005 pretax loss of approximately $0.7 million.

Results for the second quarters of 2005 and 2004 were favorably affected by downward revisions to cost estimates for certain wells completed in prior periods. Such revisions increased segment income by $4.1 million and $4.3 million for the three months ended June 30, 2005 and 2004, respectively. The effect of these revisions, however, was generally offset by the deferral of turnkey drilling profit totaling $3.1 million and $4.6 million for the three months ended June 30, 2005 and 2004, respectively, related to wells in which CMI was either the operator or held a working interest. This turnkey profit has been credited to our full cost pool of oil and gas properties and will be recognized through a lower depletion rate as reserves are produced. Estimated costs included in drilling management services operating results for the three months ended June 30, 2005 totaled

approximately $36.6 million. To the extent that actual costs differ from estimated costs, results in future periods will be affected by revisions to this amount. Estimated costs included in drilling management services operating results for the three months ended June 30, 2004 totaled approximately $27.2 million.

Six Months Ended June 30, 2005, Compared to Six Months Ended June 30, 2004

Drilling management services revenues increased by $91.9 million to $304.5 million for the six months ended June 30, 2005, from $212.6 million for the same period in 2004. This increase in revenues consisted of a $50.1 million increase in revenues attributable to higher average revenues per turnkey project, $33.8 million attributable to an increase in the number of turnkey projects completed, and a $10.7 million increase in daywork and other revenues, partly offset by a $2.7 million decrease in reimbursable revenues. We completed 57 turnkey projects in the first half of 2005 (47 wells drilled and 10 well completions) as compared to 49 turnkey projects in the comparable period of 2004 (36 wells drilled and 13 well completions).

Drilling management services operating income and margin excluding intersegment revenues increased to $20.7 million and 6.9%, respectively, for the six months ended June 30, 2005, from $11.8 million and 5.7%, respectively, in the same period in 2004, due primarily to improved operating performance on our turnkey projects in 2005. Our 2005 results include a $1.7 million loss on a turnkey project that was in progress at June 30, 2005, along with a $0.4 million loss incurred in the first quarter 2005, mostly related to a completion project in the North Sea. We incurred losses totaling approximately $2.2 million on three of our 49 projects completed during the six months ended June 30, 2004, along with a loss of $0.9 million incurred in connection with our project management operations during the first quarter of 2004.

Results for the first half of 2005 and 2004 were also favorably affected by downward revisions to cost estimates of wells completed in prior periods totaling $2.7 million and $3.9 million, respectively, which were more than offset by the deferral of turnkey drilling profit totaling $3.8 million and $6.9 million, respectively, related to wells in which CMI was either the operator or held a working interest.

O IL AND G AS O PERATIONS

We acquire interests in oil and gas properties principally in order to facilitate the acquisition of turnkey contracts for our drilling management services operations.

Three Months Ended June 30, 2005, Compared to Three Months Ended June 30, 2004

Oil and gas revenues increased by $9.4 million to $15.0 million for the three months ended June 30, 2005 from $5.6 million for the three months ended June 30, 2004. Higher oil production and prices, along with increased gas prices accounted for $9.9 million, $0.4 million, and $0.6 million, respectively, of this increase, offset in part by a decrease of $1.5 million due to lower gas volumes produced.

Operating income from our oil and gas operations increased by $7.3 million to $10.2 million in 2005 compared to $2.9 million in 2004, due primarily to the increases in revenues discussed above, offset in part by increases in lease operating expense as a result of the increases in oil production.

Six Months Ended June 30, 2005, Compared to Six Months Ended June 30, 2004

Oil and gas revenues increased by $16.7 million to $27.1 million for the six months ended June 30, 2005 from $10.4 million for the six months ended June 30, 2004. Higher oil production and prices, along with increased gas prices accounted for $16.9 million, $0.7 million, and $0.8 million, respectively, of this increase, offset in part by a decrease of $1.7 million due to lower gas volumes produced.

Operating income from our oil and gas operations increased by $10.9 million to $16.4 million in 2005 compared to $5.5 million in 2004, due primarily to the increases in revenues discussed above, offset in part by increases in lease operating expense as a result of the increases in oil production.

G ENERAL AND A DMINISTRATIVE E XPENSES

General and administrative expenses increased to $14.3 million and $30.2 million, respectively, for the three and six months ended June 30, 2005, compared to $12.9 million and $28.8 million, respectively for the same periods in 2004, due primarily to costs associated with the support of our new enterprise resource management software system, which was placed into service on January 1, 2005, along with costs incurred in connection with the implementation of this system in our foreign offices.

O THER I NCOME AND E XPENSE

Interest expense decreased to $11.9 million and $24.2 million, respectively, for the three and six months ended June 30, 2005, compared to $16.6 million and $33.1 million, respectively for the same periods in 2004, due primarily to the retirement of our 7 ¹ / 8 % Notes due 2007 in the second quarter of 2004.

On June 30, 2004, we completed the redemption of all of the outstanding $300 million principal amount of Global Marine Inc.’s 7 ¹ / 8 % Notes due 2007, for a total redemption price of $331.7 million, plus accrued and unpaid interest of $7.1 million. As a result, we recognized a pretax loss on the early retirement of debt of approximately $32.4 million, including unamortized discount and debt issue costs. Pretax interest expense related to the 7 ¹ / 8 % Notes totaled $21.4 million annually.

We capitalized $11.7 million and $21.8 million, respectively, of interest costs for the three and six months ended June 30, 2005, compared to $11.7 million and $21.6 million, respectively, for the same periods in 2004 in connection with the construction of the GSF Constellation II cantilevered jackup, which began operations in the third quarter 2004, and the GSF Development Driller I semisubmersible, and GSF Development Driller II semisubmersible, which are currently expected to begin operations in October 2005 and September 2005, respectively.

Interest income increased to $5.6 million and $10.8 million for the three and six months ended June 30, 2005, respectively, from $2.7 million and $5.7 million for the comparable 2004 periods, due primarily to higher interest rates earned in 2005 on our average cash, cash equivalents and marketable securities balances.

Other expense of $0.9 million for the three months ended June 30, 2005 consists primarily of costs incurred to settle a Canadian tax audit for the years 1998 - 2001, which fully offset the first quarter 2005 realized gain on marketable securities related to our nonqualified pension plans. Other expenses for the six months ended June 30, 2004 includes a loss of $3.8 million on a commodity derivative entered into in the first quarter of 2004, offset in part by realized gains on the sale of marketable securities related to one of our retirement plans.

I NCOME TAXES

We are a Cayman Islands company. The Cayman Islands does not impose corporate income taxes. Consequently, our tax provision is based upon the tax laws and rates in effect in the countries in which our operations are conducted and income is earned. The income tax rates imposed and methods of computing taxable income in these jurisdictions vary substantially. Our effective tax rate for financial statement purposes will continue to fluctuate from quarter to quarter and year to year as our operations are conducted in different taxing jurisdictions.

Our effective income tax rate for financial reporting purposes was 14.04% and 13.54% for the three months and six months ended June 30, 2005 respectively. Our second quarter effective income tax rate before the recognition of discrete items was decreased by the release of some of our U.S. valuation previously recorded allowance against U.S. Net Operating Loss carryforwards, and lower statutory tax rates coupled with changes in operating structures in certain foreign jurisdictions enacted or approved during the second quarter of 2005.

We recorded a net income tax benefit of $9.7 million and $11.3 million for the three and six months ended June 30, 2004, respectively, due to the recognition of various discrete tax items, including an $11.4 million deferred tax benefit in the second quarter of 2004 from the make whole premium paid as a result of the retirement of the 7 ¹ / 8 % Notes due 2007.

We currently anticipate that, before discrete items, our effective tax rate for financial reporting purposes will be in the range of 14% to 16% for 2005.

Liquidity and Capital Resources

S OURCES OF L IQUIDITY

Our primary sources of liquidity are cash and cash equivalents, marketable securities and cash generated from operations. As of June 30, 2005, we had $559.5 million of cash, cash equivalents and marketable securities, all of which were unrestricted. We had $808.6 million in cash, cash equivalents and marketable securities at December 31, 2004, all of which were unrestricted. Cash generated from operating activities totaled $206.3 million and $113.3 million for the six months ended June 30, 2005 and 2004, respectively.

In September 2003, we filed a universal shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission (the “SEC”) under which we could offer to sell from time to time any combination of the following securities: (i) unsecured debt securities consisting of notes, debentures or other evidences of indebtedness, (ii) ordinary shares, par value $0.01 per share, (iii) preference shares, (iv) depositary shares, (v) warrants and (vi) securities purchase contracts and units. In April 2005, we issued 23,500,000 ordinary shares at a price, net of the underwriting discount, of $34.02 per ordinary share, in an offering under that shelf registration statement. We immediately used the net proceeds from the offering totaling approximately $799.5 million to repurchase an equal number of our ordinary shares from a subsidiary of Kuwait Petroleum Corporation at a price per share equal to the net proceeds per share we received in the offering. In connection with this transaction we incurred $0.7 million of costs associated with the filing, which were recorded as a reduction of additional paid in capital. There was no change in the number of our outstanding shares as a result of the transactions as the shares repurchased from Kuwait Petroleum Corporation were immediately cancelled. On August 4, 2005, we filed a new universal shelf registration statement on Form S-3 with the SEC, which has not yet been declared effective by the SEC. The new shelf registration statement registers the issuance from time to time of the same types of securities as the September 2003 shelf registration statement, for an aggregate initial public offering price not to exceed $1.0 billion, which includes the remaining capacity of the prior shelf registration statement. Upon effectiveness of the registration statement, we will be permitted to periodically offer one or more of the securities registered thereby.

I NVESTING AND F INANCING A CTIVITIES

During the first quarter of 2005, we took delivery of our two ultra-deepwater semisubmersibles ordered from PPL Shipyard PTE, Ltd. of Singapore (“PPL”), the GSF Development Driller I and the GSF Development Driller II . Construction costs for the GSF Development Driller I are expected to total approximately $309 million, excluding an estimated $95 million of capital spares, startup expenses, customer-required modifications and mobilization costs, $24 million related to the thruster defect discussed below, and $60 million of capitalized interest. Construction costs for the GSF Development Driller II are expected to total approximately $310 million, excluding an estimated $75 million of capital spares, startup expenses, customer-required modifications and mobilization costs, $21 million related to the thruster defect discussed below, and $44 million of capitalized interest.

We recently discovered a defect in the thruster nozzles on the GSF Development Driller I and the GSF Development Driller II , which caused damage to the nozzles. Based on our preliminary assessment, we expect the correction of this defect could delay the start of the initial drilling contracts for the GSF Development Driller II until September 2005 and the GSF Development Driller I until October 2005, which will have an adverse impact on our results of operations. The delay could be longer if the magnitude of the defect is greater than that expected based on our preliminary assessment or if the remediation is delayed. As noted above, we currently expect that the cost of corrections to the equipment, exclusive of continued capitalized interest, will be approximately $45 million and will be added to the capitalized costs of the rigs to the extent not recovered from the manufacturer or insurance underwriters.

We expect to fund all remaining construction and startup costs of these rigs from our existing cash, cash equivalents and marketable securities balances, and future cash flow from operations.

BP America Production Company (“BP”) has awarded a three-year contract to the GSF Development Driller II for its Atlantis project in the U.S. Gulf of Mexico. The estimated 20-well project has a total contract value of approximately $200 million, and is expected to commence in September 2005, following correction of the thruster defect. BHP Billiton Petroleum (Americas) Inc. has awarded a two-year contract to the GSF Development Driller I for its project in the U.S. Gulf of Mexico. The multi-well exploration and development program is expected to commence in October 2005, following correction of the thruster defect, and has a total contract value of $157 million.

On June 23, 2005, we repurchased $599.2 million principal amount at maturity of the outstanding $600 million principal amount at maturity of Global Marine Inc.’s Zero Coupon Convertible Debentures due June 23, 2020, for a total purchase price of $356.1 million, representing $299.8 million in principal payment and $56.3 million in imputed interest. Global Marine accepted all surrendered debentures for repurchase at a purchase price of $594.25 per $1,000 of principal amount at maturity. We funded the repurchase price from our existing cash, cash equivalents and marketable securities balances. Upon completion of this purchase, debentures totaling $800,000 of principal amount at maturity ($0.5 million at June 30, 2005) remain outstanding.

Our debt to capitalization ratio, calculated as the ratio of total debt, including undefeased capitalized lease obligations, to the sum of total shareholders’ equity and total debt, was 11.3% at June 30, 2005, compared to 17.5% at December 31, 2004. Our total debt includes the current portion of our capitalized lease obligations, which totaled $9.8 million at both June 30, 2005 and December 31, 2004.

F UTURE C ASH R EQUIREMENTS

At June 30, 2005, we had total long-term debt and capital lease obligations, including the current portion of our long-term debt and capital lease obligations, of $592.8 million and shareholders’ equity of $4,663.2 million. Long-term debt, including current maturities, consisted of $297.1 million (net of discount) 7% Notes due 2028; $261.0 (net of discount) 5% Notes due 2013; $0.5 million (net of discount) Zero Coupon Convertible Debentures due 2020; and capitalized lease obligations, including the current portion, totaling $34.2 million. We were in compliance with our debt covenants at June 30, 2005.

Annual interest on the 7% Notes is $21.0 million, payable semiannually each June and December. Annual interest on the 5% Notes is $12.5 million, payable semiannually each February and August. No principal payments are due under the 7% Notes or the 5% Notes until the maturity date.

We may redeem the 7% Notes and the 5% Notes in whole at any time, or in part from time to time, at a price equal to 100% of the principal amount thereof plus accrued interest, if any, to the date of redemption, plus a premium, if any, relating to the then-prevailing Treasury Yield and the remaining life of the notes. The indentures relating to the 5% Notes, the Zero Coupon Convertible Debentures and the 7% Notes contain limitations on our ability to incur indebtedness for borrowed money secured by certain liens and on our ability to engage in certain sale/leaseback transactions. The Zero Coupon Convertible Debentures and the 7% Notes continue to be obligations of Global Marine Inc., and GlobalSantaFe Corporation has not guaranteed any of these obligations. GlobalSantaFe Corporation is the sole obligor under the 5% Notes.

During the third quarter of 2005, we expect to redeem all remaining Zero Coupon Convertible Debentures at a redemption price equal to $594.25 plus an additional amount reflecting the original 3.5% issue discount accrued from June 23, 2005 to the date of redemption. We will fund the redemption price from our existing cash, cash equivalents and marketable securities balances. Accordingly, we have classified these debentures as current maturities as of June 30, 2005

Total capital expenditures for 2005 are currently estimated to be approximately $307 million, including $84.7 million in startup costs, correction of the thruster defect, as discussed above, customer-required modifications, capital spares and mobilization costs for the GSF Development Driller I , $96.2 million in startup costs, correction of the thruster defect, as discussed above, customer-required modifications, capital spares and mobilization costs for the GSF Development Driller II , $38.1 million for major upgrades to the marine fleet, $30.1 million for other purchases and replacements of capital equipment, $32.0 million for capitalized interest, $13.2 million (net of intersegment eliminations) for oil and gas operations and $12.7 million for other capital expenditures.

During the first quarter of 2005, we began a program to reactivate the semisubmersible GSF Arctic II , which has been cold-stacked in Invergordon, Scotland since May 2003. We expect to spend approximately $19.6 million to reactivate this rig, approximately $3.3 million of which is included in the $38.1 million for major upgrades to our rig fleet discussed above. We currently expect this reactivation program to be completed in the third quarter of 2005.

In August 2002, our Board of Directors authorized us to repurchase up to $150 million of our ordinary shares from time to time depending on market conditions, the share price and other factors. No repurchases were made in the six months ended June 30, 2005. At June 30, 2005, $98.6 million of this authorized amount remained available for future purchases.

We have various commitments primarily related to our debt and capital lease obligations, leases for office space and other property and equipment. We expect to fund these commitments from our existing cash and cash equivalents and future cash flow from operations.

As part of our goal of enhancing long-term shareholder value, we have from time to time considered and actively pursued business combinations, the acquisition or construction of suitable additional drilling rigs and other assets or the possible sale of existing assets. If we decide to undertake a business combination or an acquisition or additional construction projects, the issuance of additional debt or additional shares could be required.

We believe that we will be able to meet all of our current obligations, including working capital requirements, capital expenditures, lease obligations, construction and development commitments and debt service, from our existing cash, cash equivalents and total marketable securities balances, along with future cash flow from operations.

R ECENT A CCOUNTING P RONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision of Statement of Financial Accounting Standards No. 123, “Share-Based Payment” (“SFAS123R”). This statement revises FASB Statement No. 123, “Accounting for Stock-Based Compensation” and requires companies to recognize the cost of employee stock options and other awards of stock-based compensation based on the fair value of the award as of the grant date. This statement supersedes Accounting Principles Board (“APB”) Opinion No. 25, which allowed companies to compute compensation cost for each employee stock option granted as the amount by which the quoted market price of the common stock on the date of grant exceeds the amount the employee must pay to acquire the stock. We currently account for our stock option and stock-based compensation plans using the intrinsic-value method under APB Opinion No. 25. The FASB has now deferred the effective date of SFAS123R to the beginning of the first annual period that begins after June 15, 2005. For a discussion of the pro forma effect on our earnings had compensation cost for our stock-based compensation plans been recognized based on fair values as of the dates of grant for the three and six months ended June 30, 2005 and 2004, see “Stock-Based Compensation” in Note 1 of Notes to the Condensed Consolidated Financial Statements.

R ISK FACTORS

There are many risk factors inherent in our business and in the oil and gas industry as a whole, many of which are beyond our control. For a discussion of these risk factors, see “Risk Factors” under Items 1 and 2 in our Annual Report on Form 10-K for the year ended December 31, 2004.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Other than our repurchase of substantially all of the Zero Coupon Convertible Debentures, there have been no material changes in circumstances affecting our exposure to commodity price, interest rate, fair value of our investments, foreign currency or credit risks since December 31, 2004. For a discussion of our exposure to these risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2004.

F AIR VALUE RISK

Long-term debt. Our long-term debt is subject to fair value risk due to changes in market interest rates.

The estimated fair value of our $300 million principal amount 7% Notes due 2028, based on quoted market prices, was $343.0 million at June 30, 2005, compared to the carrying amount of $297.1 million. The estimated fair value of our $250 million principal amount 5% Notes due 2013, based on quoted market prices, was $252.5 million at June 30, 2005, compared to the carrying amount of $261.0 million. The carrying value of our 5% Notes due 2013 includes a mark-to-market adjustment of $11.5 million at June 30, 2005, related to fixed-for-floating interest rate swaps discussed below.

We have engaged third-party consultants to assess the impact of changes in interest rates on the fair values of our long-term debt based on a hypothetical ten-percent increase in market interest rates. Market interest rate volatility are dependent on many factors that are impossible to forecast, and actual interest rate increases could be more severe than the hypothetical ten-percent change.

Based upon these sensitivity analyses, if prevailing market interest rates had been ten percent higher at June 30, 2005, and all other factors affecting our debt remained the same, the fair value of our 7% Notes due 2028, as determined on a present-value basis using prevailing market interest rates, would have decreased by $14.4 million or 4.2% and the fair value of the 5% Notes due 2013 would have decreased by $3.7 million or 1.5%.

We manage our fair value risk related to our long-term debt by using interest rate swaps to convert a portion of our fixed-rate debt into variable-rate debt. Under these interest rate swaps, we agree with other parties to exchange, at specified intervals, the difference between the fixed-rate and floating-rate amounts, calculated by reference to an agreed-upon notional amount.

In connection with the sensitivity analyses performed relative to the fair values of our long-term debt discussed above, similar analyses were performed to assess the impact of market interest rate movements on the fair values of the fixed-for-floating swaps related to the 5% Notes. Based upon these analyses, if prevailing market interest rates had been ten percent higher at June 30, 2005, and all other factors affecting these swaps had remained the same, the aggregate fair value of the fixed-for-floating interest rate swaps, as determined on a present-value basis using prevailing market interest rates, would have decreased by $5.2 million or 42.3%.

Item 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2005, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic Securities and Exchange Commission filings.

During the second quarter of 2005, management commenced replacement of its general ledger and consolidation software with SAP financial software in certain of the Company’s foreign offices. This conversion to SAP involves significant changes to internal processes and control procedures over financial reporting. Other than this software change, there have been no changes in our internal control over financial reporting that occurred during the second quarter 2005 that have materially affected, or are reasonably likely to materially affect, our control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

associated therewith. The subsidiary continues to be named as a defendant in additional lawsuits and we cannot predict the number of additional cases in which it may be named a defendant nor can we predict the potential costs to resolve such additional cases or to resolve the pending cases. However, the subsidiary has in excess of $1 billion in insurance limits. Although not all of that will be available due to the insolvency of certain insurers, we believe that the subsidiary will have sufficient insurance available to respond to these claims. We do not believe that these claims will have any material impact on our consolidated financial position, results of operations or cash flows.

The same subsidiary has been a defendant in a lawsuit filed against it by Union Oil Company of California (“Union”) in the Circuit Court of Cook County, Illinois. That lawsuit arises out of claims alleging personal injury caused by exposure to asbestos at a refinery owned by Union and constructed by the Company’s subsidiary. Union has alleged that the subsidiary is required to defend and indemnify it pursuant to the terms of contracts entered into for the construction of the refinery. On March 24, 2005, Union filed a motion requesting permission from the Court to add GlobalSantaFe Corporation as a defendant in the pending litigation. Union intends to attempt to establish liability against GlobalSantaFe Corporation as the alter ego of, and successor in interest to, its subsidiary and on the basis of a fraudulent conveyance of the subsidiary’s assets, and seeks to pierce the corporate veil between the subsidiary and GlobalSantaFe Corporation. We believe that the allegations of the lawsuit are without merit and intend to vigorously defend against the lawsuit, but cannot provide any assurance as to its ultimate outcome.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

I SSUER R EPURCHASES OF O RDINARY S HARES

The following table details our repurchases of ordinary shares for the three months ended June 30, 2005:


Period	Total Number of Shares Purchased		Average Price Per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
April 1 - 30, 2005	23,500,000	(1)	$	34.02	(1)	—	$	98.6 million	(2)
May 1 - 31, 2005	—			—		—	$	98.6 million	(2)
June 1-30, 2005	—			—		—	$	98.6 million	(2)
Total	23,500,000		$	34.02		—

(1)

We purchased 23,500,000 of our shares from a subsidiary of Kuwait Petroleum Corporation on April 20, 2005, pursuant to a privately negotiated stock purchase transaction. We purchased these shares with the net proceeds to us from a concurrent public offering of an equivalent number of shares. All 23,500,000 shares were purchased at a price of $34.02 per share, which was the same as the net price received by us in the public offering.

(2)	As we announced on August 6, 2002, our Board of Directors authorized us to repurchase up to $150 million of our ordinary shares from time to time depending on market conditions, the share price and other factors. No repurchases were made in the quarter ended June 30, 2005.

Item 4. Submission of Matters to a Vote of Security Holders

Our annual general meeting of shareholders was held on June 7, 2005. At the meeting, four Class II directors were elected, a proposal to amend the GlobalSantaFe 2003 Long-Term Incentive Plan was approved, and the appointment of PricewaterhouseCoopers LLP as our independent auditors for 2005 was ratified, each by a vote of holders of our Ordinary Shares, par value of US $.01 per share, as outlined in our proxy statement relating to the meeting. With respect to the election of directors, (a) proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, (b) there was no solicitation in opposition to management’s nominees as listed in the proxy statement, and (c) all of such nominees were elected. The following numbers of votes were cast as to the Class II director nominees: Richard L. George, 223,513,604 votes for and 761,107 votes withheld; Robert E. Rose, 223,106,247 votes for and 1,168,464 votes withheld; Stephen J. Solarz, 222,369,759 votes for and 1,904,952 votes withheld; and Nadar H. Sultan, 178,932,565 votes for and 45,342,146 votes withheld. With respect to the amendment to the GlobalSantaFe 2003 Long-Term Incentive Plan to reduce the number of shares authorized for issuance under the plan and increase the number of shares available for full-value stock awards, 195,937,592 votes were cast in favor of approval, 4,483,999 votes were cast against approval, and there were 303,093 abstentions. With respect to the ratification of PricewaterhouseCoopers LLP as our independent auditors for 2005, 224,027,100 votes were cast in favor of ratification, 146,394 votes were cast against ratification, and there were 101,217 abstentions.

Item 5. Other Information

During the second quarter of 2005, the following individuals each adopted a written plan pursuant to Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, which provided for the exercise of specified employee stock options granted to the individual by the company and the sale of the underlying shares of the company stock in “cashless” exercise transactions at specified per share market price targets: W. Matt Ralls, Executive Vice President, Operations; Michael R. Dawson, Senior Vice President and Chief Financial Officer; and Anil B. Shah, Vice President and Treasurer.

Also during the second quarter, Robert E. Rose, Chairman of the Board and a director, adopted a written plan pursuant to Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, which provided for the sale of shares of company stock owned by the Rose Foundation at a specified per share market price target.

Item 6. Exhibits

10.1

Form of Underwriting Agreement for Ordinary Shares (incorporated herein by this reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 18, 2005).

10.2

Terms Agreement dated April 14, 2005 between the Company and Goldman Sachs & Co., as representative of the underwriters named therein (incorporated herein by this reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on April 18, 2005).

10.3

Share Purchase Agreement dated April 14, 2005, between the Company, Kuwait Petroleum Corporation and SFIC Holdings (Cayman), Inc. (incorporated herein by this reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on April 18, 2005).

10.4

GlobalSantaFe 2003 Long-Term Incentive Plan (as Amended and Restated Effective June 7, 2005).

10.5

Form Severance Agreement with Executive Officers (incorporated herein by this reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed with the Commission on July 26, 2005).

10.6

Change in Executive Officer Compensation (incorporated herein by this reference to the description set forth under Item 1.01 of the Company’s Current Report on Form 8-K filed with the Commission on June 8, 2005).

12.1

Statement setting forth detail of Computation of Ratios of Earnings to Fixed Charges.

15.1

Letter of Independent Registered Public Accounting Firm regarding Awareness of Incorporation by Reference.

31.1

Chief Executive Officer’s Certification pursuant to Rules 13a – 14(a) of the Securities Exchange Act of 1934.

31.2

Chief Financial Officer’s Certification pursuant to Rules 13a – 14(a) of the Securities Exchange Act of 1934.

32.1

Chief Executive Officer’s Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Chief Financial Officer’s Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements 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.


		GLOBALSANTAFE CORPORATION
		(Registrant)

Dated: August 5, 2005		/s/ Michael R. Dawson
		Michael R. Dawson
		Senior Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial
		Officer of the Registrant)

Exhibit 10.4

GlobalSantaFe

2003 Long-Term Incentive Plan

(As Amended and Restated Effective June 7, 2005)

SECTION 1 – GENERAL

1.1 Purpose. The GlobalSantaFe 2003 Long-Term Incentive Plan (the “Plan”) was established by GlobalSantaFe Corporation (the “Company”) to (i) attract and retain persons eligible to participate in the Plan, (ii) motivate Participants by means of appropriate incentives to achieve long-range goals, (iii) provide incentive compensation opportunities using the Company’s ordinary shares or cash that are competitive with those of other similar companies, and (iv) further identify Participants’ interests with those of the Company’s other shareholders through compensation that is based on the Company’s ordinary shares, thereby promoting the long-term financial interest of the Company and the Related Companies, including growth in value of the Company’s equity and enhancement of long-term shareholder return. The Plan was originally effective March 4, 2003 and, and, subject to its approval by the shareholders of the Company at the Company’s 2005 annual meeting of shareholders, the Plan, as amended and restated herein, shall be effective as of June 7, 2005.

1.2 Participation. Subject to the terms and conditions of the Plan, the Committee shall determine and designate from time to time, from among the Eligible Individuals, those persons who will be granted one or more Awards under the Plan and thereby become “Participants” in the Plan. At the discretion of the Committee, a Participant may be granted any Award permitted under the provisions of the Plan, and more than one Award may be granted to a Participant. Awards may be granted as alternatives to or in replacement of (a) awards outstanding under the Plan or any other plan or arrangement of the Company or a Related Company, or (b) awards outstanding under a plan or arrangement of a business or entity all or part of which is acquired by the Company or a Related Company; provided, however, that except for adjustments described in paragraph (c) of subsection 7.2, the Exercise Price of any Option or SAR shall not be decreased including by means of issuance of a substitute Option or SAR with a lower Grant Price.

1.3 Operation and Administration. The operation and administration of the Plan, including the Awards made under the Plan, shall be subject to the provisions of Section 7 (relating to operation and administration).

1.4 Construction and Definitions. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. Capitalized terms in the Plan shall be defined as set forth in the Plan, including the definition provisions of Section 2.

SECTION 2 - DEFINED TERMS

For purposes of the Plan, the terms listed below shall be defined as follows:

(a)	Agreement. The term “Agreement” has the meaning ascribed to it in subsection 7.10.

(b)	Award. The term “Award” means any award or benefit granted to any Participant under the Plan, including without limitation the grant of Options, SARs, Stock Awards, Cash Awards or Performance Awards.

(c)	Board. The term “Board” means the Board of Directors of the Company.

(d)	Cash Award. The term “Cash Award” has the meaning ascribed to it in subsection 5.1.

(e)	Code. The term “Code” means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code.

(f)	Committee. The term “Committee” has the meaning ascribed to it in subsection 8.1.

(g)	Company. The term “Company” has the meaning ascribed to it in subsection 1.1.

(h)	Effective Date. The term “Effective Date” has the meaning ascribed to it in subsection 7.1.

(i)

Eligible Individual. The term “Eligible Individual” shall mean any employee of the Company or a Related Company, any consultant or other person providing key services to the Company or a Related Company, any person to whom an offer of employment has been made by the Company or a Related Company and is expected to become such an employee within the following six months, and any Non-Employee Director.

(j)	Exercise Price. The term “Exercise Price” has the meaning ascribed to it in paragraph (c) of subsection 3.1.

(k)	Fair Market Value. For purposes of determining the “Fair Market Value” of a share of Stock, the following rules shall apply:

(i)

If the Stock is at the time listed or admitted to trading on any stock exchange, then the “Fair Market Value” shall be the mean between the lowest and highest reported sale prices of the Stock on the date in question on the principal exchange on which the Stock is then listed or admitted to trading; provided that, in the discretion of the Committee, “Fair Market Value” for purposes of the exercise of an Option or SAR may be the price prevailing on the exchange at the time of exercise. If no reported

sale of Stock takes place on the date in question on the principal exchange, then the reported closing asked price of the Stock on such date on the principal exchange shall be determinative of “Fair Market Value.”

(ii)

If the Stock is not at the time listed or admitted to trading on a stock exchange, the “Fair Market Value” shall be the mean between the lowest reported bid price and highest reported asked price of the Stock on the date in question in the over-the-counter market, as such prices are reported in a publication of general circulation selected by the Committee and regularly reporting the market price of the Stock in such market.

(iii)

If the Stock is not listed or admitted to trading on any stock exchange or traded in the over-the-counter market, the “Fair Market Value” shall be as determined in good faith by the Committee.

(l)	Incentive Stock Option. The term “Incentive Stock Option” has the meaning ascribed to it in paragraph (a) of subsection 3.1.

(m)	Non-Employee Director. The term “Non-Employee Director” shall mean an individual serving as a member of the Board who is not an employee of the Company or a Related Company.

(n)	Non-Qualified Stock Option. The term “Non-Qualified Stock Option” has the meaning ascribed to it in paragraph (a) of subsection 3.1.

(o)	Option. The term “Option” has the meaning ascribed to it in paragraph (a) of subsection 3. 1.

(p)	Participant. The term “Participant” has the meaning ascribed to it in subsection 1.2.

(q)	Plan. The term “Plan” has the meaning ascribed to it in subsection 1.1.

(r)	Performance Award. The term “Performance Award” has the meaning ascribed to it in subsection 6.1.

(s)	Pricing Date. The term “Pricing Date” has the meaning ascribed to it in paragraph (c) of subsection 3.1.

(t)	Qualified Performance Award. The term “Qualified Performance Award” has the meaning ascribed to it in subsection 6.2.

(u)	Related Company. The term “Related Company” means any subsidiary of the Company and any other business venture in which the Company has a significant interest as determined in the discretion of the Committee.

(v)	Restatement Date. The term “Restatement Date” has the meaning ascribed to it in subsection 7.1.

(w)	SAR. The term “SAR” has the meaning ascribed to it in paragraph (b) of subsection 3.1.

(x)	Stock. The term “Stock” means the ordinary shares, $.01 par value per share, of the Company.

(y)	Stock Award. The term “Stock Award” has the meaning ascribed to it in subsection 4.1.

SECTION 3 - OPTIONS AND SARS

3.1 Definitions

(a)

The grant of an “Option” entitles the Participant to purchase shares of Stock at an Exercise Price established by the Committee. Options granted under this Section 3 may be either Incentive Stock Options or Non-Qualified Stock Options, as determined in the discretion of the Committee. An “Incentive Stock Option” is an Option that is intended to satisfy the requirements applicable to an “incentive stock option” as described in section 422(b) of the Code and shall comply with, among other things, the requirements of subsections 3.2, 3.3 and 7.1 of the Plan. A “Non-Qualified Stock Option” is an Option that is not intended to be an “incentive stock option” as that term is described in section 422(b) of the Code.

(b)

A stock appreciation right (an “SAR”) entitles the Participant to receive, in cash or Stock (as determined in accordance with subsection 3.4), value equal to all or a portion of the excess of: (i) the Fair Market Value of a specified number of shares of Stock at the time of exercise; over (ii) an Exercise Price established by the Committee. An SAR may be granted in tandem with an Option, subject to the terms and restrictions established by the Committee.

(c)

Exercise Price. The “Exercise Price” of each Option and SAR granted under this Section 3 shall be established by the Committee or shall be determined by a method established by the Committee; provided, however, that the Exercise Price shall not be less than the Fair Market Value of a share of Stock as of the Pricing Date. For purposes of the preceding sentence, the “Pricing Date” shall be the date on which the Option or SAR is granted, except that if an Option or SAR is granted in tandem with or in substitution for an outstanding Award, the Pricing Date is the date of grant of such outstanding Award.

3.2 Exercise. Each Option and each SAR shall be exercisable in accordance with such terms and conditions and during such periods as may be established by the Committee; provided, however, that (a) each Option and each SAR shall be exercisable only during a fixed period of time ending no later than ten years from the date such Option or SAR is granted, and (b) to the extent required by the Code, the aggregate Fair Market Value of the shares of Stock with respect to which Incentive Stock Options granted to any individual Participant are exercisable for the first time during any calendar year shall not exceed $100,000, valued at the date or dates the Options are granted, and any Option designated as an Incentive Stock Option that is in excess of such limit required by the Code shall be treated as a Non-Qualified Stock Option.

3.3 Payment of Option Exercise Price. The payment of the Exercise Price of an Option granted under this Section 3 shall be subject to the following:

(a)

Subject to the following provisions of this subsection 3.3, the full Exercise Price for shares of Stock purchased upon the exercise of any Option shall be paid at the time of such exercise except that, in the case of an exercise arrangement approved by the Committee and described in paragraph (c) of this subsection 3.3, payment may be made as soon as practicable after the exercise.

(b)

The Exercise Price shall be payable in cash or by tendering shares of Stock (by either actual delivery of shares or by attestation, with such shares being valued at Fair Market Value as of the day of exercise), excluding any shares deemed unacceptable for any reason by the Committee, or in any combination thereof, as determined by the Committee.

(c)

The Committee may permit a Participant to elect to pay the Exercise Price upon the exercise of an Option by authorizing a third party to sell some or all of the shares of Stock acquired upon exercise of an Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any tax withholding resulting from such exercise.

3.4 Settlement of Award. Distribution following exercise of an Option or SAR, and shares of Stock distributed pursuant to such exercise, shall be subject to such conditions, restrictions and contingencies as the Committee may establish. Settlement of SARs may be made in shares of Stock valued at their Fair Market Value at the time of exercise, in cash, or in any combination thereof, as determined in the discretion of the Committee. The Committee may in its discretion impose such conditions, restrictions and contingencies with respect to shares of Stock acquired pursuant to the exercise of an Option or an SAR as the Committee determines to be desirable.

SECTION 4 - OTHER STOCK AWARDS

4.1. Definition. A “Stock Award” is a grant of shares of Stock or of a right to receive shares of Stock, or their cash equivalent or a combination of both, in the future.

4.2 Restrictions on Stock Awards. Each Stock Award shall be subject to such terms and conditions, restrictions and contingencies, if any, as the Committee shall determine. Restrictions and contingencies limiting the right to receive shares of Stock, or their cash equivalent or a combination of both, in the future pursuant to a Stock Award shall limit such right for a minimum of three years from the date such Stock Award is granted or be based on the achievement of single or multiple performance goals over a period ending at least one year from the date such Stock Award is granted. Such restrictions and/or contingencies may terminate or be subject to termination before the passage of the period of time designated and/or the achievement of such performance goals only in the event of grants made in connection with the initial employment or service of a Participant, the death, disability, or retirement from or other non-cause termination of employment or service with the Company or a Related Company of the

holder of such Stock Award, or in the event of a change of control, as defined in the terms of such Stock Award, of the Company or a Related Company. Any unrestricted grant of shares of Stock pursuant to a Stock Award shall be made only in lieu of salary or bonus that otherwise would be payable by the Company or a Related Company.

SECTION 5 - CASH AWARDS

5.1 Definition. A “Cash Award” is a cash bonus paid solely on account of the attainment of one or more objective performance goals that have been pre-established by the Committee.

5.2 Restrictions on Cash Awards. Each Cash Award shall be subject to such terms and conditions, restrictions and contingencies, if any, as the Committee shall determine. Restrictions and contingencies limiting the right to receive a cash payment pursuant to a Cash Award shall be based on the achievement of single or multiple performance goals over a period of time determined by the Committee. The maximum cash payment to be made to any one individual pursuant to any Cash Award during any calendar year shall not exceed $3,000,000.

SECTION 6 - PERFORMANCE AWARDS

6.1 Definition. A “Performance Award” is an Award made pursuant to this Plan to a Participant that is subject to the attainment of one or more performance goals.

6.2 Restrictions on Performance Awards. Performance Awards not intended to qualify as qualified performance-based compensation under Section 162(m) of the Code shall be based on achievement of such goals and be subject to such terms, conditions and restrictions as the Committee or its delegate shall determine. Performance Awards granted under the Plan that are intended to qualify as qualified performance-based compensation under Section 162(m) of the Code (“Qualified Performance Awards”) shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre-established, objective performance goals established by the Committee. The performance goals may be cumulative, annual or end-of-performance period goals, may be relative to a peer group or based on increases or changes relative to stated values, and may be based on any one or more of the following measures: (a) earnings before or after interest, taxes, depreciation and amortization; (b) earnings per share; (c) stock price performance; (d) net income (before or after taxes); (e) cash flow; (f) total shareholder return; (g) revenue growth; (h) return on equity or on assets or on net investment; (i) profit returns and margins and (j) working capital or cost containment or reduction. Unless otherwise stated, such a performance goal need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses (measured, in each case, by reference to specific business criteria). In interpreting Plan provisions applicable to Qualified Performance Awards, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and Treasury Regulation §1.162-27(e)(2)(i) as to grants to those Employees whose compensation is, or is likely to be, subject to Section 162(m) of the Code, and the Committee in establishing performance goals and interpreting the Plan shall be guided by such

provisions. Prior to the payment of any compensation pursuant to a Qualified Performance Award, the Committee must certify in writing that applicable performance goals and any of the material terms thereof were, in fact, satisfied. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Qualified Performance Awards made pursuant to this Plan shall be determined by the Committee.

SECTION 7 - OPERATION AND ADMINISTRATION

7.1 Effective Date and Duration. The Plan was originally effective March 4, 2003 (the “Effective Date”). Subject to its approval by the shareholders of the Company at the Company’s 2005 Annual General Meeting of Shareholders, the Plan, as amended and restated, shall be effective as of June 7, 2005 (the “Restatement Date”). The Plan shall be unlimited in duration and, in the event of Plan termination, shall remain in effect as long as any Awards under it are outstanding; provided, however, that, to the extent required by section 422 of the Code, no Incentive Stock Options may be granted under the Plan on a date that is more than ten years from the Effective Date.

7.2 Shares Subject to Plan.

(a) (i)

With respect to an Award granted on or after the Restatement Date and subject to the following provisions of this subsection 7.2, the maximum number shares of Stock that may be delivered to Participants and their beneficiaries under the Plan shall be 4,500,000 shares of Stock. The Committee may from time to time adopt and observe such procedures concerning the counting of shares against the Plan maximum as it may deem appropriate.

(ii)

With respect to an Award granted on or after the Restatement Date, any shares of Stock granted under the Plan that are forfeited because of the failure to meet an Award contingency or condition shall again be available for delivery pursuant to new Awards granted under the Plan. To the extent any shares of Stock covered by an Award granted on or after the Restatement Date are not delivered to a Participant or beneficiary because the Award is forfeited or canceled, or the shares of Stock are not delivered because the Award is settled in cash, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan.

(iii)

With respect to an Award granted on or after the Restatement Date, If the Exercise Price or other purchase price of any stock option or other award granted under the Plan is satisfied by tendering shares of Stock to the Company by either actual delivery or by attestation, or if the tax withholding obligation resulting from the settlement of any such option or other award is satisfied by tendering or withholding shares of Stock, only the number of shares of Stock issued net of the shares of Stock tendered or withheld shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan.

(iv)

Shares of Stock delivered under the Plan in settlement, assumption or substitution of outstanding awards or obligations to grant future awards under the plans or arrangements of another entity shall not reduce the maximum number of shares of Stock available for delivery under the Plan, to the extent that such settlement, assumption or substitution is a result of the Company or a Related Company acquiring another entity or an interest in another entity.

(b)	Subject to paragraph (c) of this subsection 7.2, the following additional maximums are imposed under the Plan.

(i)

The entire number of shares of Stock that may be issued pursuant to the Plan may be issued with respect to Incentive Stock Options, Non-Qualified Stock Options, SARs, Stock Awards or Performance Awards.

(ii)

The maximum number of shares of Stock that may be covered by Awards granted to any one employee during any one calendar year pursuant to this Plan shall be 400,000 shares. The maximum number of shares of Stock that may be covered by Awards granted to any one Non-Employee Director during any one calendar year pursuant to this Plan shall be 25,000 shares.

(c)

In the event of a corporate transaction involving the Company (including without limitation any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), the Committee may adjust Awards to preserve the benefits or potential benefits of the Awards. Action by the Committee may include adjustment of: (i) the number and kind of shares which may be issued or delivered under the Plan; (ii) the number and kind of shares subject to outstanding Awards; (iii) the Award limits set forth in paragraph (b) of subsection 7.2; and (iv) the Exercise Price of outstanding Options and SARs; as well as any other adjustments that the Committee determines to be equitable.

7.3 Limit on Distribution. Distribution of shares of Stock or other amounts under the Plan shall be subject to the following:

(a)

Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any shares of Stock under the Plan or make any other distribution of benefits under the Plan unless such delivery or distribution would comply with all applicable laws (including without limitation the requirements of the Securities Act of 1933) and the applicable requirements of any securities exchange or similar entity.

(b)	To the extent that the Plan provides for the issuance of stock certificates to reflect the issuance of shares of Stock, the issuance may be effected on a non-certificated basis to the extent not prohibited by applicable law or the applicable rules of any stock exchange.

7.4 Tax Withholding. Whenever the Company proposes or is required to distribute Stock under the Plan, the Company may require the recipient to remit to the Company, or the Company or any Related Company may withhold from any payments due or becoming due to the recipient, an amount sufficient to satisfy any Federal, state and local tax withholding requirements prior to the delivery of any certificate for such shares; provided, however, that, in the discretion of the Committee, the Company may withhold from the shares to be delivered shares with a Fair Market Value sufficient to satisfy all or a portion of such tax withholding requirements, or the Company may accept delivery of shares of Stock with a Fair Market Value sufficient to satisfy all or a portion of such tax withholding requirement, excluding any shares deemed unacceptable for any reason by the Committee. Whenever under the Plan payments are to be made to a Participant or beneficiary in cash, such payments may be net of an amount sufficient to satisfy any Federal, state and local tax withholding requirements. At the discretion of the Committee, the terms and conditions of any Award may provide for a cash payment to a Participant equal to any tax the Participant must pay in connection with the settlement of the Award and/or the disposition of Stock received upon settlement of the Award. If no provision is made in an Award regarding excise taxes on golden parachute payments under Section 280G of the Code, then payments under the Plan will be capped to avoid imposition of the excise tax and loss of deduction.

7.5 Shares as Payment. Subject to the overall limitation on the number of shares of Stock that may be delivered under the Plan, the Committee may use available shares of Stock, valued at their Fair Market Value, as the form of payment for any compensation, grants or rights earned or due under any other compensation plans or arrangements of the Company or a Related Company.

7.6 Dividends and Dividend Equivalents. An Award may provide the Participant with the right to receive dividends or dividend equivalent payments with respect to Stock which may be either paid currently or credited to an account for the Participant, and may be settled in cash or Stock as determined by the Committee. Any such settlements, and any such crediting of dividends or dividend equivalents or reinvestment in shares of Stock, may be subject to such conditions, restrictions and contingencies as the Committee shall establish, including the reinvestment of such credited amounts in Stock equivalents.

7.7 Payments. Awards may be settled through cash payments, the delivery of shares of Stock, the granting of replacement Awards (subject to the restrictions described in subsection 1.2), or a combination thereof as the Committee shall determine. Any Award settlement, including payment deferrals, may be subject to such conditions, restrictions and contingencies as the Committee shall determine. The Committee may permit or require the deferral of any Award payment, subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest or dividend equivalents, including converting such credits into deferred Stock equivalents.

7.8 Transferability. Except as otherwise provided by the Committee, Awards under the Plan are not transferable. The transfer restrictions in this Section 7.8 shall not apply to:

(i) transfers to the Company,

(ii)

the designation of a beneficiary to receive benefits in the event of the Participant’s death or, if the Participant has died, transfers to or exercise by the Participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution; provided that, no transfer by will or by the laws of descent and distribution shall be effective to bind the Company unless the Committee shall have been furnished with a copy of the deceased Participant’s will or such other evidence as the Committee may deem necessary to establish the validity of the transfer,

(iii)

transfers pursuant to a domestic relations order,

(iv)

permitted transfers or exercises on behalf of the Participant by his or her legal representative, if the Participant has suffered a disability,

(v)

the authorization by the Committee of “cashless exercise” procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of Awards consistent with applicable laws and the express authorization of the Committee, or

(vi)

if permitted by the Committee in the applicable Agreement, a transfer by the Participant to (i) the children or grandchildren of the Participant (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership or partnerships in which such Immediate Family Members have at least ninety-nine percent (99%) of the equity, profit and loss interests. Subsequent transfers of a transferred Award shall be prohibited except by will or the laws of descent and distribution, unless such transfers are made to the original Participant or a person to whom the original Participant could have made a transfer in the manner described herein. No transfer shall be effective unless and until written notice of such transfer is provided to the Committee, in the form and manner prescribed by the Committee. Following transfer, the Award shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, and, except as otherwise provided in the applicable Agreement, the term “Participant” shall be deemed to refer to the transferee. The consequences of termination of employment or service shall continue to be applied with respect to the original Participant as specified in the Agreement.

7.9 Form and Time of Elections. Unless otherwise specified herein, each election required or permitted to be made by any Participant or other person entitled to benefits under the Plan, and any permitted modification or revocation thereof, shall be made and delivered to the Committee at such times, in such form, and subject to such restrictions and limitations, not inconsistent with the terms of the Plan, as the Committee shall require.

7.10 Agreement With Company. At the time of an Award to a Participant under the Plan, the Committee may require a Participant to enter into an agreement with the Company (the “Agreement”) in a form specified by the Committee, agreeing to the terms and conditions of the Plan and to such additional terms and conditions not inconsistent with the Plan as the Committee may prescribe in its sole discretion.

7.11 Limitation of Implied Rights.

(a)

Neither a Participant nor any other person shall by reason of the Plan acquire any right in or title to any assets, funds or property of the Company or any Related Company whatsoever, including without limitation any specific funds, assets, or other property which the Company or any Related Company, in their sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the stock or amounts, if any, payable under the Plan, unsecured by any assets of the Company or any Related Company. Nothing contained in the Plan shall constitute a guarantee that the assets of such companies shall be sufficient to pay any benefits to any person.

(b)

The Plan does not constitute a contract of employment, and selection as a Participant and/or the grant of an Award will not give any employee the right to be retained in the employ of the Company or any Related Company, the right to receive any future Award under the Plan, or any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. Except as otherwise provided in the Plan, no Award under the Plan shall confer upon the holder thereof any right as a shareholder of the Company prior to the date on which the individual fulfills all conditions for receipt of such right.

7.12 Evidence. Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent, reliable, and signed, made or presented by the proper party or parties.

7.13 Action by Company or Related Company. Any action required or permitted to be taken by the Company or any Related Company shall be by resolution of its board of directors, or by action of one or more members of the board (including a committee of the board) who are duty authorized to act for the board, or, except to the extent prohibited by applicable law or applicable rules of any stock exchange, by a duly authorized officer of the Company.

7.14 Separate Fund. Neither the Company, the Board or the Committee has any obligation to create a separate fund for the performance of any cash payment obligation under the Plan, but any or all of them may, at their own discretion, create trust funds or similar arrangements for such purpose.

7.15 Liability for Cash Payments. Each Related Company shall be liable for payment of cash due under the Plan with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Related Company by the Participant. Any disputes relating to liability of a Related Company for cash payments shall be resolved by the Committee.

SECTION 8 – COMMITTEE

8.1 Administration. The authority to control and manage the operation and administration of the Plan shall be vested in a committee (the “Committee”) or, as applicable, the Board, in accordance with this Section 8.

8.2 Selection and Composition of Committee. The Committee shall be selected by the Board and shall consist of two or more members of the Board who are not employees of the Company or a Related Company.

8.3 Powers of Committee. The authority to manage and control the operation and administration of the Plan with respect to awards to employees or consultants shall be vested in the Committee, subject to the following:

(a)

Subject to the provisions of the Plan, the Committee will have the authority and discretion to select from among the Eligible Individuals those persons who shall receive Awards, to determine the time or times of receipt, to determine the types of Awards and the number of shares covered by the Awards, to establish the terms, conditions, performance criteria, restrictions, and other provisions of such Awards, and, subject to the same restrictions imposed upon the Board by Section 9, to amend, cancel or suspend Awards. In making such Award determinations, the Committee may take into account the nature of services rendered by the individual, the individual’s present and potential contribution to the Company’s success, and such other factors as the Committee deems relevant.

(b)

Subject to the provisions of the Plan, the Committee will have the authority and discretion to determine the extent to which Awards under the Plan will be structured to conform to the requirements applicable to performance-based compensation as described in Code section 162(m) and to take such action, establish such procedures, and impose such restrictions at the time such Awards are granted as the Committee determines to be necessary or appropriate to conform to such requirements.

(c)	The Committee will have the authority and discretion to establish terms and conditions of Awards as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.

(d)

The Committee will have the authority and discretion to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements made pursuant to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan.

(e)	Any interpretation of the Plan by the Committee and any decision made by it under the Plan is conclusive, final and binding.

(f)	At its discretion, the Committee may terminate or suspend the granting of Awards under the Plan at any time or from time to time.

(g)

In controlling and managing the operation and administration of the Plan, the Committee shall act by a majority of its then members, by meeting or by writing filed without a meeting. The Committee shall maintain and keep adequate records concerning the Plan and concerning its proceedings and acts in such form and detail as the Committee may decide.

8.4 Powers of the Board. Notwithstanding any Plan provision to the contrary, the Board shall have the same powers, duties, and authority to administer the Plan with respect to Awards granted to Non-Employee Directors as the Committee retains with respect to Awards granted to employees and consultants as described in subsection 8.3 and other applicable Plan provisions.

8.5 Delegation by Committee or Board. Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee or the Board may allocate all or any part of their respective responsibilities and powers to any one or more of their respective members and may delegate all or any part of its responsibilities and powers to any person or persons. Any such allocation or delegation may be revoked by the Committee or the Board, as applicable, at any time.

8.6 Information to be Furnished to Committee. The Company and Related Companies shall furnish the Committee or the Board, as applicable, with such data and information as may be required for it to discharge their respective duties. The records of the Company and Related Companies as to an employee’s or Participant’s employment or other provision of services, termination of employment or cessation of the provision of services, leave of absence, re-employment and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the Plan must furnish the Committee such evidence, data or information as the Committee or the Board, as applicable, considers desirable to carry out the terms of the Plan.

8.7 Duplicated Signatures. At their discretion, the Committee or the Board, as applicable, may accept a duplicated signature on any document, whether faxed, photocopied or otherwise duplicated, which will be effective to the same extent as an original signature unless there is a showing of fraud or other wrongdoing, the burden of making such showing being on the person asserting such fraud or wrongdoing.

AMENDMENT AND TERMINATION

9.1 Generally. The Board may at any time amend, suspend or terminate the Plan, provided that, subject to subsection 7.2 (relating to certain adjustments to shares), no amendment or termination may in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under any Award granted under the Plan prior to the date such amendment is adopted by the Board. Notwithstanding the foregoing, the Committee may amend the Plan by its own action if any such amendment is necessary for the Plan to meet applicable legal requirements or if the amendment does not materially increase the Plan costs nor substantially modify the eligibility, vesting or benefit provisions of the Plan. To the extent required by applicable law or the requirements of the principal national exchange on which the Stock is listed, a Plan amendment shall be subject to shareholder approval.

9.2. Section 409A. Notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under the Plan would result in the imposition of an additional tax under Code Section 409A and related regulations and United States Department of the Treasury pronouncements (“Section 409A”), that Plan provision or Award will be reformed to avoid imposition of the applicable tax and no action taken to comply with Section 409A shall be deemed to adversely affect the Participant’s rights under any Award.

Exhibit 12.1

GLOBALSANTAFE CORPORATION

STATEMENT SETTING FORTH DETAIL FOR COMPUTATION OF

RATIO OF EARNINGS TO FIXED CHARGES

(Millions of dollars)


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Fixed charges:
Interest expense, gross	$	11.9		$	16.6		$	24.2		$	33.1
Portion of rentals representative of interest		15.0			8.3			26.6			15.0

Total fixed charges	$	26.9		$	24.9		$	50.8		$	48.1

Earnings before fixed charges:
Income (loss) before income taxes	$	99.0		$	(35.7	)	$	156.5		$	(33.2	)
Fixed charges		26.9			24.9			50.8			48.1
Capitalized interest		(11.7	)		(11.7	)		(21.8	)		(21.6	)
Amortization of capitalized interest		0.9			0.9			1.9			1.7

Total earnings (loss) before fixed charges	$	115.1		$	(21.6	)	$	187.4		$	(5.0	)

Ratio of earnings to fixed charges:
Earnings (loss) before fixed charges	$	115.1		$	(21.6	)	$	187.4		$	(5.0	)
Fixed charges	$	26.9		$	24.9		$	50.8		$	48.1

Ratio of earnings to fixed charges		4.28			(A)			3.69			(A)

(A)	Due to the loss for the three and six months ended June 30, 2004, the ratio coverage was less than 1:1. We must generate additional earnings of $46.5 million and $53.1 million, respectively, for the three and six months ended June 30, 2004, to achieve a coverage of 1:1.

Exhibit 15.1

August 5, 2005

Securities and Exchange Commission

Station Place

100 F Street, N.E.

Washington, D.C. 20549

Commissioners:

We are aware that our report dated August 2, 2005 on our review of interim financial information of GlobalSantaFe Corporation and its subsidiaries (the “Company”) for the three and six month periods ended June 30, 2005 and 2004, and included in the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2005 is incorporated by reference in (i) the Registration statements on Form S-8 (Registration Nos. 333-7070, 333-62708, 333-73878, 333-105015, 333-112670 and 333-111448) of GlobalSantaFe Corporation, (ii) the Post Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 (Registration
No. 333-70268) of GlobalSantaFe Corporation, and (iii) the Registration Statement on Form S-3 (Registration No. 333-127168) of GlobalSantaFe Corporation.

Very truly yours,

PricewaterhouseCoopers LLP

Exhibit 31.1

CERTIFICATION

I, Jon A. Marshall, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of GlobalSantaFe Corporation;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2005

/s/ Jon A. Marshall

Jon A. Marshall

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Michael R. Dawson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of GlobalSantaFe Corporation;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2005

/s/ Michael R. Dawson

Michael R. Dawson

Senior Vice President and Chief Financial Officer

Exhibit 32.1

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of GlobalSantaFe Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2005, as filed with the Securities and Exchange Commission (the “Report”), I, Jon A. Marshall, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Jon A. Marshall

Jon A. Marshall

Chief Executive Officer

August 5, 2005

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of GlobalSantaFe Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2005, as filed with the Securities and Exchange Commission (the “Report”), I, Michael R. Dawson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Michael R. Dawson

Michael R. Dawson

Chief Financial Officer

August 5, 2005

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