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 endedSeptember 30, 2003March 31, 2004

OR


      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
                           For the transition period from                to                 

Commission File Number 1-8097


ENSCO International Incorporated
(Exact name of registrant as specified in its charter)


DELAWARE
(State or other jurisdiction of
incorporation or organization)

500 North Akard Street
Suite 4300
Dallas, Texas
(Address of principal executive offices)		 76-0232579
(I.R.S. Employer
Identification No.)



75201-3331
(Zip Code)

Registrant's telephone number, including area code:(214) 397-3000


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_  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_  X    No       

There were 149,873,819151,003,314 shares of Common Stock, $.10 par value, of the registrant outstanding as of October 28, 2003.April 22, 2004.


ENSCO INTERNATIONAL INCORPORATED

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2003MARCH 31, 2004

 
PART I   FINANCIAL INFORMATION
 
                 ITEM 1.  FINANCIAL STATEMENTS
 
                                 Report of Independent AccountantsAccountants' Review Report
 
                                 Consolidated Statements of Income
                                         Three Months Ended September 30,March 31, 2004 and 2003 and 2002
Consolidated Statements of Income
Nine Months Ended September 30, 2003 and 2002
 
                                 Consolidated Balance Sheets
                                         September 30, 2003March 31, 2004 and December 31, 20022003
 
                                 Consolidated Statements of Cash Flows
                                         NineThree Months Ended September 30,March 31, 2004 and 2003 and 2002
 
                                 Notes to Consolidated Financial Statements
 
                 ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
                 ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                 ABOUT MARKET RISK
 
                 ITEM 4.  CONTROLS AND PROCEDURES
 
PART II   OTHER INFORMATION
 
                 ITEM 2.  CHANGES IN SECURITIES, USE OF PROCEEDS AND
ISSUER PURCHASES OF EQUITY SECURITIES
                 ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
                 SIGNATURES

FORWARD-LOOKING STATEMENTS


       This report contains forward-looking statements by management and the Company that are subject to a number of risks and uncertainties. The forward-looking statements contained in the report are based on information as of the date of this report. The Company assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking statements include words or phrases such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "projects," "could," "may," "might," "should," "will" and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment; statements regarding future levels of, or trends in, day rates, utilization, revenues, operating expenses, capital expenditures, financing and funding; and statements regarding future construction, enhancement or upgrade of rigs, future mobilization, relocation or other movement of rigs, and future availability or suitability of rigs. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including the following: (i) industry conditions and competition, (ii) fluctuations in the price of oil and natural gas, (iii) regional and worldwide expenditures for oil and gas drilling, (iv) demand for oil and gas, (v) operational risks, contractual indemnities and insurance, (vi) risks associated with operating in foreign jurisdictions, (vii) environmental liabilities that may arise in the future that are not covered by insurance or indemnity, (viii) the impact of current and future laws and government regulation, as well as repeal or modification of same, affecting the oil and gas industry, the environment, taxes and the Company's operations in particular, (ix) changes in costs associated with rig construction or enhancement, as well as changes in dates rigs being constructed or undergoing enhancement will enter a shipyard, be delivered from a shipyard or enter service, (x) renegotiations, nullification, or breaches of contracts with customers, vendors, subcontractors or other parties, (xi) unionization or similar collective actions by the Company's employees, (xii) consolidation among the Company's competitors or customers, (xiii) completion of the ENSCO 107 transaction definitive contract and receipt of required regulatory approvals and (xiv) the risks described elsewhere herein and from time to time in the Company's reports to the Securities and Exchange Commission.

 



PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements


REPORT OF INDEPENDENT ACCOUNTANTSIndependent Accountants' Review Report

To the Board of Directors and Shareholders
of ENSCO International IncorporatedIncorporated:

We have reviewed the accompanying consolidated balance sheet of ENSCO International Incorporated and subsidiaries (the Company), as of September 30, 2003,March 31, 2004, the related consolidated statements of income for the three-month and nine-month periods ended September 30,March 31, 2004 and 2003 and 2002, and the related consolidated statements of cash flows for the nine-monththree-month periods ended September 30, 2003March 31, 2004 and 2002.2003. These consolidated financial statements are the responsibility of the Company's management.

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

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

/s/ KPMG LLP

Dallas, Texas
October 15, 2003April 19, 2004





ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)

     Three Months Ended      
           September 30,           
      2003            2002   
 
OPERATING REVENUES $199.6$179.2
 
OPERATING EXPENSES 
    Contract drilling 114.793.5
    Depreciation and amortization 33.729.9
    General and administrative 5.24.8
  153.6128.2
 
OPERATING INCOME 46.051.0
 
OTHER INCOME (EXPENSE) 
    Interest income  .91.1
    Interest expense, net (8.9)(7.7)
    Other, net  .8(1.8)
  (7.2)(8.4)
 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 38.842.6
 
PROVISION FOR INCOME TAXES 
    Current income taxes 1.94.1
    Deferred income taxes 9.29.5
  11.113.6
 
INCOME FROM CONTINUING OPERATIONS    27.7   29.0
 
INCOME FROM DISCONTINUED OPERATIONS, NET  .11.5
 
NET INCOME $   27.8$   30.5
 
EARNINGS PER SHARE - BASIC 
    Continuing operations $   .18$   .20
    Discontinued operations   .01  .01
     $   .19$   .21
 
EARNINGS PER SHARE - DILUTED 
    Continuing operations $   .18$   .20
    Discontinued operations   .01  .01
     $   .19$   .21
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 
    Basic 149.8143.6
    Diluted 150.2144.3
 
CASH DIVIDENDS PER COMMON SHARE $  .025$  .025 
 
Three Months Ended
          March 31,          
  2004   2003 
 
OPERATING REVENUES $186.5      $192.9
 
OPERATING EXPENSES 
     Contract drilling 107.4  109.5
     Depreciation and amortization 35.6 .31.8
     General and administrative 5.7  5.9
  148.7  147.2
 
OPERATING INCOME 37.8  45.7
 
OTHER INCOME (EXPENSE) 
     Interest income  .8   .7
     Interest expense, net (10.0)  (9.2)
     Other, net  .5   .2
  (8.7)  (8.3)
 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 29.1  37.4
 
PROVISION FOR INCOME TAXES 
     Current income tax expense 2.2  2.6
     Deferred income tax expense 5.6  8.1
  7.8  10.7
 
INCOME FROM CONTINUING OPERATIONS 21.3  26.7
 
LOSS FROM DISCONTINUED OPERATIONS (.3)  (3.8)
 
NET INCOME $  21.0  $  22.9
 
EARNINGS (LOSS) PER SHARE - BASIC 
     Continuing operations $   .14  $   .18
     Discontinued operations (.00)  (.03)
      $   .14  $   .15
 
EARNINGS (LOSS) PER SHARE - DILUTED 
     Continuing operations $   .14  $   .18
     Discontinued operations (.00)  (.03)
      $   .14  $   .15
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 
     Basic 150.6  149.2
     Diluted 150.8  149.9
 
CASH DIVIDENDS PER COMMON SHARE $   .025  $   .025
  

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







ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)

       Nine Months Ended
          September 30,       
        2003           2002  
 
OPERATING REVENUES $591.6$455.3
 
OPERATING EXPENSES 
    Contract drilling 337.0246.4
    Depreciation and amortization 100.684.6
    General and administrative 15.913.8
  453.5344.8
 
OPERATING INCOME 138.1110.5
 
OTHER INCOME (EXPENSE) 
    Interest income 2.54.2
    Interest expense, net (27.2)(23.6)
    Other, net (.4)6.4
  (25.1)(13.0)
 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 113.097.5
 
PROVISION FOR INCOME TAXES 
    Current income taxes 6.09.1
    Deferred income taxes 26.222.0
  32.231.1
 
INCOME FROM CONTINUING OPERATIONS    80.8   66.4
 
DISCONTINUED OPERATIONS 
    Income (loss) from discontinued operations, net (3.1)3.6
    Gain on disposal of discontinued operations, net 4.1 --
  1.03.6
 
NET INCOME $  81.8$  70.0
 
EARNINGS PER SHARE - BASIC 
    Continuing operations $   .54$   .48
    Discontinued operations   .01  .03
     $   .55$   .51
 
EARNINGS PER SHARE - DILUTED 
    Continuing operations $   .54$   .48
    Discontinued operations   .01  .02
     $   .55$   .50
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 
    Basic 149.5137.9
    Diluted 150.0138.7
 
CASH DIVIDENDS PER COMMON SHARE $  .075$  .075
 

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







ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except par value amounts)

September 30,December 31,March 31,December 31,
        2003                2002                 2004                2003         
(Unaudited)  (Unaudited) 
ASSETS      
CURRENT ASSETS  
Cash and cash equivalents $    326.9$    147.1 $    297.3$    354.0
Short-term investments  --38.4
Accounts receivable, net 164.4162.8 151.0149.4
Prepaid expenses and other 41.039.2 36.439.9
Total current assets 532.3387.5 484.7543.3
PROPERTY AND EQUIPMENT, AT COST 3,100.43,090.0 3,216.93,126.3
Less accumulated depreciation 875.2832.0 910.7909.1
Property and equipment, net 2,225.22,258.0 2,306.22,217.2
GOODWILL 341.6350.2 342.7342.7
ASSETS OF DISCONTINUED OPERATIONS 40.6 --
OTHER ASSETS, NET 74.265.8 37.279.8
 $3,173.3$3,061.5 $3,211.4$3,183.0
LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES  
Accounts payable $     12.4$     15.0 $     16.1$     15.8
Accrued liabilities 186.3161.8 151.2148.6
Current maturities of long-term debt 23.021.5 23.023.0
Total current liabilities 221.7198.3 190.3187.4
LONG-TERM DEBT 558.4547.5 547.1549.9
DEFERRED INCOME TAXES 325.8332.3 337.0345.9
LIABILITIES OF DISCONTINUED OPERATIONS 14.1 --
OTHER LIABILITIES 16.916.4 17.718.7
COMMITMENTS AND CONTINGENCIES          
STOCKHOLDERS' EQUITY  
First preferred stock, $1 par value, 5.0 million shares authorized 
and none issued  -- --
Preferred stock, $1 par value, 15.0 million shares authorized 
and none issued  -- --
First preferred stock, $1 par value, 5.0 million shares authorized, 
none issued  -- --
Preferred stock, $1 par value, 15.0 million shares authorized, 
none issued  -- --
Common stock, $.10 par value, 250.0 million shares authorized,  
173.5 million and 172.6 million shares issued 17.317.2
174.4 million and 173.9 million shares issued 17.417.4
Additional paid-in capital 1,399.51,383.5 1,415.61,409.0
Retained earnings 905.8835.3 945.9928.6
Restricted stock (unearned compensation) (7.7)(5.8) (12.6)(13.0)
Accumulated other comprehensive loss (11.4)(12.1) (11.0)(10.9)
Treasury stock, at cost, 23.7 million and 23.6 million shares (253.0)(251.1)
Treasury stock, at cost, 23.4 million shares (250.1)(250.0)
Total stockholders' equity 2,050.51,967.0 2,105.22,081.1
 $3,173.3$3,061.5 $3,211.4$3,183.0
 

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







ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

  Nine Months Ended
         September 30,        		   Three Months Ended
                  March 31,            
        2003            2002       2004         2003  
OPERATING ACTIVITIES      
Net income $  81.8$  70.0 $  21.0$  22.9
Adjustments to reconcile net income to net cash provided  
by operating activities:  
(Income) loss from discontinued operations 3.1(3.6)
Loss from discontinued operations  .33.8
Depreciation and amortization 100.684.6 35.631.8
Deferred income tax provision 26.222.0 5.68.1
Gain on sale of discontinued operations, net (4.1) --
Tax benefit from stock compensation 4.43.1 1.81.9
Amortization of other assets 4.17.1 1.6 .8
Net (gain) loss on asset dispositions  .5(5.9)
Net gain on asset dispositions (.1)(.5)
Other 1.72.6  .8 .7
Changes in operating assets and liabilities:  
Increase in accounts receivable (1.1)(15.0) (1.5)(12.2)
Increase in prepaid expenses and other assets (8.9)(16.8)
Decrease in accounts payable (2.7)(3.6)
Decrease (increase) in prepaid expenses and other assets 2.8(3.0)
Increase in accounts payable  .35.5
Increase in accrued liabilities  .56.7 2.010.9
Net cash provided by operating activities of continuing operations 206.1151.2 70.270.7
INVESTING ACTIVITIES  
Additions to property and equipment (141.3)(156.7) (125.6)(53.3)
Net cash used in Chiles acquisition  --(99.9)
Net proceeds from sale of discontinued operations 78.8 --
Proceeds from disposition of assets 4.424.4  .6 .6
Purchase of investments  --(1.0)
Investment in joint venture (.3) --
Sale of investments 38.423.0  --1.3
Investment in joint venture (11.7) --
Net cash used in investing activities of continuing operations (31.4)(210.2)
Net cash used by investing activities of continuing operations (125.3)(51.4)
FINANCING ACTIVITIES  
Proceeds from long-term borrowings 26.7 --
Reduction of long-term borrowings (14.5)(57.3) (2.9)(2.9)
Cash dividends paid (11.3)(10.5) (3.7)(3.7)
Proceeds from exercise of stock options 7.717.3 4.82.6
Deferred financing costs  --(1.3)
Other (.7)(1.1)  --(.6)
Net cash provided by (used in) financing activities of continuing
operations		 7.9(52.9)
Net cash used by financing activities of continuing operations (1.8)(4.6)
Effect of exchange rate changes on cash and cash equivalents  .8(1.5) (.5)(.2)
Net cash used in discontinued operations (3.6)(2.4)
Net cash provided (used) by discontinued operations  .7(2.7)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 179.8(115.8) (56.7)11.8
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 147.1278.8 354.0147.1
CASH AND CASH EQUIVALENTS, END OF PERIOD $326.9$163.0 $297.3$158.9
 

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






ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Unaudited Financial Statements

       The accompanying consolidated financial statements of ENSCO International Incorporated and subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted withinin the United States of America, pursuant to the rules and regulations of the Securities and Exchange Commission included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included herein is unaudited but, in the opinion of management, includes all adjustments (consisting of normal recurring adjustments) which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The December 31, 20022003 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted withinin the United States.States of America.

       The financial data for the three-month and nine-monththree month periods ended September 30,March 31, 2004 and 2003 and 2002 included herein have been subjected to a limited review by KPMG LLP, the registrant'sCompany's independent accountants. The accompanying independent accountants' review report of independent accountants is not a report within the meaning of Sections 7 and 11 of the Securities Act of 1933 and the independent accountant'saccountants' liability under Section 11 does not extend to it.

       Results of operations for the three-month and nine-month periodsthree month period ended September 30, 2003March 31, 2004 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2003.2004. It is recommended that these financial statements be read in conjunction with the Company's consolidated financial statements and notes thereto for the year ended December 31, 20022003 included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K.

       On August 7, 2002, the Company acquired Chiles Offshore Inc. ("Chiles"), which was accounted for as a purchase business combination in accordance with accounting principles generally accepted in the United States of America, with the Company treated as the acquirer.

       On February 20, 2003, the Company reached an agreement to sell its 27-vessel marine transportation fleet (see Note 6 "Discontinued Operations"). The results of operations of the marine transportation fleet have been reclassified as discontinued operations in the consolidated statements of income for the three-month and nine-month periods ended September 30, 2003 and 2002. After receipt of various regulatory consents, the sale transaction was finalized on April 1, 2003, for approximately $79.0 million and resulted in a pre-tax gain of approximately $6.4 million. The operating results and net carrying value of the marine transportation fleet represent the entire marine transportation services segment, as previously reported by the Company. Accordingly, the Company's continuing operations now consist of one reportable segment, contract drilling services.

       During the third quarter of 2003, the Company completed the sale of its two oldest, least capable rigs in its South America/Caribbean barge rig fleet. The carrying value of these rigs was previously reduced to the estimated net realizable value and the Company recognized a $9.2 million impairment charge during 2001. The gain on the sale of these rigs was insignificant.

Certain reclassifications have been made to the 20022003 unaudited consolidated financial statements to conform to the 20032004 presentation.

Note 2 - Earnings Per Share

       For the three-monththree months ended March 31, 2004 and nine-month periods ended September 30, 2003, and 2002, there were no adjustments to net income for purposes of calculating basic and diluted earnings per share. The following is a reconciliation of the weighted average common shares used in the basic and diluted earnings per share computations for the three-monththree months ended March 31, 2004 and nine-month periods ended September 30, 2003 and 2002 (in millions):

 
Three MonthsNine Months
Ended September 30,
  2003   2002     2003     2002        2004        2003   
Weighted average common shares-basic 149.8143.6149.5137.9 150.6  149.2  
Potentially dilutive common shares:                  
Restricted stock grants  .1   .1  
Stock options  .4 .7 .5 .8  .1   .6  
Weighted average common shares-diluted 150.2144.3150.0138.7 150.8  149.9  


       Options to purchase 3.93.7 million shares and 3.33.2 million shares of common stock in the thirdfirst quarters of 20032004 and 2002, respectively, were not included in the computation of diluted earnings per share because the exercise price of the options exceeded the average market price of the common stock. Options to purchase 3.3 million and 2.5 million shares of common stock in the nine-month periods ended September 30, 2003, and 2002, respectively, were not included in the computation of diluted earnings per share because the exercise price of the options exceeded the average market price of the common stock.
 
       The Company uses the intrinsic value method of accounting for employee stock options in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation expense related to employee stock options is included in the Company's net income, as the exercise price of the Company's stock options equals the market value of the underlying stock on the date of grant. The following table includes disclosures required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," and illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 (in millions, except per share amounts):
 
Three Months Ended
     September 30,      		Nine Months Ended
     September 30,     		Three Months Ended
  2003    2002    2003      2002                 March 31,             
              2004       2003  
Net income as reported $27.8$30.5$81.8$70.0
Net income, as reported $21.0  $22.9
Less stock-based employee compensation expense, net of tax(2.5)(3.3)(6.7)(7.3) (2.3)  (2.1)
        
Pro forma net income $25.3$27.2$75.1$62.7 $18.7  $20.8
Basic earnings per share:                
As reported$  .19$  .21$  .55$  .51 $ .14  $ .15
Pro forma   .17   .19   .50   .45 .12  .14
Diluted earnings per share:                
As reported$  .19$  .21$  .55$  .50 $   .14  $   .15
Pro forma   .17   .19   .50   .45 .12  .14

Note 3 - Goodwill

       The changes in the carrying amount of goodwill for the nine-month period ended September 30, 2003 are as follows (in millions):

 
    Balance at December 31, 2002 $350.2
    Purchase price adjustments (8.6)
    Balance at September 30, 2003 $341.6
 
       During the nine-month period ended September 30, 2003, the Company adjusted the preliminary purchase price allocation of the Chiles acquisition. These adjustments resulted in a reduction of goodwill and corresponding adjustments to accrued liabilities and deferred income taxes.
       The Company will complete its annual goodwill impairment analysis during the fourth quarter of 2003.

Note 4 - Derivative Financial Instruments

       In connection with the acquisition of Chiles on August 7, 2002, the Company obtained $80.0 million notional amount of outstanding treasury rate lock agreements. Upon closing of the acquisition, the Company designated $65.0 million notional amount of the treasury rate lock agreements as an effective hedge against the variability in cash flows of $76.5 million of United States Maritime Administration ("MARAD") guaranteed bonds that the Company intended to issue in October 2003. The Company deemed the remaining $15.0 million notional amount of treasury rate lock agreements obtained in the Chiles acquisition to be speculative in nature and subsequently settled $10.0 million notional amount in the fourth quarter of 2002 and the final $5.0 million notional amount in the second quarter of 2003. The Company recognized a loss of $300,000 for the nine-month period ended September 30, 2003 in connection with the decline in fair value of the $5.0 million notional amount of treasury rate lock agreements deemed to be speculative. The change in fair value of the $65.0 million notional amount of treasury rate lock agreements designated as an effective hedge during the three-month and nine-month periods ended September 30, 2003 has been included in other comprehensive income, net of tax. The fair value of the $65.0 million notional amount of treasury rate lock agreements designated as an effective hedge totaled $9.5 million at September 30, 2003, and is included in accrued current liabilities. The Company settled the $65.0 million notional amount of treasury locks on October 1, 2003 in connection with the pricing and subsequent issuance of the MARAD bonds (see Note 8 "Subsequent Events").

       At September 30, 2003 the net unrealized losses on derivative instruments included in other comprehensive loss totaled $10.3 million and the estimated amount that will be reclassified to earnings during the next twelve months is as follows (in millions):

 
    Unrealized losses reclassified to interest expense $1.2
    Unrealized gains reclassified to operating expenses (1.0)
    Net unrealized loss reclassified to earnings $  .2
 

       The Company utilizes derivative instruments and undertakes hedging activities in accordance with its established policies for the management of market risk. The Company does not enter into derivative instruments for trading or other speculative purposes. Management believes that the Company's use of derivative instruments and related hedging activities do not expose the Company to any material interest rate risk, foreign currency exchange rate risk, commodity price risk, credit risk or any other market rate or price risk.

Note 53 - Comprehensive Income

       The components of the Company's comprehensive income for the three-month and nine-monththree month periods ended September 30,March 31, 2004 and 2003, and 2002, are as follows (in millions):

 
 Three Months        Nine Months 
Ended September 30,      Ended September 30,
   2003     2002           2003           2002     2004               2003   
Net income $27.8$30.5$81.8$70.0 $21.0$  22.9    
Other comprehensive income (loss):  
Net change in fair value of derivatives 1.8(3.5) .1(2.7) (.4)(.5)    
Reclassification of unrealized gains and losses on  
derivatives from other comprehensive income  
(loss) into net income  .2 .2 .6 .2  .3 .2    
Net other comprehensive income (loss) 2.0(3.3)0.7(2.5)
Net other comprehensive loss (.1)(.3)    
Total comprehensive income $29.8$27.2$82.5$67.5 $20.9$ 22.6    

       The components of the accumulated other comprehensive loss section of stockholders' equity at September 30, 2003March 31, 2004 and December 31, 2002,2003, are as follows (in millions):

 
September 30,December 31,March 31,December 31,
       2003             2002              2004             2003      
Cumulative translation adjustment $  1.1          $  1.1           $  1.1          $  1.1          
Net unrealized losses on derivatives 10.311.0 9.99.8
Total accumulated other comprehensive loss $11.4$12.1 $11.0$10.9

       At March 31, 2004, the net unrealized losses on derivative instruments included in accumulated other comprehensive loss totaled $9.9 million and the estimated amount that will be reclassified to earnings during the next twelve months is as follows (in millions):

Unrealized gains reclassified to operating expenses$  .8
Unrealized losses reclassified to interest expense(.7)
         Net unrealized gain reclassified to earnings$ .1
 

Note 64 - Discontinued Operations

       OnIn February 20,2004, the Company entered into an agreement with Keppel FELS Limited ("KFELS"), a major international shipyard, to exchange three rigs (ENSCO 23, ENSCO 24 and ENSCO 55) and $55.0 million for the construction of a new high performance premium jackup rig to be named ENSCO 107. The ENSCO 107 will be an enhanced KFELS MOD V (B) design modified to ENSCO specifications and delivery is expected in late 2005. The transaction is subject to execution of a definitive construction contract and regulatory approvals and is expected to be finalized during the second quarter of 2004. The results of operations of the ENSCO 23, ENSCO 24 and ENSCO 55 have been reclassified as discontinued operations in the consolidated statements of income for the three month periods ended March 31, 2004 and 2003.

       Effective April 1, 2003, the Company reached an agreement to sellsold its 27-vessel marine transportation fleet. The transaction was completed on April 1, 2003 for approximately $79.0 million, which resulted in a pre-tax gain of approximately $6.4 million.fleet and ceased conducting marine transportation operations. The operating results of the marine transportation fleet, which represent the entire marine transportation services segment previously reported by the Company, have been reclassified as discontinued operations in the consolidated statementsstatement of income.income for the three month period ended March 31, 2003.

       Following is a summary of incomeloss from discontinued operations for the three-monththree months ended March 31, 2004 and nine-month periods ended September 30, 2003 and 2002 (in millions):

  Three Months  Nine MonthsThree Months Ended
Ended September 30, Ended September 30,                March 31,              
   2003  2002    2003    2002       2004      2003 
 
Revenues $  --$12.6$  7.6$36.0       
Contract drilling $  2.5  $  2.2
Marine transportation  --  7.6
 2.5  9.8
Operating expenses (.1)12.612.435.5       
Contract drilling 3.0  2.9
Marine transportation  --  12.7
Operating income (loss) before income taxes  .1 --(4.8) .5
 3.0  15.6
Operating loss before income taxes (.5)  (5.8) 
Income tax benefit  --1.51.73.1 (.2)  (2.0) 
Gain on sale of discontinued operations, net  -- --4.1 --
Income from discontinued operations $  .1$  1.5$  1.0$  3.6
Loss from discontinued operations $(.3)  $(3.8) 

       The aggregate carrying value of the ENSCO 23, ENSCO 24 and ENSCO 55 and the deferred tax liability associated with such carrying value are reported as assets of discontinued operations and liabilities of discontinued operations, respectively, on the March 31, 2004 consolidated balance sheet. The Company does not expect to recognize a significant gain or loss in connection with the disposition of the ENSCO 23, ENSCO 24 and ENSCO 55.

Note 75 - Investment in Joint Ventures

       During the fourth quarter of 2000, the Company entered into an agreement with Keppel FELS Limited ("KFELS"), a major international shipyard,KFELS and acquired a 25% ownership interest in a harsh environment jackup rig under construction, which was subsequently named the ENSCO 102. During the second quarter of 2002, the Company and KFELS established a joint venture company, ENSCO Enterprises Limited ("EEL"), to own and charter the ENSCO 102. Upon completion of rig construction in May 2002, the Company and KFELS transferred their respective interests in the ENSCO 102 to EEL in exchange for promissory notes in the amount of $32.5 million and $97.3 million, respectively. The Company has an option to purchase the ENSCO 102 from EEL, at a formula derived price, which expires in May 2004 and either party may terminate the joint venture agreement if the purchase option is not exercised. The Company and KFELS had initial ownership interests in EEL of 25% and 75%, respectively.

       Concurrent with the transfer of the rig to EEL, the Company agreed to charter the ENSCO 102 from EEL for a two-year period that expireswas scheduled to expire in May 2004. Under the terms of the charter, the majority of the net cash flow generated by the ENSCO 102 operations iswas remitted to EEL in the form of charter payments. However, the charter obligation iswas determined on a cumulative basis such that cash flow deficits incurred prior to initial rig operations arewere satisfied prior to the commencement of charter payments. Charter proceeds received by EEL arewere used to pay interest on the promissory notes and any cash remaining after all accrued interest has been paid iswas used to repay the outstanding principal of the KFELS promissory note. Pursuant to an agreement between the Company and KFELS, the respective ownership interests of the Company and KFELS in EEL arewere adjusted concurrently with repayments of principal on the KFELS promissory note such that each party's ownership interest iswas equal to the ratio of its outstanding promissory note balance to the aggregate outstanding principal balance of both promissory notes.

       Under the terms of the agreement with KFELS, the Company had an option to purchase the ENSCO 102 from EEL, at a formula derived price, which was scheduled to expire in May 2004. Effective January 31, 2004, the Company exercised its purchase option and acquired the ENSCO 102 for a net payment of $94.6 million. EEL was effectively liquidated upon the Company's acquisition of the ENSCO 102. A summary of the unaudited financial statementsoperating results of EEL as of and for the periodthree month periods ended September 30,March 31, 2004 and 2003, is as follows:flows:

 
               ENSCO Enterprises Limited
               Condensed Balance Sheet
               September 30, 2003
               (In Millions)
               (Unaudited)
 
             Assets 
 
Cash and cash equivalents $    7.0
Charter revenue receivable     2.8
Property and equipment, net of accumulated depreciation 123.9
  $133.7
 
                                                    Liabilities and Stockholders' Equity 
 
Interest payable $  10.8
Notes payable 129.8
Stockholders' equity 
      Common stock  --
      Accumulated deficit (6.9)
           Total stockholders' equity (6.9)
  $133.7
ENSCO Enterprises Limited
Condensed Statement of Operations
Three and Nine Months Ended September 30, 2003
(In Millions)
(Unaudited)
 Three Months EndedNine Months Ended
  September 30, 2003  September 30, 2003 
   
Charter revenue $ 4.1$  12.4
Depreciation expense (2.0)(4.0)
Interest expense (2.4)(7.3)
      Net income (loss) (.3)1.1
 

       At September 30, 2003, the Company's net investment in EEL totaled $39.0 million and is included in other assets, net on the consolidated balance sheet.ENSCO Enterprises Limited
Condensed Statements of Income
(In millions)
(Unaudited)

   Three Months Ended
                March 31,             
      2004       2003 
 
   Charter revenue $ 1.6  $ 4.3
   Depreciation expense (.5)  (1.0)
   Interest expense (.8)  (2.4)
             Net income $  .3  $  .9
 

       The approximate $5.0 million excess of the Company's investment carrying value over its equity in the underlying net assets of EEL is being amortized over the estimated 30-year useful life of the ENSCO 102. During the three-month and nine-month periods ended September 30, 2003, the Company recognized approximately $600,000$400,000 and $2.1 million, respectively,$800,000, net of intercompany eliminations, from its equity in the earnings of EEL whichfor the three month periods ended March 31, 2004 and 2003, respectively. The Company's equity in the earnings of EEL is included in operating expenses on the consolidated statementstatements of income.

        In MarchDuring the first quarter of 2003, the Company entered into an agreement with KFELS to establish a second joint venture company, ENSCO Enterprises Limited II ("EEL II"), to construct a premium heavy duty jackup rig to be named the ENSCO 106. The Company will contribute $3.0 million of procurement and management services and $23.3 million in cash for a 25% interest in EEL II. At September 30, 2003, the Company's net investment in EEL II totaled $11.7 million and is included in other assets, net on the consolidated balance sheet. The terms of the EEL II agreement are similar to those of the EEL agreement, with the Company holding an option to purchase the ENSCO 106 from EEL II, at a formula derived price, at any time during construction or the two-year period after completion of construction. Additionally, if the Company has not exercised theits purchase option upon completion of construction, the Company will charter the ENSCO 106 from EEL II for a two-year period under terms similar to those of the ENSCO 102 charter from EEL. Both the Company and KFELS have the right to terminate the joint venture at the end of the two-year period if the purchase option has not been exercised. Construction of the ENSCO 106 is anticipated to be completed during the fourth quarter of 2004. At March 31, 2004, the Company's investment in EEL II totaled $12.2 million.

       The Company's equity interestsinterest in and related charter arrangements associated with, EEL and EEL II constitute variable interests inconstitutes a variable interest entities,in a variable interest entity, as defined in the Financial Accounting Standards Board's Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"46R"). However, the Company will not absorb a majority of the expected losses or receive a majority of the expected residual returns of EEL II, as defined by FIN 46, of either EEL or EEL II,46R, and accordingly, the Company is not required to consolidate EEL or EEL II.

Note 8 - Subsequent Events

       On October 8, 2003, the Company issued $76.5 million of 17-year bonds to provide long-term financing for the ENSCO 105. The bonds are guaranteed by MARAD and will be repaid in 34 equal semiannual principal installments of $2.25 million. Interest on the bonds is payable semiannually, in April and October, at a fixed rate of 4.65%. The bonds are collateralized by the ENSCO 105 and the Company has guaranteed the performance of its obligations under the bonds to MARAD. Proceeds from the bond issuance were used to retire a floating rate term loan that provided interim financing for the construction of the ENSCO 105. In connection with the issuance of the bonds, the Company settled the $65.0 million notional amount of treasury lock agreements, designated as an effective hedge against the variability in cash flows of the bonds, for $9.5 million.

       In October 2003, the Company received and immediately sold 66,838 shares of Prudential Financial Incorporated. The shares were issued to the Company as a result of the Company's previous purchase of a Group Annuity Contract upon termination of a predecessor consolidated pension plan and Prudential Financial Incorporated's conversion from a mutual company to a stock company. The Company will recognize a gain of $2.5 million in the fourth quarter of 2003 in connection with the receipt and sale of the aforementioned shares.

 

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


BUSINESS ENVIRONMENTINTRODUCTION

       ENSCO International Incorporated and subsidiaries ("ENSCO" or the "Company") is an international offshore contract drilling company with a current operating fleet of 56 drilling rigs, including 43 jackup rigs, seven barge rigs, five platform rigs and one semisubmersible rig. The Company's offshore contract drilling operations are integral to the exploration, development and production of oil and natural gas and the Company is one of the leading international providers of offshore drilling services to the international oil and gas industry. As discussed below in "Results of Operations," one jackup rig and two platform rigs currently owned and operated by the Company are pending sale and transfer in connection with the execution of a rig construction agreement.

The Company's operationsCompany drills and completes oil and gas wells under contracts with major international, government-owned and independent oil and gas companies. The drilling services provided by the Company are conducted inon a "day rate" contract basis, under which the geographic regionsCompany provides its drilling rigs and rig crews and receives a fixed amount per day for drilling wells. The customer bears substantially all of North America, Europe/Africa, Asia Pacificthe ancillary costs of constructing the wells and South America/Caribbean.supporting drilling operations, as well as the economic risk relative to the success of the wells.

       Demand for the Company's services is significantly affected by regional and worldwide expenditures forlevels of offshore exploration and development spending by oil and gas drilling. Expenditures for oilcompanies. Offshore exploration and gas drilling activitydevelopment spending levels may fluctuate substantially from year to year and from region to region. Such spending fluctuations result from many factors, including demand for oil and gas, worldregional and global economic conditions theand expected changes therein, political and legislative environmentenvironments in the United States and other major oil-producing countries, in which the Company operates, production levels and otherrelated activities of OPEC and other oil and gas producers, and the impact that these and other events have on the current and expected future pricing of oil and natural gas.

       The Company's drilling rigs are deployed throughout the world, with drilling operations concentrated in the major geographic regions of North America, Europe/Africa, Asia Pacific and South America/Caribbean. The Company competes with other offshore drilling contractors on the basis of price, quality of service, operational and safety performance, equipment suitability and availability, reputation and technical expertise. Competition is usually on a regional basis, but offshore drilling rigs are mobile and may be moved from one region to another in response to demand.

BUSINESS ENVIRONMENT

       The Company's domestic offshore drilling operations are conducted in the Gulf of Mexico. The U.S. oil and natural gas market and trends in oil and gas company spending largely determine domestic offshore drilling industry conditions. Demand for jackup rigs in the Gulf of Mexico decreased during the first quarterhalf of 2003 but hasas oil and gas companies focused more of their spending on international projects. However, demand improved somewhat throughoutin the second and third quartershalf of 2003. The2003 as the supply of jackup rigs in the Gulf of Mexico has declined during 2003 aswhen certain rigs have mobilized to international markets in response to contract opportunities. Day rates for Gulf of Mexico jackup rigs have improved over the course of 2003. During the first quarter of 2004, day rate trends for smaller and larger jackup rigs varied, with day rates for the larger premium jackup rigs decreasing slightly from year-end 2003 and the Company anticipates that this market will remain firm over the remainder of the year.levels, while day rates for smaller jackup rigs remained relatively consistent with year-end 2003 rates.

       Industry conditions in most international offshore drilling markets have moderately improved over the last two years, as many of the major international and government-owned oil companies have increased spending in those markets.       Demand and day rates for international jackup rigs in Europe remained fairly stable over the first half of 2003. However, day rates for jackup rigs in Europe have declined during the third quartersecond half of 2003 due to limited long-term contractterm work opportunities. Although some contracts have been executed recently at moderately increased rates,During the Company anticipates a minor softeningfirst quarter of its2004, day rates for jackup rigs in Europe duringremained at reduced levels.

       Day rates for jackup rigs in Asia Pacific remained relatively stable over the remaindercourse of 2003 due primarily toand the lag effectfirst quarter of market derived rates. Day rates and2004. Asia Pacific jackup rig activity levels havealso remained fairly stable in Asia Pacific overduring the first nine monthsthree quarters of 2003. However, five of the Company's Asia Pacific jackup rigs have completed, or will complete, contracts during the fourth quarter of 2003. Two of these five rigs are scheduled to commence new term contracts2003, but declined during the fourth quarter of 2003 upondue to the completion of shipyard work and opportunities for work commencingseveral 2003 programs. Activity levels in Asia Pacific recovered to early 2003 levels during the first quarter of 2004 exist for the three remaining rigs.

       Certain statements made in this section and elsewhere in this report may be deemed to be forward-looking statements, including the Company's expectations for day rates for the remainder of the year. Please see the information contained in the section entitled "Outlook and Forward-Looking Statements."2004.

RESULTS OF OPERATIONS

       On August 7, 2002,In February 2004, the Company completed its merger with Chiles Offshore Inc. ("Chiles"), which has been accounted for as a purchase business combination in accordance with accounting principles generally accepted in the United States of America, with the Company treated as the acquirer. Under the terms of the Merger Agreement, each Chiles shareholder received 0.6575 of a share of the Company's common stock and $5.25 in cash in exchange for each share of Chiles common stock held. Upon completion of the transaction, the Company issued approximately 13.3 million shares of its common stock and paid approximately $106.6 million in cash to the holders of Chiles common stock. The acquired Chiles operations consisted of a fleet of five ultra premium jackup rigs, including two rigs operating in the Gulf of Mexico, one rig operating offshore Australia, one rig operating offshore Trinidad and Tobago, and one rig under construction that subsequently entered service in the Gulf of Mexico.

        On February 20, 2003, the Company reachedinto an agreement to sell its 27-vessel marine transportation fleet.exchange three rigs (ENSCO 23, ENSCO 24 and ENSCO 55) and $55.0 million for the construction of a new high performance premium jackup rig to be named ENSCO 107. The transaction is subject to execution of a definitive construction contract and regulatory approvals and is expected to be finalized during the second quarter of 2004. The results of operations of the marine transportation fleetENSCO 23, ENSCO 24 and ENSCO 55 have been reclassified as discontinued operations in the consolidated statements of income for the three-month and nine-monththree month periods ended September 30, 2003March 31, 2004 and 2002. After receipt of various regulatory consents, the sale transaction was finalized on2003. Effective April 1, 2003, the Company sold its 27-vessel marine transportation fleet and ceased conducting marine transportation operations. The operating results of the marine transportation fleet, which represent the entire marine transportation services segment previously reported by the Company, have been reclassified as discontinued operations in the consolidated statement of income for approximately $79.0 million. The Company recognized a pre-tax gain of approximately $6.4 million related to the sale transaction.three month period ended March 31, 2003.

       The following analysis highlights the Company's consolidated operating results for the three-month and nine-monththree month periods ended September 30,March 31, 2004 and 2003 and 2002 (in millions):

 
 Three Months EndedNine Months Ended
     September 30,        September 30,    
  2003    2002    2003       2002  
     
Operating Results     
   Revenues $199.6$179.2$591.6$455.3
   Operating expenses         
      Contract drilling 114.793.5337.0246.4
      Depreciation and amortization 33.729.9100.684.6
      General and administrative 5.24.815.913.8
   Operating income 46.051.0138.1110.5
   Other expense, net 7.28.425.113.0
   Provision for income taxes 11.113.632.231.1
   Income from continuing operations 27.729.080.866.4
   Income from discontinued operations  .11.51.03.6
   Net income $27.8$30.5$81.8$70.0
 
Revenues 
       Jackup rigs: 
          North America $  57.5$  50.2$155.4$119.3
          Europe/Africa 41.547.8139.5131.4
          Asia Pacific 62.548.5182.3126.5
          South America/Caribbean 8.44.124.14.1
               Total jackup rigs 169.9150.6501.3381.3
       Semisubmersible rig - North America 16.517.250.044.3
       Barge rig - Asia Pacific 5.02.114.42.1
       Barge rigs - South America/Caribbean 4.13.711.412.4
       Platform rigs - North America 4.15.614.515.2
               Total $199.6$179.2$591.6$455.3
 
Contract Drilling Expense 
       Jackup rigs: 
          North America $  38.9$  32.9$112.6$  92.1
          Europe/Africa 24.722.973.958.4
          Asia Pacific 33.722.599.554.7
          South America/Caribbean 3.41.99.81.9
               Total jackup rigs 100.780.2295.8207.1
       Semisubmersible rig - North America 5.14.814.516.2
       Barge rig - Asia Pacific 3.32.29.02.2
       Barge rigs - South America/Caribbean 2.82.88.110.4
       Platform rigs - North America 2.83.59.610.5
               Total $114.7$  93.5$337.0$246.4
 
    Rig Utilization:(1) 
        Jackup rigs: 
             North America 86% 87% 86% 89% 
             Europe/Africa 91% 79% 93% 76% 
             Asia Pacific 88% 76% 87% 77% 
             South America/Caribbean 98% 100% 99% 100% 
                 Total jackup rigs 88% 83% 88% 83% 
        Semisubmersible rig - North America 95% 100% 97% 89% 
        Barge rig - Asia Pacific 100% 100% 98% 100% 
        Barge rigs - South America/Caribbean 17% 15% 17% 16% 
        Platform rigs - North America 40% 60% 44% 56% 
                     Total 76% 73% 77% 72% 
 
    Average day rates:(2) 
        Jackup rigs: 
             North America $  31,987 $  30,542 $  29,208 $  25,095 
             Europe/Africa 61,025 78,507 67,534 78,363 
             Asia Pacific 62,989 59,029 62,980 58,126 
             South America/Caribbean 90,040 75,771 85,408 75,771 
                  Total jackup rigs 47,803 47,993 47,512 44,027 
         Semisubmersible rig - North America 189,433 187,048 188,700 184,423 
         Barge rig - Asia Pacific 41,923 41,750 41,172 41,750 
         Barge rigs - South America/Caribbean 42,569 38,120 40,135 40,191 
         Platform rigs - North America 25,846 26,688 26,170 25,595 
                      Total $  50,118 $  50,290 $  49,587 $  46,456 
 
     2004        2003    
 
    Revenues $186.5  $192.9  
    Operating expenses         
       Contract drilling107.4  109.5  
       Depreciation and amortization 35.6  31.8  
       General and administrative 5.7  5.9  
    Operating income 37.8  45.7  
    Other expense, net (8.7)  (8.3)  
    Provision for income taxes 7.8  10.7  
    Income from continuing operations 21.3  26.7  
    Loss from discontinued operations (.3)  (3.8)  
    Net income $  21.0  $  22.9  
 
 

       First quarter 2004 revenues decreased $6.4 million, or 3%, from the prior year first quarter. The decrease in revenues is due primarily to reduced day rates for the Europe/Africa jackup rigs and reduced utilization for the Asia Pacific jackup rigs and the ENSCO 7500, partially offset by increased day rates for the North America jackup rigs. First quarter 2004 contract drilling expense decreased $2.1 million, or 2%, from the prior year first quarter. The decrease in contract drilling expense is primarily due to a $2.5 million decrease in costs associated with the ENSCO 102 joint venture charter operations, which ceased effective January 31, 2004 upon ENSCO's acquisition of the rig from the joint venture (see Note 5 to the Company's Consolidated Financial Statements for information concerning the Company's charter of the ENSCO 102).

       Detailed explanations of the Company's operating results for the three month periods ended March 31, 2004 and 2003, including discussions of revenue and contract drilling expenses based on geographical location and type of rig, are set forth below.

Revenue and Contract Drilling Expense

       The following is an analysis of the Company's revenues, contract drilling expense, rig utilization and average day rates for the three month periods ended March 31, 2004 and 2003 (in millions):

  2004   2003    
      
    Revenues 
        Jackup rigs: 
             North America $  65.1   $44.8   
             Europe/Africa 37.6   48.8   
             Asia Pacific 53.0   61.8   
             South America/Caribbean 8.1   7.3   
                  Total jackup rigs 163.8   162.7   
         Semisubmersible rig - North America 11.9   16.4   
         Barge rig - Asia Pacific 3.8   4.7   
         Barge rigs - South America/Caribbean 4.3   3.4   
         Platform rigs - North America 2.7   5.7   
                      Total $186.5   $192.9   
      
    Contract Drilling Expense 
        Jackup rigs: 
             North America $  37.5   $  34.4   
             Europe/Africa 25.1   25.0   
             Asia Pacific 30.8   33.8   
             South America/Caribbean 3.2   3.1   
                  Total jackup rigs 96.6   96.3   
         Semisubmersible rig - North America 4.3   4.9   
         Barge rig - Asia Pacific 1.9   2.8   
         Barge rigs - South America/Caribbean 2.8   2.5   
         Platform rigs - North America 1.8   3.0   
                      Total $107.4   $109.5   
      
    Rig Utilization(1) 
        Jackup rigs: 
             North America 87%   83%   
             Europe/Africa 91%   91%   
             Asia Pacific 76%   89%   
             South America/Caribbean 98%   100%   
                 Total jackup rigs 85%   87%   
        Semisubmersible rig - North America 66%   97%   
        Barge rig - Asia Pacific 100%   99%   
        Barge rigs - South America/Caribbean 17%   17%   
        Platform rigs - North America 33%   84%   
                     Total 74%   79%   
 
    Average day rates(2) 
        Jackup rigs: 
             North America $  38,964   $  27,960   
             Europe/Africa 56,506   71,724   
             Asia Pacific 63,931   63,154   
             South America/Caribbean 89,637   80,087   
                  Total jackup rigs 50,166   48,474   
         Semisubmersible rig - North America 184,815   188,336   
         Barge rig - Asia Pacific 41,788   41,321   
         Barge rigs - South America/Caribbean 41,900   36,401   
         Platform rigs - North America 28,486   26,129   
                      Total $  51,481   $  50,285   
 
   (1) Utilization is the ratio of aggregate contract days divided by the number of days in the period.
(2) Average day rates are derived by dividing contract drilling revenuerevenues by the aggregate number of contract days, adjusted to exclude certain types of non-recurring reimbursable revenue and lump sumlump-sum revenue and contract days associated with certain mobilizations, demobilizations, shipyard contracts and demobilizations.extended standby rate contracts.
 
 

       The following is an analysisa summary of the Company's offshore drilling rigs related to continuing operations at September 30, 2003March 31, 2004 and 2002:2003:

          Number of Rigs  
          Number of Rigs                March 31,      
20032002 20042003
Jackup rigs:      
North America 22 22 
North America(1) 21 21 
Europe/Africa 8 8  8 8 
Asia Pacific 12 12  12 12 
South America/Caribbean 1 1  1 1 
Total jackup rigs 43 43  42 42 
Semisubmersible rig - North America 1 1  1 1 
Barge rig - Asia Pacific 1 1  1 1 
Barge rigs - South America/Caribbean 6 6  6 6 
Platform rigs - North America 5 5 
Platform rigs(2) 3 3 
Total 56 56 
Total(3) 53 53 

     Explanations(1)

Excludes the jackup rig ENSCO 55, which was operating in North America at both March 31, 2004 and 2003 but is pending sale and transfer in connection with the execution of the Company's operating results for the three-montha rig construction agreement, and nine-month periods ended September 30, 2003, including detailed discussions ofits revenue and contract drilling expenses based on geographical locationhave been reclassified as discontinued operations.
(2)Excludes the platform rigs ENSCO 23 and typeENSCO 24, which were available for operations in North America at both March 31, 2004 and 2003 but are pending sale and transfer in connection with the execution of asset, are set forth below. On a consolidated basis, third quarter 2003 revenuesrig construction agreement, and contract drilling expenses increased $20.4 million and $21.2 million, respectively, comparedtheir operating results have been reclassified as discontinued operations.
(3)In addition to the prior year third quarter. These increasesexclusion of ENSCO 55, ENSCO 23 and ENSCO 24, the total number of rigs excludes ENSCO 106 and ENSCO 107 which are primarily duecurrently under construction. The ENSCO 106, which was under construction at both March 31, 2004 and 2003, is expected to enter service by the five rigs acquired from Chiles in August 2002 andend of 2004. The ENSCO 107, which commenced construction during the recently constructed ENSCO 102, which also commenced operations in August 2002. The increase in revenues and contract drilling expenses attributablefirst quarter of 2004, is expected to these six rigs was $18.2 million and $14.1 million, respectively. Contract drilling expenses forenter service by the remaining rigs in the Company's fleet increased $7.1 million primarily due to the impactend of a slight increase in utilization, increased personnel costs, including a wage increase effective July 1, 2003, and increased repair costs, partially offset by reduced insurance costs. The Company reduced its insurance premiums effective July 1, 2003 by increasing deductibles, but maintained existing insured rig values.

2005.


    North America Jackup Rigs

       ThirdFirst quarter 20032004 revenues for the North America jackup rigs increased by $7.3$20.3 million, or 15%45%, and contract drilling expenses increased by $6.0 million, or 18%, fromcompared to the prior year thirdfirst quarter. The increase in revenues wasis due primarily to the addition of the newly constructed ENSCO 105 to the Company's North America fleet as a result of the acquisition of Chiles and the results of the ENSCO 81, which was in a shipyard for the third quarter of 2002, partially offset by the results of the ENSCO 82, which was in a shipyard undergoing modifications, upgrades and regulatory work39% increase in the thirdaverage day rates. First quarter of 2003. During the third quarter of 2003, the ENSCO 105 and ENSCO 81 generated an aggregate $8.0 million of revenues. The increase in2004 contract drilling expenses was due primarily to the addition of three rigs to the North America jackup fleet in the third quarter of 2002 as a result of the Chiles acquisition. During the third quarter of 2003, these three rigs generated an aggregate $7.9 million of contract drilling expenses compared to an aggregate of $2.9 million during the third quarter of 2002. Excluding the impact of the three additional rigs, contract drilling expenses increased by $1.1 million, or 4%, from the prior year third quarter due primarily to increased personnel costs.

     For the nine months ended September 30, 2003, revenuesexpense for the North America jackup rigs increased by $36.1$3.1 million, or 30%9%, and contract drilling expenses increased by $20.5 million, or 22%, as compared to the same period aprior year earlier.first quarter. The increases were due primarily to the addition of three rigs to the North America jackup rig fleet in the third quarter of 2002 as a result of the Chiles acquisition. During the nine months ended September 30, 2003 these three rigs generated an aggregate $27.9 million of revenues and $22.4 million of contract drilling expenses compared to an aggregate of $6.7 million of revenues and $2.9 million of contract drilling expenses in the same period a year earlier. Excluding the impact of the three additional rigs, revenues increased by $14.9 million, or 13%, and contract drilling expenses increased by $1.1 million, or 1%, from the same period a year earlier. The $14.9 million increase in revenues was primarily attributable to a 15% increase in average day rates compared to the same period a year earlier, partially offset by a decrease in utilization to 86% in the nine months ended September 30, 2003 from 89% in the same period a year earlier. The $1.1 million increase in contract drilling expenses wasexpense is primarily due primarily to increased personnel costs offset by the impact of decreased utilization.and repair costs.

    Europe/Africa Jackup Rigs

       ThirdFirst quarter 20032004 revenues for the Europe/Africa jackup rigs decreased by $6.3$11.2 million, or 13%23%, fromcompared to the prior year thirdfirst quarter. The decrease wasin revenues is due primarily to a 22%21% decrease in the average day rates and a $2.8 million reduction in mobilization revenue resulting from the mobilization of the ENSCO 100 from the North Sea to Nigeria during the thirdrates. First quarter of 2002, partially offset by an increase in utilization to 91% in the third quarter of 2003 from 79% in the prior year third quarter. Contract2004 contract drilling expenses increased by $1.8 million, or 8%, from the prior year third quarter due primarily to the impact of increased utilization, increased personnel costs and $900,000 of expenses associated with a crane failure during the third quarter of 2003, partially offset by a $2.5 million reduction of mobilization expense resulting from the ENSCO 100 mobilization to Nigeria during the second quarter of 2002.

     For the nine months ended September 30, 2003, revenues for the Europe/Africa jackup rigs increased by $8.1 million, or 6%, fromis comparable to the same period aprior year earlier. The increase in revenues was primarily attributable to an increase in utilization to 93% for the nine months ended September 30, 2003 from 76% in the same period a year earlier, partially offset by a 14% decrease in average day rates. Contract drilling expenses increased by $15.5 million, or 27%, from the same period a year earlier due primarily tofirst quarter, as the impact of increased utilizationpersonnel costs is substantially offset by a decrease in repair and the increased cost structure associated with the ENSCO 100, which operated offshore Nigeria during all nine months ended September 30, 2003 compared to only two months during the nine months ended September 30, 2002.insurance costs.

    Asia Pacific Jackup Rigs

       ThirdFirst quarter 20032004 revenues for the Asia Pacific jackup rigs increaseddecreased by $14.0$8.8 million, or 29%14%, and contract drilling expenses increased by $11.2 million, or 50%, as compared to the prior year thirdfirst quarter. The increases weredecrease in revenues is due primarily to a reduction in utilization to 76% in the addition ofcurrent year quarter from 89% in the ENSCO 102 and the ENSCO 104 toprior year first quarter. First quarter 2004 contract drilling expense for the Asia Pacific jackup rig fleetrigs decreased by $3.0 million, or 9%, compared to the prior year first quarter. The decrease in the third quarter of 2002. During the third quarter of 2003 these rigs generated an aggregate $16.9 million of revenues and $12.0 million of contract drilling expenses, includingexpense is primarily due to a net $3.9$2.5 million of contract drilling expensesdecrease in costs associated with the ENSCO 102 joint venture charter operations, comparedwhich ceased effective January 31, 2004 upon ENSCO's acquisition of the rig from the joint venture (see Note 5 to an aggregate of $7.2 million of revenues and $4.3 million of contract drilling expenses in the prior year third quarter. ExcludingCompany's Consolidated Financial Statements for information concerning the impactCompany's charter of the ENSCO 102 and the ENSCO 104 from the Asia Pacific jackup rig fleet operations, revenues increased by $4.3 million, or 10%, and contract drilling expenses increased by $3.6 million, or 20%, from the prior year third quarter.102). The $4.3 million increase in revenues was primarily attributable to improved utilization, which increased to 85% in the third quarter of 2003 from 79% in the prior year third quarter. The $3.6 million increasedecrease in contract drilling expenses was due primarilyexpense is also attributable to the impact of increasedreduced utilization and thea decrease in insurance costs, partially offset by increased cost structure associated with the ENSCO 53, which operated offshore Australia during the third quarter of 2003 compared to operating offshore Thailand during the third quarter of 2002.

     For the nine months ended September 30, 2003, revenues for the Asia Pacific jackup rigs increased by $55.8 million, or 44%,repair costs and contract drilling expenses increased by $44.8 million, or 82%, as compared to the same period a year earlier. The increases were due primarily to the addition of the ENSCO 102 and the ENSCO 104 to the Asia Pacific jackup rig fleet in the third quarter of 2002. During the nine months ended September 30, 2003, these rigs generated an aggregate $50.2 million of revenues and $33.8 million of contract drilling expenses, including a net $10.9 million of contract drilling expenses associated with the ENSCO 102 joint venture charter operations, compared to an aggregate of $7.2 million of revenues and $4.3 million of contract drilling expenses in the same period a year earlier. Excluding the impact of the ENSCO 102 and the ENSCO 104 from the Asia Pacific jackup rig fleet operations, revenues increased by $12.8 million, or 11%, and contract drilling expenses increased by $15.4 million, or 31%, from the prior year period. The $12.8 million increase in revenues was primarily attributable to utilization, which increased to 84% in the nine months ended September 30, 2003 from 78% in the same period a year earlier. The $15.4 million increase in contract drilling expenses was due primarily to the impact of increased utilization, the increased cost structure associated with the ENSCO 53, which operated offshore Australia during the current year period compared to operating offshore Thailand during the prior year period and increased personnel and repairreimbursable expenses.

    South America/Caribbean Jackup Rig

       The Company has oneFirst quarter 2004 revenues for the South America/Caribbean jackup rig acquiredincreased by $800,000, or 11%, compared to the prior year first quarter. The increase in connection with the Chiles acquisition, the ENSCO 76, operating under a long-term contract in Trinidad and Tobago. The results of the ENSCO 76 operations are includedrevenues is due primarily to an 12% increase in the Company's operating resultsaverage day rate of ENSCO 76. First quarter 2004 contract drilling expense for the South America/Caribbean jackup rig increased by $100,000, or 3%, from the date of the Chiles acquisition on August 7, 2002. Revenues andprior year first quarter. The increase in contract drilling expenses for the third quarter 2003expense is due primarily to increased personnel and 2002 were $8.4 million and $3.4 million and $4.1 million and $1.9 million, respectively. Revenues and contract drilling expenses for the nine months ended September 30, 2003 and 2002 were $24.1 million and $9.8 million and $4.1 million and $1.9 million, respectively.repair costs, partially offset by a decrease in insurance costs.

    North America Semisubmersible Rig

       ThirdFirst quarter 20032004 revenues for the ENSCO 7500North America semisubmersible rig decreased by $700,000,$4.5 million, or 4%27%, as compared to the prior year thirdfirst quarter. The decrease in revenues wasis due to a decreasereduction in utilization to 95%66% in the thirdcurrent year quarter of 2003 compared to 100%from 97% in the prior year third quarter due to repair time during the current yearfirst quarter, as the ENSCO 7500 was idle in March 2004 after completing a result of damage sustained during a tropical storm, partially offset by a 1% increase in the average day rate. Thirdmulti-year contract on February 29, 2004. First quarter 20032004 contract drilling expenses increasedexpense for the North America semisubmersible rig decreased by $300,000,$600,000, or 6%12%, as compared to the prior year thirdfirst quarter due primarily to the repair costs associated with the aforementioned damage during third quarter of 2003.

     For the nine months ended September 30, 2003, revenues for the ENSCO 7500 increased by $5.7 million, or 13%, from the same period a year earlier. The increase in revenues was due primarily to an increase in utilization to 97% in the nine months ended September 30, 2003 from 89% in the same period a year earlier and to a lesser extent, a 2% increase in the average day rate. The rig experienced down time during nine months ended September 30, 2002 to undergo hull repairs. Contract drilling expenses decreased by $1.7 million, or 10%, from the nine months ended September 30, 2002 due primarily to costs related to the aforementioned hull repairs incurred in the prior year nine-month period.reduced utilization.

    Asia Pacific Barge Rig

       In August 2002 the ENSCO I was mobilized from Venezuela to a shipyard in Singapore for modifications and enhancements to fulfill a long-term contract in Indonesia. Contract operations commenced in Indonesia in late December 2002 after completion of shipyard procedures. Revenue for theFirst quarter and nine months ended September 30, 2002 was $2.1 million and consisted of mobilization revenue. Contract drilling expenses for the quarter and nine months ended September 30, 2002 was $2.2 million and consisted primarily of mobilization expense.

     Third quarter 20032004 revenues and contract drilling expenses for the Asia Pacific barge rig increaseddecreased by $2.9 million$900,000, or 19%, and $1.1 million, respectively, ascontract drilling expense decreased by $900,000, or 32%, compared to the prior year third quarter. The increases weredecreases are due primarily to contract operations in Indonesia at full utilizationreimbursable revenue and expense incurred during the current year thirdfirst quarter compared to mobilization and shipyard activity in the prior year third quarter.

     For the nine months ended September 30, 2003, revenues and contract drilling expenses for the Asia Pacific barge rig increased by $12.3 million and $6.8 million, respectively, as compared to the same period a year earlier. The increases were due to nine months of contract operations in Indonesia during the current year period compared to 46 days of mobilization and shipyard activity in the prior year period.2003.

    South America/Caribbean Barge Rigs

       During the thirdFirst quarter of 2002 and 2003, one of the Company's six barge rigs was operating under a long-term contract in Venezuela. Third quarter 20032004 revenues for the South America/Caribbean barge rigs increased by $400,000,$900,000, or 11%26%, compared to the prior year first quarter. The increase in revenues is due primarily to a 16% increase in the average day rate of the ENSCO II. First quarter contract drilling expense for the South America/Caribbean barge rigs increased by $300,000, or 12%, from the prior year first quarter due primarily to increased personnel costs.

Platform Rigs

       First quarter 2004 revenues for the North America platform rigs decreased by $3.0 million, or 53%, compared to the prior year first quarter. The decrease in revenues is due primarily to a reduction in utilization to 33% in the current year quarter from 84% in the prior year first quarter. First quarter contract drilling expense for the North America platform rigs decreased by $1.2 million, or 40%, from the prior year first quarter due primarily to reduced utilization.

Depreciation and Amortization

       Depreciation and amortization expense for the first quarter of 2004 increased by $3.8 million, or 12%, as compared to the prior year first quarter. The increase in revenues was due primarily to a 12% increase in the average day rates. Contract drilling expenses were unchanged, as compared to the prior year third quarter.

     For the nine months ended September 30, 2003, revenues for the South America/Caribbean barge rigs decreased by $1.0 million, or 8%, and contract drilling expenses decreased by $2.3 million, or 22%, as compared to the same period a year earlier. The decrease in revenues was due primarily to reduced activity for the ENSCO XII, which completed a contract and demobilized from Trinidad to Venezuela during the nine months ended September 30, 2002, but was idle during the nine months ended September 30, 2003 and to a lesser extent, a 2% decrease in the ENSCO II average day rate. The decrease in contract drilling expenses was due primarily to the aforementioned ENSCO XII demobilization and the devaluation of the Venezuelan currency during the current year.

Platform Rigs

     Third quarter 2003 revenues for the platform rigs decreased by $1.5 million, or 27%, as compared to the prior year third quarter. The decrease in revenues was due primarily to reduced utilization of the ENSCO 26, which was idle during the current year third quarter but earned a minor standby rate during the prior year third quarter, and the ENSCO 25, which earned a minor standby rate during the majority of the current year third quarter but operated under a full day rate during the prior year third quarter. Contract drilling expenses decreased by $700,000 or 20%, from the prior year third quarter due primarily to reduced costs associated with the ENSCO 25, which did not operate during the majority of the current year third quarter.

     For the nine months ended September 30, 2003, revenues for platform rigs decreased by $700,000, or 5%, as compared to the same period a year earlier. The decrease in revenues was due primarily to reduced utilization of the ENSCO 26, which was idle during the majority of the nine months ended September 30, 2003, partially offset by a 2% increase in the average day rates. Contract drilling expenses decreased by $900,000, or 9%, from the same period a year earlier due primarily to reduced costs associated with the ENSCO 26, which was idle the majority of the nine months ended September 30, 2003.

Depreciation and Amortization

     Depreciation and amortization expense for the third quarter of 2003 increased by $3.8 million, or 13%, as compared to the prior year third quarter. The increase wasis primarily attributable to the depreciation associated with the five rigs acquired from Chiles in August 2002 and depreciation on capital enhancement projects completed subsequent to the thirdfirst quarter of 2002, partially offset by an approximate $900,000 reduction2003 and depreciation on the ENSCO 102 which was acquired in depreciation resulting from the Company's impairmentJanuary of its barge rigs in Venezuela2004.

General and Administrative

       General and administrative expense in the fourthfirst quarter of 2002.

     Depreciation and amortization expense for the nine months ended September 30, 2003 increased2004 decreased by $16.0 million,$200,000, or 19%3%, as compared to the same period a year earlier.first quarter of 2003. The increase wasdecrease is primarily attributable to the depreciation associated with the five rigs acquired from Chiles in August 2002 and depreciation on capital enhancement projects completed subsequent to the third quarter of 2002, partially offset by an approximate $2.8 million reduction in depreciation resulting from the Company's impairment of its barge rigs in Venezuela in the fourth quarter of 2002.

General and Administrative

     General and administrative expense for the third quarter of 2003 increased by $400,000, or 8%, as compared to the prior year third quarter. The increase was primarily due to increases in personnel costs, partially offset by a decrease in professional fees.

     General and administrative expense for the nine months ended September 30, 2003 increased by $2.1 million, or 15%, as compared to the same period a year earlier. The increase was primarily attributable to the payment in the first quarter of 2003 of one-time severance costs of $1.1 million in the first quarter of 2003 under an employment contract assumed in connection with the Chiles acquisition, and an increasepartially offset by increases in personnel costs.costs, insurance costs and professional fees related to system implementations.

Other Income (Expense)

       Other income (expense) for the third quarter and ninethree months ended September 30,March 31, 2004 and 2003 and 2002 wasis as follows (in millions):

Three Months Ended
     September 30,      		   Nine Months Ended
     September 30,     
 2003  2002   2003      2002  2004  2003 
Interest income $   .9$  1.1$   2.5$   4.2 $     .8$   .7
Interest expense, net:              
Interest expense (9.4)(9.2)(28.5)(26.5) (10.1)(9.6)
Capitalized interest  .51.51.32.9  .1 .4
 (8.9)(7.7)(27.2)(23.6) (10.0) (9.2)
Other, net  .8(1.8)(.4)6.4  .5 .2
 $ (7.2)$ (8.4)$(25.1)$(13.0) $  (8.7)$(8.3)


       Interest income forincreased by $100,000 in the thirdfirst quarter of 2004, as compared to the first quarter of 2003, due to an increase in cash balances invested, partially offset by the impact of lower average interest rates.

       Interest expense increased by $500,000 in the first quarter of 2004, as compared to the first quarter of 2003, due to minor increases in outstanding debt and average effective interest rates. Capitalized interest decreased $300,000 in the first quarter of 2004, as compared to the prior year thirdfirst quarter, due to a decrease in average interest rates. Interest income for the nine months ended September 30, 2003 decreased as compared to the same period a year earlier due to lower average cash balances invested and a decrease in average interest rates. Interest expense for the third quarter and nine months ended September 30, 2003 increased as compared to the corresponding periods a year earlier due primarily to the additional debt assumed in the Chiles acquisition. Capitalized interest for the third quarter and nine months ended September 30, 2003 decreased compared to the corresponding prior year periods due to a decrease in the amount invested in new construction as a result ofenhancement projects. Other, net in both the completed construction of the ENSCO 102 in the thirdfirst quarter of 20022004 and the ENSCO 105 in the fourth quarter of 2002.

     Other, net for the third quarter of 2003 consists primarily of a $500,000 gain related to the receipt and sale of shares of common stock of Prudential Financial, Inc. The shares were issued to the Company as a result of the Company's previous purchase of a Group Annuity Contract upon termination of a predecessor consolidated pension plan and Prudential Financial Incorporated's conversion from a mutual company to a stock company. Other, net for the nine months ended September 30, 2003 consists primarily of $800,000 in foreign currency translation losses and a loss of $300,000 related to the decline in fair value of the $5.0 million notional amount of speculative treasury lock agreements, partially offset by the $500,000 gain related to the receipt of shares of common stock of Prudential Financial, Inc. Other, net for the third quarter of 2002 includes a $1.1 million loss related to the decrease in fair value of treasury lock agreements obtained in connection with the Chiles acquisition. In the first quarter of 2002, the Company recognized a $5.8 million gain in connection with the settlement of an insurance claim related to the ENSCO 51, which sustained damage from a natural gas well fire. Other, net for the nine months ended September 30, 2002 consists primarily of the $5.8 million insurance gain and net foreign currency translation gains offset by the $1.1 million loss related to the decrease in the fair value of treasury lock agreements.gains.

Provision for Income Taxes

       The first quarter 2004 provision for income taxes for the third quarter of 2003 decreased by $2.5$2.9 million as compared to the prior year thirdfirst quarter. The decrease is attributable to reduced profitability and a decrease in effective tax rate to 28.6%26.8% in the thirdfirst quarter of 20032004 from 31.9%28.6% in the prior year first quarter. The provision for income taxes for the nine months ended September 30, 2003 increased by $1.1 million as compared to the corresponding prior year period. The increase is attributable to the increased profitability of the Company, offset in part by a decrease in the effective tax rate to 28.5% in the current year period from 31.9% in the prior year period. The effective tax rate decreased in the current year three-month and nine-month periodsquarter from the corresponding prior year periodsquarter due primarily to projected changes in the relative portions of the Company's earnings generated by foreign subsidiaries whose earnings are being permanently reinvested and taxed at lower rates and to projected increases in certain tax credits and income not subject to tax.

Discontinued Operations

       In February 2004, the Company entered into an agreement to exchange three rigs (ENSCO 23, ENSCO 24 and ENSCO 55) and $55.0 million for the construction of a new high performance premium jackup rig to be named ENSCO 107. The transaction is subject to execution of a definitive construction contract and regulatory approvals and is expected to be finalized during the second quarter of 2004. The results of operations of the ENSCO 23, ENSCO 24 and ENSCO 55 have been reclassified as discontinued operations in the consolidated statements of income for the three month periods ended March 31, 2004 and 2003.

       On February 20,Effective April 1, 2003, the Company reached an agreement to sellsold its 27-vessel marine transportation fleet. After receipt of various regulatory consents, the sale transaction was finalized on April 1, 2003 for approximately $79.0 million. The Company recognized a pre-tax gain of approximately $6.4 million related to the sale transaction.fleet and ceased conducting marine transportation operations. The operating results of the marine transportation fleet, which represent the entire marine transportation services segment previously reported by the Company, have been reclassified as discontinued operations in the consolidated statementsstatement of income.income for the three month period ended March 31, 2003.

       Following is a summary of incomeloss from discontinued operations for the three-monththree months ended March 31, 2004 and nine-month periods ended September 30, 2003 and 2002 (in millions):

Three Months Ended
                March 31,              
      2004      2003 
 
     Revenues       
          Contract drilling $  2.5  $  2.2
          Marine transportation  --  7.6
      2.5  9.8
     Operating expenses       
          Contract drilling 3.0  2.9
          Marine transportation  --  12.7
      3.0  15.6
     Operating loss before income taxes (.5)  (5.8) 
     Income tax benefit (.2)  (2.0) 
     Loss from discontinued operations $(.3)  $(3.8) 
 
       The reduction in loss from discontinued operations in the first quarter of 2004 as compared to the prior year first quarter is attributable to the sale of the Company's marine transportation fleet in April 2003 and resulting cessation of marine transportation operations. The first quarter 2004 operating results of the ENSCO 23, ENSCO 24 and ENSCO 55 are little changed from the comparable prior year quarter.
 
 Three Months EndedNine Months Ended
       September 30,               September 30,      
    2003      2002      2003         2002  
     
   Revenues $    --$12.6$  7.6$36.0
   Operating expenses (.1)12.612.435.5
      Operating income (loss) before income taxes  .1 --(4.8) .5
      Income tax benefit  --1.51.73.1
      Gain on sale of discontinued operations, net  -- --4.1 --
   Income from discontinued operations $    .1$  1.5$  1.0$  3.6
 

LIQUIDITY AND CAPITAL RESOURCES

       The Company has historically relied on its cash flow from operations to meet liquidity needs and fund the majority of its cash requirements. Management believes the Company has maintained a strong financial position through the disciplined and conservative use of debt. A substantial majority of the Company's cash flow has been invested in the expansion and enhancement of its fleet of drilling rigs.

       During the three month period ended March 31, 2004, the Company's primary source of cash consisted of $70.2 million generated from continuing drilling operations and its primary use of cash consisted of $125.6 million for the acquisition, enhancement and other improvement of drilling rigs. During the three month period ended March 31, 2003, the Company's primary source of cash consisted of $70.7 million generated from continuing drilling operations and its primary use of cash consisted of $53.3 million for the enhancement and other improvement of drilling rigs.

       Detailed explanations of the Company's liquidity and capital resources for the three month periods ended March 31, 2004 and 2003, including discussions of cash flow from operations, capital expenditures, financing and off-balance sheet arrangements, are set forth below.

Cash Flow and Capital Expenditures

       The Company's cash flow from continuing operations and capital expenditures of continuing operations for the ninethree months ended September 30,March 31, 2004 and 2003 and 2002 wereare as follows (in millions):

 
         2003             2002 
 
        Cash flow from operations $206.1$151.2
        Capital expenditures 
              New construction $      .9$  20.3
              Enhancements 106.5109.3
              Minor upgrade and improvements 33.927.1
  $141.3$156.7
    2004  2003 
 
       Cash flow from continuing operations $    70.2$    70.7
       Capital expenditures on continuing operations 
           Rig acquisition $    94.6$        --
           New construction  -- .6
           Enhancements 19.239.5
           Minor upgrades and improvements 11.813.2
  $  125.6$    53.3
 

       Cash flow from continuing operations increased by $54.9 million for the nine months ended September 30, 2003 as comparedfirst quarter of 2004 decreased by $500,000 from the prior year first quarter. The decrease is primarily attributable to a $2.9 million decrease in cash flow from reduced profitability, partially offset by a $2.4 million increase in cash flow from working capital changes.

       Effective January 31, 2004, the Company purchased the ENSCO 102 from an affiliated joint venture for a net payment of $94.6 million. In addition to the same period a year earlier due primarily to increased operating income and changes in working capital.

     Managementacquisition of the ENSCO 102, management anticipates that full year 20032004 capital expenditures will totalinclude approximately $210.0 million, including $160.0$200.0 million for enhancementsrig enhancement projects and approximately $50.0 million for minor upgrades and improvements. During 2003 managementManagement also plans to invest approximately $15.0$14.4 million in its joint venturesventure formed to construct and own the ENSCO 102106 during 2004. Excluding the pending sale and transfer of three rigs, management does not expect to make capital expenditures for the recently announced new construction of the ENSCO 106 (see107 during 2004. (See "Off-Balance Sheet Arrangements" and Note 75 to the Company's Consolidated Financial Statements for information concerning the Company's investmentsinvestment in the joint venturesventure related to the ENSCO 102 and106; see "Outlook" for information concerning the construction of the ENSCO 106).107.) Depending on market conditions and opportunities, the Company may also make capital expenditures to construct or acquire additional rigs or elect to exercise its option to acquire the ENSCO 102 andnon-owned interest in the ENSCO 106 in 2003.2004.

Financing and Capital Resources

        OnIn October 8, 2003, the Company issued $76.5 million of 17-year bonds to provide long-term financing for the ENSCO 105. The bonds are guaranteed by the United States Maritime Administration ("MARAD") and will be repaid in 34 equal semiannual principal installments of $2.25 million. Interest on the bonds is payable semiannually, in April and October, at a fixed rate of 4.65%. The bonds are collateralized by the ENSCO 105 and the Company has guaranteed the performance of its obligations under the bonds to MARAD. Proceeds fromAs of March 31, 2004, the bond issuance were used to retire a floating rate term loan that provided interim financing forCompany had $76.5 million outstanding under the construction of the ENSCO 105.bonds.

        In connection with the acquisition of Chiles Offshore Inc. ("Chiles") in August 2002, the Company assumed Chiles' bonds that were originally issued to provide long-term financing for the ENSCO 76 (formerly the Chiles Coronado).76. The bonds are guaranteed by MARAD and are being repaid in 24 equal semiannual principal installments of $2.9 million, which commenced in January 2000 and will end in July 2011. Interest on the bonds is payable semiannually, in January and July, at a fixed rate of 5.63%. The bonds are collateralized by the ENSCO 76 and the Company has guaranteed the performance of its obligations under the bonds to MARAD. As of September 30, 2003,March 31, 2004, the Company had $47.0$44.1 million outstanding under the bonds.

        On January 25, 2001, the Company issued $190.0 million of 15-year bonds to provide long-term financing for the ENSCO 7500. Interest on the bonds is payable semiannually, in June and December, at a fixed rate of 6.36%. The bonds which are guaranteed by MARAD and are being repaid in 30 equal semiannual principal installments of $6.3 million, which commenced in June 2001 and will end in December 2015. Interest on the bonds is payable semiannually, in June and December, at a fixed rate of 6.36%. The bonds are collateralized by the ENSCO 7500 and the Company has guaranteed the performance of its obligations under the bonds to MARAD. As of September 30, 2003,March 31, 2004, the Company had $158.3$152.0 million outstanding under the bonds.

        In November 1997, the Company issued $300.0 million of unsecured debt in a public offering, consisting of $150.0 million of 6.75% Notes due November 15, 2007 (the "Notes") and $150.0 million of 7.20% Debentures due November 15, 2027 (the "Debentures"). Interest on the Notes and the Debentures is payable semiannually in May and November, and totals $20.9 million on an annual basis.

        The Company has a $250.0 million unsecured revolving credit agreement (the "Credit Agreement") with a syndicate of banks that matures in July 2007. Interest on amounts borrowed under the Credit Agreement is based on LIBOR plus an applicable margin rate (currently 0.525%), depending on the Company's credit rating. The Company pays a facility fee (currently 0.225% per annum) on the total $250.0 million commitment, which also is based on the Company's credit rating. In addition, the Company is required to pay a utilization fee of 0.25% per annum on outstanding advances under the facility if such advances exceed 33% of the total $250.0 million commitment. The Company is required to maintain certain financial covenants under the Credit Agreement, including a specified level of interest coverage, debt ratio and tangible net worth. As of September 30, 2003, the Company was in compliance with these covenants. The Company had no amounts outstanding under the Credit Agreement at September 30, 2003.March 31, 2004.

        The Company is in compliance with the covenants of all of its debt instruments.

Off-Balance Sheet Arrangements

        During the fourthfirst quarter of 2000,2003, the Company entered into an agreement with Keppel FELS Limited ("KFELS"), a major international shipyard, and acquired a 25% ownership interest in a harsh environment jackup rig under construction, which was subsequently named the ENSCO 102. During the second quarter of 2002, the Company and KFELS establishedto establish a joint venture company, ENSCO Enterprises Limited II ("EEL"EEL II"), to ownconstruct a premium heavy duty jackup rig to be named ENSCO 106. The Company will contribute $3.0 million of procurement and chartermanagement services and $23.3 million in cash for a 25% interest in EEL II. KFELS will construct and deliver the ENSCO 102. Upon completion106 for a 75% interest in EEL II. Under the terms of rig construction in May 2002, the Company andagreement with KFELS, transferred their respective interests in the ENSCO 102 to EEL in exchange for promissory notes in the amount of $32.5 million and $97.3 million, respectively. The Company has an option to purchase the ENSCO 102106 from EEL II, at a formula derived price, which expiresat any time during the rig construction period or the two-year period following construction completion. At March 31, 2004, the Company's investment in May 2004 and either party may terminateEEL II totaled $12.2 million.

        If the joint venture agreement in the event that theCompany has not exercised its purchase option is not exercised. The Company and KFELS had initial ownership interests in EELupon completion of 25% and 75%, respectively.

     Concurrent with the transfer of the rig to EEL,construction, the Company agreed towill charter the ENSCO 102106 from EEL II for a two-year period that expires in May 2004.period. Under the terms of the charter, the majority of the net cash flow generated by the ENSCO 102106 operations is remitted to EEL II in the form of charter payments. However, the charter obligation is determined on a cumulative basis such that cash flow deficits incurred prior to initial rig operations are satisfied prior to the commencement of charter payments. Charter proceeds received by EEL are used to pay interest on the promissory notes and any cash remaining after all accrued interest has been paid is used to repay the outstanding principal of the KFELS promissory note. Pursuant to an agreement between the Company and KFELS, the respective ownership interests of the Company and KFELS in EEL are adjusted concurrently with repayments of principal on the KFELS promissory note such that each party's ownership interest is equal to the ratio of its outstanding promissory note balance to the aggregate outstanding principal balance of both promissory notes. (See Note 7 to the Company's Consolidated Financial Statements for summary financial statements of EEL.)

     In March 2003, the Company entered into an agreement with KFELS to establish a second joint venture Company, ENSCO Enterprises Limited II ("EEL II"), to construct a premium heavy duty jackup rig to be named the ENSCO 106. The Company will contribute $3.0 million of procurement and management services and $23.3 million in cash for a 25% interest in EEL II. At September 30, 2003, the Company's net investment in EEL II totaled $11.7 million and is included in other assets, net on the consolidated balance sheet. The terms of the EEL II agreement are similar to those of the EEL agreement, with the Company holding an option to purchase the ENSCO 106 from EEL II, at a formula derived price, at any time during construction or the two-year period after completion of construction. Additionally, if the Company has not exercised the purchase option upon completion of construction, the Company will charter the ENSCO 106 from EEL II for a two-year period under terms similar to those of the ENSCO 102 charter from EEL. Both the Company and KFELS have the right to terminate the joint venture at the end of the two-year period if the purchase option has not been exercised. Construction of the ENSCO 106 is anticipated to be completed during the fourth quarter of 2004.

        The Company's equity interestsinterest in and related charter arrangements associated with, EEL and EEL II constitute variable interests inconstitutes a variable interest entities,in a variable interest entity, as defined in the Financial Accounting Standards Board's Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"46R"). However, the Company will not absorb a majority of the expected losses or receive a majority of the expected residual returns of EEL II, as defined by FIN 46, of either EEL or EEL II,46R, and accordingly, the Company is not required to consolidate EEL or EEL II.

     The Company has utilized the KFELS joint venture arrangements to increase its presence in the premium jackup rig market, while limiting present exposure through minimal capital investment, and management believes the Company's purchase options provide the flexibility to expand its premium jackup rig fleet in a cost-efficient manner.

Liquidity

     The Company's liquidity position at September 30, 2003March 31, 2004 and December 31, 20022003 is summarized in the table below (in millions, except ratios):

 
September 30,
        2003        		December 31,
        2002        		 March 31,December 31,
      2004               2003        
Cash and short-term investments $    326.9$    185.5
 
Cash and cash equivalents $  297.3$  354.0
Working capital 310.6189.2 294.4355.9
Current ratio 2.42.0 2.52.9

       At September 30, 2003,March 31, 2004, the Company had $326.9$297.3 million of cash and cash equivalents, andas well as $250.0 million available for borrowing under its Credit Agreement.

Management expects to fund the Company's short-term liquidity needs, including contractual obligations and anticipated capital expenditures, andas well as any working capital requirements, from its cash and cash equivalents and operating cash flow.

       Management expects to fund the Company's long-term liquidity needs, including all contractual obligations and anticipated capital expenditures, from its cash and cash equivalents, investments, operating cash flow and, if necessary, funds drawn under its Credit Agreement or other future financing arrangements.

       The Company has historically funded the majority of its liquidity from operating cash flow. WhileThe Company anticipates the majority of its cash flow in the near to intermediate-term will continue to be invested in the expansion and enhancement of its fleet of drilling rigs. As a substantial majority of such expenditures are elective, the Company expects to be able to maintain adequate liquidity throughout future business cycles through the deferral or acceleration of its future capital investments, as necessary. Accordingly, while future operating cash flow cannot be accurately predicted, management believes its long-term liquidity will continue to be funded primarily by operating cash flow.

MARKET RISK

       The Company has net assets and liabilities denominated in numerous foreign currencies and uses various methods to manage its exposure to foreign currency exchange risk. The Company predominantly structures its drilling rig contracts in U.S. dollars, which significantly reduces the portion of the Company's cash flows and assets denominated in foreign currencies. The Company also employs various strategies, including the use of derivative instruments, to match foreign currency denominated assets with equal or near equal amounts of foreign currency denominated liabilities, thereby minimizing exposure to earnings fluctuations caused by changes in foreign currency exchange rates. The Company occasionally utilizes derivative instruments to hedge forecasted foreign currency denominated transactions. At March 31, 2004, the Company had foreign currency exchange contracts outstanding to exchange $19.7 million U.S. dollars for Australian dollars, Great Britain pounds and Euros, all of which mature during the second quarter of 2004. Based on a hypothetical 10% adverse change in foreign currency exchange rates, the net unrealized loss associated with the Company's foreign currency denominated assets and liabilities and related foreign currency exchange contracts as of March 31, 2004 would approximate $500,000.

       The Company uses various derivative financial instruments to manage its exposure to interest rate risk. The Company occasionally uses interest rate swap agreements to effectively convert the variable interest rate on debt to a fixed rate or the fixed rate on debt to a variable rate, and interest rate lock agreements to hedge against increases in interest rates on pending financing. At September 30, 2003March 31, 2004, the Company had no outstanding interest rate swap agreements.

     In connection with the acquisition of Chiles on August 7, 2002, the Company obtained $80.0 million notional amount of outstanding treasuryagreements or interest rate lock agreements. Upon closing of the acquisition, the Company designated approximately $65.0 million notional amount of the treasury rate lock agreements as an effective hedge against the variability in cash flows of $76.5 million of MARAD guaranteed bonds that the Company intended to issue in October 2003. The Company deemed the remaining $15.0 million notional amount of treasury rate lock agreements obtained in the Chiles acquisition to be speculative in nature and subsequently settled $10.0 million notional amount in the fourth quarter of 2002 and the final $5.0 million notional amount in the second quarter of 2003. The change in fair value of the $65.0 million notional amount of treasury lock agreements designated as an effective hedge during the three-month and nine-month periods ended September 30, 2003 has been included in other comprehensive income, net of tax. The fair value of the $65.0 million notional amount treasury rate lock agreements designated as an effective hedge totaled $9.5 million at September 30, 2003, and is included in accrued current liabilities. The Company settled the $65.0 million notional amount of treasury locks on October 1, 2003 in connection with the pricing and subsequent issuance of the MARAD bonds. (See Note 8 to the Company's Consolidated Financial Statements.)

       The Company utilizes derivative instruments and undertakes hedging activities in accordance with its established policies for the management of market risk. The Company does not enter into derivative instruments for trading or other speculative purposes. Management believes that the Company's use of derivative instruments and related hedging activities do not expose the Company to any material interest rate risk, foreign currency exchange rate risk, commodity price risk, credit risk or any other market rate or price risk.

OUTLOOK AND FORWARD-LOOKING STATEMENTS

       Changes in industry conditions and the corresponding impact on the Company's operations cannot be accurately predicted because of the short-term nature of many of the Company's contracts and the volatility of oil and natural gas prices, which impact expenditures for oil and gas drilling, rig utilization and demand for drilling rigs.day rates. Whether recent levels of regional and worldwide expenditures for oil and gas drilling will increase, decrease or remain unchanged, is not determinable at this time. Management's current plans and expectations relative to its major areas of operations and near-term industry conditions are detailed below.

Rig Construction

       On February 17, 2004, the Company entered into an agreement with KFELS to exchange three rigs (ENSCO 23, ENSCO 24 and ENSCO 55) and $55.0 million for the construction of a new high performance premium jackup rig to be named ENSCO 107. The ENSCO 107 will be an enhanced KFELS MOD V (B) design modified to ENSCO specifications and a sister rig to the ENSCO 106, which is currently under construction in Singapore. The ENSCO 106, which is being constructed under a joint venture with KFELS, is expected to be delivered by year-end 2004, and delivery of the ENSCO 107 is expected in late 2005. The transaction is subject to execution of a definitive construction contract and regulatory approvals and is expected to be finalized during the second quarter of 2004. The Company does not expect to recognize a significant gain or loss in connection with the disposition of the ENSCO 23, ENSCO 24 and ENSCO 55.

North America

       The Company's domestic operations are conducted in theCompany has moved three of its Gulf of Mexico. The U.S. oilMexico-based jackup rigs to pursue international opportunities during recent years and natural gas market and trends in oil and gas company spending largely determine domestic offshore drilling industry conditions. Demand formanagement currently anticipates the international deployment of three additional jackup rigs in theMay 2004. The Company continues its program of upgrading its Gulf of Mexico decreased during the first quarter of 2003, but has improved somewhat throughout the secondjackup rig fleet. The ENSCO 68 and third quarters of 2003.ENSCO 88 are currently in a shipyard undergoing major enhancements and are projected to return to service in October 2004 and August 2004, respectively. The supply of jackup rigs in the Gulf of Mexico has declined during 2003 as rigs have mobilizedCompany plans to international markets in response to contract opportunities. Day rates forcommence enhancement procedures on at least three additional Gulf of Mexico jackup rigs have improved over the courseduring 2004, with shipyard durations of 2003 and the Company anticipates that this market will remain firm over the remainder of the year.at least four months each.

     Industry conditions in most international offshore drilling markets have moderately improved over the last two years, as many of the major international and government-owned oil companies have increased spending in those markets. Demand and day rates for international jackup rigs remained fairly stable over the first half of 2003. However, day rates for jackup rigs in Europe declined during the third quarter of 2003 due to limited long-term contract opportunities. Although some contracts have been executed recently at moderately increased rates, the Company anticipates a minor softening of its day rates in Europe during the remainder of 2003 due primarily to the lag effect of market derived rates. Day rates and activity levels have remained fairly stable in Asia Pacific over the first nine months of 2003. However, five of the Company's Asia Pacific jackup rigs have completed, or will complete, contracts during the fourth quarter of 2003. Two of these five rigs are scheduled to commence new term contracts during the fourth quarter of 2003 upon completion of shipyard work and opportunities for work commencing during the first quarter of 2004 exist for the three remaining rigs.

     As of October 28, 2003, 19 of the Company's 22 jackup rigs in the North America region are working. Two of the three idle rigs are undergoing shipyard modifications, upgrades and regulatory work. The ENSCO 82 entered a shipyard in early February 2003 and is scheduled to return to service in November 2003. The ENSCO 60 entered a shipyard in July 2003 and is scheduled to return to service in December 2003. The Company is currently marketing the remaining idle rig and anticipates the rig commencing operations in early November 2003.       The ENSCO 7500, the Company's deep water semisubmersible rig, completed an approximate three-year contract on February 29, 2004 and is committed under contract until February 2004.currently in a shipyard undergoing minor improvements and regulatory and maintenance procedures. The rig is expected to be available for service in May 2004 and is currently being marketed at a day rate of approximately $110,000.

       As of October 28, 2003, all eight of the Company's jackup rigs in the Europe/Africa region are operating.

     As of October 28, 2003, eight of the Company's 12 jackup rigs in the Asia Pacific region are operating. The four idle rigs are undergoing shipyard modifications, upgrades and regulatory work. The ENSCO 97 entered a shipyard in September 2003 and is scheduled to commence a new long-term contract during the first week of November 2003. The ENSCO 50 entered a shipyard in September 2003 and is scheduled to return to service in early January 2004. The ENSCO 53 entered a shipyard in September 2003 and is scheduled to return to service in December 2003. The ENSCO 94 entered a shipyard in October 2003 and is scheduled to commence a new long-term contract in December 2003. The ENSCO 57 was released from the shipyard in September 2003 and commenced a contract in Vietnam that is scheduled for completion in December 2003. The ENSCO 54 is currently mobilizing to a shipyard after recently completing a contract and is scheduled to return to service in December 2003. The Company's barge rig in the Asia Pacific region, ENSCO I, is currently operating under a long-term contract in Indonesia that is scheduled for completion in April 2004.

     The Company's South America/Caribbean jackup rig, the ENSCO 76, is operating under a long-term contract offshore Trinidad and Tobago. As of October 28, 2003, four of the Company's six barge rigs located in Venezuela are without contract. The ENSCO II is operating under a contract through May 2004. The ENSCO III recently commenced a short-term contract that is scheduled for completion in December 2003. Due to the deterioration in the political and economic environment in Venezuela, the Company believes the timing of a recovery of drilling activity in Venezuela is uncertain and unlikely in the near term.

     As of October 28, 2003,23, 2004, one of the Company's five platform rigs the ENSCO 25, is operating under a contract through Aprilscheduled for completion in September 2004. AThe Company anticipates executing a long-term contract for a second platform rig with a commencement date in July 2004. As discussed above, two of the four idle platform rigs are pending sale and transfer in connection with the construction of the ENSCO 29, recently completed its contract and is currently demobilizing.107. The Company's platform rigs have experienced utilization in the 40% to 60% range since 1999,during the previous five years, primarily as a result of reduced opportunities for deep welldeep-well drilling contracts. The Company's platform rigs, which are rated to drillall capable of completing 25,000 to 30,000 feet wells, are best suited for long-term, deep well drilling applications where the platform rig components will stay in place for a substantial period of time. The Company's platform rigs currently compete against smaller, easier to mobilize and assemble, self-erecting platform rigs for shallow well drilling. The Company is not able to predict when there will be a recovery of drilling activity that will require increaseda sustained use of the class of platform rigs owned and operated by the Company. The Company evaluated the carrying values of its platform rigs in December 2003 and determined such carrying values were not impaired. The Company will continue to perform such evaluations as circumstances dictate.

Europe/Africa

       As of April 23, 2004, three of the Company's eight jackup rigs in the Europe/Africa region are idle. Management currently anticipates additional idle time for these rigs in the second quarter of 2004.

Asia Pacific

       As of April 23, 2004, all of the Company's 13 rigs in the Asia Pacific region are operating. The Company currently has substantial backlog in the Asia Pacific region, with 12 of the 13 rigs committed through the fourth quarter of 2004 or later. The Company plans to increase the size of its Asia Pacific fleet during 2004 through the relocation of three jackup rigs from the Gulf of Mexico. Allowing for mobilization and shipyard procedures upon arrival, management does not expect any rigs relocated from the Gulf of Mexico to be available for service in the Asia Pacific region until the second half of 2004.

South America/Caribbean

       The Company's jackup rig working offshore Trinidad and Tobago, the ENSCO 76, continues operations under a contract scheduled for completion in September 2004. As of April 23, 2004, four of the Company's six barge rigs located in Venezuela are idle and the two operating rigs are scheduled to complete their contracts in May 2004. Due to the deterioration in the political and economic environment in Venezuela, the Company completedbelieves the sale alltiming of a recovery of drilling activity in Venezuela is uncertain and unlikely in the near term. The Company evaluated the carrying values of its marine transportation vesselsbarge rigs in AprilDecember 2003 and ceased conducting marine transportation operations upon close of the transaction.

     This report contains forward-looking statements by management and the Company that are subject to a number of risks and uncertainties. The forward-looking statements contained in the report are based on information as of the date of this report.determined such carrying values were not impaired. The Company assumes no obligationwill continue to update these statements based on information fromperform such evaluations and aftermonitor the date of this report. Generally, forward-looking statements include words or phrases suchsituation in Venezuela, as "anticipates," "believes," "expects," "plans," "intends" and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment, as well as statements regarding future levels of, or trends in, day rates, utilization, revenues, operating expenses, capital expenditures and financing. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including the following: (i) industry conditions and competition, (ii) fluctuations in the price of oil and natural gas, (iii) regional and worldwide expenditures for oil and gas drilling, (iv) demand for oil and gas, (v) operational risks, contractual indemnities and insurance, (vi) risks associated with operating in foreign jurisdictions, (vii) environmental liabilities that may arise in the future that are not covered by insurance or indemnity, (viii) the impact of current and future laws and government regulation, as well as repeal or modification of same, affecting the oil and gas industry, the environment, taxes and the Company's operations in particular, (ix) changes in costs associated with rig construction or enhancement, as well as changes in dates rigs being constructed or undergoing enhancement will enter service, (x) renegotiations, nullification, or breaches of contracts with customers, vendors, subcontractors or other parties, (xi) unionization or similar collective actions by the Company's employees, (xii) consolidation among the Company's competitors or customers, and (xiii) the risks described elsewhere herein and from time to time in the Company's reports to the Securities and Exchange Commission.circumstances dictate.

CRITICAL ACCOUNTING POLICIES

       The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires the Company's management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company's significant accounting policies are included in Note 1 to the consolidated financial statementsConsolidated Financial Statements for the year ended December 31, 20022003 included in the Company's Annual Report on Form 10-K filed withto the Securities and Exchange Commission.Commission on Form 10-K. These policies, along with the underlying assumptions and judgments made by the Company's management in their application, have a significant impact on the Company's consolidated financial statements. The Company identifies its most critical accounting policies as those that are the most pervasive and important to the portrayal of the Company's financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. The Company's most critical accounting policies are those related to property and equipment, impairment of long-lived assets and income taxes.

    Property and Equipment

       At September 30, 2003,March 31, 2004, the carrying value of the Company's property and equipment totaled $2,225.2$2,306.2 million, which represents 70%72% of total assets. This carrying value reflects the application of the Company's property and equipment accounting policies, which incorporate estimates, assumptions and judgments by management relative to the capitalized costs, useful lives and salvage values of the Company's rigs.

       The Company develops and applies property and equipment accounting policies that are designed to appropriately and consistently capitalize those costs incurred to enhance, improve and extend the useful lives of its assets and expense those costs incurred to repair or maintain the existing condition or useful lives of its assets. The development and application of such policies requires judgment and assumptions by management relative to the nature of, and benefits from, expenditures on Company assets. The Company establishes property and equipment accounting policies that are designed to depreciate or amortize its assets over their estimated useful lives. The assumptions and judgments used by management in determining the estimated useful lives of its property and equipment reflect both historical experience and expectations regarding future operations, utilization and performance of its assets. The use of different estimates, assumptions and judgments in the establishment of property and equipment accounting policies, especially those involving the useful lives of the Company's rigs, would likely result in materially different carrying values of assets and results of operations.

    Impairment of Long-Lived Assets

       The Company evaluates the carrying value of its property and equipment when events or changes in circumstances indicate that the carrying value of such assets may not be impaired. The Company tests its $341.6 million of goodwill for impairment on an annual basis, or when events or changes in circumstances indicate that the carrying value of the Company likely exceeds its fair value.recoverable. Generally, extended periods of idle time and/or inability to contract assets at economical rates are an indication that an asset may be impaired. However, the offshore drilling industry is highly cyclical and it is not unusual for assets to be unutilized or underutilized for significant periods of time and subsequently resume full or near full utilization when business cycles change. Likewise, during periods of supply and demand imbalance, rigsassets are frequently contracted at or near cash break-even rates for extended periods of time until demand comes back into balance with supply. Impairment situations may arise with respect to specific individual assets, groups of assets, such as a type of drilling rig, or assets in a certain geographic location. The Company's assets are mobile and may be moved from markets with excess supply, if economically feasible. The Company's jackup rigs and semisubmersible rig are suited for, and accessible to, broad and numerous markets throughout the world. However, there are fewer economically feasible markets available to the Company's barge rigs and platform rigs.

       The Company tests its goodwill for impairment on an annual basis, or when events or changes in circumstances indicate that a potential impairment exists. Under a goodwill impairment test, the Company determines its reporting units and estimates their fair values as of the testing date. If the estimated fair value of a reporting unit exceeds its carrying value, its goodwill is considered not impaired. If the estimated fair value of a reporting unit is less than its carrying value, the Company estimates the implied fair value of the reporting unit's goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to such excess. Based on the goodwill test performed as of December 31, 2003, there was no impairment of the Company's goodwill.

Asset impairment evaluations are, by nature, highly subjective. They involve expectations of future cash flows to be generated by the Company's assets,drilling rigs, and are based on management's assumptions and judgments regarding future industry conditions and operations, as well as management's estimates of future expected utilization, contract rates, expense levels and capital requirements of the Company's drilling rigs. The estimates, assumptions and judgments used by management in the application of the Company's asset impairment policies reflect both historical experience and an assessment of current operational, industry, economic and political environments. The use of different estimates, assumptions, judgments and expectations regarding future industry conditions and operations, would likely result in materially different carrying values of assets and results of operations.

    Income Taxes

       The Company conducts operations and earns income in numerous foreign countries and is subject to the laws of taxing jurisdictions within those countries, as well as U.S. federal and state tax laws. At September 30, 2003,March 31, 2004, the Company has a $316.9$327.2 million net deferred income tax liability and $59.9$58.5 million of accrued liabilities for income taxes currently payable.

       The carrying values of deferred income tax assets and liabilities reflect the application of the Company's income tax accounting policies in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), and are based on management's assumptions and estimates regarding future operating results and levels of taxable income, as well as management's judgments regarding the interpretation of the provisions of SFAS 109. The carrying values of liabilities for income taxes currently payable are based on management's interpretation of applicable tax laws, and incorporate management's assumptions and judgments regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, assumptions and judgments in connection with accounting for income taxes, especially those involving the deployment of tax planning strategies, may result in materially different carrying values of income tax assets and liabilities and results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

       In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company was required to adopt SFAS 143 on January 1, 2003. The Company's adoption of SFAS 143 did not have a material impact on its consolidated financial position or results of operations.

     In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement supercedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 ("APB 30"). SFAS 144 retains the fundamental provisions of SFAS 121 and the basic requirements of APB 30; however, it establishes a single accounting model to be used for long-lived assets to be disposed of by sale and it expands the presentation of discontinued operations to include more disposal transactions. The Company adopted the provisions of SFAS 144 effective January 1, 2002. (See Note 6 to the Company's Consolidated Financial Statements.)

     In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 amends, updates, clarifies and simplifies various accounting pronouncements and impacts the financial accounting and/or reporting for gains and losses from extinguishment of debt, extinguishments of debt made to satisfy sinking-fund requirements, intangible assets of motor carriers, and leases. Some provisions of SFAS 145 became effective in May 2002 and the remaining provisions were adopted by the Company, as required, on January 1, 2003. The Company's adoption of SFAS 145 did not have a material impact on its consolidated financial position or results of operations.

     In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS 146 requires liability recognition for a cost associated with an exit or disposal activity on the date the liability is incurred, rather than on the date of commitment to an exit plan, as provided under EITF 94-3. The Company adopted SFAS 146 effective January 1, 2003. The Company's adoption of SFAS 146 did not have a material impact on its consolidated financial position or results of operations.

     In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 expands existing accounting guidance and disclosure requirements for certain guarantees and requires recognition, at the inception of a guarantee, of a liability for the fair value of an obligation undertaken in connection with issuing a guarantee. The disclosure requirements of FIN 45 were effective for the Company's December 31, 2002 financial statements and the remaining provisions of FIN 45 apply to guarantees issued or modified after December 31, 2002. The adoption of this Interpretation did not have a material impact on the Company's consolidated financial position or results of operations.

     In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148"), which provides optional transition guidance for those companies electing to voluntarily adopt the accounting provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In addition, SFAS 148 amends the disclosure requirements of SFAS 123 and requires certain disclosures in both annual and interim financial statements. The Company will continue to account for stock-based compensation in accordance with APB 25. As such, the Company does not expect this standard to have a material impact on its consolidated financial position or results of operations. The Company adopted the disclosure provisions of SFAS 148 in 2003. (See Note 2 to the Company's Consolidated Financial Statements.)

     In January 2003, the FASB issued Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"46R"). FIN 4646R requires a company to consolidate a variable interest entity, as defined, when the company will absorb a majority of the variable interest entity's expected losses, receive a majority of the variable interest entity's expected residual returns, or both. FIN 4646R also requires certain disclosures relating to consolidated variable interest entities and unconsolidated variable interest entities in which a company has a significant variable interest. The Company's equity interests in, and related charter arrangements with, EEL and EEL II constitute variableprovisions of FIN 46R are required for companies that have interests in variable interest entities under FIN 46.or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. The Company has adopted the provisions of FIN 4646R are required to be applied for periods ending after March 15, 2004 for all other types of entities. The Company's equity interest in, and related charter arrangement associated with, ENSCO Enterprises Limited II ("EEL II") constitute a variable interest in a variable interest entity under FIN 46R. However, the Company will not absorb a majority of the expected losses or receive a majority of the expected residual returns, as defined by FIN 46R, of EEL II, and accordingly the Company is not required to consolidate EEL or EEL II.

     In April 2003, (See "Liquidity and Capital Resources - Off-Balance Sheet Arrangements" and Note 5 to the FASB issued Statement ofCompany's Consolidated Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"Statements.). This statement amends and clarifies accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. The Company's adoption of SFAS 149 did not have a material effect on its consolidated financial position, results of operations or cash flows.

     In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain circumstances). SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company's adoption of SFAS 150 did not have material effect on its consolidated financial position or results of operations.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

       Information required under Item 3. has been incorporated into Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk.

Item 4.   Controls and Procedures

       Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures, as defined in Rule 13a-15 under the Securities and Exchange Act of 1934 (the "Exchange Act"), are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

       During the fiscal quarter ended September 30, 2003,March 31, 2004, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

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

       Following is a summary of all repurchases by the Company of its common stock during the three month period ended March 31, 2004:

 
Issuer Purchases of Equity Securities
   Total NumberMaximum
   of SharesNumber of
  AveragePurchased asShares that
 TotalPricePart of PubliclyMay Yet Be
 Number ofPaidAnnouncedPurchased
 SharesperPlans orUnder Plans
      PeriodPurchasedShareProgramsor Programs
 
      January   --  --  --  -- 
      February   1,585  $28.72  --  -- 
      March   --  --  --  -- 
      Total   1,585  $28.72  --  -- 


       All of the shares repurchased during the three month period ended March 31, 2004 were acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting in restricted stock grants.

 

Item 6.   Exhibits and Reports on Form 8-K

(a)   Exhibits Filed with this Report

       Exhibit No.

 
       10.1ENSCO Non-Employee Director Deferred Compensation Plan
       10.2ENSCO Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2004
       10.3ENSCO Supplemental Executive Retirement Plan and Non-Employee Director Deferred Compensation Plan Trust Agreement, as revised and restated effective January 1, 2004
15.1 Letter of Independent Accountants Regarding Awareness of Incorporation by Referenceregarding unaudited interim financial information
       31.1 Certification of the Chief Executive Officer of Registrant Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       31.2 Certification of the Chief Financial Officer of Registrant Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       32.1 Certification of the Chief Executive Officer of Registrant Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
       32.2 Certification of the Chief Financial Officer of Registrant Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b)   Reports on Form 8-K
 
During the quarter ended September 30, 2003,March 31, 2004, the Company filed Reports on Form 8-K on (i) July 17, 2003, announcing the Company's second quarter 2003 results, (ii) July 17, 2003,January 15, 2004, with respect to the contractual status of the Company's offshore rig fleet as of JulyJanuary 15, 2004; (ii) January 28, 2004, announcing the Company's fourth quarter and full year 2003 results; (iii) February 17, 2003, (iii) July 28, 2003,2004, announcing James W. Swent as Senior Vice Presidentan agreement with Keppel FELS Limited to exchange three rigs and Chief Financial Officer,$55 million of cash for the construction of a new high performance premium jackup rig; (iv) August 15, 2003,February 17, 2004, with respect to the contractual status of the Company's offshore rig fleet as of August 15, 2003,February 17, 2004; (v) August 25, 2003,March 3, 2004, announcing the appointmentpromotion of Rita M. RodriguezJon C. Cole to serve as a Class III Director and a member of the Audit Committee of the Board,Senior Vice President; and (vi) September 15, 2003,March 16, 2004, with respect to the contractual status of the Company's offshore rig fleet as of SeptemberMarch 15, 2003.2004.
 

SIGNATURES

       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.

 
ENSCO INTERNATIONAL INCORPORATED
   
   
Date:      October 28, 2003April 23, 2004 /s/ H. E. MALONE, JR.             
H. E. Malone, Jr.
Vice President - Accounting & Tax & Information Systems
   
   
  /s/ DAVID A. ARMOUR               
David A. Armour
Controller