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Annual Report 2002

Contents

2 Strategy

3 Administration

3 Ocean Rig from project to

operation in 2002

4 This is Ocean Rig

4 Key Figures

5 Events in 2002

6 Information to shareholders

8 Market

11 Operational activities

13 Ocean Rig’s Bingo 9000 rigs

14 Annual Report

18 Statement of Operations – Group

19 Balance Sheet – Group

20 Statement of Cash Flows – Group

21 Accounting Policies

23 Notes – Group

37 Statement of Operations – ASA

38 Balance Sheets – ASA

39 Statement of Cash Flows – ASA

40 Notes – ASA

46 Auditor’s Report

47 Addresses

Strategy

Ocean Rig is committed to its strategy of creating maximum value for its shareholders by

developing the Company as an independent world wide ultra-deepwater drilling contractor,

and taking advantage of the Company’s position as the owner and operator of the most

modern and unique semisubmersible drilling rigs in the world.

Ocean Rig 1 AS

Ocean Rig 2 AS

Ocean Rig 3 AS

Ocean Rig 4 AS

Ocean Rig ASA

Ocean Rig AS

US Ocean Rig Inc.

Ocean Rig Ltd.

Ocean Rig Angola AS

Ocean Rig Norway AS

In 2002, Ocean Rig has undergone the transition from a project-oriented to an operations-oriented company: Leiv Eiriksson starteddrilling for ExxonMobil offshore Angola in February 2002, whileEirik Raude was delivered on contract to EnCana for drilling off-shore Canada in November 2002.

The completion of the construction of Eirik Raude was character-ized by repeated delays and postponed delivery which led toconsiderable cost overruns and the need for several equity fund-ings during the year.

The present objective of the management and other employeesis to create a good organization focused on security, highefficiency and high quality in the operation and management ofthe Company, so that Ocean Rig can match or outperform itsinternational competitors.

The foundation for the Company's future has now been laid: BothLeiv Eiriksson and Eirik Raude, the most modern, well-equippedsemi-submersible ultra-deepwater drilling rigs in the world are wellestablished in two of the most interesting deepwater markets.The technical functioning of the rigs has proved satisfactory, andthe start-up of operations has been better than for most othermodern drilling vessels delivered during the past 5–6 years, not

least thanks to a professional and very experienced crew andoperational management onshore.

Eirik Raude has withstood several winter storms and hurricaneswith winds of up to 100 knots and wave heights of 22 meters,proving that it can operate without the need to disconnect fromthe well. This is in line with or better than other drilling rigs ofthe latest generation.

The Company's management can best take care of the interestsof its customers, investors, lenders and employees through furtherdevelopment of Ocean Rig as an independent deepwater drillingcontractor, focusing on a secure, effective and cost-optimaloperation. This is the best way to demonstrate the quality ofthe rigs and ensure continuous operation at the highest possiblerevenue dayrates, thus creating value for our owners. Throughsound operation and high earnings as well as by exploiting ourmarket position and contacts in the markets where the Companyoperates, we can develop and expand the Company's activities.

Rolf K. YtrelandManaging Director

Ocean Rig AS

Robert M. WarrackSenior Vice President

Marketing

Nina E. TveitaHES&Q Director

Ocean Rig ASA and Ocean Rig AS

Kai Solberg-HansenPresident and CEO

Willy TørhaugSenior Vice President

Operations

Christian MowinckelSenior Vice President

Finance

Kai Solberg-HansenPresident and CEO

Ocean Rig from project to operation in 2002

Administration

4 Ocean Rig Annual Report 2002

Key figures(mill. NOK) 2002 2001 2000

Operating revenues 534 10 14

Operating result -179 -706 -163

Net result for the year 209 -819 -330

Cash and cash equivalents 146 424 650

Drilling rigs and other rig equipment

Bingo 9000-1 3,484 3,602 2,809

Bingo 9000-2 5,068 3,587 2,681

Bingo 9000-3 - 190 303

Bingo 9000-4 - 190 316

Total 8,552 7,587 6,109

Long-term debt 4,102 4,507 3,580

Equity 4,458 2,803 3,175

Equity ratio % 50 34 46

Share price (NOK)* High 11.60 63.00 65.50

Low 0.92 6.99 28.10

Year end 1.08 9.55 51.00

The Company/Group has no income from rig operations in the period 2000–2001, except for some manage-ment activity by one of the subsidiaries.

This is Ocean RigOcean Rig ASA is a listed rig owning company who owns andoperates two of the world’s most advanced semisubmersibledrilling rigs. The drilling rigs, Leiv Eriksson and Eirik Raude, arebased on the Bingo 9000 design and entered into contracts withinternationally recognized oil companies in 2001.

The completion of the rigs and start of drilling operations, repre-sent an important change in focus from a construction phasetowards operational activities of the rigs. Ocean Rig will own and

operate two advanced semisubmersible drilling rigs for offshoreoil and gas exploration and development drilling in deep waterunder difficult weather conditions. This has been the Company’sbusiness objective since the foundation in 1996, and the objec-tive was achieved by the Company in 2002.

Ocean Rig has financed the development of the Company and theconstruction of the rigs through a combination of equity and debt.

5

JANUARY: Ocean Rig announces that it has executed a drillingcontract with an affiliate of ExxonMobil Corporation for drillingservices for Leiv Eiriksson.

FEBRUARY: Leiv Eiriksson starts drilling offshore Angola.The Company’s convertible bonds of NOK 552.5 million are con-verted to 73,666,666 shares in the Company. The par value ofthe Company’s shares is written down to NOK 1.0 per share. TheCompany enters into an agreement for the sale of the company’stwo baredecks for a sales price of USD 45 million.

MARCH: The Company executes the agreement for the sale ofthe two baredecks with Noble Drilling for USD 45 million.

APRIL: Morten Borge is appointed as the new chairman of theBoard. The Board appoints Kai Solberg-Hansen as the new ManagingDirector of the Company. The Company undertakes a private place-ment and a subsequent share issue that raises equity of NOK 220million. The subscription price is NOK 9.0 per share.

MAY: Ocean Rig undertakes a private placement of shares at ashare price of NOK 8.0 per share raising total equity of NOK250.0 million. The Company issues a short term loan totallingUSD 45.9 million. In connection with the loan, new shares, with ashare price of NOK 8.0 per share, are issued totalling NOK 35.4million in new equity. In addition warrants totalling NOK 33.7 mil-lion are issued.

JUNE: Eirik Raude is mechanically completed and Ocean Rigtakes delivery of the rig from the Irving Shipyard in Halifax.The Company issues a subsequent issue of shares and warrantsand a short term loan. The loan totals USD 7 million and totalnew equity raised is NOK 10.8 million. The Company refinancesits USD 100 million high yield loan with a new USD 100 millionloan with a consortium of banks lead by Fortis Bank.

AUGUST: The Company issues a three year mandatory zerocoupon convertible bond with a mutual conversion right at aprice per share of NOK 3.50, totalling NOK 669.5 million con-vertible into 191,275,142 shares of the company. The Companyissues 191,275,142 independent subscriptions rights at a sub-scription price of NOK 1.0 per share.

SEPTEMBER: The Company extends its current contract forLeiv Eiriksson with one additional well. Eirik Raude leaves Halifaxto commence a four week period of sea trails.

OCTOBER: Det Norske Veritas issues a Certificate of Fitness forEirik Raude following approvals from Canada-Nova ScotiaOffshore Petroleum Board and Canada-Newfoundland OffshorePetroleum Board.

NOVEMBER: Eirik Raude is delivered on contract with EnCanaCorporation and starts drilling operations off the East Coast ofCanada. 191,258,154 of the Company’s Independent subscrip-tion rights are exercised giving the company new equity ofNOK 191.3 million.

DECEMBER: Eirik Raude successfully completes testing of theemergency disconnect and reconnect and completes the testingof the Blow out Preventer. Ocean Rig undertakes a private place-ment of NOK 111 million with a subscription price of NOK 1 pershare. Ocean Rig announced that certain adjustments weremade to the USD 100 million Fortis loan facility.

JANUARY 2003: The Company issues shares in a subsequentshare offering totalling NOK 35.1 million with a subscriptionprice of NOK 1.0 per share. The Company’s head office re-locates from Oslo to Stavanger.

MARCH 2003: Geir Aune is appointed as Chairman of theBoard of Ocean Rig.

Events in 2002

Ocean Rig Annual Report 2002


Information to shareholders

Information strategyOcean Rig ASA aims at providing continuous relevant informationto all shareholders and bondholders, financial analysts, mediaand other interested parties regarding developments, activitiesand significant events. The company has since 1997 been in adevelopment phase, and entered operational phase in 2002.

Ocean Rig is striving to achieve open and structured communi-cations with the investor market and other players – through annualreports, quarterly reports, presentations, investor meetings, con-ference calls and press releases. The objective is to ensure that thesame information is available to all shareholder groups at the sametime. The company expects to host company presentations atevery quarter in 2003. This will contribute to a pricing of the com-pany that reflects the underlying values and expectations of futuretrends in performance, to the greatest extent possible.

Financial strategyOcean Rig aims to manage shareholder value in a way whichmaximizes the yield achieved through appreciation in the shareprice over time. The intention is to stimulate interest in OceanRig as an investment opportunity.

Dividend policyThe completion of the company's two rigs required extensivefinancing, which – beyond the equity capital raised – is achievedprimarily through loans. In the first years after the rigs arecommissioned, the focus will be further development of the com-pany and repayment of debt. The return to shareholders in thecoming years is thus likely to be in the form of maximal growthin Ocean Rig's share price based on the market's valuation of

existing and future earnings. No dividend payment should beanticipated in this period.

Shares and capital stockTransferability of the Shares

Ocean Rig ASA operates with a single class of share. There areno limitations on the transferability of the shares.

Trading of the shareOcean Rig ASA has been quoted on the Oslo Stock Exchange’sSMB list for small and medium-sized enterprises since January1997. The Company is not listed on other stock exchanges, buthas an active approach towards foreign investors. The share hasbeen traded on all 247 trading days on the Oslo Stock Exchange.116 million shares were traded in 2002.

Adjustment for annual changes in taxed equity(RISK adjustment)The RISK adjustment is an annual tax-related adjustment of theopening value of the share, and is applicable only to Norwegianshareholders. The RISK adjustment is made on 1 January each year.Those who hold shares on this date can claim the RISK amount.

The RISK amount per share for the years 1997–2003:01.01.97 0.0001.01.98 0.0001.01.99 0.0001.01.00 0.0001.01.01 0.0001.01.02 0.0001.01.03* 0.00 * Estimated amount

7Ocean Rig Annual Report 2002

Practical informationOcean Rig issues quarterly financial reports to the market.Announcement of the interim results for 2003 is scheduled for15 May, 15 August, and 14 November, respectively.

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TREND IN SHARE PRICE (CLOSING PRICE)

SHARE PRICE TREND

NOK 2002 2001 2000

Highest 11.60 63.00 65.50Lowest 0.92 6.99 28.10Closing 1.08 9.55 51.00

% of totalShareholder 31.12.2002 No. of shares share

1 Deutche Bank AG 70,658,143 14.332 Goldman Sachs International – Nominee 64,047,782 12.993 Sinvest ASA 62,849,093 12.754 Goldman Sachs International – Nominee 6,227,679 12.635 Morgan Stanley & Co – Nominee 52,636,779 10.676 Morgan Stanley & Co 23,315,552 4.737 Goldman Sachs International – Nominee 20,730,570 4.208 Goldman Sachs International – Nominee 20,531,097 4.169 Odin Norge 15,789,292 3.20

10 Odin Norden 12,376,717 2.5111 Credit Suisse First Boston (Europe) 8,510,553 1.7212 UBS AG, London 6,957,000 1.4113 Goldman Sachs International – Nominee 6,691,356 1.3514 Jpmorgan Chase Bank 4,750,000 0.9615 Bank Of New York, Br 4,000,997 0.8116 Nerland Autosalg As 2,838,104 0.5717 Taubåtkompaniet Mana 2,683,067 0.5418 Firstnordic Norge 2,000,000 0.419 Nilsen Rolf 1,935,000 0.3920 Skandinaviska Enskil A/C 1,721,750 0.34

Total – largest shareholders 447,299,631 90.66

LARGEST SHAREHOLDERS

Nominal Change in value per Total Number

Date Type of change share capital (NOK) share (NOK) share capital of shares1996-09 Private cash placement 100,000 5 100,000 20,0001996-10 Split 1:5 - 1 100,000 100,0001996-10 Private cash placement 900,000 1 1,000,000 1,000,0001996-10 Contribution in kind 5,200,000 1 6,200,000 6,200,0001996-10 Private cash placement 6,800,000 1 13,000,000 13,000,0001996-11 Private cash placement 34,000,000 1 47,000,000 47,000,0001996-12 Offer and rights issue 54,050,000 1 101,050,000 101,050,0001997-10 Offer and rights issue 252,625,000 1 353,675,000 353,675,0001997-10 Contribution in kind 4,207,100 1 357,882,100 357,882,1001998-08 Merger Ocean Eng. 5,424,060 1 363,306,160 363,306,1601999-10 Private cash placement 702,000,000 1 1,065,306,160 1,065,306,1601999-11 Public offering 1,595,683 1 1,066,901,850 1,066,901,8501999-12 Reverse Share split 1:30 - 30 1,066,901,850 35,563,3952000-06 Private cash placement 266,757,000 30 1,333,658,850 44,455,2952001-05 Private cash placement 300,000,000 30 1,633,658,850 54,455,2952001-06 Private cash placement 48,657,180 30 1,682,316,030 56,077,2012002-02 Write-down of par value -1,633,658,850 1 56,077,201 56,077,2012002-02 Private cash placement 58,666,667 1 114,743,868 114,743,8682002-02 Private cash placement 14,999,999 1 129,743,867 129,743,8672002-03 Private cash placement 24,444,445 1 154,188,312 154,188,3122002-04 Private cash placement 31,257,500 1 185,445,812 185,445,8122002-06 Private cash placement 4,428,000 1 189,873,812 189,873,8122002-06 Private cash placement 751,743 1 190,625,555 190,625,5552002-11 Exercise of Independent Subscription Rights 191,258,154 1 381,883,709 381,883,7092002-12 Conversion of Mandatory Convertible Bond 3,142 1 381,886,851 381,886,8512002-12 Private cash placement 111,000,000 1 492,886,851 492,886,851

A subsequent share offering was performed in January increasing the number of shares to 528,038,149. By full conversion of the Company’s Mandatory Convertible Bond, thenumber of shares could increase to 719,310,149.

DEVELOPMENT OF THE CAPITAL STOCK

Number of % of % of totalCountry shareholders shareholders capital stock

Norway 7,524 97.7 27.2Outside Norway 176 2.3 72.8Total 7,700 100.0 100.0

GEOGRAPHIC DISTRIBUTION

MarketThe long-term prospects for the deepwater market remain optimistic, as it is

expected that a significant portion of future world oil supply will come from

deepwater plays. In this regard a number of new oilfield development programs

on deepwater projects in Angola, Nigeria and the Congo, in West Africa, will

commence in 2004 and 2005. These are in addition to ongoing projects in

Brazil and the Gulf of Mexico. The development drilling phase of such projects

will be an important aspect of the deepwater drilling market into the future as

illustrated in the graphs below.

The short term outlook however, has uncertainties. A sizeableportion of the deepwater fleet comes to the end of their longterm contracts, towards the end of 2003 and into 2004. Thisavailable capacity is in addition to capacity, which a number ofclients are prepared to sublet, for drilling units they have undercontract, but for which they have limited amounts of work.Coupling this with the situation in Iraq and economic uncertain-ties in the major economies world wide, contributes to an uncer-tain market outlook in the short term.

The three key areas for deepwater drilling – the Gulf of Mexico,Brazil and West Africa – will continue to account for the bulk ofactivity, with the Asia/Pacific region seeing growing demand andwith India about to venture into deep water starting late in 2003.In addition, several deepwater wells have been drilled in theMediterranean, Middle East, Caribbean and Atlantic margin areas.

The ultra deepwater market is expected to continue to gainstrength in the medium and long-term, since oil production fromthese water depths is now technically and economically viable.

Rig demandDemand for deepwater rigs remained high for most of 2002, butthe market softened to some extent with the effects of sublet-ting by the clients. The current capacity utilization for the semi-submersible fleet as a whole is approximately 69% while theutilization rate for rigs in the segment in which Ocean Rig isoperating is close to 100%. The current consensus view how-ever is that the international market for deepwater rigs mayweaken during 2003. The following charts illustrate the move-ment in the various segments of the deepwater drilling market,showing the relative robustness of the segment within whichOcean Rig operate.


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DEEPWATER RIG SUPPLY AND DEMAND – WORLDWIDE

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HISTORICAL DAYRATES FOR VARIOUS DEEPWATER SEGMENTS

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Water depth (feet)7,500 +6,000–7,5004,000–6,0003,000–4,000

Source: ODS-Petrodata Group Source: Fearnley Offshore


The ultra-deepwater marketThere are now 44 units able to work in water depths of 6,000feet and deeper in the world wide fleet. Of these 25 are semi-submersibles. Only about five of these rigs are constructed tooperate in severe environments on a year round basis, of whichOcean Rig owns two.

The individual marketsThere are four main regions for deepwater drilling: the Gulf ofMexico, Brazil, West Africa and the Atlantic Margin in Canada andNorthwest Europe. Furthermore, a limited amount of drilling istaking place in the deep waters of the Caribbean, theMediterranean, and in the Asia-Pacific region.

West AfricaWest Africa, from Angola in the south to Senegal and Mauritaniain the north, will see ultra-deepwater and deepwater explorationdrilling activities along most of its coast during 2003. Only aminor part of the region’s ultra deepwater acreage, with waterdepths in excess of 4,500 feet, has been tested, but the resultsso far have been so spectacular that international oil companiesare prepared to embark on ultra-deepwater exploration in theentire region over the coming years.

Major oil discoveries in deep- to ultra deep-water over the lastfew years have already led to the commencement of significantdevelopment drilling programs. This trend is expected to continue,and will be strengthened even further if discoveries are made indeep waters in new countries (Equatorial Guinea, Sao Tome,Principe and Gabon etc). By the end of 2003 it is expected thatoffshore expenditures in the region will double from USD 7.6billion in 2000 to USD 15.2 billion in 2003.

Angola

The most mature deepwater market in the region is Angola.Angola has awarded 4 ultra-deep exploration licenses after anintensive bidding round where the average signing bonus (i.e. thelicense fee) exceeded USD 300 million. The first wells were drilledduring the second half of 2001, and the exploration program willcontinue into 2003. Water depths are generally in the 4,500 to7,500 foot range. Development drilling on deepwater fields, dis-covered in water ranging from 3,000 to 4,500 feet in depth, iseither ongoing (block 15 and block 17) or planned (blocks 15 and18). Each development program on deep or ultra-deepwaterlicenses will normally require several rig years of capacity.

Ocean Rig operates a contract with ExxonMobil for use of the

Leiv Eiriksson offshore Angola. Ocean Rig has a strong positionin Angola and works closely with Sonangol which is Angola’s soleconcessionaire but also a partner in the ultra-deep explorationlicenses. Sonangol is the leading authority in the Angolan oilindustry. Oil companies negotiate their production sharing agree-ments with Sonangol.

Nigeria

Nigeria has traditionally been an onshore and shallow-water pro-ducing country. However, over the last couple of years discoverieshave been made by major oil companies in deepwater (typically atabout 3,000 feet). The first of these fields is about to enter thedevelopment phase and additional development programs areplanned. Nigeria issued a number of ultra-deepwater licenses tolarge international oil companies in 2000, at depths of 6,000 to10,500 feet. Exploration drilling commenced in 2002. Due to thegeology of the area, expectations are high and significantdemand for appraisal and development drilling is expected from2003 onward.

Other West African countries

Deepwater discoveries in the Lower Congo Basin have beenspectacular and include some of the biggest offshore discoveriesin the world. Drilling at the deepwater Kwanza basin commencedin 2001 and there are already positive indications. Sao Tomeand Principe has so far not seen any deepwater or ultra-deep-water drilling, but is rapidly moving in that direction. Deepwaterdiscoveries have been made in Equatorial Guinea over the lasttwo years. The country has since then issued deepwater or ultra-deepwater licenses to 5 different groups of international oil com-panies. Due to the significant discoveries so far, the industry isvery optimistic about further discoveries and subsequent develop-ment programs. Ultra-deepwater drilling in Gabon started in early2001 and two wells have been drilled (at a depth of almost9,200 feet). The Ivory Coast has recently seen good explorationresults in its first deepwater well, but it is still too early to saywhat developments this will lead to. Most of the other countriesin the region will also see initial or continued (e.g. Congo, Marocco,Mauritania) deep- or ultra-deepwater exploration drilling.

Canada – East CoastIn recent years, Nova Scotia in particular has awarded a substantialnumber of deepwater licenses to a range of major oil companies.These companies have committed to a total volume of work inexcess of C$1.0 billion to fulfil their license obligations. The workprograms need to be completed within a 5-year period of theaward of the license, which will include drilling a well if they wish


to extend the license validity to 9 years. The majority of thedeepwater licenses for this market were issued between 1998and 2000 with participation from most of the major oil companies.The prospects for the region are considered to be very attractivewith estimated gas reserves totalling 80 trillion cubic feet and oilreserves totalling more than 6 billion barrels. Activity in theregion began in late 2001 with three wells completed in 2002and up to 15 wells anticipated by 2006.

Eirik Raude is operated by Ocean Rig through the East CoastDrilling Partnership (ECDP), which is jointly owned by EnCana andOcean Rig. Ocean Rig provides key operating and managementpersonnel to the ECDP and the management systems to conductthe operations for EnCana. This arrangement has allowed OceanRig to achieve a high quality contract at leading industry day ratelevels and simultaneously a close working relationship with a firstrate client.

Under the agreements, both EnCana and Ocean Rig are pursuingopportunities to extend the work commitments for the EirikRaude, with other operating companies offshore Eastern Canada.The Eirik Raude is one of few semisubmersible drilling rigs whichare capable of meeting the Canadian regulatory requirements tooperate offshore Eastern Canada year round. In addition, (beingNAFTA content qualified) the Eirik Raude is free of import duty,which is levied on unqualified units. This is a significant commer-cial advantage to the Eirik Raude.

EnCana is well positioned on the East Coast of Canada and has17 exploration licenses in Nova Scotia and 10 off the East Coastof Newfoundland, with half of these being in deep water. Thisacreage holding will present significant opportunities to employthe Eirik Raude. Ocean Rig is also working towards otheroperators for drilling programs in deep water offshore bothNova Scotia and Newfoundland.

The East Coast of Canada, both offshore Newfoundland andNova Scotia has become of more interest and possible impor-tance as an energy source for the North Eastern United States.The exploration drilling programs to meet the oil companieslicense obligations commenced in 2002 and should continue forsome years. Activity would also increase if any of the exploratorywells were successful.

The Canadian market constitutes the top-end of the global deep-water floater market as a result of its demanding environmentalconditions, stringent certification requirements and high technical

requirements due to extraordinary conditions such as icebergs,sea surface ice, spray ice, extreme storms and difficult sea bot-tom conditions with respect to anchoring. These conditions willrequire that the market be served exclusively by semi-sub-mersibles (for year round operations) and modern drillships(mainly summer season).

The supply of rigs for the deepwater Canadian market is verylimited, particularly on a year round basis.

Ocean Rig Annual Report 2002 11

Operational activitiesOcean Rig completed the construction of Eirik Raude and started drilling

operations of its two 5th-generation rigs, Leiv Eiriksson and Eirik Raude, during

2002. The Company's rigs are among the most advanced rigs in the world for

deepwater drilling in regions exposed to harsh weather conditions.

Both Leiv Eiriksson and Eirik Raude are on contract with deployment in two areas

that are strategically important for deepwater drilling.

Leiv Eiriksson – start of drilling operationsOn 19 January, 2002, Leiv Eiriksson arrived in West Africa andstarted installation of ExxonMobil/BP’s third party equipment inaccordance with contract. On 7 February, 2002, the rig starteddrilling operations at a water depth of about 2,000 meter off-shore of Angola with ExxonMobil and BP. During 2002, LeivEiriksson completed drilling of four wells under the contract andstarted drilling on its fifth well on 20 October. The firm portion ofthe contract originally included five wells, but was increased tosix wells in 2002. Leiv Eiriksson started drilling on its sixth well inmid-March 2003, and the well will be completed by the beginningof June 2003. After drilling of the six firm wells the contractprovides for another six optional wells. In February 2003, EssoExploration Angola Limited exercised the first option well. Thiswell will be started after completion of the sixth firm well, antici-pated to be in June 2003 with an estimated 60 day duration.

The operation of the rig during 2002 progressed without significantproblems. Except for the first few months, which were character-ized by start-up and commissioning, the rig has had only minoroperational interruptions. The rig had an effective earnings ratio inrelation to full day rates of about 91% in the fourth quarter, due tooperational interruptions amounting to six days in November. Theaverage for the entire period of operation in 2002 was about 93%,which the Company regards as satisfactory in the start-up year.

Operating expenses were considerably lower towards the end ofthe year than at start-up in February. Continuous efforts are beingmade to reduce the operating expenses, and it is expected thatthese will stabilize at a level of around USD 95,000 per day.

Eirik Raude – completion of construction and start of operationsIn 2001 Ocean Rig entered into a yard contract with Irving Ship-building Inc (Halifax Shipyard) in Nova Scotia, Canada for the com-pletion of Eirik Raude. The rig was mechanically completed on 21June, 2002, and at the same time the Company took immediatelydelivery of the rig from the Halifax Shipyard. The rig went into a new phase of commissioning, sea trails and testing of equipment. The seatrails and final certification program took longer time than initiallyanticipated which delayed final completion and start of operationsfor the rig. Eirik Raude was completed and delivered under thedrilling contract with EnCana on 1 November, 2002.

Eirik Raude is operated by Ocean Rig through the partnershipEast Coast Drilling Partners (ECDP), where Ocean Rig holds a 5%ownership. ECDP as the contractor and Ocean Rig as the owner,each have offices in Halifax. The drilling contract with EnCanaincludes drilling operations for a firm six month period withoptions for five additional wells.

After delivery of the rig to EnCana, Eirik Raude started drilling its firstwell on the Torbrok field offshore Nova Scotia. Start-up of the rig wasmarked by extremely harsh weather with many winter storms, show-ing that with experienced and skilled crews Eirik Raude can operate under very difficult conditions in extreme waters. Safety on the rig has been satisfactory and no serious lost-time injuries have occurred. The first well was completed on 16 January, 2003. After a few daysfor preparation and mobilization in Halifax in the second half ofJanuary, Eirik Raude started drilling its second well on 8 February,2003, on the Flemish Pass field off Newfoundland. The drilling is for


PetroCanada under the contract with EnCana. The Company expectsthat one more well will be drilled on this field under the six-monthfirm portion of the contract, which lasts until 1 May, 2003. The wellthen being drilled however, shall be completed, indicating that thefirm period of the contract will last until the beginning of June 2003.Operating expenses for Eirik Raude is expected to be USD 75,000per day, which is at a satisfactory level, and considerably lower forEirik Raude than for Leiv Eiriksson.

Health, Safety and the Environment (HMS)HSE is a line-management responsibility at Ocean Rig ASA, andis a fully integrated aspect of all operations worldwide. TheCompany's primary HSE objective is to run its operations withouthuman injury, damage to the environment or damage to proper-ty. The director of HSEQ (health, safety, environment and quality)reports directly to the President of the Company. The director ofHSEQ is also appointed as Ocean Rig's "designated person" inrelation to the International Safety Management (ISM) code.

HSE activities in 2002Ocean Rig's HSE activities in 2002 have focused on the start ofdrilling and operation of Leiv Eiriksson in Angola as well as thecompletion and start of drilling of Eirik Raude and its approval byCanadian authorities, both for Nova Scotia and for Newfoundland.In addition, Ocean Rig as a management company and each rigwere granted ISM certification in 2002.

Examples of HSE activities conducted and implemented in 2002 include:

• Risk analyses conducted during the conceptual and engineeringphases have been followed up and satisfactorily implementedin the completed rigs

• Assessment of both rigs' compliance with the new continentalshelf regulations laid down by the Norwegian PetroleumDirectorate, effective from 1 January, 2002, has been imple-mented. No serious deviations were identified. The results of thecompliance assessment will be included in Eirik Raude's appli-cation for an Acknowledgement of Compliance (AoC), which willbe submitted to the Norwegian Petroleum Directorate in 2003and in Leiv Eiriksson's AoC, which has already been approved.

• The AoC for Leiv Eiriksson was approved by the NorwegianPetroleum Directorate on 15 April, 2002. Leiv Eirikssonalready has a UK Safety Case and has thus been authorizedby the Health and Safety Executive (HSE) for operation on theBritish shelf as well. The AoC application for Eirik Raude willbe submitted to the Norwegian Petroleum Directorate in August2003. An approved AoC for the rigs provides confirmation thatthe rigs and Ocean Rig's control systems for operation of rigssatisfy the Norwegian Petroleum Directorate's requirementsfor rig operations on the Norwegian continental shelf. At

present, the AoC is not a statutory Norwegian requirement,but a voluntary system for shipping companies that wish tohave this acknowledgment from the Norwegian PetroleumDirectorate. On 7 May, 2002, the Storting (Norwegian parlia-ment) however decided to make the AoC system mandatory inthe future. The date on which this requirement will becomeeffective has not yet been specified.

• Assessment of the rigs with regard to compliance withCanadian regulations for the continental shelf (Newfoundlandand Nova Scotia) has been conducted, with insignificant devia-tions identified beyond the winterization requirements for thesewaters. A Canadian Letter of Compliance was issued for EirikRaude from both the Canada-Nova Scotia Offshore PetroleumBoard (C-NSOPB) and the Canada Newfoundland OffshorePetroleum Board (CNOPB) in November 2002, so that the rigis now qualified for work in both these areas of operation.

• The process of ISM certification of Ocean Rig and its rigs wascompleted by the deadline of 1 July, 2002. Eirik Raudeobtained its interim ISM certificate before the start of drillingin November 2002, pursuant to ISM rules for newbuildings.

• Ocean Rig was audited by DNV with respect to ISO 9001 and ISO14000 in 2002 in order to achieve certification. The Company quali-fied for ISO 9001 certification, but a few points remain to be fulfilled in order to achieve ISO 14000 certification. The Company is con-tinuing its efforts to achieve ISO 14000 certification in 2003.

• Internal HSEQ audits have taken place and have been followed up.• Extensive HSE audits, inspections and tests were conducted

by our customers in Angola (ExxonMobil, BP, Chevron, TFE) onLeiv Eiriksson and Ocean Rig's management systems in 2002,with good results and full acceptance. Correspondingly, EirikRaude was tested and audited in Canada both by Canadianauthorities and by our customer, EnCana Corporation, withgood results and full acceptance.

• Extensive training programs were conducted for new andexisting crews – internal programs on the rigs as well as train-ing through equipment vendors, courses and training centers.These will continue in 2003.

Other operating activitiesThe Company operates a separate business unit that offers ser-vices to external companies as well as providing services to LeivEiriksson and Eirik Raude. During 2002 other external activitieshave consisted mainly of the follow-up and day-to-day operation ofthe jack-up accommodation rig “Rigmar 301” in the North Sea.Other activities relate to providing operational and logistics assis-tance and supervision of several semi-submersible flotels, a divingsupport/crane vessel and a few supply/crew vessels in Mexico,on behalf of the Mexican company Cotemar. All of these units areworking for PEMEX in Mexico on fairly long-term contracts.

Ocean Rig Annual Report 2002 13

Ocean Rig’s Bingo 9000 rigsThe Ocean Rig Bingo 9000 is a fifth generation semisubmersible rig designed for

deep water and harsh environment operations. The units are designed for opera-

tions in up to 3,000 m (10,000 ft) water depth, in a dynamic positioned mode. The

Bingo 9000 design will be capable of reducing well construction time by approxi-

mately 15% compared with fourth generation drilling units. Special consideration

has also been given to creating a safe working environment and a low emission

drilling unit. Leiv Eiriksson is outfitted for operations in 2,500 m water depth and

Eirik Raude is equipped for 3,000 m. Eirik Raude is fully winterized for year round

operations offshore Canada and offshore Northern Norway.

Principal dimensionsOverall length: 119.38 m (391 ft)

Overall breadth: 85.5 m (278 ft)

Length of deck: 78.5 m (257 ft)

Breadth of deck: 66.6 m (218 ft)

Height to upper deck: 45.0 m (148 ft)

Operating displacement: 53,393 mt at 23.75 m (77.9 ft)

Survival displacement: 50,391 mt at 21.00 m (68.9 ft)

Transit displacement: 38,243 mt at 12.00 m (39.4 ft)

ClassificationDNV ✠ 1A1 Column Stabilized Drilling Unit, DYNPOS AUTRO,CRANE, HELDK, EO, F-AM, DRILL

Loading and storage capacitiesTotal payload capacity

Operating and survival: 14,000 mt

Transit: 8,000 mt

Variable deck load

Operating and survival: 7,200 mt

Transit: 5,000 mt

Liquid mud capacity

Three independent mud systems

Mud Pits: 603m3 (3,792 bbls)

Mud storage (pontoons): 1,054m3 (6,629 bbls)

Consumables

Fuel oil: 4,631 m3 (29,125 bbls)

Potable water: 628 m3 (3,950 bbls)

Base oil: 406 m3 (2,553 bbls)

Brine: 680 m3 (4,276 bbls)

Drillwater: 1,959 m3 (12,320 bbls)

Bulk capacity

Cement: 350 m3 (12,360 cuft)

Barite/Bentonite: 350 m3 (12,360 cuft)

Power generation and positioningPower plant

Six (6) Wärtsilä Vasa 18V32, Low NOx E, Diesel Engines 7,500 kW each

Azimuth Thrusters

Six (6) KaMeWa Aquamaster UUC 7001, fixed pitch variable speed

5,500 kW each. Thruster capacity can be expanded to 8.

DP control

Kongsberg Simrad SDPM32 system

The Bingo 9000 Concept • Environmentally friendly – zero spill systems, low emissions• Large, comfortable accommodation• Powerful DP station keeping systems for ultra-deepwater operations

(3,000 meters water depth) and harsh environments• Drilling systems which facilitate substantial operational efficiencies• Operational displacement of 53,000 mt• High variable deck load of approximately 7,200 mt• Automated pipe handling system

Drilling efficiency • Mechanized and automated pipe handling• Building drillpipe stands while drilling• Assemble and disassemble bottom hole assembly while drilling• Make-up and rack stands of casing up to 13 3/8" while drilling• High powered capacity mud pumps with high capacity shale shakers • Efficient and flexible automated mud mixing facilities • 75’ long riser joints combined with mechanized riser handling system• 15% increase in drilling efficiency (compared to typical 3rd and 4th

generation rigs)


The marketThe market for exploration drilling has shown a weaker trendthan expected in 2002, but the segment for deepwater drillinghas shown somewhat better development than the market ingeneral. The capacity utilization for rigs in the ultra-deepwatersegment is almost 100%. In the short term, the market is uncer-tain, for reasons including the fact that several rig units areapproaching the end of ongoing contracts. In addition, few newdiscoveries were made in 2001/2002, which affects the needfor follow-up wells. In the longer term, the outlook for the deep-water segment is positive, due to the limited supply of new rigunits and an anticipated increase in exploration in deeper water.

Offshore Angola, however, where Leiv Eiriksson is operating oncontract for ExxonMobil, several promising discoveries were madein 2002. Considerable exploration activity is expected during 2003in Angola and elsewhere in West Africa. With Leiv Eiriksson, we arewell positioned for participation in this market.

Off the East Coast of Canada, where Eirik Raude is operating oncontract for EnCana, a substantial number of licences have beengranted for exploration drilling. The oil companies have commit-ted themselves to an exploration program of more than CAD 1billion. Eirik Raude, which is specially equipped for year-rounddrilling under extreme weather conditions, is well positioned forutilization in this area.

Eirik Raude – construction projectEirik Raude was declared mechanically complete in June 2002,and Ocean Rig immediately took delivery of the rig from HalifaxShipyard, Nova Scotia, for installation of the remaining equipmentas well as testing and preparation. The rig was delivered on adrilling contract to EnCana Corporation on 1 November, 2002.

Ocean Rig’s project organization associated with completion ofthe rig was dissolved during the fourth quarter of 2002.

Operation of Eirik Raude After delivery on 1 November, Eirik Raude moved to its desti-nation and started drilling its first well on the Torbrok field. Inextremely difficult weather conditions, the rig drilled its first well,which was completed on 16 January, 2003.

After the first well, the rig moved to Flemish Pass outsideNewfoundland to drill two wells for PetroCanada. Continuingharsh weather conditions have presented challenges for the rig,but it has mastered the situation well.

Start-up of the rig was successful, but with an operational regu-larity characterized by typical minor start-up problems. With fur-ther operational experience and with some minor technical modi-fications, it is expected that the rig will achieve an operationalregularity equivalent to that of Leiv Eiriksson.

Annual Report 2002Ocean Rig was formed in 1996 as a Norwegian drilling contractor. Until February

2002, the Company's primary activities comprised building two semi-submersible

drilling rigs for utilization in deep water and in harsh weather conditions, as well as

marketing these units to potential customers and preparing them for operation. With

the completion of the first rig, Leiv Eiriksson, and the start of drilling operations off

the coast of Angola in February 2002, as well as the completion of the Company's

second drilling rig, Eirik Raude, with the start of drilling operations offshore Canada in

November 2002, the Company has completed the transition from construction to

operation of the rigs.


Operating expenses are expected to amount to about USD75,000 per day.

Operation of Leiv EirikssonLeiv Eiriksson started drilling operations off the coast of Angolaon 7 February, 2002. During 2002, the rig drilled four of six firmwells under the contract with ExxonMobil. The fifth firm well wascompleted in mid-March 2003, and the rig then started on itssixth and last well under the firm portion of the contract.ExxonMobil has exercised the first of six options for furtherwells, with start-up expected in May/June immediately after thefirm portion of the contract.

The operation of the rig during 2002 progressed without significantproblems. Except for the first few months, which were character-ized by start-up and commissioning, the rig has had only minoroperational interruptions. The rig had an effective earnings ratio inrelation to full day rates of about 91% in the fourth quarter, due tooperational interruptions amounting to six days in November. Theaverage for the entire period of operation in 2002 was about 93%,which the Company regards as satisfactory in the start-up year.

Operating expenses were considerably lower towards the end ofthe year than at start-up in February. Continuous efforts are beingmade to reduce the operating expenses, and it is expected thatthese will stabilize at a level of around USD 95,000 per day.

BaredecksAt the beginning of 2002, Ocean Rig had two baredecks in lay-upat a shipyard in China. In March Ocean Rig sold both baredecks toNoble Drilling with a repurchase option, which has since been sold.

Financing and Capital IssuesDue to delays in the construction project and cost overruns,the Company required new financing during 2002. Several shareissues and borrowings were arranged during 2002. The offer-ings provided the Company with NOK 831.5 million in new equitycapital. A long-term NOK convertible bond and a short-term USDbond were also issued during 2002, providing the Company witha further NOK 631.4 million in new funding. In a subsequentshare issue, the Company received a further NOK 35.1 millionin January 2003.

In June 2002, in connection with the delivery of the rig from theshipyard in Halifax, the Company refinanced a five-year loan facilityof USD 100 million raised in 2001 with a new six-year loan facilityof USD 100 million led by Fortis Bank. The new loan was drawndown in June. During December 2002 the Company negotiatedwith the syndicate of banks regarding changes in the repaymentprofile for the loan as well as changes to the requirement forminimum cash balances. The negotiations resulted in a reductionin the requirement for minimum cash balances from USD 20 mil-lion to USD 10 million. One principal repayment of USD 6.3 mil-lion was postponed from December 2002 to the final due date inFebruary 2008, and a principal repayment of USD 4.4 millionwas postponed from June 2003 for payment over the period2003 to 2007.

The changed conditions in the bank loan together with the shareissue in December 2002 and subsequent share issue in January2003 were implemented to ensure the Company the best pos-sible working capital and liquidity reserves for 2003.

The Company's cash balances at the beginning of 2003 togetherwith the year's cash flow, based on the Company's budget for2003, will be adequate to cover interest and principal repaymentsin 2003. Operations in the first few months of 2003 have generateda somewhat lower cash flow than budgeted, which will result intight liquidity during the year. The Company makes the provisonthat actual operating results may vary from budget assumptionsdue to factors including lower utilization or operational regularityof the rigs, changed rate conditions and higher operating coststhan anticipated. The Company cannot provide any guarantees inconnection with future cash-flow generation. In the event of a saleof the rigs in the current market, the value of the Company's tworigs could be lower than the book value.

The financial statements have been prepared on the basis thatthe company is a going concern.

Results and balance sheet The income statements from start-up in 1996 until February2002 primarily reflect activities in the construction period.During 2002, Ocean Rig had one rig in operation for more than10 months and both its rigs in operation in the last two months


of the year. Operating income for 2002 and previous years istherefore not representative of anticipated future earnings withboth rigs on contract and in operation.

In 2002, Ocean Rig had a profit after tax of NOK 209.1 million.The annual results include net unrealized foreign exchange gainsof NOK 778.3 million related to the Company's USD loan result-ing from the decline in the USD value. For 2001, there was aloss of NOK 819.5 million after tax. Of this, NOK 240.1 millionapplied to write-downs of the Company's two baredeck hulls tothe estimated net market value in 2001.

The Company posted an operating loss of NOK 179.3 million,compared with a loss of NOK 705.9 million for 2001.

The operating revenues of NOK 534.3 million consist mainly ofoperating revenues from Leiv Eiriksson, as well as operatingrevenues from Eirik Raude from 1 November, 2002. For 2001,the operating revenues of NOK 10.5 million were primarily asso-ciated with revenue from external management services.

Operating expenses amounted to NOK 713.5 million, of whichNOK 553.0 million was for other operating expenses and NOK160.6 million for depreciation. Other operating expenses applymainly to operation of Leiv Eiriksson, preparations for operationand operation of Eirik Raude and fees to external advisers as wellas general administrative expenses. For 2001, other operatingexpenses amounted to NOK 461.3 million and depreciation andwrite-downs amounted to NOK 255.2 million. The Companyexpects that other operating expenses for 2003 will be signifi-cantly lower than for 2002.

The Group's cash on hand and long-term loans are mainly in USD.This resulted in a net foreign-exchange gain of NOK 598.3 millionin 2002. Net foreign-exchange losses totalled NOK 70.7 million in2001. Both realized and unrealized foreign exchange gains andlosses are recognized as they arise, on the basis of the exchangerate at the end of each quarter. Interest expense during the con-struction period has been capitalized as part of the cost price forthe rigs. Capitalized interest amounted to NOK 301.5 million for2002 and NOK 449.1 million for 2001. The reduction in interestexpenses capitalized in 2002 compared with 2001 is primarily

attributable to the fact that the interest was expensed in the lastquarter of 2002 after the completion of Eirik Raude.

The Group has not had significant taxes payable, and thedeferred tax asset related to losses carried forward is notrecorded in the balance sheet.

Health, safety and environment (HSE)The HSE results in Ocean Rig in 2002 are based on the opera-tion of Leiv Eiriksson in Angola from 7 February as well as theoperation of Eirik Raude in Canada from 1 November. In 2002,two minor lost-time injuries were registered on Leiv Eiriksson.

Ocean Rig's activities in exploratory and production drilling mayentail the risk of negative environmental impact. The rigs aredesigned and equipped to restrict pollution to the lowest levelpossible, and well within the limits that are stipulated inter-nationally and for the continental shelves of the various countries.Quality assurance procedures have been established to reducethe risk of pollutant emissions. Contractual conditions and insur-ance substantially reduce the Company's financial exposure relatedto pollution caused by the Company. No unintentional emissionswere registered in 2002. The Company has included only un-intentional environmental emissions in its environmental reportingfor 2002 – not the use of resources and waste involved in regu-lar operations. In connection with the planning of ISO 14000 cer-tification in 2003, the Company will establish routines and pro-cedures for more comprehensive reporting of emissions.

The company is concerned about the operational continuity onthe rigs, and is taking ongoing steps to optimize operation withinthe stringent safety requirements in effect. Among other measures,the Company undertakes continuous adaptations of technicalequipment, improvements in operational procedures and exten-sive training of crews.

Organization and employees At the year-end 2002 a total about 421 people were working forOcean Rig, of which 293 were directly employed by the Group.Of these, 362 were on the rigs and 59 on land. During the lastpart of 2002, the Company dissolved the project organizationassociated with the completion of Eirik Raude. The Company

The Board of Directors,from left: Geir Aune,Morten Borge, BjarneSkeie, Roy Mosvold andJ. Frithjof Skouverøe


moved its head office from Oslo to Stavanger on 1 January,2003, to combine with the Company's operating organization.Sickness absence for the Group totalled 2.0% in 2002.

Kai Solberg-Hansen was appointed President and CEO from April2002. Geir Aune was appointed Chairman of the Board of OceanRig ASA on 25 March, 2003.

OutlookBoth Leiv Eiriksson and Eirik Raude are earning satisfactoryrates in the light of the prevailing market conditions, with utili-zation in Canada and Angola, two areas that are strategicallyimportant with respect to a substantial number of planned deep-water drilling programs.

Through the firm portion of the contract with ExxonMobil, LeivEiriksson has work until May/June 2003. The contract alsoincludes up to six optional wells, of which the first option wasexercised in February 2003. With the start of drilling in May/June2003 and a term of 60 to 90 days, it is assumed that the firstoptional well will last until August 2003. If the other five optionsare exercised, the rig will be utilized for the whole of 2003 andlarge parts of 2004.

Eirik Raude has a fixed contract with EnCana of six months,which ensures utilization until the end of April 2003. The well thathas been started is to be completed, however, so that it is

assumed that the firm period of the contract will last until thebeginning of June 2003. EnCana also has an option on a furtherfive wells. If exercised, this will ensure utilization for Eirik Raudefor the remainder of 2003 and the start of 2004.

Growth is expected in the ultra-deepwater market, especially inWest Africa where substantial discoveries were made during2002. In addition, three new long-term contracts on the Indianshelf were announced in 2003. These are to be initiated at waterdepths of 1,800–3,000 meters. It is also anticipated that thedeepwater activity in the Gulf of Mexico and offshore Brazil will bemaintained at the current level during 2003. In the deepwater mar-ket offshore the East Coast of Canada – where Eirik Raude, withits capacity for year-round drilling, has a competitive advantage inrelation to drillships – the licenses granted indicate the potentialfor a substantial drilling program over the next 3–4 years.

It should be noted that there is normally considerable uncertaintyassociated with assessments of future conditions.

The Company is actively marketing the rigs, focusing both oncontract renewals and on new contracts.

Allocation of the result for the yearThe Board of Directors proposes that the loss for the year in theparent company Ocean Rig ASA be covered by a transfer of NOK91,606,686 from other equity.

Oslo, 28 March, 2003

Geir Aune

Chairman of the Board

(sign.)

Morten Borge

(sign.)

Roy Mosvold

(sign.)

Bjarne Skeie

(sign.)

J. Frithjof Skouverøe

(sign.)

Kai Solberg-Hansen

President and CEO

(sign.)


Statement of Operations – Ocean Rig Group

1,000 NOK Notes 2002 2001 2000

Operating revenues 1 534,331 10,538 13,749

Operating expenses:

Salaries and other personnel expenses 2 164,335 110,285 45,479

Other operating and administrative expenses 3 388,668 350,998 127,251

Depreciation, amortization and asset impairment write-down 7, 8 160,586 255,171 3,821

Total operating expenses 713,589 716,454 176,551

OPERATING LOSS -179,258 -705,916 -162,802

Financial income and expenses:

Financial income 4 986,363 76,725 149,356

Financial expenses 5 597,955 189,937 316,268

Net financial items 388,408 -113,212 -166,912

EARNINGS/(LOSS) BEFORE TAXES 209,150 -819,128 -329,714

Income taxes 13 22 329 220

EARNINGS/(LOSS) FOR THE YEAR 209,128 -819,457 -329,934

EARNINGS/(LOSS) PER SHARE (NOK) 15 1.10 -15.84 -8.14


Balance Sheet – Ocean Rig Group


Geir Aune


(sign.)

Morten Borge

(sign.)

Bjarne Skeie

(sign.)

Roy Mosvold

(sign.)


(sign.)

Kai Solberg-Hansen

President and CEO

(sign.)

1,000 NOK Notes 31.12.2002 31.12.2001 31.12.2000

Long-term assets:

Construction in progress 7 - 3,966,497 6,108,756

Drilling rig and other equipment 8 8,555,725 3,605,542 5,353

Long-term receivables and other assets 9 93,920 131,297 89,251

Total long-term assets 8,649,645 7,703,336 6,203,360

Current assets:

Accounts receivables 86,725

Other current receivables 33,585 61,323 16,754

Cash and cash equivalents 6 145,973 423,699 649,677

Total current assets 266,283 485,022 666,431

TOTAL ASSETS 8,915,928 8,188,358 6,869,791

Shareholders’ equity:

Share capital 14 492,887 1,682,316 1,333,659

Other paid in capital 14 5,103,731 2,486,865 2,390,811

Retained earnings 14 -1,138,578 -1,365,893 -549,064

Total shareholders' equity 4,458,040 2,803,288 3,175,406

Long-term liabilities:

Pension liabilities 12 591 1,088 1,221

Convertible loans 11 996,143 1,052,500 500,000

Notes and loans 11 3,105,494 4,007,109 3,080,350

Total long-term liabilities 4,102,228 5,060,697 3,581,571

Current liabilities:

Accounts payable 59,199 89,552 39,434

Short-term convertible loans 10 84,322 - -

Other current liabilities 10 212,139 234,821 73,380

Total current liabilities 355,660 324,373 112,814

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 8,915,928 8,188,358 6,869,791


Statement of Cash Flows – Ocean Rig Group

1,000 NOK Notes 31.12.2002 31.12.2001 31.12.2000

Cash flows from operations:

Net earnings/(loss) for the year 209,128 -819,457 -329,934

Amortization, depreciation and write-downs 317,141 287,002 14,822

Gain/loss on sale of assets 2,251 - -

Net unrealized foreign exchange gain/loss -621,413 56,702 273,556

Changes in current receivables -58,987 -44,569 -372

Changes in accounts payable -30,353 50,118 22,384

Changes in other current liabilities 41,516 61,310 -9,893

Net cash provided by operations (A) -140,717 -408,894 -29,437

Cash flows from investing activities:

Payments related to construction in progress and other equipment -1,906,154 -1,563,998 -1,232,256

Sale of assets 377,330 - -

Net change in long-term receivables 3,367 -4,259 -11

Net cash used in investing activities (B) -1,525,457 -1,568,257 -1,232,267

Cash flows from financing activities:

Net proceeds from issuance of common shares 831,484 444,711 337,528

Net proceeds from debt financing 566,098 1,315,454 480,171

Net cash provided by financing activities (C) 1,397,582 1,760,165 817,699

Effect of translation differences on cash and cash equivalents (D) -9,134 -8,992 6,702

Net increase/(decrease) in cash during the year (A + B + C + D) -277,726 -225,978 -437,303

Cash and cash equivalents at the beginning of the year 423,699 649,677 1,086,980

Cash and cash equivalents at the end of the year 6 145,973 423,699 649,677


Accounting policies

GeneralThe financial statements are prepared in accordance with the Norwegian

Accounting Act and generally accepted accounting principles in Norway.

Use of estimatesThe preparation of financial statements in conformity with generally

accepted accounting principles requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities

and disclosure of contingent assets and liabilities at the date of the finan-

cial statements and the reported amounts of revenues and expenses dur-

ing the reporting period. Actual figures could differ from those estimates.

Basis of consolidationThe consolidated financial statements of Ocean Rig include Ocean Rig

ASA and its subsidiaries. All subsidiaries are wholly owned by Ocean Rig.

Shares in subsidiaries are recorded using the cost method of accounting

in the financial statements of the parent company. The consolidated finan-

cial statements have been prepared according to uniform principles for

the whole Group, as though it were one entity. All material intercompany

balances and transactions have been eliminated in the consolidation.

Acquisition of shares in subsidiaries are recorded in accordance with the

purchase method of accounting in the consolidated financial statements.

This implies that the parent company’s cost price for the shares is elimi-

nated against the subsidiaries’ equity on the acquisition or inception date.

Excess/lower values at the time of acquisition are analyzed and allocated

to the appropriate assets and liabilities. Where the excess of the pur-

chase price over the estimated fair value is not allocated to specific

assets or liabilities items, it is recorded as goodwill, which is amortized

over its estimated useful life.

Translation of the financial statements of foreign subsidiaries from local cur-

rency to Norwegian kroner (NOK) is based on the balance sheet rate for

assets and liabilities, and on the average exchange rate during the year for

revenues and expenses. Translation differences are accounted for as

adjustments to the shareholders’ equity in the consolidated balance sheet.

Business segmentsOffshore operations represent the only business area of the Ocean Rig Group.

Since the inception of the Group and up until February 2002, its activities have

focused on managing the construction contracts and marketing the Company’s

rigs. In February 2002 the Group started operations with one of its two rigs

and in November 2002 both the Company’s rigs were in operation.

Revenues and expense recognitionOperating revenues are recognized as earned, based on contractual daily

rates or on a fixed price basis. Mobilization fees received and costs

incurred to mobilize an offshore rig from one market to another and other

prepayments are recognized as revenues and operating expenses,

respectively, over the term of the related drilling contract. Other oper-

ating expenses are recorded when incurred.

Classification of balance sheet itemsAssets intended for long-term ownership or use are classified as non-

current assets. Other assets are classified as current assets. Receivables

with maturity within one year are always classified as current assets.

Liabilities are classified in the same way.

Cash and cash equivalentsCash and cash equivalents include cash, bank deposits and other short-

term deposits with an original maturity of three months or less.

Foreign currencyAmounts denominated in foreign currencies are translated at the

exchange rates in effect at the balance sheet date. Receivables and

liabilities hedged by derivative financial instruments are translated at the

hedged rate, except for the interest component, which is accrued and

classified as interest income/expenses.

Derivative financial instrumentsThe Company may from time to time use derivative financial instruments

as part of its overall risk management strategy to hedge exposure to for-

eign currency risk and interest risk. Gains and losses on forward con-

tracts with the aim of reducing exposure on expected future transactions

are recognized as financial income/expense based on market value as

they are incurred. Gains and losses on contracts that are effectively

hedging instruments related to assets or liabilities in foreign currencies

are deferred until settlement of the underlying transactions. Cash flows

from financial instruments designated as hedges are categorized in the

same line item as the cash flow from the item being hedged.

ReceivablesThe Company’s receivables are recorded at cost less any provision for

uncollectible accounts.

Construction in progressConstruction contracts are included in non-current assets based on install-

ments paid and payable to the yard/supplier. Contracts denominated in

foreign currencies are translated to NOK at the hedged exchange rate. For

payments that are not hedged, the exchange rate on the due date of the

installments is applied. Other investments not included in construction con-

tracts are capitalized during the construction period as incurred. Interest


Accounting policies

costs for construction of qualifying assets are capitalized based on pre-

vailing interest rates and weighted average capital expenditures.

Property and equipmentCapitalized costs of rigs and drilling equipment include all costs incurred in

the aquisition of capital assets including allocations of interest costs incurred

during periods that assets are under construction or refurbishment. Expen-

ditures for maintenance and repairs are charged to expense as incurred.

Depreciation of drilling equipment is computed using the straight line

method over estimated useful lives, excluding salvage value, ranging

from 5 to 30 years.

Other machinery and equipment are recorded at cost and depreciated on

a straight-line basis over the estimated useful life of the asset, ranging

from 3 to 8 years.

Impairment of long-lived assetsFixed assets and intangible assets, including construction in progress, are

reviewed for impairment whenever events or changes indicate lasting

value reductions. If circumstances indicate that the carrying amount of the

assets may not be recoverable, the nominal value of the assets is calcu-

lated. The nominal value is defined as the total of estimated undiscounted

future cash flows, excluding financing expenses. If the nominal value calcu-

lation suggests that the carrying amount of the asset is not recoverable,

the carrying amount is written down to the estimated fair value.

The company considers whether there is a basis for reversing previous

asset impairment write-downs, as for impairment. If the review suggests

that there is a basis for reversal, the carrying amount is reversed to the

estimated fair value, limited to the carrying amount the asset would have

if no impairment had taken place.

Retirement benefit costsThe Company has retirement benefit plans for employees, which are man-

aged and funded through Norwegian life insurance companies. The pro-

jected benefit obligations are calculated based on actuarial methods, and

compared with the value of pension assets. The estimated accrued lia-

bility is compared with the value of paid and saved pension funds. The

net amount of projected benefit obligations and pension assets (pension

liabilities or prepaid pensions), adjusted for unrecognized changes in esti-

mates, is included under long-term liabilities or non-current assets. Net

pension costs (benefit earned during the period including interest on the

projected benefit obligation, less estimated return on pension assets) are

included in salaries and other personnel expenses.

TaxesIncome tax expense consists of taxes payable and the net change in

deferred taxes arising as a result of timing differences. Deferred taxes

reflect the future tax payable as a result of the activities for the period.

Deferred taxes are calculated based on timing differences between finan-

cial and taxable values, less losses carried forward. Deferred tax benefits

are assessed based on general principles for valuation of assets.

Share issuance, loans and debt discountShare issuance costs are deducted directly from shareholders’ equity.

Debt issuance costs are capitalized and amortized over the term of the

related debt. Debt discount is reported as a direct reduction to the face

amount of the debt, as the discount is inseparable from the debt giving

rise to it, and allocated to the expected term of the related debt.

Share options granted to employeesAny costs related to share options to employees are recorded in accordance

with guidelines from the Oslo Stock Exchange. Any employers' national insur-

ance contributions related to the share options are recorded when incurred.

Debt issued with detachable warrants When debt is issued with detachable warrants a calculation is made to

allocate the proceeds received between the loan and the warrants. The

allocation is made based upon an estimate of fair value for the two secu-

rities at the date of issue. The value allocated to the warrants is posted

as a reduction to the loan and an addition to equity and is amortized as

financial expense over the term of the loan.

Convertible debtConvertible debt is recorded at its principal balance net of any discount

or premium. Any discount or premium is amortized over the term of the

loan. Further, an evaluation is made whether the embeded conversion

feature within the debt instrument is beneficial (has intrinsic value) to the

holder. Any intrinsic value is recognized as a reduction to the convertible

debt and an addition to equity. The balance is amortized as financial

expense over the term of the loan or up until conversion.

Extinguishment of debtAny gain or loss from extinguishment of debt is recognized as a financial

item at the time of extinguishment.

Notes – Ocean Rig Group


NOTE 1 OPERATING REVENUES

Operating revenues are mainly derived from drilling operations. Leiv Eiriksson and Eirik Raude, the Company's two drilling rigs, started operations in

February 2002 and November 2002, respectively.

Effective April 13, 2001, the Company entered into a series of agreements with a partnership (the “Partnership”) formed by EnCana Corporation to

provide offshore drilling services to EnCana Corporation and other companies offshore the east coast of Canada. On 1 November, 2002, Eirik Raude

was delivered on a lease to the Partnership in accordance with the contract with EnCana Corporation. The rig is leased from Ocean Rig to the

Partnership on a bareboat basis and the Partnership is responsible for the operations of the rig. The Partnership pays for all rig operating costs and

Ocean Rig receives a fixed day rate from the Partnership. Ocean Rig 2 AS holds a 5% share in the Partnership. Ocean Rig has an option to increase its

equity holdings in the partnership to 80%. If Ocean Rig exercises this option, it will be able to cause the Partnership to terminate the lease agreement

at any time after the first 14 months should a better drilling contract opportunity arise, without the consent of EnCana or any other partners.

NOTE 2 SALARIES AND OTHER PERSONNEL EXPENSES

NOK 1,000 2002 2001 2000

Salaries 137,376 84,452 43,719

Social security taxes 16,384 12,329 6,728

Net pension costs (see Note 12) 5,559 4,429 4,287

Other personnel expenses 25,198 20,048 11,179

Capitalized as part of construction in progress 1) -20,182 -10,973 -20,434

Total salaries and other personnel expenses 164,335 110,285 45,479

Average number of employees 242 176 93

1) Expenses related to personnel working directly with the rig construction projects are capitalized as part of construction in progress; see Note 7.

NOTE 3 OTHER OPERATING AND ADMINISTRATIVE EXPENSES

NOK 1,000 2002 2001 2000

Legal fees 19,726 64,074 49,955

Other fees (including engineering and service personnel) 201,920 93,448 35,284

Materials used related to preparation for operations 96,731 135,816 -

Travel and marketing 10,695 23,165 19,129

Lay-up expenses (Rig 3 and Rig 4) 1,967 4,018 5,257

Office and administrative expenses 51,166 19,957 9,472

Loss on sale of assets 2,251 - 763

Other costs/provisions 4,212 10,520 7,391

Total other operating and administrative expenses 388,668 350,998 127,251

The increase in operating and administrative expenses since 2000 reflects the increased activity and establishment of the organization during this

period, including activities related to preparing the rigs for operation in 2001 and 2002 and start of operations for Leiv Eiriksson and Eirik Raude from

February 2002 and November 2002, respectively. The Company has reduced its legal fees in 2002 compared with 2001 primarily due to lower need

for legal services relating to contract agreements with bondholders and operating contracts for the rigs. The Company completed its arbitration pro-

ceedings with Maritima during the first quarter 2002 and at 31 December, 2002, the Company was not involved in any arbitration or legal proceedings.



NOTE 4 FINANCIAL INCOME

NOK 1,000 2002 2001 2000

Interest income 21,485 17,993 59,322

Foreign exchange gains 964,878 58,732 90,034

Total financial income 986,363 76,725 149,356

NOTE 5 FINANCIAL EXPENSES

NOK 1,000 2002 2001 2000

Interest expenses (total) 474,345 464,822 334,388

Less capitalized interest expenses -301,489 -449,132 -334,388

Amortization and write-down of debt issuance costs 39,877 31,831 10,238

Other financial expenses 18,673 12,988 13,369

Foreign exchange losses 366,549 129,428 292,661

Total financial expenses 597,955 189,937 316,268

NOTE 6 CASH AND CASH EQUIVALENTS

Cash and cash equivalents include:

NOK 1,000 31.12.02 31.12.01 31.12.00

Bank deposits 145,973 423,699 649,677

Total cash and cash equivalents 145,973 423,699 649,677

In 2000, USD deposits were considered as hedge transactions and translated to NOK at the exchange rate on the transaction date. If these USD

deposits had been translated to NOK at the exchange rate on the balance sheet date, the unrealized currency gain would increase the carrying amount

of cash and cash equivalents. The differences between fair value and carrying amount of cash and cash equivalents are shown below:

NOK 1,000 31.12.02 31.12.01 31.12.00

Fair value of cash and cash equivalents 145,973 423,699 651,365

Carrying amount of cash and cash equivalents 145,973 423,699 649,677

Unrealized exchange rate gain - - 1,688

In connection with the Notes and Loans issued in 2001, cash deposits were held in certain trust accounts. These funds were held for completion of

newbuilding contracts and interest expenses during the construction period. The construction project was completed by the end of 2002 and as at

31 December, 2002, the Company's restricted cash items include amounts pledged as collateral for premise rentals, tax withholdings, supplier

guarantees and restricted deposit accounts relating to the Fortis facility. Restricted cash items appear below:

NOK 1,000 31.12.02 31.12.01 31.12.00

Restricted deposits to banks 2,881 241,474 254

Amounts pledged as collateral for suppliers and bank guarantees 1,539 9,276 33,854

Taxes withheld 4,207 2,744 1,851

Total restricted cash 8,627 253,494 35,959


NOTE 7 CONSTRUCTION IN PROGRESS

Ocean Rig entered into a yard contract in 2001 with Irving Shipbuilding Inc., in Nova Scotia, Canada (the Halifax Shipyard) for the completion of Eirik

Raude. The contract committed the Company to pay the yard on a "time and material" basis, calculated by reference to a schedule of fixed hourly

rates. The rig was mechanically completed on 21 June, 2002, in accordance with plan and the same time the Company took delivery of the rig from

the Halifax Shipyard. The rig went in to a new phase of commissioning and testing of equipment. The rig was completed and delivered to EnCana

Corporation in accordance with the contract on 1 November, 2002.

Construction in progress consists of payments to the shipyards as well as other costs related to the construction of the Company’s rigs, including the

cost related to various equipment for Leiv Eiriksson and Eirik Raude (Owner Furnished Equipment). Interest costs have been capitalized as part of con-

struction in progress. The capitalized amounts are allocated to the rigs as follows:

Baredeck Baredeck NOK 1,000 Leiv Eiriksson Eirik Raude Rig No. 3 Rig No. 4 Total

Balance including capitalized interest 31.12.2000 2,808,829 2,680,711 302,953 316,263 6,108,756

Payments related to construction in progress 2001 596,115 667,191 - - 1,263,306

Capitalized interest 2001 209,637 239,495 - - 449,132

Write-down of assets 2001 - - 113,403 126,713 240,116

Transferred to property and equipment 2001 3,614,581 - - - 3,614,581

Balance including capitalized interest 31.12.2001 - 3,587,397 189,550 189,550 3,966,497

Payments related to construction in progress 2002 - 1,409,251 - - 1,409,251

Capitalized interest 2002 - 301,489 - - 301,489

Disposals 2002 - - 189,550 189,550 379,100

Transferred to property and equipment - 5,298,137 - - 5,298,137

Balance including capitalized interest 31.12.2002 - - - - -

The Company sold its two baredecks to Noble Drilling in March 2002 for USD 45 million. The baredecks were written down in 2001 by NOK 113.4 mil-

lion for Rig 3 and NOK 126.7 million for Rig 4, to estimated fair values excluding cost of sales.

According to the terms of the contract with EnCana Corporation, Ocean Rig received in November 2002 a compensation of USD 15 million to cover

part of the costs for winterization of the rig. The balance is recorded as a reduction of construction cost. Further, USD 10 million received by EnCana

Corporation in 2001 as an advance for winterization compensation, has been recorded as a reduction of construction cost in 2002.




NOTE 8 DRILLING RIG AND OTHER EQUIPMENT

Property and equipment include rigs, drilling equipment inventory and capital spares, EDP equipment, office equipment and cars. Depreciation of

rigs/drilling equipment is computed using the straight line method over estimated useful lives ranging from 5 to 30 years. EDP and office equipment

are depreciated on a straight-line basis at a rate of 20–30% per year, while vehicles are depreciated at a rate of 20% per year. Drilling rig and other

equipment as of 31 December, 2002, is as follows:

Semi-submersible Drilling equipment EDP/office andrig and spare inventory transportation

NOK 1,000 equipment and fixtures equipment Total

Cost at 31.12.2001 3,554,445 60,136 9,510 3,624,091

Invested in 2002 5,283,155 103,817 2,713 5,389,685

Disposals in 2002 - - 1,026 1,026

Foreign exchange translations -278,249 - -274 -278,523

Cost at 31.12.2002 8,559,351 163,953 10,923 8,734,227

Accumulated depreciation 31.12.01 12,008 - 6,541 18,549

Accumulated depreciation on disposals - - 544 544

Depreciation in 2002 152,999 6,120 1,467 160,586

Foreign exchange translations - - -89 -89

Accumulated depreciation 31.12.02 165,007 6,120 7,375 178,502

Book value at 31.12.2002 8,394,344 157,833 3,548 8,555,725

Depreciation commenced in November 2001 for Leiv Eiriksson and in November 2002 for Eirik Raude.

There are indications that the fair market values of the rigs could be lower than their carrying amounts. However, when applying the Company’s

accounting policies, there is no basis for asset impairment write-down of the rigs.

NOTE 9 LONG-TERM RECEIVABLES AND OTHER ASSETS

NOK 1,000 31.12.02 31.12.01 31.12.00

Capitalized debt issuance cost (see Note 11) 83,183 120,786 83,136

Loans to employees 2,840 6,202 3,783

Prepaid pensions (see Note 12) 7,416 4,171 1,782

Other items 481 138 550

Total long-term receivables and other assets 93,920 131,297 89,251

The Company’s investment in the East Coast Drilling Partnership is accounted for in accordance with the equity method of accounting and posted

under "Other items". Ocean Rig has 50% representation and voting rights in the Partnership.



NOTE 10 OTHER CURRENT LIABILITIES

NOK 1,000 31.12.02 31.12.01 31.12.00

Short-term payment of long-term debt 23,982 - -

Accrued interest and other financial expenses 46,870 59,891 51,815

Taxes withheld and social security tax 24,086 9,825 6,053

Advance payment from customers 17,136 48,998 -

Other accrued expenses/short-term debt 100,065 116,107 15,512

Total other current liabilities 212,139 234,821 73,380

USD short-term loanThe Company issued a short-term USD 52.9 million bond in May and June 2002 "USD 52.9 million Zero coupon Bond 2002/2003". The bond is structured as

an unsecured zero coupon bond loan with payment to the Company of USD 43.1 million. The discount is recorded as a direct reduction of the principal loan

amount and amortized as interest expense over the term of the loan. The bond will be repaid in four principal installments during the term of the loan (October

and December 2002 and March and May 2003) with final installment 13 May, 2003. The Company has the right to extend the final installment, fully or partly by

up to three months. This right can only be used one time. An interest rate of 2.5% per month will be payable by the Company if the extention clause is used.

The Company and the bondholders can require the bonds redeemed if a change of control occurs in the Company. The bond is not secured by any mortgage,

pledge or other security but the loan rank pari passu with other unsecured debt of the Company and ahead of any subordinated debt. In connection with the

issue of the USD 52.9 million bond, the Company also issued warrants. See Note 14 – Shareholders' equity, for further information of the warrants.

During 2002, USD 32.6 million of the USD 52.9 million bond was converted to the Company's new Mandatory Convertible Bond issued in August and

September 2002. The USD 32.6 million was converted at an exchange rate of NOK 7.60 equalling a subscription in the Mandatory Convertible Bond of

NOK 248.1 million. See further information of the Mandatory Convertible Bond in Note 11 – Long-term debt.

As of 31 December, 2002, the outstanding principal balance of the USD short-term bond is USD 13.1 million after repayment of two installments

during 2002 of USD 7.2 million. The fair market value of the bonds as of 31 December, 2002, is approximately 93.35% of the principal amount

equalling USD 12.2 million (NOK 84.4 million).

As of 31 December, 2002, the loan balance equals NOK 84.3 million, inclusive unamortized discount on the loan.

NOTE 11 LONG-TERM DEBT

NOK 1,000 31.12.02 31.12.01 31.12.00

Convertible bonds – 2002 669,452 - -

Less unamortized balance of warrants and intrinsic value -66,309 - -

Convertible bonds – 2001 - 552,500 -

Convertible bonds – 2000 393,000 500,000 500,000

Notes and Loans (USD 350 million) 2,438,100 3,158,750 3,080,350

Loans (USD 100 million) 667,394 902,500 -

Less redemption payment - -4,513 -

Less discount to be amortized - -49,628 -

Total long-term liabilities 4,101,637 5,059,609 3,580,350

Convertible bonds – 2001The Company's convertible loan totalling NOK 552.5 million issued in November and December 2001 was converted to shares in the Company in

February 2002. The conversion price per share was NOK 7.5 and the bonds were converted to a total of 73,666,666 shares in the Company.

Mandatory convertible bond 2002/2005The Company issued a zero coupon long-term convertible bond in August and September 2002 totalling NOK 669.5 million. The loan matures in whole on


22 August, 2005, at which time the full outstanding principal balance becomes due. The loan can be converted into shares in the Company at a conversion rate

of NOK 3.50 per share at any time during the term of the loan. The bondholders are obligated to convert outstanding bonds at the maturity date of the loan if

such conversion is required by the Company, unless the Company undergoes debt negotiations or bankruptcy proceedings have been initiated. During the first

12 months of the loan, the loan shall rank pari passu with all other senior unsecured debt of the Company and ahead of all subordinated debt of the Company.

Thereafter, the loan will be subordinated to all then existing debt of the Company, whether subordinated or not. However, the loan shall rank senior to other sub-

ordinated loans that the Company raises after 23 August, 2002. Subscribers in the new loan also received one warrant for each new share each bondholder

have the right to acquire through conversion of the Mandatory Convertible Loan. A total of 191,275,143 warrants were issued to subscribers in the new bond.

See Note 14 – Shareholders' equity, for further information.

Among the conditions to subscribe in the new convertible bond, bondholders in the Company's NOK 200 million 13% and NOK 300 million 11% Subordinated

Convertible Bonds and the USD 52.9 million short term bond were offered to convert part of their holdings in these bonds to bonds in the new Mandatory

Convertible Bond. For each NOK subscribed in the new loan, NOK 3 could be converted from the old bonds. In this regard, the NOK 200 million bond was val-

ued at 90% of its face value and the NOK 300 million bond was valued at 85% of its face value. An exchange rate of NOK 7.60 to USD 1.0 was used for the

conversion of the USD short-term loan.

The Mandatory Convertible Bond was subscribed as follows:

New capital 323,975

Conversion of USD 52,9 million bond 248,071

Conversion of 13% NOK 200 million convertible bond 59,400

Conversion of 11% NOK 300 million convertible bond 34,850

Accrued interest on NOK 200/NOK 300 bond 3,167

Total subscription 669,463

Converted during 2002 11

Mandatory Convertible Bond at 31.12.02 669,452

During 2002 NOK 11,000 of bonds were converted to shares in the Company, equalling 3,142 new shares.

The outstanding loan balance at 31 December, 2002, can be converted to 191,272,000 shares in the Company.

The fair market value of the convertible bond is 35% representing NOK 234.3 million at 31 December, 2002.

Allocation of fair value to warrants and intrinsic value:The Company has allocated NOK 47.8 million to the warrants issued together with the loan and NOK 26.8 million to the intrinsic value embedded in the loan. The

total value of 74.6 million is recorded as a reduction to the loan balance and addition to equity and amortized as other financial expense over the term of the loan.

During 2002 NOK 8.3 million is amortized and recorded as other financial expense. See Note 14 – Shareholders' equity, for further information of the warrants.

Extinguishment of debt:Costs related to the extinguishment of the old debt to the new convertible debt issued in August and September 2002 amounted to NOK 20.3 million

and was reported as a financial item at the time of extinguishment. The balance relates to the premium from redemption of the NOK loans and unamor-

tized discount on redemption of the short-term USD loan.

Convertible bonds – 2000In 2000, convertible bonds totalling NOK 500 million were issued. These comprise a 13% Subordinated Convertible Bond Issue 2000/2005 with a

face value of NOK 200 million and an 11% Subordinated Convertible Bond Issue 2000/2005 with a face value of NOK 300 million.

No collateral has been provided for the convertible loans. The loans and the associated interest are subordinate to all the other debt of the Company

and pari passu with all other unsecured subordinated debt of the Company. The loan agreement also imposes certain structural restrictions on the

Company. The approval of the Trustee or the bondholders' meeting is required in the case of discontinuance of operations, sale of material parts of the

enterprise or material change in the nature of the business, certain dividend payments, other payments to shareholders that would reduce the equity of

the Company, and raising of further long-term debt in connection with the completion of the rigs.



During August and September 2002 NOK 107 million of the NOK 500 million loans were converted to the new "Mandatory Convertible Bond 2002/2005".

The conversion of the NOK 107 million face value equalled subscription in the new convertible bond of NOK 94.2 million. Further, NOK 3.2 million of

accured interest was converted to the new convertible loan. The following conversion was made:

Conversion Face value Subscribed in Loan value Conversionrate converted new loan after conversion price

NOK 200 million 13% convertible bond 90% 66,000 59,400 134,000 22.83

NOK 300 million 11% convertible bond 85% 41,000 34,850 259,000 24.45

Total converted 107,000 94,250 393,000

At 31 December, 2002, the fair value of the convertible loan of NOK 134 million and the convertible loan of NOK 259 million are 73% and 70%,

respectively. Consequently, the total fair value of the convertible loans amounts to NOK 279.1 million.

The bondholders have the right to convert the bonds to shares in Ocean Rig ASA at any time during the period from the issue of the loan until 25 May,

2005 (the redemption date of the loan).

1998 Notes and 1998 Loans – USD 350 millionThe Ocean Rig Group has long-term debt of USD 350 million (NOK 2,438.1 million) related to financing of the construction projects for Leiv Eiriksson

and Eirik Raude. It was issued in May 1998 by Ocean Rig Norway, a wholly owned subsidiary of Ocean Rig ASA. The USD 350 million debt consists of

101/4% Senior Secured Notes Due 2008 (the “1998 Notes”) with a face value of USD 225 million and "Floating Rate Senior Secured Loans Due 2008"

(the “1998 Loans”) with a face value of USD 125 million. The interest rate in respect of the 1998 Loans is LIBOR + 4.75%. Average interest rate was

6.62% in 2002.

At 31 December, 2002, the fair value of the 1998 Notes and 1998 Loans is approximately 88% of the principal amount, i.e. USD 308.0 million (NOK

2,145.5 million).

Ocean Rig ASA and the two rig companies owning Leiv Eiriksson and Eirik Raude have fully and unconditionally guaranteed the 1998 Notes and the

1998 Loans on a joint and several basis. The 1998 Notes and the 1998 Loans, which contain covenants typical in bond financing, impose certain

structural restrictions on the Company. Certain material provisions of the 1998 Notes and the 1998 Loans are as follows:

• The 1998 Loans are redeemable at a premium declining from 3% at the issue date to zero in January 2003. The 1998 Notes are fully redeemable

from June 2003 at a premium declining from 5.125% to zero in June 2006.

• The 1998 Notes and the 1998 Loans are secured by a first priority charge in respect of Leiv Eiriksson and related assets and a second priority

charge (subordinate to the USD 100 million Loans) in respect of Eirik Raude and related assets.

• The holders of the 1998 Notes and the 1998 Loans have the right to require Ocean Rig Norway to purchase some or all of the outstanding 1998 Notes

and 1998 Loans at 101% of the principal amount if, among other things, there is a change of control of the Company. The indenture relating to the 1998

Notes and credit agreement related to the 1998 Loans restrict, among other things, Ocean Rig Norway AS and certain of its subsidiaries’, ability to:

– incur additional indebtedness,

– pay dividends or make certain other restricted payments,

– permit certain liens to exist on its assets,

– sell, assign, transfer, lease, convey or otherwise dispose of substantially all of its assets, or

– enter into certain transactions with affiliates.

• The indenture and credit agreement relating to the 1998 Notes and 1998 Loans contains standard events of default, including:

– defaults in the payment of principal, premium or interest,

– defaults in compliance with covenants contained in the indenture,

– cross-defaults on more than USD 10 million of other indebtedness,

– failure to pay more than USD 10 million of judgments, and

– certain events relating to Leiv Eiriksson and Eirik Raude.

Floating rate loan facility – USD 100 millionIn June 2001, Ocean Rig 2 AS entered into a floating rate loan facility, for an aggregate principal amount of USD 100 million (the "2001 Loans"). In

November 2001, the Company entered into an agreement to refinance the 2001 Loans with Nordea Bank Norge and Fortis Bank (the Fortis facility) for




a six year term loan for an amount up to USD 100 million. The refinancing was effective after the mechanical completion of Eirik Raude 21 June,

2002. The Fortis facility was drawn down on 28 June, 2002, and at the same time the 2001 loans were repaid in full with the proceeds received. The

loan has a six year term with final payment on 28 February, 2008. The loan will partly be repaid with semi-annual installments and a balloon payment at

the end of the loan term. The Fortis facility may be prepaid at any time without penalty. Upon draw down of the Fortis facility, all security interests in

favor of the lenders of the 2001 Loans were released and new security interest in the same assets with the same priority were granted in favor of the

lenders of the Fortis facility. The Fortis facility is secured by a first priority security in Eirik Raude and related assets.

Interest on the Fortis facility accrues at a rate equal to LIBOR plus 2.75% up until 31 December, 2003. Thereafter, interest accrues with a variable margin

of 1.75% to 2.75% depending on the rigs’ contract situation and the liquidity situation of the Company. The Fortis facility includes covenants typical for

bank loans, including a requirement that the Company shall have a minimum balance of unrestricted cash reserves and covenants in the events of default,

which are substantially the same as those for the 1998 Notes and 1998 Loans described above. Average interest rate in 2002 was 6.81%. The interest in

2002 includes an additional margin linked to the loan status as long as Eirik Raude was under construction, which is exempted as of the year end 2002.

After Eirik Raude was delivered on contract with EnCana Corporation 1 November, 2002, the Company has negotiated with the lenders in the Fortis facility

of certain adjustments to the loan agreement. The new agreement reduces the requirement regarding free cash from USD 20 million to USD 10 million,

changes the installments of the loan and gives Ocean Rig the opportunity to replace installments on the loan with deposits, by equal amount, to a restricted

retention account. Accumulated balance in the retention account is mortgaged with the banks and can not be used by the Company. The Company has

chosen to make deposits to the retention account and thus have no installments on the loan up until final maturity of the loan 28 February, 2008. Deposits

to the retention account will, in accordance with the agreement, be made by approximately USD 1.9 million per 28 June, 2003, approximately USD 6.8

million bi-annually from 28 December, 2003, to 28 June, 2007, approximately USD 6.2 million as of 28 December, 2007, and the final outstanding principal

installment on the loan per 28 February, 2008. The Company can, at any time, bring deposits to the retention account to a close and use accumulated

balance in the retention account for a payment of installment on the loan and thereafter pay installments in accordance with original installment plan.

Debt issuance costs The cost of debt issuance amounted to NOK 33.4 million in 2002. The balance is capitalized and amortized over the term of the related debt. Total amor-

tization and write-down of debt issuance costs amounted to NOK 39.9 million, NOK 31.8 million and NOK 10.2 million in 2002, 2001 and 2000, respec-

tively. The unamortized debt issuance costs of NOK 83.2 million are included in long-term receivables and other assets at 31.12.02 (see Note 9).

NOTE 12 PENSIONS

The Company has retirement benefit plans for employees managed and funded through Norwegian life insurance companies. The plan covers 110 employees.

Pension liability and pension costs are calculated based on the actuarial cost method and the following assumptions for 2002, 2001 and 2000 were used:

Expected return on pension assets 7.0%

Discount rate 6.0%

Salary increase rate 3.5%

Social security increase rate 3.0%

Retirement pension increase rate 2.5%

Pension costs included in salaries and other personnel expenses are specified below:

NOK 1,000 2002 2001 2000

Benefits earned during the year 4,784 4,069 4,037

Interest cost 1,002 802 750

Expected return on pension assets -1,417 -1,022 -835

Changes in estimates 141 81 117

Total pension costs – defined-benefit plans 4,510 3,930 4,069

Other pension costs 1,049 499 218

Total pension costs 5,559 4,429 4,287



The Company’s prepaid pensions (over-funded plans) and pension liabilities (under-funded plans) at 31 December, 2002, 31 December, 2001, and

31 December, 2000, are included in long-term assets and liabilities, respectively, and are specified below:

Underfunded plans Overfunded plans Total

2002 2001 2000 2002 2001 2000 2002 2001 2000

Present value of accrued

benefit obligation -2,079 -3,011 -2,841 -15,068 -10,570 -9,194 -17,147 -13,581 -12,035

Effect of projected

salary increase -559 -591 -535 -4,777 -3,492 -2,699 -5,336 -4,083 -3,234

Projected benefit obligation -2,638 -3,602 -3,376 -19,845 -14,062 -11,893 -22,483 -17,664 -15,269

Fair value of plan assets 3,245 3,149 2,598 22,483 15,297 10,569 25,728 18,446 13,167

Unrecognized changes

in estimates -1,198 -635 -443 4,778 2,936 3,106 3,580 2,302 2,663

Prepaid pensions/

(Pension liabilities) -591 -1,088 -1,221 7,416 4,171 1,782 6,825 3,084 561

NOTE 13 TAXES

A summary of taxable loss, temporary and permanent differences and the calculation of deferred taxes appears below.

NOK 1,000 2002 2001 2000

Basis for taxes payable:

Result before taxes for the Group 209,150 -819,128 -329,714

Result before taxes outside Norway and Group adjustments -201,468 -36,259 1,286

Result before taxes in Norway 410,618 -782,869 -331,000

Result before taxes in Norway after adjustment for capitalized interest

Permanent differences consisting of:

Costs of share offerings -52,006 -20,165 -18,148

Non-deductible expenses 10,368 1,161 1,225

Change in temporary differences comprising:

Pension costs -3,742 -2,522 -267

Accruals -2,651 9,356 -8,743

Fixed assets -118,059 239,866 -1,876

Capitalized interest expenses -258,532 -276,918 -334,338

Basis for calculation of taxes payable – Norway -14,004 -832,091 -693,197

Taxes payable – Norway - - -

Basis for calculation of taxes payable – foreign 37 617 1,147

Taxes payable – foreign 22 329 220



NOK 1,000 2002 2001 2000

Temporary differences:

Fixed assets 123,243 241,302 1,436

Goodwill 80,000 80,000 80,000

Accruals 8,705 11,356 2,000

Pension costs -6,825 -3,083 -561

Capitalized interest expenses -1,184,557 -926,025 -692,023

Total temporary differences -979,434 -596,450 -609,148

Losses carried forward 2,322,205 2,205,463 1,373,372

Basis for calculation of deferred tax benefit 1,342,771 1,609,013 764,224

Deferred tax benefit 375,976 450,524 213,983

Losses carried forward outside Norway 175,067 145,973 -

Basis for calculation of deferred tax benefit outside Norway 175,067 145,973 -

The carrying amount of the deferred tax benefit is assessed based on the general principles for valuation of assets. Based on these principles, the

deferred tax benefit is not recorded.

Cumulative losses carry-forward in Norway at 31 December, 2002, expire as follows:

NOK 1,000 2002

2008 247,433

2009 437,740

2010 689,319

2011 933,709

2012 14,004

Total 2,322,205

Losses carried forward in Norway is adjusted by NOK 102.7 million from previous years and relate to tax reporting adjustments.

Losses carried forward outside of Norway expire in 2008 and relate to losses in Canada.

NOTE 14 SHAREHOLDERS’ EQUITY

The Company had 7,700 shareholders at 31 December, 2002. Among the 20 largest shareholders, the following had ownership of more than 1%:

Shareholder Number of shares Ownership (%)

1 Deutche Bank AG 70,658,143 14.33

2 Goldman Sachs International – Nominee 64,047,782 12.99

3 Sinvest ASA 62,849,093 12.75


5 Morgan Stanley & Co – Nominee 52,636,779 10.67

6 Morgan Stanley & Co 23,315,552 4.73



9 Odin Norge 15,789,292 3.20

10 Odin Norden 12,376,717 2.51

11 Credit Suisse First Boston (Europe) 8,510,553 1.72

12 UBS AG, London 6,957,000 1.41



Members of the Board have the following holdings in the Company as of 31 December, 2002:

Name Number of shares 1) Options

Morten Borge 94,000 1,300,000

Roy Mosvold 2) 1,885,830 675,000

Geir Aune - 675,000

Bjarne Skeie 3) - 675,000

J. Frithjof Skouverøe 46,581 675,000

1) Includes shares owned by companies controlled by the Board member or immediate family

2) Roy Mosvold also holds 66,946 class C and 121,720 class D warrants.

3) Bjarne Skeie controls convertible bonds with a face value of NOK 3,631,000 convertible at NOK 3.50 per share.

The Company’s equity at 31 December, 2002, is as follows:

NOK 1,000 Capital stock Other paid in capital Retained earnings Total

Equity at 31.12.2000 1,333,659 2,390,811 -549,064 3,175,406

Share issue 2001 348,657 116,219 - 464,876

Costs of share offerings - -20,165 - -20,165

Net loss - - -819,457 -819,457

Translation differences - - 2,628 2,628

Equity at 31.12.2001 1,682,316 2,486,865 -1,365,893 2,803,288

Write-down of nominal value of shares -1,626,239 1,626,239 - -

Share issue 2002 436,810 1,042,633 - 1,479,443

Costs of share offerings - -52,006 - -52,006

Net earnings/(loss) for the year - - 209,128 209,128

Translation differences - - 18,187 18,187

Equity at 31.12.2002 492,887 5,103,731 -1,138,578 4,458,040

As of 31 December, 2002, the Company’s share capital is NOK 492,886,851 comprising 492,886,851 shares, each of NOK 1.0 nominal value.

All shares represent equal rights.

As of 31 December, 2002, NOK 21.6 million of other equity relates to the value of outstanding warrants. Further, NOK 66.3 million relates to unamor-

tized value of warrants and intrinsic bond value.

Warrants:In May and June 2002 the Company issued, in connection with its short-term debt financing, 35,614,800 warrants, each providing the right to subscribe

to one share in the Company at a subscription price of NOK 8.0 per share. The warrants are divided into four classes, with different number of warrants

expiring at different dates, with final expiration for the last class on 13 May, 2003. The warrants can be exercised at any time within the maturity dates.

During 2002 none of the warrants were exercised and a total of 15,668,998 of the warrants expired.

In connection with the Company's issue of the NOK 669.5 million Mandatory Convertible Bond in August and September 2002 a total of 191,275,143

warrants were issued by the Company. Each warrant gave the holder the right to buy one share in the Company for NOK 1.0 per share. The exercising

of the warrants were conditional upon certain events relating to the final completion date and cost for Eirik Raude. If the Company had not delivered

Eirik Raude on contract with EnCana within 15 October, 2002, or the Company had within 31 October, 2002, suffered cost overruns or loss of income

in relation to Eirik Raude of more than USD 8 million compared to the projected remaining costs estimated in April 2002, the warrants would become

exercisable. The warrants had to be exercised by 31 October, 2002, unless the Company made a public announcement that the conditions for sub-

scription were not met. Any warrants not exercised by 31 October, 2002, lapsed. On 16 October, 2002, the Company announced that the conditions

for exercising was met and on 31 October, 2002, a total of 191,258,154 subscription rights were exercised.

The Company estimated, at the issue date, the probability for the warrants to become exercisable to be 20%.




Any new shares issued by the Company following the exercise of warrants will be equal in all respects to other outstanding shares and will carry divi-

dend rights from and including the date of which they are issued.

As of 31 December, 2002, the following warrants are outstanding:

Number of Warrants expired Warrants Subscription Warrants warrants during 2002 exercised price outstanding

Rights issued May/June 2002 35,614,800 15,668,998 - 8.0 19,945,802

Rights issued August/September 2002 191,275,143 16,989 191,258,154 3.5 -

Total 226,889,943 15,685,987 191,258,154 19,945,802

Of the 19,945,802 warrants outstanding, 7,077,543 warrants expire 13 March, 2003, and 12,868,259 warrants expire 13 May, 2003.

NOTE 15 EARNINGS PER SHARE

Basic earnings per share calculations are calculated based on the weighted-average number of common shares outstanding during the period. When

calculating diluted earnings per share, all potentially dilutive securities are included in the calculation. At 31 December, 2002, the Company's potentially

dilutive securities include employee options, convertible bonds and warrants.

2002 2001 2000

Net (loss) income (NOK 1,000 ) 209,128 -819,457 -329,934

Average number of shares outstanding (1,000) 190,738,672 51,749 40,553

Basic earnings per share (NOK) 1.10 -15.84 -8.14

Average number of shares outstanding for diluted earnings per share (1,000) 288,498,989 51,749 40,553

Diluted earnings per share (NOK) 0.72 -15.84 -8.14

A total of 97,760,317 potentially dilutive shares are included in the calculation of dilutive earnings per share at 31 December, 2002.

NOTE 16 RELATED PARTY TRANSACTIONS

Ocean Rig has entered into the following agreements with related parties:

Payments to related parties

NOK 1,000 Total contract value 2002 2001 2000

Agreements regarding supply of equipment from Hydralift ASA

to Leiv Eiriksson and Eirik Raude (total for both rigs) 567,435 21,194 43,789 39,358

Board member Bjarne Skeie sold his shares in Hydralift ASA in December 2002 and as of 31 December, 2002, Hydralift is no longer considered as

related party to the Company. Transactions up until the sale of shares in Hydralift ASA are included in the table.

In addition to the above-mentioned transactions, two of the Board members have received compensation for additional services during 2002. Chairman

of the Board, Morten Borge, received a compensation of NOK 1,442,818 for work performed that exceeds work relating to his position as Chairman of

the Board. Board member Geir Aune received consulting fees of NOK 100,000.

Amounts related to payments to Hydralift ASA for the supply of equipment have mainly been capitalized as spare parts (see Note 8).



NOTE 17 LEASING

Ocean Rig has operating leasing commitments for office space that expire at various dates. The Group has no leasing commitments after 2005.

At 31 December, 2002, the Group had the following leasing commitments:

NOK 1,000

2003 3,490

2004 1,880

2005 1,195

Total 6,565

NOTE 18 COMPENSATION TO THE PRESIDENT, THE BOARD OF DIRECTORS AND THE COMPANY’S AUDITOR

In 2002, the President of Ocean Rig ASA received a salary of NOK 1,242,311 and other compensation of NOK 11,072. Pension expenses for the

President amounted to NOK 76,305. If the President is requested to resign from his position, he is entitled to severance pay equal to 12 months

salary with a 50% reduction of salary received from new employer.

At 31 December, 2002, the President holds 400,000 options in Ocean Rig ASA with an exercise price of NOK 3.50. The options were granted during

2002 as part of the Company's option scheme to employees. The President has not exercised any options during 2002. See Note 19 for further infor-

mation of the Company’s option plan.

Each member of the Board elected for the period ending at the General Assembly in 2002 received a board remuneration of NOK 300,000, adjusted

according to Board members’ service period. Geir Aune, Morten Borge and Roy Mosvold each received an adjusted remuneration of NOK 153,760.

Bjarne Skeie and Frithjof Skouverøe each received NOK 300,000 in remuneration. The members of the Board were granted 8,000,000 million options

in Ocean Rig ASA in 2002, with an exercise price of NOK 3.50. Options granted previously were recalled. Based on certain conditions tied to the allo-

cation of the options, 50% of the options had expired as of 31 December, 2002. See Note 19 for the Company's option plan.

Fees paid to the Company’s auditor amounted to NOK 561,280 for the Ocean Rig Group in 2002, of which NOK 431,280 was related to the audit of

the subsidiaries. In addition, NOK 1,310,066 was paid in fees for other assurance services to the auditors.

NOTE 19 OPTION PLAN

At the Company's Extraordinary General meeting in August 2002 a new share option plan was approved, authorizing the Board to issue up to

14,000,000 shares in the Company to employees and Board members of the Company, each with a subscription price of NOK 3.5 per share. Any

previous granted options were withdrawn. Board members have the right to subscribe for up to 8,000,000 shares and employees to subscribe for up

to 6,000,000 shares. The options may, at the discretion of the holder, be utilized in one or more rounds up to the total number of options. The options

may be exercised at the earliest one year after the allocation. In the event of a mandatory bid on the Company, the options may be exercised earlier.

Options not used within three years after allocation will lapse without any compensation. The authorization is effective for two years and expires at the

date of the Company's general meeting in 2004.

In 2002, a total of 8,000,000 options were granted to members of the Board of Directors and 3,091,000 options were granted to employees of the

Company. As of 31 December, 2002, 50% of the allocated options have expired due to (i) 25% of the options lapsed since the rig Eirik Raude was not

on contract by 15 October, 2002, and (ii) another 25% of the options lapsed since Eirik Raude had not commenced charter hire by 31 October, 2002.

Eirik Raude was completed and commenced operations 1 November, 2002.


At 31 December, 2002, the following options are granted and outstanding:

Exercise price Total options Year granted Last exercise year

Members of the Board NOK 3.50 4,000,000 2002 2005

Primary insiders and key employees NOK 3.50 1,545,500 2002 2005

The closing price of the share in 2002 was NOK 1.08. The fair market value of the options is lower than the option price at 31 December, 2002,

and no accrual for social security tax has been recorded. Costs related to the share options are recorded in accordance with guidelines from the

Oslo Stock Exchange.

NOTE 20 LIQUIDITY

To strengthen the Company's working capital after the completion of Eirik Raude the Company issued a share issue in December 2002 with a subsequent

share issue in January 2003. Further, the Company refinanced the terms of its loan with its bank syndicate, which resulted in changes to the requirement

for minimum cash covenant and changes to the principal installments. The Company's liquidity at the beginning of 2003 together with budgeted cash flows

from operations in 2003 will be sufficient to cover interest payments and installments on loans in 2003. Operations for the first couple of months in 2003

has generated a lower cash-flow than budgetted which will result in a tight liquidity through 2003, but, the Company still expects a positive cash flow from

operations in 2003. The Company reserves itself from differences in actual results compared to budget assumptions due to, among others, lower utilization

or operating regularity of the rigs, change in rate assumptions and higher operating costs than expected. The Company can not give any guarantees in

relation to its future generation of cash flows. The financial statements have been prepared assuming the Company will continue as a going concern.



Statement of Operations – Ocean Rig ASA

1,000 NOK Notes 2002 2001 2000

Operating revenues 2 76,187 75,294 28,880

Operating expenses:

Salaries and other personnel expenses 3 20,005 20,909 11,163

Other operating and administrative expenses 58,971 141,476 119,677

Depreciation, amortization and asset impairment write-down 7, 8 6,646 298,500 917

Total operating expenses 85,622 460,885 131,757

OPERATING LOSS -9,435 -385,591 -102,877

Financial income and expenses:

Financial income 4 80,011 28,518 136,511

Financial expenses 5 162,182 72,249 32,555

Net financial items -82,171 -43,731 103,956

EARNINGS/(LOSS) BEFORE TAXES -91,606 -429,322 1,079

Income taxes 13 - - -

EARNINGS/(LOSS) FOR THE YEAR -91,606 -429,322 1,079

TRANSFERS AND ALLOCATIONS:

Retained earnings 91,606 429,322 -1,079


Balance Sheet – Ocean Rig ASA

1,000 NOK Notes 31.12.2002 31.12.2001 31.12.2000

Long-term assets:

Property and equipment 7 78,601 311 694

Shares in subsidiaries 1 6,015,158 4,490,278 2,978,184

Long-term loans to subsidiaries 14,093 267,578 713,874

Long-term receivables and other assets 9 30,641 51,772 22,119

Total long-term assets 6,138,493 4,809,939 3,714,871

Current assets:

Other current receivables 6,110 3,091 4,904

Cash and cash equivalents 6 84,471 139,581 553,548

Total current assets 90,581 142,672 558,452

TOTAL ASSETS 6,229,074 4,952,611 4,273,323

Shareholders’ equity:

Capital stock 15 492,887 1,682,316 1,333,659

Share premium reserve 15 2,958,992 342,126 246,072

Other paid in capital 15 2,144,739 2,144,739 2,144,739

Retained earnings 15 -514,129 -422,522 6,800

Total shareholders' equity 5,082,489 3,746,659 3,731,270

Long-term liabilities:

Pension liabilities 12 591 1,088 1,221

Convertible bonds 11 996,143 1,052,500 500,000

Long-term intercompany debt 5,691 51 52

Total long-term liabilities 1,002,425 1,053,639 501,273

Current liabilities:

Accounts payable, trade 5,908 6,334 6,335

Intercompany payables - - 994

Short-term loan 10 84,322 - -

Other current liabilities 53,930 145,979 33,451

Total current liabilities 144,160 152,313 40,780

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 6,229,074 4,952,611 4,273,323


Geir Aune


(sign.)

Morten Borge

(sign.)

Bjarne Skeie

(sign.)

Roy Mosvold

(sign.)


(sign.)

Kai Solberg-Hansen

President and CEO

(sign.)


Statement of Cash Flows – Ocean Rig ASA

1,000 NOK Notes 31.12.2002 31.12.2001 31.12.2000

Cash flows from operations:

Net earnings/loss for the year -91,606 -429,322 1,079

Amortization, depreciation and write-downs 86,275 302,422 1,341

Net unrealized foreign exchange gain/loss -756 -423 -5,603

Changes in current receivables -3,019 1,813 -3,049

Changes in accounts payable -426 -995 -5,281

Changes in other current liabilities -92,545 112,395 4,960

Net cash provided by operations (A) -102,077 -14,110 -6,553

Cash flows from investing activities:

Payments related to construction in progress and other investments -78,572 94 59

Payments related to investment in subsidiaries -1,524,888 -1,512,094 -700,000

Loans to subsidiaries 245,817 148,273 -98,125

Net change in long-term receivables 3,694 -2,419 399

Net cash used in investing activities (B) -1,353,949 -1,366,146 -797,667

Cash flows from financing activities:

Net proceeds from issuance of common shares 831,484 444,711 337,528

Net proceeds from debt financing 578,453 521,344 480,171

Net cash provided by financing activities (C) 1,409,937 966,055 817,699

Effect of translation differences on cash and cash equivalents (D) -9,021 234 4,772

Net increase/(decrease) in cash during the year (A + B + C + D) -55,110 -413,967 18,251

Cash and cash equivalents at the beginning of the year 139,581 553,548 535,297

Cash and cash equivalents at the end of the year 6 84,471 139,581 553,548


NOTE 1 SHARES IN SUBSIDIARIES

Ocean Rig ASA has shares in the following subsidiaries:

Ownership Total share capital Nominal value Book value At 31 December, 2001 Location in % (in 1,000) Number of shares per share (NOK 1,000)

Ocean Rig Norway AS Oslo 100 NOK 2,699,651 26,996,514 NOK 100 6,004,653

Ocean Rig Angola AS Oslo 100 NOK 50 500 NOK 100 50

Ocean Rig AS Stavanger 100 NOK 500 100 NOK 5000 10,000

US Ocean Rig Inc. Pascagoula 100 USD 1 10 USD 100 8

Ocean Rig Ltd. Aberdeen 100 GBP 10 10,000 GBP 1 126

Ocean Rig Finance B.V. Amsterdam 100 EUR 40 40 EUR 1000 321

Total 6,015,158

The voting power is according to the ownership.

The following companies are subsidiaries of Ocean Rig Norway AS, and are therefore included in the Ocean Rig Group:

Ownership Total share capital Nominal value Book value At 31 December, 2001 Location in % (in 1,000) Number of shares per share (NOK 1,000)

Ocean Rig 1 AS Oslo 100 NOK 50 500 NOK 100 50

Ocean Rig 2 AS Oslo 100 NOK 504,050 5,040,500 NOK 100 1,283,050



Total 1,283,200

NOTE 2 OPERATING REVENUES

Operating revenues are derived from the management fees charged to Ocean Rig Norway AS.

NOTE 3 SALARIES AND OTHER PERSONNEL EXPENSES

NOK 1,000 2002 2001 2000

Salaries 15,237 15,768 6,469

Social security taxes 2,174 3,084 1,817

Net pension costs (see Note 11) 569 979 1,086

Other personnel expenses 2,025 1,078 1,791

Total salaries and other personnel expenses 20,005 20,909 11,163

Average number of employees 7 12 11

Notes – Ocean Rig ASA



NOTE 4 FINANCIAL INCOME

NOK 1,000 2002 2001 2000

Interest income 16,527 10,730 45,292

Group contribution - 8,758 8,114

Foreign exchange gains 63,484 9,030 83,105

Total financial income 80,011 28,518 136,511

NOTE 5 FINANCIAL EXPENSES

NOK 1,000 2002 2001 2000

Foreign exchange losses 129,441 8,882 7,896

Interest expenses 20,341 58,908 22,953

Other financial expenses 12,400 4,459 1,706

Total financial expenses 162,182 72,249 32,555

NOTE 6 CASH AND CASH EQUIVALENTS

Cash and cash equivalents include:

NOK 1,000 2002 2001 2000

Bank deposits 84,471 139,581 553,548

Total cash and cash equivalents 84,471 139,581 553,548

Total cash and cash equivalents include restricted cash of NOK 1.3 million and NOK 6.2 million in 2002 and 2001, respectively.

NOTE 7 PROPERTY AND EQUIPMENT

Machinery and equipment include EDP equipment and office equipment that are depreciated on a straight-line basis at a rate of 20–30% per year. The

following table includes a specification of cost, depreciation/amortization and write-downs.

Drilling equipmentNOK 1,000 EDP/office equipment and spare parts Total

Cost at 31.12.01 3,472 - 3,472

Invested in 2002 66 78,506 78,572

Disposals in 2002 - - -

Cost at 31.12.02 3,538 78,506 82,044

Accumulated depreciation 31.12.01 3,161 - 3,161

Depreciation in 2002 282 - 282

Accumulated depreciation 31.12.02 3,443 - 3,443

Book value at 31.12.02 95 78,506 78,601

Drilling equipment will be transferred to Ocean Rig 2 AS in 2003.



NOTE 8 ASSET IMPAIRMENT WRITE-DOWN OF RECEIVABLES AND SHARES IN SUBSIDIARIES

The intercompany receivables towards Ocean Rig 3 AS and Ocean Rig 4 AS have been written down by NOK 6.3 million based on the development in

the subsidiaries.

NOTE 9 LONG-TERM RECEIVABLES AND OTHER ASSETS

NOK 1,000 31.12.02 31.12.01 31.12.00

Capitalized debt issuance cost (see Note 10) 28,133 45,570 18,336

Other items 2,508 6,202 3,783

Total long-term receivables and other assets 30,641 51,772 22,119

The cost of issuance of the convertible bonds in November and December 2001 amounted to NOK 31.2 million. These costs were deducted from

shareholder's equity when the bonds were converted to shares in February 2002.

Debt issuance cost of NOK 3.3 million was written down in 2002 in connection with the conversion of the NOK 300 million, NOK 200 million convert-

ible bonds and the USD 52.9 million loan to the new Mandatory Convertible Bond issued in August and September 2002. For further information see

Note 11 to the consolidated financial statements.

Debt issuance cost of NOK 11.2 million and NOK 3.9 million is posted as financial expense in 2002 and 2001, respectively.

NOTE 10 SHORT-TERM LOAN

As of 31 December, 2002, the outstanding principal balance of the Company’s short-term USD bond is USD 13.1 million. The balance equals NOK

84.3 million, inclusive unamortized discount on the loan. See Note 10 to the consolidated financial statements for further details on the loan.

NOTE 11 CONVERTIBLE DEBT

The company has the following debt:

NOK 1,000 31.12.02 31.12.01 31.12.00

Convertible bonds – 2001 - 552,500 -

Convertible bonds – 2000 393,000 500,000 500,000

NOK Mandatory Convertible Loan – 2002 669,452 - -

Less unamortized balance of warrants and intrinsic value -66,309 - -

Total convertible debt 996,143 1,052,500 500,000

For detailed information on the convertible debt, see Note 11 to the consolidated financial statements.

The convertible loan totalling NOK 552.5 million issued in November and December 2001 was converted to 73,666,666 shares in the Company in

February 2002.



NOTE 12 PENSIONS

The Company's defined-benefit plans are covered by a group pension plan. It was established on 1 January, 1998, and covers 12 persons. Pension

liability and pension costs are calculated based on the actuarial cost method. The following assumptions were used in 2002, 2001 and 2000:

Expected return on pension assets 7.0%

Discount rate 6.0%

Salary increase rate 3.5%

Social security increase rate 3.0%

Retirement pension increase rate 2.5%

Pension costs included in salaries and other personnel expenses are specified below:

NOK 1,000 2002 2001 2000

Benefits earned during the year 700 1,032 1,108

Interest cost 117 149 151

Expected return on pension assets -182 -174 -158

Changes in estimates -66 -28 -15

Total pension costs – defined-benefit plans 569 979 1,086

The Company’s pension liabilities (under-funded plans) are specified below:

NOK 1,000 31.12.02 31.12.01 31.12.00

Present value of accrued benefit obligation -2,079 -3,011 -2,841

Effect of projected salary increase -559 -591 -535

Projected benefit obligation -2,638 -3,602 -3,376

Fair value of plan assets 3,245 3,149 2,598

Unrecognized changes in estimates -1,198 -635 -443

Pension liabilities recorded in balance sheet -591 -1,088 -1,221

NOTE 13 TAXES

Below is a summary of taxable loss, temporary and permanent differences and the calculation of deferred taxes.

NOK 1,000 2002 2001 2000

Basis for taxes payable:

Result before taxes -91,606 -429,322 1,079

Permanent differences consisting of:

Costs of share offerings -52,006 -20,165 -18,148

Non-deductible expenses 8,812 119 409

Change in temporary differences comprising:

Pension costs -497 -133 22

Accruals -151 6,856 -8,743

Fixed assets 6,329 297,351 -3,272

Tax base -129,119 -145,294 -28,653

Taxes payable - - -



NOK 1,000 2002 2001 2000

Temporary differences:

Pension costs 591 1,088 1,221

Accruals 8,705 8,856 2,000

Receivables 307,317 300,953 2,930

Fixed assets 665 700 1,372

Goodwill 80,000 80,000 80,000

Losses carried forward 404,117 272,248 129,566

Basis for calculation of deferred tax benefit 801,395 663,845 217,089

Deferred tax benefit at 28% 224,391 185,877 60,785

The carrying amount of the deferred tax benefit is assessed based on the general principles for valuation of assets. Based on this the deferred tax

benefit is not recorded.

Cumulative carry-forward amounts at 31 December, 2002, expire as follows:

NOK 1,000

2008 89,202

2009 11,777

2010 25,975

2011 148,044

2012 129,119

Total 404,117

Losses carried-forward from previous years are adjusted by NOK 2.7 million and relate to tax reporting adjustments.

NOTE 14 LEASING

Ocean Rig has operating leasing commitments for office space that expire in 2005. The company has no leasing commitments after 2005. At

31 December, 2002, the Company had the following leasing commitments:

NOK 1,000

2003 1,723

2004 1,758

2005 and thereafter 1,195

Total 4,676


NOTE 15 SHAREHOLDERS’ EQUITY

The nominal value of the Company's shares was written down from NOK 30.0 to NOK 1.0 in February 2002.

The Company’s equity at 31 December, 2002, is as follows:

NOK 1,000 Capital stock Share premium reserve Other paid in capital Retained earnings Total

Equity at 31.12.2001 1,682,316 342,126 2,144,739 -422,522 3,746,659

Write-down of share capital -1,626,239 1,626,239 - - -

Share issue 436,810 1,042,633 - - 1,479,443

Share issuance costs - -52,006 - - -52,006

Net earnings/loss for the year - - - -91,606 -91,606

Equity at 31.12.2002 492,887 2,958,992 2,144,739 -514,129 5,082,489

See Note 14 to the consolidated financial statements for further shareholder information.

As of 31 December, 2002, NOK 21.6 million of other equity relates to the value of outstanding warrants. Further, NOK 66.3 million relates to unamor-

tized value of warrants and intrinsic bond value.

As of 31 December, 2002, the following warrants are outstanding:

Number of rights Expire date Subscription price

Issued May/June 2002 7,077,543 13 March, 2003 8.0

Issued May/June 2002 12,868,259 13 May, 2003 8.0

Total 19,945,802

See Note 14 to the consolidated financial statements for further information on outstanding warrants.

NOTE 16 GUARANTEES

Ocean Rig ASA has fully and unconditionally guaranteed the Notes and the Loans of USD 350 million (NOK 2,438.1 million) issued by its subsidiary,

Ocean Rig Norway AS and the Loan of USD 99.2 million (NOK 691.4 million) issued by its subsidiary, Ocean Rig 2 AS. The Notes and the Loans, which

contain covenants typical in high-yield debt financing in the USA, impose certain structural restrictions on the Company.

These are described in Note 11 to the consolidated financial statements.

NOTE 17 LIQUIDITY/SUBSEQUENT EVENTS

See Note 20 to the consolidated financial statements for information on liquidity.


Auditor’s Report


To the Annual Shareholders' Meeting of Ocean Rig ASA

Auditor’s report for 2002

We have audited the annual financial statements of Ocean Rig ASA as of 31 December 2002, showing a loss of NOK 91,606,686 for the parent com-

pany and a profit of NOK 209,128,000 for the group. We have also audited the information in the directors' report concerning the financial statements,

the going concern assumption, and the proposal for the coverage of the loss. The financial statements comprise the balance sheet, the statements of

income and cash flows, the accompanying notes and the group accounts. These financial statements are the responsibility of the Company’s Board of

Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on other information according to the

requirements of the Norwegian Act on Auditing and Auditors.

We conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and auditing standards and practices generally accepted in

Norway. Those standards and practices require that we plan and perform the audit to obtain reasonable assurance about whether the financial state-

ments are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the

overall financial statement presentation. To the extent required by law and auditing standards an audit also comprises a review of the management of

the Company's financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion.

In our opinion,

• the financial statements have been prepared in accordance with the law and regulations and present the financial position of the Company and of the

Group as of December 31, 2002, and the results of its operations and its cash flows for the year then ended, in accordance with accounting stan-

dards, principles and practices generally accepted in Norway

• the company's management has fulfilled its duty to produce a proper and clearly set out registration and documentation of accounting information

as required by law and accounting standards, principles and practices generally accepted in Norway

• the information given in the directors' report concerning the financial statements, the going concern assumption, and the proposal for the coverage

of the loss are consistent with the financial statements and comply with the law and regulations.

Without any consequence for the conclusion in the above paragraph, we would like to point out that there is substantial doubt about the company’s abil-

ity to continue as a going concern. We refer to note 20 in the financial statement and the Board of Director’s report for further information.


PricewaterhouseCoopers DA

Fredrik Melle

State Authorised Public Accountant (Norway)

Note: This translation from Norwegian has been prepared for information purposes only.

Ocean Rig ASAPO Box 409Koppholen 4, ForusNO-4067 StavangerNorwayTel: (47) 51 96 90 00Fax: (47) 51 96 90 99

Ocean Rig Ltd.33 Albyn LaneAberdeen AB10 6XFScotlandTel: (44) 1224 210 088Fax: (44) 1224 210 313

Ocean Rig 2 ASCIBC Tower, St 11041809 Barrington StreetHalifax, Nova Scotia B3J 3K8CanadaTel: (1) 902 492 2642Fax: (1) 902 492 3246

Ocean Rig ASOcean Rig Norway ASOcean Rig 1 ASOcean Rig 3 ASOcean Rig 4 ASOcean Rig Angola ASUS Ocean Rig Inc.PO Box 409Koppholen 4, ForusNO-4067 StavangerNorwayTel: (47) 51 96 90 00Fax: (47) 51 96 90 99

Addresses

Burson-Marsteller a| s - - - Print: N

etwork Produksjon as - - - Photo: Jocelyn D

’Entremont/Ship to Shore Photography, O

le Walter Jacobsen

Annual Report 2002reports.huginonline.com/902109/117159.pdf · The drilling rigs, Leiv Eriksson and...

Documents

Transcript of Annual Report 2002reports.huginonline.com/902109/117159.pdf · The drilling rigs, Leiv Eriksson and...