1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement       [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

SCHLUMBERGER LIMITED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.

(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value, of Sedco Forex Holdings Limited. - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: 550,000,000 - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):$0.9435 (based upon the book
value of the Sedco Forex Holdings Limited Common Stock computed as of
June 30, 1999).
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $518,932,000 - -------------------------------------------------------------------------------- (5) Total fee paid:$103,787
- --------------------------------------------------------------------------------

[X] Fee paid previously with preliminary materials.

[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid: $103,787 - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: Confidential Preliminary Joint Proxy Statement/Prospectus on Schedule 14A - -------------------------------------------------------------------------------- (3) Filing Party: Transocean Offshore Inc. - -------------------------------------------------------------------------------- (4) Date Filed: September 17, 1999 - -------------------------------------------------------------------------------- 2 [TRANSOCEAN OFFSHORE INC. LOGO][SCHLUMBERGER LOGO] SPIN-OFF AND MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT The boards of directors of Transocean Offshore Inc. and Schlumberger Limited have each approved transactions in which Schlumberger will spin off its offshore contract drilling business by distributing to its shareholders the common stock of Sedco Forex Holdings Limited. Sedco Forex Holdings Limited will then merge with a wholly owned subsidiary of Transocean. Upon completion of the merger, Transocean will change its name to Transocean Sedco Forex Inc. Transocean Sedco Forex will have the world's largest fleet of mobile offshore drilling rigs and will own, operate or manage 75 rigs, including six newbuilds currently under construction. Twenty-two of these rigs will be capable of drilling in water depths of 3,000 feet or greater. If the transactions are completed, Transocean's shareholders will continue to own their existing Transocean ordinary shares, and Schlumberger's shareholders will own the Transocean ordinary shares they receive as a result of the spin-off and the merger, in addition to their existing Schlumberger shares. Transocean expects to issue approximately 109 million of its ordinary shares in the merger, representing about 52% of the total Transocean Sedco Forex ordinary shares that will be outstanding after the merger. The transactions cannot be completed without the approval of Schlumberger's and Transocean's shareholders. Schlumberger's shareholders will vote on the spin-off of Sedco Forex. Transocean's shareholders will vote on an increase of Transocean's authorized ordinary share capital and the issuance of Transocean ordinary shares to Schlumberger's shareholders. We have scheduled separate meetings to be held on December 10, 1999 for Schlumberger's shareholders and Transocean's shareholders to vote on these matters. In addition to the shareholder votes needed to complete the spin-off and the merger, Transocean's shareholders will also vote on a name change to "Transocean Sedco Forex Inc." and amendments to Transocean's Long-Term Incentive Plan and Transocean's Employee Stock Purchase Plan to increase the number of ordinary shares reserved for issuance under those plans. The Transocean and Schlumberger boards of directors each recommend that their respective shareholders vote "FOR" the proposals. The dates, times and places of these meetings are contained in the attached notices. This document provides you with detailed information about the spin-off, the merger and the shareholder meetings. You can also obtain financial and other information about Transocean and Schlumberger from documents filed with the Securities and Exchange Commission. We encourage you to read carefully this entire document and the documents incorporated by reference. LOGO J. Michael Talbert Chairman of the Board and Chief Executive Officer Transocean Offshore Inc. LOGO Euan Baird Chairman of the Board and Chief Executive Officer Schlumberger Limited SEE "RISK FACTORS" BEGINNING ON PAGE 33 FOR A DISCUSSION OF RISKS THAT SHOULD BE CONSIDERED BY SCHLUMBERGER'S SHAREHOLDERS AND TRANSOCEAN'S SHAREHOLDERS BEFORE VOTING AT THEIR RESPECTIVE MEETINGS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE TRANSOCEAN ORDINARY SHARES TO BE ISSUED IN THE MERGER OR DETERMINED THAT THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This joint proxy statement/prospectus is dated October 27, 1999 and is first being mailed to shareholders of Transocean and Schlumberger on or about November 8, 1999. 3 [SCHLUMBERGER LOGO] Schlumberger Limited 277 Park Avenue New York, New York 10172 42, rue Saint-Dominique 75007 Paris, France Parkstraat 83, 2514 JG The Hague, The Netherlands NOTICE OF SPECIAL GENERAL MEETING OF SHAREHOLDERS TO BE HELD DECEMBER 10, 1999 A special general meeting of shareholders of Schlumberger Limited (Schlumberger N.V.) will be held at the Avila Beach Hotel, Pennstraat 130, Willemstad, Curacao, Netherlands Antilles, on December 10, 1999 at 10:30 a.m., Curacao time, to vote on the distribution of the capital stock of Sedco Forex Holdings Limited to the holders of Schlumberger common stock such that each Schlumberger shareholder will receive one share of Sedco Forex capital stock for each share of Schlumberger common stock owned as of a record date to be established for the distribution, as described in the attached joint proxy statement/prospectus. If Schlumberger's shareholders adopt and approve the distribution, and the other conditions to the distribution and merger are satisfied or waived, after the distribution, Sedco Forex will merge with a subsidiary of Transocean Offshore Inc. and Schlumberger's shareholders will receive Transocean Offshore Inc. ordinary shares in exchange for their Sedco Forex shares. The record date for the meeting is the close of business on November 1, 1999. All holders of our common stock at that time are entitled to notice of, and to vote at, the meeting and at any adjournments or postponements of the meeting. Those shareholders who will receive Sedco Forex shares in the distribution will be those who hold our common stock at a subsequent record date established by order of the Chairman of the board of directors. The presence, in person or by proxy, of at least half of the outstanding shares of our common stock, exclusive of shares held in treasury, is required for the meeting, and the affirmative vote of at least a majority of votes cast is necessary for the adoption of the proposal. Your vote is very important. To ensure that your shares are represented, you should complete, sign, date and return the enclosed proxy card in the prepaid envelope enclosed, whether or not you expect to attend the special general meeting. You may revoke your proxy in the manner described in the accompanying joint proxy statement/prospectus at any time before it is voted. By Order of the Chairman /s/ JAMES L. GUNDERSON JAMES L. GUNDERSON Secretary 4 THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE. SEE "WHERE YOU CAN FIND MORE INFORMATION" FOR A LISTING OF DOCUMENTS INCORPORATED BY REFERENCE. TRANSOCEAN DOCUMENTS ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, UPON REQUEST DIRECTED TO JEFFREY L. CHASTAIN, DIRECTOR OF INVESTOR RELATIONS AND COMMUNICATIONS, TRANSOCEAN OFFSHORE INC., 4 GREENWAY PLAZA, HOUSTON, TEXAS 77046, TELEPHONE (713) 232-7500. SCHLUMBERGER DOCUMENTS ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, UPON REQUEST DIRECTED TO SIMONE CROOK, DIRECTOR INVESTOR RELATIONS & COMMUNICATIONS, SCHLUMBERGER LIMITED, 277 PARK AVENUE, NEW YORK, NEW YORK 10172, TELEPHONE (212) 350-9432. TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY DECEMBER 3, 1999. THE EXHIBITS TO THESE DOCUMENTS WILL GENERALLY NOT BE MADE AVAILABLE UNLESS THEY ARE SPECIFICALLY INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. TABLE OF CONTENTS PAGE ---- QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF AND THE MERGER............... 1 SUMMARY............................... 5 The Companies....................... 5 The Transactions.................... 8 Transocean Sedco Forex After the Merger........................... 8 The Shareholder Meetings............ 8 Schlumberger Vote Required for Approval of the Schlumberger Proposal......................... 8 Recommendation to Schlumberger's Shareholders..................... 8 Opinion of Goldman, Sachs & Co. .... 8 Transocean Votes Required for Approval of the Transocean Proposals........................ 9 Recommendation to Transocean's Shareholders..................... 9 Opinion of Simmons & Company International.................... 9 Interests of Certain Persons in the Merger........................... 9 Conditions to the Spin-off and the Merger........................... 10 Termination of the Merger Agreement........................ 10 Termination Fees and Expense Reimbursement.................... 11 Regulatory Approvals................ 11 Accounting Treatment and Considerations................... 12 Certain U.S. Federal Income Tax Consequences..................... 12 No Appraisal Rights................. 12 Listing of Transocean Sedco Forex Ordinary Shares.................. 12 Sedco Forex Employee Matters........ 12 SUMMARY FINANCIAL INFORMATION......... 14 Sources of Information.............. 14 PAGE ---- How We Prepared the Unaudited Pro Forma Financial Information...... 14 Transaction-Related Expenses........ 14 SEDCO FOREX SELECTED HISTORICAL COMBINED FINANCIAL DATA............. 15 TRANSOCEAN SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA......... 16 SCHLUMBERGER SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA......... 17 TRANSOCEAN SEDCO FOREX UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET............................... 18 TRANSOCEAN SEDCO FOREX UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENTS OF OPERATIONS............ 19 TRANSOCEAN SEDCO FOREX NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS....... 21 TRANSOCEAN SEDCO FOREX SUPPLEMENTAL FINANCIAL INFORMATION............... 25 SCHLUMBERGER UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET........ 26 SCHLUMBERGER UNAUDITED CONDENSED PRO FORMA STATEMENTS OF OPERATIONS...... 27 i 5 PAGE ---- UNAUDITED COMPARATIVE PER SHARE DATA.................................. 29 TRANSOCEAN AND SCHLUMBERGER MARKET PRICE AND DIVIDEND INFORMATION...... 30 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS.......................... 31 RISK FACTORS.......................... 33 The value of the Transocean ordinary shares to be received in the merger will fluctuate. .......... 33 The price of Transocean Sedco Forex ordinary shares may decline as a result of the transaction. ...... 33 Transocean Sedco Forex may face difficulties in integrating the operations of Sedco Forex and Transocean....................... 33 The business separation of Sedco Forex from Schlumberger may impair assets.................... 33 Transocean is subject to anti-takeover provisions......... 34 THE TRANSOCEAN EXTRAORDINARY GENERAL MEETING............................. 35 Time, Date and Place................ 35 Purpose of the Transocean Extraordinary General Meeting.... 35 Record Date; Voting Rights; Vote Required for Approval............ 35 Proxies............................. 36 THE SCHLUMBERGER SPECIAL GENERAL MEETING............................. 38 Time, Date and Place................ 38 Purpose of the Schlumberger General Meeting.......................... 38 Record Date; Voting Rights; Vote Required for Approval............ 38 Proxies............................. 39 THE TRANSACTIONS...................... 40 The Business Separation............. 40 The Spin-off........................ 41 The Merger.......................... 41 Background of the Merger............ 41 Transocean's Reasons for the Merger........................... 43 Recommendation of Transocean's Board of Directors..................... 44 Schlumberger's Reasons for the Spin-off and the Merger.......... 44 PAGE ---- Recommendation of Schlumberger's Board of Directors............... 46 Fairness Opinion -- Simmons & Company International............ 46 Fairness Opinion -- Goldman, Sachs & Co. ............................. 52 Transocean Sedco Forex Management... 59 Transocean Sedco Forex Board of Directors........................ 60 Stock Exchange Listing.............. 61 Accounting Treatment and Considerations................... 61 Certain U.S. Federal Income Tax Consequences..................... 61 Regulatory Matters.................. 65 Federal Securities Laws Consequences; Resale Restrictions..................... 66 THE TRANSACTION AGREEMENTS............ 68 The Distribution Agreement.......... 68 The Merger Agreement................ 70 Employee Matters Agreement.......... 81 BUSINESS OF SEDCO FOREX............... 84 Drilling Rig Types.................. 84 Fleet Enhancements and Upgrades..... 85 Drilling Rig Status................. 85 Drilling Contracts.................. 87 Significant Clients................. 88 Industry Conditions and Competition...................... 88 Markets............................. 89 Operating Risks..................... 89 International Operations............ 90 Regulation.......................... 91 Employees........................... 91 Properties.......................... 92 Legal Proceedings................... 92 SEDCO FOREX SELECTED HISTORICAL COMBINED FINANCIAL DATA............. 93 SEDCO FOREX MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 94 Overview............................ 94 Operating Results................... 94 Market Outlook...................... 97 Other Factors Affecting Operating Results.......................... 98 Liquidity and Capital Resources..... 100 New Accounting Pronouncements....... 102 ii 6 PAGE ---- Year 2000 Issues...................... 102 Euro Disclosures.................... 105 Quantitative and Qualitative Disclosures About Market Risk.... 105 MANAGEMENT OF SEDCO FOREX............. 105 Executive Compensation.............. 106 Stock Option Grants Table........... 107 Stock Option Exercises and December 31, 1998 Stock Option Value Table............................ 108 BUSINESS OF TRANSOCEAN................ 110 MANAGEMENT OF TRANSOCEAN SEDCO FOREX............................... 112 Directors and Executive Officers.... 112 Compensation of Directors........... 115 Officer and Director Indemnification.................. 116 INTERESTS OF CERTAIN PERSONS IN THE MERGER.............................. 116 Existing Schlumberger/Sedco Forex Officers and Directors Who Will Join Transocean Sedco Forex at the Effective Time............... 116 Indemnification of Sedco Forex Officers and Directors........... 117 Transocean Sedco Forex Chairman's Consulting Agreement............. 117 Employment Agreements............... 117 Long-Term Incentive Plan............ 118 Performance Award and Cash Bonus Plan............................. 118 DESCRIPTION OF CAPITAL STOCK OF TRANSOCEAN.......................... 119 Transocean Ordinary Shares.......... 119 Transocean Preference Shares........ 122 Limitation on Director's Liability........................ 122 Limitation on Changes in Control.... 122 Transfer Agent and Registrar........ 124 Stock Exchange Listing.............. 124 COMPARISON OF RIGHTS OF SHAREHOLDERS........................ 125 TRANSOCEAN'S PROPOSAL TO INCREASE ITS AUTHORIZED ORDINARY SHARE CAPITAL... 134 General............................. 134 Purposes and Effects of Increasing the Number of Authorized Ordinary Shares........................... 134 Vote Required; Recommendation of the Board of Directors............... 135 PAGE ---- PROPOSAL TO AMEND TRANSOCEAN'S LONG-TERM INCENTIVE PLAN............ 135 Description of the Proposal......... 135 Principal Provisions of the Long-Term Incentive Plan......... 135 U.S. Federal Income Tax Consequences..................... 137 Vote Required; Recommendation of Transocean's Board of Directors........................ 139 PROPOSAL TO AMEND TRANSOCEAN'S EMPLOYEE STOCK PURCHASE PLAN........ 139 Description of the Proposal......... 139 Principal Provisions of the Employee Stock Purchase Plan.............. 139 U.S. Federal Income Tax Consequences..................... 140 Vote Required; Recommendation of Transocean's Board of Directors........................ 141 LEGAL MATTERS......................... 141 EXPERTS............................... 141 FUTURE SHAREHOLDER PROPOSALS.......... 142 Transocean Shareholder Proposals.... 142 Schlumberger Shareholder Proposals........................ 143 WHERE YOU CAN FIND MORE INFORMATION... 143 INDEX TO FINANCIAL STATEMENTS......... F-1 ANNEX A -- Agreement and Plan of Merger ANNEX B -- Distribution Agreement ANNEX C -- Opinion of Goldman, Sachs & Co. ANNEX D -- Opinion of Simmons & Company International ANNEX E -- Transocean Long-Term Incentive Plan ANNEX F -- Transocean Employee Stock Purchase Plan iii 7 QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF AND THE MERGER Q. WHY ARE TRANSOCEAN AND SCHLUMBERGER PROPOSING TO MERGE SEDCO FOREX WITH TRANSOCEAN? A. The boards of directors of Schlumberger and Transocean believe that the merger offers a unique opportunity to combine two successful offshore contract drilling businesses into the world's premier offshore drilling contractor, as measured by its size, worldwide market presence, financial strength, technically advanced fleet, engineering capabilities, management expertise and experienced workforce. These attributes will enable Transocean Sedco Forex to offer: - Customers -- technically demanding drilling services on a global basis, backed by technological expertise and financial strength; - Investors -- an investment in a company that upon completion of the merger will operate the world's largest fleet of mobile offshore drilling rigs and is expected to have the largest market capitalization of any offshore contract driller; and - Employees -- career opportunities with a financially strong company that leads its industry in the application of technology and that values cultural diversity in its workforce. Q. PLEASE BRIEFLY DESCRIBE THE PROPOSED SPIN-OFF AND MERGER. A. Schlumberger will spin off its offshore contract drilling business by distributing to its shareholders the common stock of Sedco Forex Holdings Limited. Sedco Forex Holdings Limited will then merge with a newly formed subsidiary of Transocean and become a wholly owned subsidiary of Transocean. After the merger, Transocean Offshore Inc. will change its name to Transocean Sedco Forex Inc. In this joint proxy statement/prospectus: - we refer to Transocean Offshore Inc. as "Transocean"; - we refer to Schlumberger Limited as "Schlumberger"; - we use the term "Sedco Forex" when referring to the historical offshore contract drilling business of Schlumberger that is to be spun off and merged, as well as when referring to that business as consolidated under Sedco Forex Holdings Limited from and after the time of the spin-off, and we also use the term "Sedco Forex" to refer to Sedco Forex Holdings Limited, in each case as the context requires; - we refer in some cases to the shareholders of Sedco Forex immediately after the spin-off and before the merger as "Schlumberger's shareholders" since, after the spin-off and prior to the merger, Schlumberger's shareholders will own all of the stock of Sedco Forex; - we refer to the distribution of the capital stock of Sedco Forex to Schlumberger's shareholders as the "distribution" or the "spin-off"; - we refer to Transocean after the merger as "Transocean Sedco Forex"; - we refer to Transocean's wholly owned merger subsidiary, Transocean SF Limited, as "Merger Sub"; and - we refer to the Agreement and Plan of Merger among Schlumberger, Sedco Forex Holdings Limited, Transocean and Merger Sub as the "merger agreement" and the Distribution Agreement between Schlumberger and Sedco Forex, which provides for the separation of Sedco Forex from the rest of Schlumberger's business and the ensuing spin-off of Sedco Forex to Schlumberger's shareholders, as the "distribution agreement." Q. WHO WILL SERVE AS TRANSOCEAN SEDCO FOREX DIRECTORS? A. After the merger, the Transocean Sedco Forex board of directors will include five designees of Transocean, including J. Michael Talbert, currently Transocean's Chairman of the Board and CEO, and five designees of Schlumberger, including Victor E. Grijalva, currently Vice Chairman of Schlumberger. Mr. Grijalva will serve as Chairman of the 1 8 Board of Transocean Sedco Forex and will also remain Vice Chairman of Schlumberger. Q. WHO WILL SERVE AS TRANSOCEAN SEDCO FOREX'S EXECUTIVE OFFICERS? A. Mr. Talbert will remain CEO of Transocean Sedco Forex, and most of the Transocean executive officers will continue to serve as executive officers of Transocean Sedco Forex. In addition, Jean P. Cahuzac, currently President of Sedco Forex, will become an Executive Vice President of Transocean Sedco Forex, David Mullen, currently Director of Personnel for Schlumberger's Geco-Prakla unit, will become Vice President, Human Resources and Ricardo Rosa, currently Controller of Sedco Forex, will become Vice President and Controller. Q. WHY IS SCHLUMBERGER PROPOSING TO SPIN OFF ITS OFFSHORE CONTRACT DRILLING BUSINESS? A. Schlumberger's strategy for its oilfield services segment is to be a leader in providing technologically driven reservoir optimization services and related integrated services. Schlumberger believes that the separation of its offshore contract drilling business from the rest of Schlumberger's oilfield services segment will sharpen that segment's focus on these core businesses. In addition, Schlumberger views the spin-off and the merger as an opportunity to provide Schlumberger's shareholders with ownership in the premier worldwide offshore contract drilling company as well as continuing ownership in a more focused Schlumberger. Q. WHAT IS THE EXPECTED IMPACT OF THE SPIN-OFF ON SCHLUMBERGER'S FINANCIAL PERFORMANCE? A. Sedco Forex's net income was$341.6 million
for 1998 and $38.7 million for the six months ended June 30, 1999. As a result of the spin-off, Schlumberger will no longer own Sedco Forex, and accordingly, Schlumberger's results of operations will no longer include Sedco Forex's results and certain other adjustments will be made. See "-- Schlumberger Unaudited Condensed Pro Forma Statement of Operations." Q. WHAT WILL SCHLUMBERGER'S SHAREHOLDERS RECEIVE AS A RESULT OF THE MERGER? A. In the merger, all of the Sedco Forex shares received in the spin-off by Schlumberger's shareholders will be converted into Transocean ordinary shares based on an exchange ratio that will result in the ownership by Schlumberger's shareholders of about 52% of the issued Transocean ordinary shares upon completion of the merger. Based on the number of diluted Transocean ordinary shares and diluted Schlumberger shares of common stock as of the date of this document, each Schlumberger shareholder would receive approximately one Transocean ordinary share for every five shares of Schlumberger common stock the shareholder owns. Fractional shares will not be issued. Instead, Schlumberger's shareholders will receive cash for any fractional share to which they would otherwise be entitled. Q. WILL HOLDERS OF TRANSOCEAN ORDINARY SHARES RECEIVE ANY NEW SHARES AS A RESULT OF THE MERGER? A. Holders of Transocean ordinary shares will continue to hold the Transocean ordinary shares they own at the effective time of the merger and will not receive any new shares. After the merger, these shares will represent an ownership interest in Transocean Sedco Forex. Q. PLEASE BRIEFLY DESCRIBE THE EXCHANGE RATIO PROVIDED FOR IN THE MERGER AGREEMENT. A. The exchange ratio ensures that, upon closing of the merger, Schlumberger's shareholders will own about 52% of all of the issued ordinary shares of Transocean Sedco Forex. The aggregate number of Transocean ordinary shares to be issued in the merger will not change due to changes in the stock market value of Transocean ordinary shares before the merger. Because the market price of Transocean ordinary shares to be received in the merger will fluctuate, Schlumberger's shareholders will not be able to determine the exact value of the Transocean ordinary shares that they will receive in the merger until the merger is completed. Based on the average closing price of Transocean ordinary shares as reported in the consolidated reporting system for the period of 20 consecutive trading days ending with October 15, 1999, the value of the approximately 109 million Transocean ordinary shares to be issued to Schlumberger's 2 9 shareholders would be about$3.3 billion.

Q.    WHAT ARE THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE SPIN-OFF AND THE MERGER?

A.    In general, for U.S. federal income tax
purposes, Schlumberger's shareholders should not recognize any gain or
loss as a result of the spin-off or the merger except for cash received,
if any, instead of fractional Transocean ordinary shares.

Q.    DO SHAREHOLDERS HAVE APPRAISAL RIGHTS?

A.    Under applicable law, none of the shareholders of Schlumberger, Sedco
Forex or Transocean has any right to receive an appraisal of the value of
their shares in connection with the spin-off or the merger.

Q.    WHEN DO YOU EXPECT THE MERGER TO BE
COMPLETED?

A.    We are working towards completing the
merger as quickly as possible and expect to complete it by the end of
1999.

Q.    WHAT DO I NEED TO DO TO VOTE?

A.    Transocean's shareholder meeting will take
place on December 10, 1999. Schlumberger's shareholder meeting will also
take place on December 10, 1999. After carefully reading and considering
the information contained in this document and the documents incorporated
by reference, please indicate on the enclosed proxy card how you want to
vote. Mail your signed proxy card in the enclosed return envelope as soon
as possible, so that your shares may be represented at your shareholder
meeting.

Q.    WHAT VOTE DOES MY BOARD OF DIRECTORS
RECOMMEND?

A.    The Schlumberger board of directors unanimously recommends that
Schlumberger's shareholders vote in favor of the proposed spin-off, which
is a condition to the merger.

The Transocean board of directors unanimously recommends that Transocean's
shareholders vote for the increase in authorized ordinary share capital
and for the issuance of the required number of ordinary shares necessary
to complete the merger, which are both conditions to the merger.
Transocean's board also unanimously recommends that Transocean's
shareholders vote for the name change and the amendments to Transocean's
Long-Term Incentive Plan and its Employee Stock Purchase Plan.

Q.    WHAT IF I WANT TO CHANGE MY VOTE?

A.    You can change your vote at any time before
your proxy card is voted at your shareholder meeting. You can do this in
one of three ways:

- you can send a written notice stating that you would like to revoke your
proxy;

- you can complete and submit a new proxy card; or

- you can attend your meeting and vote in person.

However, your attendance alone will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow the procedure
provided by your broker to change those instructions.

Q.    WHAT IF I PLAN TO ATTEND MY SHAREHOLDER
MEETING IN PERSON?

A.    We recommend that you send in your proxy
anyway. You may still attend the meeting and vote in person.

Q.    IF MY SHARES ARE HELD IN "STREET NAME" BY MY
BROKER, WILL MY BROKER VOTE MY SHARES FOR ME WITHOUT MY INSTRUCTIONS?

A.    Brokers may vote Transocean shares for the
Transocean proposals to increase authorized ordinary share capital and to
change its name. Brokers may not vote Transocean shares on the Transocean
proposals to issue the ordinary shares necessary to complete the merger
and to amend its Long-Term Incentive Plan and its Employee Stock Purchase
Plan or vote Schlumberger shares for the Schlumberger proposal to approve
the spin-off unless you provide instructions on how to vote. To instruct

Q.    SHOULD I SEND IN MY SHARE CERTIFICATES?

A.    No. Transocean's and Schlumberger's shareholders will keep their current
share certificates. The distribution of the Sedco Forex shares will be
made by book-entry transfers. The Sedco Forex shares will then be
exchanged for Transocean ordinary shares in the merger. Transocean Sedco
Forex will send new Transocean Sedco Forex share certificates or notices
of book entry to Schlum-
3
10
berger's shareholders after the merger is completed.

Q.    WHOM DO I CALL IF I HAVE QUESTIONS ABOUT THE
MEETINGS OR THE MERGER?

A.    Transocean's shareholders should contact either of the following:

Transocean:

Jeffrey L. Chastain
Director of Investor Relations
and Communications
Transocean Offshore Inc.
4 Greenway Plaza
Houston, Texas 77046
Fax: (713) 232-7001
Phone: (713) 232-7500

the Transocean proxy solicitor:

D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Fax: (212) 809-8839
Phone: (800) 848-3409

Schlumberger's shareholders should contact either of the following:

Schlumberger:

Simone Crook
Director Investor Relations
& Communications
Schlumberger Limited
277 Park Avenue
New York, New York 10172
Fax: (212) 350-9564
Phone: (212) 350-9432

the Schlumberger proxy solicitor:

D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Fax: (212) 809-8839
Phone: (800) 848-3409

4
11

SUMMARY

This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
spin-off and the merger fully and for a more complete description of the legal
terms of the spin-off and the merger, you should carefully read this entire
document, including the annexes and the other documents to which we have
referred you in "Where You Can Find More Information" on page 143. We have
included page references parenthetically to direct you to more complete
descriptions of the topics presented in this summary.

THE COMPANIES

TRANSOCEAN OFFSHORE INC.
4 Greenway Plaza
Houston, Texas 77046
Phone: (713) 232-7500

Transocean is a leading international provider of offshore contract
drilling services for oil and gas exploration, development and production. As of
September 30, 1999, Transocean owned, had partial ownership in or operated 30
mobile offshore drilling units, including the technologically advanced, ultra-
deepwater drillships Discoverer Enterprise and Discoverer Spirit, and had one
additional Discoverer Enterprise-class drillship under construction. Transocean
contracts these drilling rigs, related equipment and work crews primarily on a
dayrate basis to drill oil and gas wells. Transocean also provides additional
drilling services, including well intervention and management of third-party
well service activities.

For further information on Transocean, see "Business of Transocean" on page 110.

Recent Developments

Transocean recently reported its unaudited financial results for each of
the quarter and three quarters ended September 30, 1999. Net income for the
three months ended September 30, 1999 was $46.9 million or$0.46 per diluted
share on revenues of $204.3 million. Comparative net income and diluted earnings per share for the corresponding three months in 1998 were$84.4 million and
$0.84, respectively, excluding a nonrecurring after tax gain of$8.5 million, or
$0.08 per diluted share, relating to the sale of certain noncore assets and surplus drilling components. Revenues in the prior year period were$269.0
million.

For the nine months ended September 30, 1999, net income totaled $188.5 million or$1.87 per diluted share on revenues of $746.2 million. Comparative net income and diluted earnings per share for the nine months ended September 30, 1998 were$217.7 million and $2.16, respectively, exclusive of nonrecurring, after tax gains totaling$22.4 million or $0.22 per diluted share relating to the sale of noncore assets and surplus drilling components and the settlement of a contract dispute. Revenues during the initial nine months of 1998 were$778.9
million.

The table below sets forth some of the financial results discussed above.

THREE MONTHS ENDED     NINE MONTHS ENDED
SEPTEMBER 30,         SEPTEMBER 30,
-------------------   -------------------
1999       1998       1999       1998
--------   --------   --------   --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Operating revenues.........................  $204,305$269,002   $746,229$778,892
Operating income...........................    62,083    120,291    258,875    312,812
Net income.................................    46,869     92,929    188,479    240,150
Earnings per share
Basic....................................      0.47       0.93       1.88       2.40
Diluted..................................      0.46       0.92       1.87       2.38

On October 19, 1999, Transocean executed a commitment letter with a
commercial bank under which the bank will underwrite a $400 million unsecured five-year term loan facility. Proceeds made available under the facility will be used to refinance all intercompany indebtedness of Sedco Forex to Schlumberger upon 5 12 completion of the merger and for general corporate purposes. Amounts outstanding under the facility will bear interest at floating rates equal to LIBOR plus a margin equal to a percentage based on Transocean's credit rating in effect from time to time or the bank's prime rate, at Transocean's option, and may be prepaid at any time without premium or penalty. No principal amortization is required for the first two years of the facility. The facility will be established under a credit agreement that will contain financial covenants obligating Transocean to maintain a minimum interest coverage ratio and a maximum ratio of consolidated indebtedness to total capitalization and will contain other customary covenants, representations and warranties and conditions precedent. SCHLUMBERGER LIMITED 277 Park Avenue New York, New York 10172-0266 Phone: (212) 350-9400 42, rue Saint Dominique 75007 Paris, France Phone: (33-1) 4062-1000 Parkstraat 83, 2514 JG The Hague, The Netherlands Phone: (31-7) 3310-5447 Through its subsidiaries, Schlumberger engages in the following businesses: - Oilfield Services, which provides exploration and production services during the life of an oil and gas reservoir to the petroleum industry throughout the world; - Resource Management Services, which includes metering equipment and systems and related services; and - Test & Transactions, which includes electronic transactions, automated test equipment and communications and information technology solutions. Recent Developments On October 18, 1999, Schlumberger reported its unaudited financial results for each of the quarter and three quarters ended September 30, 1999. The table below shows some of the items contained in that report. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 1999 1998 1999 1998 ------- ------- ------- ------- (IN MILLIONS, EXCEPT PER SHARE DATA) Operating revenues.....................................$2,249     $2,932$6,730     $9,040 Income (loss) before taxes............................. 172 (12) 468 990 Net income............................................. 139 (29) 355 736 Earnings per share Basic................................................ 0.25 (0.05) 0.64 1.36 Diluted.............................................. 0.25 (0.05) 0.64 1.31 The 1998 third quarter results included an after-tax charge of$380
million, or $0.68 per share-diluted. The 1999 first quarter results included an after-tax charge of$90 million, or $0.16 per share-diluted. 6 13 SEDCO FOREX HOLDINGS LIMITED Citco B.V.I. Limited Citco Building, Wickhams Cay P.O. Box 662 Road Town, Tortola, British Virgin Islands Sedco Forex Holdings Limited is a British Virgin Islands company that, together with its subsidiaries, will hold Schlumberger's offshore contract drilling service business at the time of the spin-off. Sedco Forex is a leading international provider of offshore contract drilling services for oil and gas exploration, development and production. As of September 30, 1999, Sedco Forex owned, had an ownership interest in or operated 40 mobile offshore drilling rigs, consisting of three fourth-generation semisubmersibles, twenty second- and third-generation semisubmersibles, one first-generation semisubmersible, two drillships, ten jackup rigs and four tenders. Sedco Forex also has under construction three Sedco Express-class semisubmersibles and one independent-leg cantilevered jackup rig. In addition, the fleet includes one multi-purpose service jackup rig, six swamp barges and two land drilling rigs. Sedco Forex contracts these drilling rigs, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells. Sedco Forex also provides additional drilling services, including well intervention and management of third-party well service activities. For further information on Sedco Forex, see "Business of Sedco Forex" on page 84. 7 14 THE TRANSACTIONS (PAGE 40) The merger agreement is attached as Annex A to this joint proxy statement/prospectus. The distribution agreement is attached as Annex B. These documents provide for the spin-off, merger and related transactions. We urge you to read these documents carefully. Transocean and Schlumberger are proposing to merge Sedco Forex with Transocean. The merger agreement calls for the parties to complete the following steps as part of the transaction: - - Schlumberger will consolidate its offshore contract drilling business, other than some assets and businesses in the Middle East, Indonesia and Lake Maracaibo, Venezuela, under Sedco Forex Holdings Limited, a wholly owned subsidiary of Schlumberger; - - Schlumberger will then distribute the shares of Sedco Forex to Schlumberger's shareholders so that each Schlumberger shareholder receives one share of Sedco Forex capital stock for each share of Schlumberger common stock owned; - - Merger Sub, a wholly owned subsidiary of Transocean, will merge into Sedco Forex, with Sedco Forex surviving the merger as a wholly owned subsidiary of Transocean; - - In exchange for the distributed Sedco Forex common stock, Transocean will issue to Schlumberger's shareholders a number of Transocean ordinary shares based on an exchange ratio that will result in the ownership by Schlumberger's shareholders of about 52% of the total issued Transocean ordinary shares upon completion of the merger; and - - If the required number of Transocean ordinary shares are voted in favor of a name change, Transocean will change its name to "Transocean Sedco Forex Inc." TRANSOCEAN SEDCO FOREX AFTER THE MERGER (PAGE 59) After the merger, we expect that Transocean Sedco Forex will have the world's largest fleet of mobile offshore drilling rigs. It will own, have partial ownership in or operate 75 mobile offshore drilling rigs, including six newbuilds under construction. Twenty-two of these rigs will be capable of drilling in water depths of 3,000 feet or greater. THE SHAREHOLDER MEETINGS (PAGES 35 AND 38) The extraordinary general meeting of Transocean's shareholders will be held on December 10, 1999, at 4:00 p.m., Houston time, at 4 Greenway Plaza, Room C-100 (Mall Level), Houston, Texas. The special general meeting of Schlumberger's shareholders will be held on December 10, 1999, at 10:30 a.m. local time at the Avila Beach Hotel, Pennstraat 130, Willemstad, Curacao, Netherlands Antilles. The record date for Transocean's shareholders entitled to receive notice of and to vote at Transocean's shareholder meeting was the close of business on November 1, 1999. On that date, Transocean expects there to be approximately 101 million Transocean ordinary shares issued and entitled to vote at the extraordinary general meeting. The record date for Schlumberger's shareholders entitled to receive notice of and to vote at Schlumberger's shareholder meeting was the close of business on November 1, 1999. On that date, Schlumberger expects there to be approximately 550 million shares of Schlumberger common stock outstanding and entitled to vote at the special general meeting. SCHLUMBERGER VOTE REQUIRED FOR APPROVAL OF THE SCHLUMBERGER PROPOSAL (PAGE 38) The favorable vote of a majority of the votes cast at the special general meeting is required to approve and adopt the proposal to spin off the capital stock of Sedco Forex to Schlumberger's shareholders. This proposal must be approved to complete the spin-off and the merger. At least half of the outstanding shares of Schlumberger common stock must be present, in person or by proxy, to constitute a quorum at the special general meeting. RECOMMENDATION TO SCHLUMBERGER'S SHAREHOLDERS (PAGE 46) SCHLUMBERGER'S BOARD OF DIRECTORS BELIEVES THE SPIN-OFF IS ADVISABLE AND IN THE BEST INTERESTS OF SCHLUMBERGER'S SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE SPIN-OFF PROPOSAL. OPINION OF GOLDMAN, SACHS & CO. (PAGE 52) In deciding to approve the merger, Schlumberger's board of directors received and considered the opin- 8 15 ion of Goldman, Sachs & Co., its financial advisor, that, as of the date of the opinion, the exchange ratio under the merger agreement is fair from a financial point of view to Schlumberger's shareholders, as if they were current holders of the shares of Sedco Forex capital stock. Goldman Sachs based its opinion on and delivered it subject to the assumptions, limitations and qualifications stated in the opinion. The opinion is attached as Annex C to this document. We encourage you to read the opinion. TRANSOCEAN VOTES REQUIRED FOR APPROVAL OF THE TRANSOCEAN PROPOSALS (PAGE 35) - - The proposal for the increase in Transocean's authorized ordinary share capital requires the approval of holders of the majority of the issued ordinary shares. This proposal must be approved to complete the spin-off and the merger, and if approved, this proposal will be implemented only if the merger is completed. - - The proposal for the issuance of the Transocean ordinary shares in the merger requires the affirmative vote of the majority of votes cast on the proposal, provided that the total number of votes cast on the proposal represents a majority of the votes entitled to be cast. This proposal must be approved in order to complete the spin-off and the merger, and, if approved, will be implemented only if the merger is completed. - - The proposal to change Transocean's name to Transocean Sedco Forex Inc. requires the approval of holders of 66 2/3% of the Transocean ordinary shares voting in person or by proxy at the Transocean extraordinary general meeting. Approval of this proposal is not necessary to complete the merger and, if approved, it will be implemented only if the merger is completed. - - The proposal to amend Transocean's Long-Term Incentive Plan requires the approval of holders of the majority of ordinary shares present or represented and entitled to vote at the extraordinary general meeting, provided that the total number of votes cast on the proposal represents a majority of the votes entitled to be cast. Approval of this proposal is not necessary to complete the merger and, if approved, it will be implemented only if the merger is completed. - - The proposal to amend Transocean's Employee Stock Purchase Plan requires the approval of holders of the majority of ordinary shares present or represented and entitled to vote at the extraordinary general meeting. Approval of this proposal is not necessary to complete the merger but, if approved, it will be implemented regardless of whether the merger is completed. A majority of the issued ordinary shares of Transocean must be present, in person or by proxy, to constitute a quorum at the extraordinary general meeting. RECOMMENDATION TO TRANSOCEAN'S SHAREHOLDERS (PAGE 44) TRANSOCEAN'S BOARD OF DIRECTORS BELIEVES THAT THE INCREASE IN AUTHORIZED ORDINARY SHARE CAPITAL, THE ISSUANCE OF ORDINARY SHARES IN CONNECTION WITH THE MERGER WITH SEDCO FOREX, THE NAME CHANGE TO "TRANSOCEAN SEDCO FOREX INC.," AND THE AMENDMENTS TO TRANSOCEAN'S LONG-TERM INCENTIVE PLAN AND ITS EMPLOYEE STOCK PURCHASE PLAN ARE ALL ADVISABLE AND IN THE BEST INTERESTS OF TRANSOCEAN'S SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF THE PROPOSALS. OPINION OF SIMMONS & COMPANY INTERNATIONAL (PAGE 46) In deciding to approve the merger, Transocean's board of directors received and considered the opinion of Simmons & Company International, its financial advisor, that the exchange ratio is fair, from a financial point of view, to Transocean and its shareholders as of the date of the opinion. Simmons based its opinion on and delivered it subject to the assumptions, limitations and qualifications stated in the opinion. The opinion is attached as Annex D to this joint proxy statement/prospectus. We encourage you to read the opinion. INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 116) In considering the boards' recommendations, shareholders should be aware that some officers and directors of Transocean and of Schlumberger may have interests in the spin-off and the merger that may be different from, or in addition to, those of shareholders generally. 9 16 CONDITIONS TO THE SPIN-OFF AND THE MERGER (PAGE 76) The completion of the spin-off and the merger is dependent on a number of conditions, including the following: - - adoption by Schlumberger's shareholders of the proposal to approve the spin-off; - - adoption by Transocean's shareholders of the proposals to increase Transocean's authorized ordinary share capital and to issue ordinary shares in the merger; - - delivery by Schlumberger to Transocean of the Sedco Forex pre-closing financial statements required by the merger agreement; - - Sedco Forex or its subsidiaries having good and valid title to substantially all of the assets intended to be owned by them following the separation of the Sedco Forex business, assets and liabilities from the rest of Schlumberger's business, assets and liabilities; - - expiration or termination of the relevant waiting period under any competition, antitrust or premerger law or regulation, where the failure to observe such a waiting period would have a material adverse effect on Sedco Forex or Transocean; - - absence of (1) any court decree, order or injunction prohibiting the merger and (2) any governmental statute, rule or regulation prohibiting the merger or making it unlawful; - - absence of any pending or threatened governmental claim, proceeding or action seeking to restrain or prohibit the spin-off or the merger; and - - absence of any event or occurrence having or likely to have a material adverse effect on Sedco Forex's or Transocean's business, operations, financial condition or prospects or its ability to complete the merger or fulfill the conditions to closing of the merger. TERMINATION OF THE MERGER AGREEMENT (PAGE 78) The merger agreement may be terminated by the mutual written consent of Schlumberger/Sedco Forex and Transocean. In addition, either Schlumberger/Sedco Forex or Transocean may terminate the merger agreement if: - - the merger has not been completed by April 30, 2000; - - Schlumberger's shareholders fail to approve the spin-off; - - Transocean's shareholders fail to approve the required increase in authorized ordinary share capital or the issuance of Transocean ordinary shares in the merger; or - - a court or governmental order, decree, ruling or other action permanently prohibits the merger. The merger agreement may also be terminated by Schlumberger/Sedco Forex if: - - subject to various conditions, including giving prior written notice to Transocean and the payment of a$100 million termination fee, Schlumberger or
Sedco Forex executes an agreement regarding an alternative transaction after
the Schlumberger board determines that it would be inconsistent with its
fiduciary duties to proceed with the merger in the face of a superior
alternative acquisition proposal for Sedco Forex, or for Schlumberger where
the proposal is conditioned upon termination of the merger agreement;

- - Transocean's board (1) withdraws or materially modifies its approval or
recommendation of the merger or (2) recommends a competing acquisition
proposal for Transocean;

- - Schlumberger provides a timely notice of objection to any plan by Transocean
to transfer any of its material assets or capital shares or those of any
Transocean subsidiary to Transocean or any of its subsidiaries based upon
Schlumberger's reasonable belief that completion of the plan would create a
significant risk of causing a material adverse effect on Transocean or its
ability to complete the merger, and Transocean nevertheless implements the
plan; or

- - Transocean or Merger Sub materially breaches any representation, warranty,
covenant or agreement that would give rise to a failure of a condition to the
merger and such breach is not curable or is not cured within 30 days after
receipt of a notice of such breach.

The merger agreement may also be terminated by Transocean if:

- - subject to various conditions, including giving prior written notice to Sedco
Forex and the payment of a $100 million termination fee, Transocean executes an agreement regarding an alternative transaction after the Transocean board 10 17 determines that it is inconsistent with its fiduciary duties to proceed with the merger in the face of a superior alternative acquisition proposal for Transocean; - - Schlumberger's board (1) withdraws or materially modifies its approval or recommendation of the spin-off or (2) recommends a competing acquisition proposal for Sedco Forex, or any acquisition proposal for Schlumberger that is conditioned upon termination of the merger agreement; or - - Schlumberger or Sedco Forex materially breaches any representation, warranty, covenant or agreement that would give rise to a failure of a condition to the merger and such breach is not curable or is not cured within 30 days after receipt of a notice of such breach. TERMINATION FEES AND EXPENSE REIMBURSEMENT (PAGE 80) The merger agreement requires Schlumberger to pay Transocean a$100 million fee
if:

- - the merger agreement is terminated by Schlumberger or Sedco Forex in order to
enter into an agreement concerning a superior alternative acquisition
proposal;

- - the merger agreement is terminated because Schlumberger's shareholders do not
approve the spin-off after the public announcement of a competing acquisition
proposal; or

- - the merger agreement is terminated by Transocean if Schlumberger's board
withdraws or materially modifies its approval or recommendation of the
spin-off after the public announcement of a competing acquisition proposal.

The merger requires Transocean to pay Schlumberger a $100 million fee if: - - the merger agreement is terminated by Transocean in order to permit Transocean to enter into an agreement concerning a superior alternative acquisition proposal; - - the merger agreement is terminated because Transocean's shareholders do not approve the required increase to Transocean's authorized ordinary share capital or the issuance of Transocean ordinary shares in the merger after the public announcement of a competing acquisition proposal; or - - the merger agreement is terminated by Schlumberger or Sedco Forex if Transocean's board withdraws or materially modifies its approval or recommendation of the merger after the public announcement of a competing acquisition proposal. The merger agreement requires Schlumberger to pay Transocean a fee of$10
million to reimburse Transocean for its costs and expenses if the merger
agreement is terminated because Schlumberger's shareholders do not approve the
spin-off and, before the shareholders' vote, there was no public announcement of
a competing proposal to acquire Sedco Forex or to acquire Schlumberger that was
conditioned upon termination of the merger agreement.

The merger agreement requires Transocean to pay Schlumberger a fee of $10 million to reimburse Schlumberger for its costs and expenses if the merger agreement is terminated because Transocean's shareholders do not approve the required increase in Transocean's authorized ordinary share capital or the issuance of Transocean ordinary shares in the merger and, before the shareholders' vote, there was no public announcement of a competing proposal to acquire Transocean. REGULATORY APPROVALS (PAGE 65) Transocean and Schlumberger have made appropriate filings and have taken, and will continue to take, other actions necessary to obtain approval of the proposed merger from governmental regulators, including competition and antitrust authorities in the U.S., the U.K. and Brazil. The parties received notice of early termination of the required waiting period under the U.S. Hart-Scott-Rodino Act on August 16, 1999. The parties also received clearance from the U.K. competition/antitrust authorities on October 14, 1999. We expect to obtain all required material regulatory approvals before our respective shareholder meetings. Transocean and Schlumberger have agreed to cooperate with each other and use their best efforts to take all action needed to complete the merger. We are working to obtain the other required regulatory approvals and consents. However, we can give no assurance as to when or whether these approvals and consents will be obtained or the terms and conditions that these consents and approvals may impose. 11 18 ACCOUNTING TREATMENT AND CONSIDERATIONS (PAGE 61) Transocean Sedco Forex will account for the merger using the purchase method of accounting, with Sedco Forex treated as the acquiror. As a result, Transocean Sedco Forex will record the assets and liabilities of Sedco Forex at historical amounts, without restatement to fair values. Transocean Sedco Forex will record the assets and liabilities of Transocean at their estimated fair values at the date of the merger, with the excess of the purchase price over the sum of such fair values recorded as goodwill. For this purpose, the purchase price is based upon the market capitalization of Transocean using an average trading price of Transocean ordinary shares for a period immediately before and after the announcement of the merger. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES (PAGE 61) SCHLUMBERGER'S SHAREHOLDERS It is a condition to the spin-off that Baker & Botts, L.L.P., counsel to Schlumberger, issue an opinion to Schlumberger and Sedco Forex to the effect that, for U.S. federal income tax purposes, the spin-off should qualify as a tax-free distribution to Schlumberger's shareholders and the merger should qualify as a tax-free reorganization. THIS TAX TREATMENT MAY NOT APPLY TO EVERY SCHLUMBERGER SHAREHOLDER. EACH SCHLUMBERGER SHAREHOLDER SHOULD CONSULT A TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THESE TRANSACTIONS, INCLUDING ANY ESTATE, GIFT, STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES OF THE TRANSACTIONS. TRANSOCEAN'S SHAREHOLDERS Because holders of Transocean ordinary shares will not receive additional shares in the merger as a result of their ownership, they will not recognize any gain or loss relating to such share ownership for U.S. federal income tax purposes. NO APPRAISAL RIGHTS Under applicable law, none of the shareholders of Schlumberger, Sedco Forex or Transocean have any right to an appraisal of the value of their shares in connection with the spin-off or the merger. LISTING OF TRANSOCEAN SEDCO FOREX ORDINARY SHARES (PAGE 61) Transocean will apply to list on the New York Stock Exchange the ordinary shares to be issued in the merger. SEDCO FOREX EMPLOYEE MATTERS (PAGE 81) In contemplation of the spin-off, Schlumberger and Sedco Forex will enter into a definitive employee matters agreement with respect to personnel and employee benefit matters. The employee matters agreement will provide for the transfer to Sedco Forex Holdings Limited or a subsidiary of all persons who are active employees of Sedco Forex as of the spin-off date, other than those whom Transocean and Schlumberger agree will remain with Schlumberger. For a period of one year after the spin-off or until December 31, 2000, whichever occurs first, Transocean Sedco Forex generally will maintain benefits and benefit arrangements for Sedco Forex employees that in the aggregate are substantially comparable to the benefits and benefit arrangements provided by Schlumberger and its subsidiaries to the Sedco Forex employees as of the date of the distribution agreement. Pursuant to the employee matters agreement, Schlumberger will retain some defined employee-related liabilities, including some pension and severance benefit responsibilities. Transocean Sedco Forex will assume all other employment- and benefit-related liabilities of the Sedco Forex employees. As of the date of the spin-off, Transocean Sedco Forex will adopt the Schlumberger International Staff Pension Plan as a participating employer for the benefit of Sedco Forex employees and will maintain its status as a participating employer through December 31, 2000. Transocean Sedco Forex also will have the option of adopting other Schlumberger plans covering Sedco Forex employees as a participating employer through December 31, 2000. As a result of the spin-off and the merger, all nonvested options to purchase Schlumberger common stock that are held by Sedco Forex employees will terminate, and Transocean Sedco Forex will grant fully vested options to acquire Transocean Sedco Forex ordinary shares to holders of those terminated options. Transocean Sedco Forex will base the exercise price and number of shares 12 19 purchasable under each newly granted option on the exercise price and number of shares purchasable under each terminated option, adjusted to reflect the relative closing prices of Transocean ordinary shares and shares of Schlumberger common stock on the day before the spin-off. Generally, Transocean Sedco Forex will grant these options with an exercise price below fair market value at the date of grant to the extent a below market price would be required by application of the exercise price adjustment formula. However, French-based employees of Sedco Forex who are eligible to receive new Transocean Sedco Forex options will be granted options with an exercise price equal to the fair market value of Transocean Sedco Forex ordinary shares at the date of grant, even if the application of the adjustment formula otherwise would result in an exercise price below the market price of Transocean Sedco Forex ordinary shares at that date. To compensate these holders for the resulting diminution in value, Transocean Sedco Forex will grant additional options with a fair market value exercise price, the appropriate number of which will be determined by valuing those options according to the Black-Scholes option pricing model and related assumptions deemed reasonable by Transocean Sedco Forex. All vested options to purchase Schlumberger common stock held by Sedco Forex employees will remain outstanding as options to purchase Schlumberger common stock generally for a 90-day period following completion of the merger as established by Schlumberger's stock option plans. Options to acquire Schlumberger common stock that are held by persons other than Sedco Forex employees upon the merger will remain options to purchase Schlumberger shares. The exercise price and number of shares of Schlumberger common stock purchasable upon exercise under all Schlumberger options outstanding immediately after completion of the merger, including vested options held by Sedco Forex employees, will be equitably adjusted to reflect the approximate decrease in value of Schlumberger common stock as a result of the spin-off. Shortly after the transactions are completed, Schlumberger will communicate with affected optionholders regarding how these options will be adjusted. 13 20 SUMMARY FINANCIAL INFORMATION SOURCES OF INFORMATION Transocean and Schlumberger are providing the following selected financial information concerning Sedco Forex, Transocean, Schlumberger, and Transocean Sedco Forex to help you in your analysis of the financial aspects of the spin-off, the merger and related transactions. We derived this information from the audited and unaudited financial statements of Sedco Forex, Transocean and Schlumberger for the periods presented. The information is only a summary, and you should read it in conjunction with the financial information included or incorporated by reference in this joint proxy statement/prospectus. See "Where You Can Find More Information" beginning on page 143 and "Index to Financial Statements" on page F-1. HOW WE PREPARED THE UNAUDITED PRO FORMA FINANCIAL INFORMATION The operating results data assume the spin-off and the merger had been completed on January 1, 1998, and the balance sheet data assume the spin-off and the merger had been completed on June 30, 1999. If Sedco Forex had been spun off and combined with Transocean in the past, Transocean Sedco Forex and Schlumberger might have performed differently. You should not rely on the pro forma financial information as an indication of the financial position or results of operations that Transocean Sedco Forex or Schlumberger would have achieved had the spin-off and merger taken place earlier or of the future results that Transocean Sedco Forex or Schlumberger will achieve after the merger. Transocean Sedco Forex Unaudited Pro Forma Information Sedco Forex and Transocean prepared the pro forma combined financial information of Transocean Sedco Forex using the purchase method of accounting, with Sedco Forex treated as the acquiror. As a result, Sedco Forex and Transocean recorded the assets and liabilities of Sedco Forex at historical amounts, without restatement to fair values. Sedco Forex and Transocean recorded the assets and liabilities of Transocean at their preliminary estimated fair values at the date of merger, with the excess of the purchase price over the sum of such fair values recorded as goodwill. The preliminary estimates of fair values are subject to change. Reclassifications were made to Sedco Forex historical amounts to conform to the pro forma presentation. The Transocean Sedco Forex unaudited condensed pro forma combined financial statements reflect a total purchase price of$2.98 billion, which was based on
the market capitalization of Transocean, using an average closing price of
Transocean ordinary shares over the seven-day period commencing three days
before July 12, 1999, the date the merger was announced, plus the estimated fair
value of Transocean's stock options at the pro forma balance sheet date, which
will be assumed by Transocean Sedco Forex.

Schlumberger Unaudited Pro Forma Information

The Schlumberger unaudited pro forma financial statements reflect the
spin-off of Sedco Forex and other related party adjustments.

TRANSACTION-RELATED EXPENSES

Transocean estimates that it will incur fees and expenses totaling
approximately $20 million in connection with the merger and related transactions, including amounts relating to change of control provisions under some of Transocean's benefit plans. See "Interests of Certain Persons in the Merger." None of such costs have been included in calculating the purchase price. Sedco Forex's fees and expenses are expected to be immaterial. After the merger, Transocean Sedco Forex will incur certain additional charges and expenses relating to restructuring and integrating the operations of Sedco Forex and Transocean. Transocean did not adjust the pro forma information for these additional charges and expenses or for estimated general and administrative expense savings and operational efficiencies that may be realized as a result of the merger. 14 21 SEDCO FOREX SELECTED HISTORICAL COMBINED FINANCIAL DATA Schlumberger prepared the selected historical combined financial data of Sedco Forex in the table below using the combined financial statements of Sedco Forex. Schlumberger derived the combined financial information below for each of the three years ended December 31, 1998, and the combined balance sheet data as of December 31, 1997 and 1998, from combined financial statements appearing elsewhere in this joint proxy statement/prospectus audited by PricewaterhouseCoopers LLP, independent accountants. Schlumberger derived the combined statement of income data for the six months ended June 30, 1999 and 1998 and the years ended December 31, 1995 and 1994 and the combined balance sheet data as of June 30, 1999 and December 31, 1996, 1995 and 1994 from unaudited combined financial statements. In the opinion of management, the unaudited interim financial statements for the six months ended June 30, 1999 and 1998 include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited periods. Operating results for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1999. SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ------------ ---------------------------------- 1999 1998 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- (IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNAUDITED) COMBINED STATEMENT OF INCOME DATA Operating revenues..........................................$ 352   $534$1,091   $891$663   $437$391
Net income..................................................     39    158      342    260    148     62     34
Pro forma earnings per share
Basic.....................................................   0.35            3.13
Diluted...................................................   0.35            3.13
Pro forma average shares outstanding
Basic(1)..................................................    109             109
Diluted(2)................................................    109             109

DECEMBER 31,
JUNE 30,     ------------------------------------
1999        1998     1997    1996   1995   1994
-----------   ------   ------   ----   ----   ----
(IN MILLIONS)
(UNAUDITED)                        (UNAUDITED)

COMBINED BALANCE SHEET DATA
Working capital.............................................    $57$  217   $168$113   $130$ 86
Total assets................................................     1,515       1,473    1,051    899    781    742
Long-term debt..............................................        77          86      139     46     40     28
Equity......................................................       519         564      363    462    574    593

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

(1) Average basic shares outstanding represent Transocean Sedco Forex shares to
be issued to Schlumberger's shareholders pursuant to the merger agreement.

(2) Average diluted shares outstanding adjust average basic shares outstanding
for the dilutive effect of stock options.

15
22

TRANSOCEAN SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

Transocean prepared the selected historical consolidated financial data in
the table below using the consolidated financial statements of Transocean.
Transocean derived the consolidated financial information below for each of the
five years ended December 31, 1998, and the consolidated balance sheet data as
of December 31 of each year from 1994 to 1998, from the consolidated financial
statements of Transocean which have been audited by Ernst & Young LLP,
independent auditors. Transocean derived the consolidated statement of
operations data for the six months ended June 30, 1999 and 1998 and the
consolidated balance sheet data as of June 30, 1999 and 1998 from unaudited
consolidated financial statements. The unaudited financial statements include
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the six months
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1999. The data should be read
in conjunction with the consolidated financial statements, related notes and
other financial information incorporated by reference in this joint proxy
statement/prospectus.

The statement of operations data for the year ended December 31, 1996
includes the operating results of Transocean ASA since September 1, 1996, the
effective date of the combination of Transocean ASA with Transocean for
accounting purposes.

SIX MONTHS ENDED
JUNE 30,               YEARS ENDED DECEMBER 31,
-----------------   ---------------------------------------
1999       1998     1998     1997     1996    1995   1994
------     ------   ------   ------   ------   ----   -----
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)

STATEMENT OF OPERATIONS DATA
Operating revenues......................................  $542$  510   $1,090$  892   $529$323   $243 Operating and maintenance expenses...................... 267 246 485 548 359 229 185 Depreciation and amortization........................... 64 56 117 103 47 27 25 General and administrative expenses..................... 14 15 28 24 15 15 12 Operating income........................................ 197 193 460 217 108 52 21 Net income.............................................. 142 147 343 142 78 47 13 Net income per share(1)(2) Basic................................................. 1.41 1.47 3.43 1.40 1.09 0.83 0.23 Diluted............................................... 1.41 1.46 3.41 1.38 1.07 0.82 0.23 OTHER FINANCIAL DATA Cash flows from operating activities....................$  320     $176$  470   $164$  126   $60$  64
EBITDA(3)...............................................     267        276      624      331      169     98      45
Cash dividends declared per share(1)....................    0.06       0.06     0.12     0.12     0.12   0.12    0.12
Capital expenditures(4).................................     253        242      573      406      213     19      59
BALANCE SHEET DATA (at end of period)
Working capital.........................................  $32$  166   $169$  122   $21$133   $79 Property and equipment, net............................. 2,324 1,855 2,128 1,668 1,370 303 326 Total assets............................................ 3,333 2,949 3,251 2,755 2,443 542 493 Total debt.............................................. 729 776 833 733 420 30 30 Long-term debt.......................................... 701 771 814 728 392 30 30 Shareholders' equity.................................... 2,114 1,778 1,979 1,621 1,628 364 321 - --------------- (1) Net income per share and cash dividends declared per share have been retroactively restated to reflect the increased number of shares of common stock issued and outstanding as a result of a two-for-one stock split effected in the form of a 100% stock dividend, which was paid in September 1997. (2) Net income per share amounts prior to 1997 have been restated to comply with SFAS No. 128, Earnings Per Share. (3) EBITDA is defined as earnings before interest, taxes, depreciation and amortization. It is presented here because it is a widely accepted financial indication of a company's ability to incur and service debt. EBITDA is not a measurement presented in accordance with generally accepted accounting principles and is not intended to be used in lieu of GAAP presentations of results of operations and cash provided by operating activities. (4) Excludes the combination with Transocean ASA. 16 23 SCHLUMBERGER SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA Schlumberger prepared the selected historical consolidated financial data in the table below using the consolidated financial statements of Schlumberger. Schlumberger derived the consolidated financial information below for each of the five years ended December 31, 1998, and the consolidated balance sheet data as of December 31 of each year from 1994 to 1998, from its financial statements audited by PricewaterhouseCoopers LLP, independent accountants. Schlumberger derived the consolidated statement of operations data for the six months ended June 30, 1999 and 1998 and the consolidated balance sheet data as of June 30, 1999 and 1998 from its unaudited consolidated financial statements which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods. Operating results for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1999. SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ------------------ ---------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- ------- ------ (IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) STATEMENT OF OPERATIONS DATA Operating revenue................................$ 4,481    $6,108$11,816   $11,543$ 9,702   $8,268$7,332
Net income(1)(2).................................      216        766     1,014     1,385       919       692      577
Earnings per share (1)(2)
Basic..........................................     0.39       1.41      1.87      2.57      1.72      1.31     1.09
Diluted........................................     0.39       1.36      1.81      2.47      1.69      1.30     1.08
Cash dividends declared per share................    0.375      0.375      0.75      0.75      0.75    0.7125     0.60
Average shares outstanding:
Basic..........................................      547        543       544       539       534       529      532
Assuming dilution..............................      562        564       562       560       546       532      534
OTHER INFORMATION
Fixed asset additions............................  $667$   835   $1,887$ 1,592   $1,220$ 1,028   $849 BALANCE SHEET INFORMATION Working capital..................................$ 4,937    $3,168$ 4,887   $2,690$ 1,767   $1,456$1,222
Total assets.....................................   15,743     13,931    16,078    13,186    11,272     9,770    9,109
Long-term debt...................................    3,207      1,308     3,285     1,179       731       731      486
Stockholders' equity.............................    8,145      7,995     8,119     7,381     6,221     5,501    5,081

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

(1) The 1998 results include an after-tax charge of $380 million, or$0.68 per
diluted share, consisting of the following:

- A charge of $268 million related to Oilfield Services, including severance costs of$64 million; facilities closure/relocation costs of
$40 million; operating asset write-offs of$114 million; and $39 million of customer receivable reserves where collection was considered doubtful due to the customer's financial condition and/or country risk. This charge resulted from the slowdown in business. - A charge of$63 million for merger-related costs in connection with the
acquisition of Camco International Inc., which was accounted for as a
pooling.

- A charge of $43 million related to Resource Management Services and Test & Transactions, consisting primarily of employee severance, facilities rationalizations, and environmental costs resulting from a reassessment of ongoing future monitoring and maintenance requirements at locations no longer in operation. (2) The 1999 six months results include an after-tax charge of$90 million, or
$0.16 per share, consisting of the following: - A charge of$150 million related to Oilfield Services, including
severance costs of $121 million, seismic vessel lay-up costs and provisions for possible legal claims. - A charge of$20 million related to Resource Management Services and Test
& Transactions consisting principally of severance costs at several
Resource Management Services facilities.

- A credit of $80 million from the gain on sale of financial instruments received in connection with the 1998 sale of Retail Petroleum Systems. 17 24 TRANSOCEAN SEDCO FOREX UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1999 PRO FORMA HISTORICAL DISTRIBUTION PRO FORMA PRO FORMA SEDCO AGREEMENT SEDCO FOREX HISTORICAL PURCHASE PRO FORMA FOREX ADJUSTMENTS(1) BEFORE MERGER TRANSOCEAN ADJUSTMENTS(2) COMBINED ---------- -------------- ------------- ---------- -------------- ---------- (AMOUNTS IN THOUSANDS) Cash and Cash Equivalents...$   84,868     $(49,868)(1a)$   35,000     $55,384$       --      $90,384 Accounts Receivable......... 170,253 -- 170,253 177,572 -- 347,825 Other Current Assets........ 112,253 (40,414)(1b) 71,839 52,420 5,945(2a) 130,204 ---------- --------- ---------- ---------- ---------- ---------- Total Current Assets............ 367,374 (90,282) 277,092 285,376 5,945 568,413 Property and Equipment, net....................... 1,101,585 -- 1,101,585 2,324,087 487,000(2b) 3,912,672 Goodwill, net............... -- -- -- 666,280 507,252(2c) 1,173,532 Other Assets................ 45,680 (1,099)(1c) 44,581 56,853 21,201(2d) 122,635 ---------- --------- ---------- ---------- ---------- ---------- Total Assets........$1,514,639     $(91,381)$1,423,258     $3,332,596$1,021,398      $5,777,252 ========== ========= ========== ========== ========== ========== Current Liabilities.........$  309,949     $(72,860)(1d)$  237,089     $253,056$    9,072(2e)  $499,217 Long-Term Debt.............. 583,686 (460,900)(1e) 122,786 701,471 -- 824,257 Deferred Taxes and Other Credits................... 102,072 (8,910)(1f) 93,162 264,124 149,016(2f) 506,302 Shareholders' Equity........ 518,932 451,289 (1g) 970,221 2,113,945 863,310(2g) 3,947,476 ---------- --------- ---------- ---------- ---------- ---------- Total Liabilities and Shareholders' Equity............$1,514,639     $(91,381)$1,423,258     $3,332,596$1,021,398      $5,777,252 ========== ========= ========== ========== ========== ========== See Notes to the Transocean Sedco Forex Unaudited Condensed Pro Forma Combined Financial Statements 18 25 TRANSOCEAN SEDCO FOREX UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 HISTORICAL PRO FORMA ------------------------ --------------------------- SEDCO FOREX TRANSOCEAN ADJUSTMENTS(2) COMBINED ----------- ---------- -------------- -------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Operating Revenues..........................$351,590      $541,924$     --        $893,514 -------- -------- -------- -------- Costs and Expenses Operating and Maintenance................. 240,743 266,827 -- 507,570 Depreciation and Amortization............. 63,739 64,295 15,819(2h) 143,853 General and Administrative................ 8,220 14,010 -- 22,230 -------- -------- -------- -------- 312,702 345,132 15,819 673,653 -------- -------- -------- -------- Operating Income............................ 38,888 196,792 (15,819) 219,861 Other Income, Net........................... 717 4,073 7,919(2i) 12,709 -------- -------- -------- -------- Income Before Income Taxes.................. 39,605 200,865 (7,900) 232,570 Income Taxes................................ 911 59,255 (3,651)(2j) 56,515 -------- -------- -------- -------- Net Income..................................$ 38,694      $141,610$ (4,249)       $176,055 ======== ======== ======== ======== Earnings Per Share Basic.....................................$   1.41                       $0.84 ======== ======== Diluted...................................$   1.41                       $0.84 ======== ======== Weighted Average Shares Outstanding Basic..................................... 100,344 109,111(3) 209,455 Diluted................................... 100,786 109,185(4) 209,971 See Notes to the Transocean Sedco Forex Unaudited Condensed Pro Forma Combined Financial Statements 19 26 TRANSOCEAN SEDCO FOREX UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 HISTORICAL PRO FORMA ------------------------ ------------------------------ SEDCO FOREX TRANSOCEAN ADJUSTMENTS(2) COMBINED ----------- ---------- -------------- ---------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Operating Revenues......................$1,090,523    $1,089,612$        --        $2,180,135 ---------- ---------- ----------- ---------- Costs and Expenses Operating and Maintenance............. 562,758 484,439 -- 1,047,197 Depreciation and Amortization......... 124,708 116,867 38,917(2h) 280,492 General and Administrative............ 25,986 28,034 -- 54,020 ---------- ---------- ----------- ---------- 713,452 629,340 38,917 1,381,709 ---------- ---------- ----------- ---------- Operating Income........................ 377,071 460,272 (38,917) 798,426 Other Income (Expense), Net............. (3,050) 26,874 8,202(2i) 32,026 ---------- ---------- ----------- ---------- Income Before Income Taxes.............. 374,021 487,146 (30,715) 830,452 Income Taxes............................ 32,443 143,730 (7,824)(2j) 168,349 ---------- ---------- ----------- ---------- Net Income..............................$  341,578    $343,416$   (22,891)       $662,103 ========== ========== =========== ========== Earnings Per Share Basic.................................$     3.43                       $3.17 ========== ========== Diluted...............................$     3.41                       $3.15 ========== ========== Weighted Average Shares Outstanding Basic................................. 100,083 109,111(3) 209,194 Diluted............................... 100,848 109,144(4) 209,992 See Notes to the Transocean Sedco Forex Unaudited Condensed Pro Forma Combined Financial Statements 20 27 TRANSOCEAN SEDCO FOREX NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS OR UNLESS OTHERWISE INDICATED) (1) Represents the pro forma adjustments to the historical Sedco Forex balance sheet accounts to reflect the following transactions between Schlumberger and Sedco Forex to be effected prior to the spin-off as required by the distribution agreement. - Cash is adjusted to the required minimum cash balance of$35 million;

- Certain assets and liabilities included in the historical Sedco Forex
accounts are retained by Schlumberger;

- Related party receivable and payable balances are settled;

- Related party debt is adjusted to $435 million, less the capital expenditure shortfall, plus or minus the working capital adjustment; and - The net amount of the pro forma distribution is treated as an adjustment to the net shareholder's equity of Sedco Forex. A summary of the pro forma distribution agreement adjustments by balance sheet caption is as follows: (a) Cash and cash equivalents -- Represents the estimated cash adjustment to reduce cash to the$35 million required minimum cash balance.

(b) Other current assets -- A reconciliation of the pro forma
distribution agreement adjustments to other current assets is as follows:

Deferred tax assets retained by Schlumberger.............   $(2,200) Settlement of related party receivables.................. (38,214) -------- Total pro forma adjustment to other current assets............................................$(40,414)
========

(c) Other assets -- Represents deferred tax assets retained by
Schlumberger.

(d) Current liabilities -- A reconciliation of the pro forma
distribution agreement adjustments to current liabilities is as follows:

Employee benefit and other liabilities retained by
Schlumberger...........................................   $(23,834) Current tax liabilities retained by Schlumberger......... (14,780) Settlement of bank overdrafts............................ (6,483) Settlement of related party payables..................... (27,763) -------- Total pro forma adjustment to current liabilities...$(72,860)
========

(e) Long-term debt -- A reconciliation of the pro forma distribution
agreement adjustments to long-term debt is as follows:

Reduction in related party debt due to capital
expenditure shortfall.................................   $(309,817) Increase in related party debt due to working capital adjustment............................................ 12,200 Adjustment of related party debt as required by the distribution agreement................................ (163,283) --------- Total pro forma adjustment to long-term debt.......$(460,900)
=========

21
28

TRANSOCEAN SEDCO FOREX

NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The capital expenditure shortfall is calculated as the amount by which
actual capital expenditures are less than the forecasted expenditures for
1999, and results in an equivalent reduction in the amount of debt that is
permitted at the date of the spin-off of Sedco Forex from Schlumberger. The
capital expenditure shortfall included above is calculated using
expenditures through the pro forma balance sheet date of June 30, 1999.
Permitted debt will be increased by the amount of capital expenditures
after June 30, 1999 and prior to the distribution date.

(f) Deferred taxes and other credits -- A reconciliation of the pro
forma distribution agreement adjustments to deferred taxes and other
credits is as follows:

Postretirement benefit liability retained by
Schlumberger...........................................   $(5,428) Other employee-related liabilities retained by Schlumberger........................................... (3,482) -------- Total pro forma adjustment to deferred taxes and other credits.....................................$ (8,910)
========

(g) Shareholder's equity -- A reconciliation of the pro forma
distribution agreement adjustments to shareholder's equity is as follows:

Net liabilities to be retained by Schlumberger...........   $44,225 Cash adjustment for required minimum cash balance, net of bank overdrafts........................................ (43,385) Reduction in related party debt due to capital expenditure shortfall.................................. 309,817 Increase in related party debt due to working capital adjustment............................................. (12,200) Settlement of related party balances..................... 152,832 -------- Total pro forma adjustment to shareholder's equity............................................$451,289
========

(2) A summary of the pro forma adjustments to effect the merger is as
follows:

(a) Other current assets -- A reconciliation of the pro forma
adjustments to other current assets is as follows:

Fair value adjustment of prepaid periodic survey and
drydock costs...........................................   $10,826 Adjustment of deferred tax assets for the net effect of pro forma adjustments................................... (4,881) ------- Total pro forma adjustment to other current assets...$ 5,945
=======

(b) Property and equipment, net -- Represents the adjustment needed to
record Transocean's property and equipment at estimated fair value at the
date of the merger.

(c) Goodwill -- The merger will be accounted for under the purchase
method of accounting, with Sedco Forex treated as the acquiror. The
adjusted pro forma goodwill amount reflects 100% of the excess purchase
price over the preliminary estimated fair values of Transocean's assets and
liabilities (see Note (2g)). The goodwill calculation assumes a purchase
price of $2.98 billion, based on the market capitalization of Transocean, using an average closing price of Transocean ordinary shares over the seven-day period commencing three days before July 12, 1999, the date the merger was announced, plus the estimated fair value at the pro forma balance sheet date of Transocean's stock options, which will be assumed by Transocean Sedco Forex. The calculated purchase price is for accounting purposes only and is not indicative of the price at which Transocean ordinary shares will trade immediately before the 22 29 TRANSOCEAN SEDCO FOREX NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) consummation of the merger or the value of Transocean ordinary shares to be received by shareholders of Sedco Forex in connection with the merger. The recording of goodwill and the associated amortization period of 40 years are supported by the nature of the offshore drilling industry, long-lived drilling equipment and the long-standing relationships with core customers. (d) Other assets -- Represents the adjustment needed to record Transocean's defined benefit pension asset at estimated fair value at the date of the merger. (e) Current liabilities -- A reconciliation of the pro forma adjustment to current liabilities is as follows: Fair value adjustment of Transocean interest rate swap agreements, net...........................................$ 4,474
Fair value adjustment of accrued periodic survey and drydock
costs.....................................................  (12,152)
Effect of change of control provisions in Transocean's bonus
plan......................................................    2,500
Fees payable associated with the merger.....................   11,850
Costs directly related to the issuance of Transocean
ordinary shares...........................................    2,400
-------
Total pro forma adjustment to current
liabilities.....................................  $9,072 ======= (f) Deferred taxes and other credits -- Represents the adjustment to deferred tax liabilities for the net effect of the pro forma adjustments ($148.9 million) and other fair value adjustments ($0.1 million). (g) Shareholders' equity -- Represents the difference between the purchase price (see Note 2(c)) and the book value of the net assets of Transocean at the pro forma balance sheet date, less$2.4 million of
estimated costs to issue shares.

The purchase price will be allocated based upon the estimated fair
values of Transocean assets and liabilities. For purposes of the Unaudited
Condensed Pro Forma Combined Financial Statements, the purchase price has
been allocated as follows:

Historical net book value of Transocean.....................  $2,113,945 Fair value adjustment of property and equipment, net........ 487,000 Effect of change of control provisions in Transocean's bonus plan...................................................... (2,500) Fair value adjustment of Transocean interest rate swap agreements, net........................................... (4,474) Fair value of additional liabilities associated with the merger.................................................... (11,850) Fair value adjustment of Transocean defined benefit plans, net....................................................... 21,075 Fair value adjustment of prepaid and accrued periodic survey and drydock costs......................................... 22,978 Deferred income tax effect of pro forma adjustments, net.... (153,771) Goodwill.................................................... 507,252 ---------- Total purchase price..............................$2,979,655
==========

23
30

TRANSOCEAN SEDCO FOREX

NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(h) Depreciation and amortization -- A reconciliation of the pro forma
adjustment to depreciation and amortization is as follows:

PRO FORMA            PRO FORMA
SIX MONTHS ENDED       YEAR ENDED
JUNE 30, 1999      DECEMBER 31, 1998
----------------    -----------------

from the adjustment to fair value
of Transocean's property and
equipment.........................      $10,107$27,493
Amortization of goodwill resulting
from the merger over a 40-year
estimated life. See Note (2c).....        5,712               11,424
-------              -------
depreciation and
amortization.................      $15,819$38,917
=======              =======

(i) Other income (expense) net -- Represents the elimination of
interest expense associated with related party debt offset by interest
expense on the remaining debt owed to Schlumberger at an assumed rate of
5.6875% and a reduction of interest income associated with the reduction in
cash balances. The remaining debt balance owed to Schlumberger will be
refinanced immediately following the merger.

(j) Income taxes -- Represents the incremental benefit from U.S. and
foreign income taxes related to pro forma adjustments. The amortization of
goodwill and the incremental interest income and expense adjustments are
assumed to be nondeductible for tax purposes.

(3) Basic earnings per share -- The adjustment to pro forma basic weighted
average shares outstanding represents the total estimated Transocean
shares expected to be issued to Schlumberger's shareholders in the
merger.

(4) Diluted earnings per share -- The adjustment to pro forma diluted
weighted average shares outstanding is the sum of the basic weighted
average shares outstanding plus the estimated dilutive effect of
Schlumberger stock options held by Sedco Forex employees.

24
31

TRANSOCEAN SEDCO FOREX

SUPPLEMENTAL FINANCIAL INFORMATION

In reviewing the unaudited condensed pro forma combined financial
statements, the additional supplemental financial information discussed below
should be considered.

Related Party Transactions

Sedco Forex pays insurance premiums to third-party insurance companies for
some risks where the insurance risk is then assumed by a wholly owned affiliate
of Schlumberger through a reinsurance program. Transocean Sedco Forex does not
currently expect that it would continue this insurance program following the
merger. The historical Sedco Forex financial statements include insurance
expense of approximately $18 million for the six months ended June 30, 1999 and$55 million for the year ended December 31, 1998 for this insurance program.

Schlumberger cost allocations for research and engineering and general and
administrative expenses, which amounted to $5 million for the six months ended June 30, 1999 and$13 million for the year ended December 31, 1998, will not be
incurred by Transocean Sedco Forex following the merger. However, some of this
expense reduction will be offset by the costs incurred by Transocean Sedco Forex
to replace these services through contractual arrangements with Schlumberger or
other third parties. The cost of these contractual arrangements or the increased
Transocean Sedco Forex overhead to replace these services, to the extent they
are continued, cannot be reasonably estimated at this time. However, Transocean
Sedco Forex expects that some level of cost savings will be achieved.

Depreciation Expense

Depreciation expense of $64 million for the six months ended June 30, 1999 and$125 million for the year ended December 31, 1998 is included in the Sedco
Forex historical financial statements. As a result of the merger, Transocean
Sedco Forex will conform the estimated lives of the Sedco Forex rigs and
associated equipment to those used by Transocean for similar assets. Since the
useful lives used by Transocean are generally longer than those used by Sedco
Forex, the result will be to reduce depreciation expense. The change in
estimated lives would have reduced historical Sedco Forex depreciation expense
by approximately $30 million for the six months ended June 30, 1999 and approximately$62 million for the year ended December 31, 1998.

Stock Option Expense

Some of the options to purchase Transocean Sedco Forex ordinary shares to
be granted to Sedco Forex employees in accordance with the employee matters
agreement upon completion of the merger are likely to be granted with exercise
prices below fair market value. The differences between these exercise prices
and fair market value will be recorded as an expense. Based on Schlumberger's
September 30, 1999 closing price of $62 5/16 and Transocean's September 30, 1999 closing price of$30 5/8, the amount of this charge would have been about $3 million. The final amount of this charge cannot be determined until the day immediately preceding the distribution date. 25 32 SCHLUMBERGER UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1999 PRO FORMA HISTORICAL SEDCO FOREX PRO FORMA SCHLUMBERGER BEFORE MERGER ADJUSTMENT(1) SCHLUMBERGER ------------ ------------- ------------- ------------ (AMOUNTS IN THOUSANDS) Cash and Cash Equivalents................$ 4,022,846     $35,000$    --      $3,987,846 Accounts Receivable...................... 2,658,038 170,253 -- 2,487,785 Other Current Assets..................... 1,886,019 71,839 45,358 1,859,538 ----------- ---------- ------- ----------- Total Current Assets................... 8,566,903 277,092 45,358 8,335,169 Long-Term Investments, held to maturity............................... 652,573 -- -- 652,573 Property and Equipment, net.............. 4,822,351 1,101,585 -- 3,720,766 Goodwill and Intangibles, net............ 1,269,463 -- -- 1,269,463 Other Assets............................. 431,397 44,581 -- 386,816 ----------- ---------- ------- ----------- Total Assets.............................$15,742,687     $1,423,258$45,358      $14,364,787 =========== ========== ======= =========== Current Liabilities......................$ 3,630,047     $237,089$    --      $3,392,958 Long-Term Debt........................... 3,207,040 77,428 -- 3,129,612 Related Party Debt....................... -- 45,358 45,358 -- Postretirement Benefits and Other Credits................................ 760,810 93,162 -- 667,648 Shareholders Equity...................... 8,144,790 970,221 -- 7,174,569 ----------- ---------- ------- ----------- Total Liabilities and Shareholders' Equity.................................$15,742,687     $1,423,258$45,358      $14,364,787 =========== ========== ======= =========== - --------------- (1) To eliminate related party debt and establish a receivable from Transocean Sedco Forex pursuant to the distribution agreement. 26 33 SCHLUMBERGER UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 HISTORICAL -------------------------- PRO FORMA SCHLUMBERGER SEDCO FOREX ADJUSTMENT SCHLUMBERGER ------------ ----------- ---------- ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue: Operating.................................$4,480,725     $351,590$     --      $4,129,135 Interest and other Income................. 224,560 6,696 -- 217,864 ---------- -------- -------- ---------- 4,705,285 358,286 -- 4,346,999 ---------- -------- -------- ---------- Expenses: Cost of goods sold and services........... 3,637,975 297,118 17,576(1) 3,358,433 Research and engineering.................. 264,514 6,317 -- 258,197 Marketing................................. 210,754 -- -- 210,754 General................................... 201,839 8,335 -- 193,504 Interest.................................. 94,739 6,911 -- 87,828 ---------- -------- -------- ---------- 4,409,821 318,681 17,576(1) 4,108,716 ---------- -------- -------- ---------- Income Before Taxes......................... 295,464 39,605 (17,576) 238,283 Taxes on Income............................. 79,010 911 -- 78,099 ---------- -------- -------- ---------- Net Income..................................$  216,454     $38,694$(17,576)     $160,184 ========== ======== ======== ========== Earnings Per Share: Basic.....................................$     0.39                                 $0.30 ========== ========== Diluted...................................$     0.39                                 $0.28 ========== ========== Weighted Average Shares Outstanding: Basic..................................... 546,744 -- 546,744 ========== ======== ========== Diluted................................... 561,722 (239)(2) 561,483 ========== ======== ========== Depreciation and Amortization included in Expenses..................................$  563,682     $63,739$     --      $499,943 ========== ======== ======== ========== - --------------- (1) The$17,576 represents insurance premiums paid to third party insurance
companies for some risks where the insurance risk is then assumed by a
Schlumberger wholly owned affiliated company through a reinsurance program.
In the consolidated accounts of Schlumberger, the Sedco Forex insurance
by the affiliated company.

(2) The 239 represents the elimination of the dilutive effect of Sedco Forex
exployees' unexercised stock options.

27
34

SCHLUMBERGER

UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

HISTORICAL
--------------------------                     PRO FORMA
------------   -----------   --------------   ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Revenue:
Operating...........................  $11,815,553$1,090,523       $--$10,725,030
Interest and other Income...........      181,756         8,750             --          173,006
-----------    ----------       --------      -----------
11,997,309     1,099,273             --       10,898,036
-----------    ----------       --------      -----------
Expenses:
Cost of goods sold and services.....    9,034,409       674,685         54,659(1)     8,414,383
Research and engineering............      568,225        11,343             --          556,882
Marketing...........................      467,592            --             --          467,592
General.............................      454,049        26,274             --          427,775
Interest............................      150,161        12,950             --          137,211
-----------    ----------       --------      -----------
10,674,436       725,252         54,659       10,003,843
-----------    ----------       --------      -----------
Income Before Taxes...................    1,322,873       374,021        (54,659)         894,193
Taxes on Income.......................      308,674        32,443             --          276,231
-----------    ----------       --------      -----------
Net Income............................  $1,014,199$  341,578       $(54,659)$   617,962
===========    ==========       ========      ===========
Earnings Per Share:
Basic...............................  $1.87$      1.14
===========                                   ===========
Diluted.............................  $1.81$      1.10
===========                                   ===========
Weighted Average Shares Outstanding:
Basic...............................      544,338                           --          544,338
===========                     ========      ===========
Diluted.............................      561,855                         (288)(2)      561,567
===========                     ========      ===========
Depreciation and Amortization included
in Expenses.........................  $1,136,290$  124,708       $--$ 1,011,582
===========    ==========       ========      ===========

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

(1) The $54,659 represents insurance premiums paid to third party insurance companies for some risks where the insurance risk is then assumed by a Schlumberger wholly owned affiliated company through a reinsurance program. In the consolidated accounts of Schlumberger, the Sedco Forex insurance premium expense is eliminated against the insurance premium income received by the affiliated company. (2) The 288 represents the elimination of the dilutive effect of Sedco Forex employees' unexercised stock options. 28 35 UNAUDITED COMPARATIVE PER SHARE DATA The following table compares the net income, cash dividends and book value per share data for Transocean and Sedco Forex on a historical, pro forma combined and per share equivalent basis. You should read the information below together with the historical financial statements and related notes contained in or incorporated by reference in this document. See "Where You Can Find More Information" on page 143. The unaudited pro forma data is for informational purposes only. The companies may have performed differently had they always been combined. You should not rely on the pro forma data as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience after the merger. SEDCO FOREX UNAUDITED EQUIVALENT PRO FORMA TRANSOCEAN UNAUDITED HISTORICAL SEDCO FOREX PRO FORMA TRANSOCEAN PER UNAUDITED PER HISTORICAL SCHLUMBERGER PRO FORMA SCHLUMBERGER PER SHARE SHARE PER SHARE SHARE DATA DATA(1) DATA(2) DATA(3) ---------- --------------- ----------- ------------ SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) Net income per share: Basic.....................................$ 1.41          $0.07$ 0.84         $0.16 Diluted................................... 1.41 0.07 0.84 0.16 Dividends per share(4)...................... 0.06 Book value per share........................ 21.02 0.95 18.83 3.65 YEAR ENDED DECEMBER 31, 1998 Net income per share: Basic.....................................$ 3.43          $0.63$ 3.17         $0.61 Diluted................................... 3.41 0.61 3.15 0.61 Dividends per share(4)...................... 0.12 - --------------- (1) Pro forma basic earnings per share and book value per share were calculated using historical earnings data and assuming that one share of Sedco Forex common stock is issued in the spin-off for each share of Schlumberger common stock outstanding. This information gives effect to the spin-off of Sedco Forex from Schlumberger but does not give effect to the merger of Sedco Forex and Transocean. As a result, the per share information presented above does not agree with the per share information presented in the Sedco Forex financial statements included in this document. This is because the pro forma per share information included in the Sedco Forex financial statements is based on the number of shares expected to be issued by Transocean to Sedco Forex shareholders. (2) See "Transocean Sedco Forex Unaudited Condensed Pro Forma Combined Financial Statements." (3) Equivalent unaudited pro forma per Schlumberger share data represents the Transocean Sedco Forex pro forma per share data multiplied by an assumed merger exchange ratio of 0.194. (4) Transocean has paid quarterly cash dividends of$0.03 per share since the
fourth quarter of 1993. Any future declaration and payment of dividends will
be:

- dependent upon Transocean Sedco Forex's results of operations, financial
condition, cash requirements and other relevant factors;

- subject to the discretion of its board of directors;

- subject to restrictions contained in its revolving credit agreement and
other then-outstanding debt instruments; and

- payable only out of Transocean Sedco Forex's profits or share premium
accounts in accordance with Cayman Islands law.

For a description of Transocean's revolving credit agreement, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" in Transocean's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998, its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and
June 30, 1999 and subsequent SEC filings on these forms.

Because Sedco Forex was a wholly owned subsidiary of Schlumberger for the
periods presented, historical dividends per share are not meaningful.

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36

TRANSOCEAN AND SCHLUMBERGER MARKET PRICE AND DIVIDEND INFORMATION

The following table shows the high and low sale prices for a share of
Transocean common stock, and since May 17, 1999, for a Transocean ordinary
share, and for a share of Schlumberger common stock for the periods shown in the
table. It also shows the respective per share cash dividends declared in those
periods. Since June 1993, the date of Transocean's initial public offering,
Transocean ordinary shares have been listed and traded on the New York Stock
Exchange under the symbol "RIG." Schlumberger common stock is listed and traded
on the New York Stock Exchange under the symbol "SLB" and is also traded on the
Paris Stock Exchange, the London Stock Exchange, the Amsterdam Stock Exchange
and the Swiss Stock Exchange. The prices are as reported on the New York Stock
Exchange Composite Transaction Tape. The Transocean data has been adjusted to
reflect a two-for-one stock split effected in September 1997 and the
Schlumberger data has been adjusted to reflect a two-for-one stock split
effected in June 1997.

TRANSOCEAN              SCHLUMBERGER
-----------------------   -------------------------
CASH                        CASH
DIVIDENDS                   DIVIDENDS
HIGH    LOW    DECLARED   HIGH     LOW    DECLARED
----    ---   ---------   ----     ---    ---------

1996
First quarter.................................  26 1/2   20 9/16  $0.03 40 5/16 32 11/16$0.1875
Second quarter................................  29 1/2   23 1/4    0.03   45 11/16 40  1/16   0.1875
Third quarter.................................  30 7/8   24 7/16   0.03   44 9/16  39 11/16   0.1875
Fourth quarter................................  35 11/16 28 5/16   0.03   54 1/8   42 1/8     0.1875
1997
First quarter.................................  35 11/16 26 1/8    0.03   58 3/16  49         0.1875
Second quarter................................  37 5/16  27 1/8    0.03   63 1/4   51 1/8     0.1875
Third quarter.................................  50 1/2   36 5/16   0.03   84 5/8   62 3/8     0.1875
Fourth quarter................................  60 1/2   39 3/8    0.03   94 7/16  72 3/8     0.1875
1998
First quarter.................................  54 15/16 35        0.03   81 1/2   65 7/8     0.1875
Second quarter................................  59 15/16 41 11/16  0.03   86 3/4   66         0.1875
Third quarter.................................  46 3/8   23        0.03   69 15/16 43 7/16    0.1875
Fourth quarter................................  41 1/2   23 9/16   0.03   58 1/4   40 1/16    0.1875
1999
First quarter.................................  31 9/16  19 11/16  0.03   62 5/16  45 7/16    0.1875
Second quarter................................  32 1/2   22 5/8    0.03   65 7/8   55 1/2     0.1875
Third quarter.................................  36 1/2   25 9/16   0.03   70 11/16 57 11/16   0.1875
Fourth quarter (through October 22, 1999).....  31 3/16  25 5/8     --    63 5/16  53 5/8       --

On July 9, 1999, the last full trading day before Transocean and
Schlumberger announced the proposed merger, Transocean ordinary shares closed at
$29 per share and Schlumberger common stock closed at$64 5/16 per share. On
October 22, 1999, the most recent practicable date before the date of this
document, Transocean ordinary shares closed at $29 1/16 per share and Schlumberger common stock closed at$60 5/16 per share. Because the exchange
ratio for the merger does not depend on and is not affected by market prices,
and the market price of Transocean ordinary shares is subject to fluctuation,
the market value of the Transocean ordinary shares that Schlumberger's
shareholders will receive in connection with the merger may increase or decrease
before or after the proposed merger. SCHLUMBERGER'S SHAREHOLDERS ARE ENCOURAGED
TO OBTAIN RECENT STOCK QUOTES FOR TRANSOCEAN ORDINARY SHARES AND SCHLUMBERGER
COMMON STOCK.

Following completion of the merger, Transocean Sedco Forex ordinary shares
will continue to trade on the New York Stock Exchange under the symbol "RIG."

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37

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This document and the documents incorporated by reference in this joint
proxy statement/prospectus contain both historical and forward-looking
statements. All statements other than statements of historical fact are, or may
be deemed to be, forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements include the information concerning possible or
assumed future results of operations of Transocean, Schlumberger, Sedco Forex
and Transocean Sedco Forex, including statements about the following subjects:

- operating efficiencies or synergies
- growth opportunities
- competitive position
- market outlook
- expected financial position
- expected results of operations
- future cash flows
- future dividends
- financing plans
- budgets for capital and other expenditures
- timing and cost of completion of capital projects
- expected results of the transactions
- plans and objectives of management
- timing of the transactions
- tax treatment of the transactions
- accounting treatment of the transactions
- transaction-related expenses
- performance of contracts
- outcomes of legal proceedings
- compliance with applicable laws
- plans and expectations regarding year 2000 issues

Forward-looking statements in this joint proxy statement/prospectus are
identifiable by use of the following words and other similar expressions, among
others:

- "anticipate"
- "believe"
- "budget"
- "could"
- "estimate"
- "expect"
- "forecast"
- "intend"
- "may"
- "might"
- "plan"
- "predict"
- "project"
- "should"

The following factors could affect the future results of operations of
Transocean Sedco Forex or Schlumberger, and could cause those results to differ
materially from those expressed in the forward-looking statements included in
this document or incorporated by reference:

- worldwide demand for oil and gas;

- oil and gas prices;

- the level of activity in offshore oil and gas exploration, development
and production;

- exploration success by producers;

- competition and market conditions in the offshore contract drilling
industry;

- the ability to enter into and the terms of future drilling contracts;

- cost overruns on construction projects;

- work stoppages by shipyard workers;

- delays in construction projects, which in some cases may trigger the
drilling contract customer's right to terminate the drilling contract for
the unit under construction;

- risks inherent in turnkey contracts;

- the availability of qualified personnel;

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38

- labor relations and wage negotiations with unions;

- operating hazards;

- political and other uncertainties inherent in non-U.S. operations,
including exchange and currency fluctuations;

- the impact of governmental laws and regulations;

- the adequacy of sources of liquidity;

- the effect of litigation and contingencies;

- the success in implementing a year 2000 compliance plan; and

- the failure of financial and other service providers to be year 2000
compliant on a timely basis.

The above factors are in addition to those factors discussed:

- In this joint proxy statement/prospectus under "Risk Factors," the
"Market Outlook," "Other Factors Affecting Operating Results," "Liquidity
and Capital Resources," "Year 2000 Issues" and "Euro Disclosures"
subsections of "Sedco Forex Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the "Industry
Conditions and Competition," "Markets," "Operating Risks," "International
Operations," "Regulation," and "Legal Proceedings" subsections of
"Business of Sedco Forex" and elsewhere.

- In the documents that Transocean incorporates by reference into this
joint proxy statement/prospectus, including in the "Market Outlook,"
"Other Factors Affecting Operating Results," "Liquidity and Capital
Resources" and "Year 2000 Issues" subsections of the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections of Transocean's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 and its Quarterly Reports on Form 10-Q for the
periods ended March 31, 1999 and June 30, 1999 and subsequent SEC filings
on those forms.

- In the documents that Schlumberger incorporates by reference into this
joint proxy statement/prospectus, including in the "Currency Risks,"
"Environmental Matters," "Year 2000 Readiness Disclosure" and "Euro
Disclosures" subsections of the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections of Schlumberger's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998
and its Quarterly Reports on Form 10-Q for the periods ended March 31,
1999 and June 30, 1999 and subsequent SEC filings on those forms.

You should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the particular
statement, and we undertake no obligation to publicly update or revise any
forward-looking statements.

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39

RISK FACTORS

In addition to the other information contained in this document and the
documents incorporated by reference, you should carefully consider the following
risk factors before you decide how to vote on the proposed transactions.

THE VALUE OF THE TRANSOCEAN ORDINARY SHARES TO BE RECEIVED IN THE MERGER WILL
FLUCTUATE.

The merger agreement does not contain any provisions for adjustment of the
merger exchange ratio and does not provide for rights of termination by either
party based upon fluctuations in the per share price of the Transocean ordinary
shares prior to the completion of the merger. Because no adjustment will be made
to the exchange ratio, the value of the consideration to be received by
Schlumberger's shareholders in connection with the spin-off and the merger
cannot presently be determined and will vary based upon the market price of
Transocean ordinary shares at the time the merger is completed. Such variations
may be the result of:

- changes in the business or results of operations of Transocean or Sedco
Forex;

- the prospects for the post-merger operations of Transocean Sedco Forex;

- the timing of the merger;

- the worldwide supply/demand balance for oil and gas and the prevailing
commodity price environment;

- competition in the offshore contract drilling industry;

- construction risks associated with Transocean's and Sedco Forex's
respective newbuild programs;

- regulatory considerations;

- general market and economic conditions; and

- other factors beyond the control of Transocean, Schlumberger or Sedco
Forex.

Schlumberger's shareholders are urged to obtain current market quotations for
their shares and for Transocean ordinary shares.

THE PRICE OF TRANSOCEAN SEDCO FOREX ORDINARY SHARES MAY DECLINE AS A RESULT OF
THE TRANSACTION.

Assuming the transactions are approved by Transocean's and Schlumberger's
shareholders and the merger is completed, the number of issued and freely
tradeable Transocean ordinary shares will more than double. As a result of the
issuance of this large number of additional shares, the market price of
Transocean Sedco Forex ordinary shares may experience temporary volatility or
decline unrelated to the financial performance of Transocean Sedco Forex.

TRANSOCEAN SEDCO FOREX MAY FACE DIFFICULTIES IN INTEGRATING THE OPERATIONS OF
SEDCO FOREX AND TRANSOCEAN.

Sedco Forex and Transocean have previously operated separately. The
proposed management team of Transocean Sedco Forex does not have experience with
the combined business. Transocean Sedco Forex may not be able to integrate the
operations of Sedco Forex and Transocean without a loss of key officers,
employees, customers or suppliers, a loss of revenues, an increase in operating
or other costs or other difficulties. In addition, Transocean Sedco Forex may
not be able to realize any operating efficiencies and other benefits expected
from the merger. Finally, the integration of Transocean and Sedco Forex may be
made more difficult or may be otherwise adversely affected by year 2000
problems. Any unexpected costs or delays incurred in connection with such
results of operations or financial condition.

THE BUSINESS SEPARATION OF SEDCO FOREX FROM SCHLUMBERGER MAY IMPAIR ASSETS.

The separation of Sedco Forex from the rest of Schlumberger's businesses,
assets and liabilities requires the transfer of assets, including capital stock
and interests in partnerships, limited liability companies and
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40

similar entities, and liabilities between Sedco Forex and its subsidiaries, on
the one hand, and Schlumberger and its other subsidiaries, on the other. In
addition, as a part of the business separation, assets and liabilities may be
transferred among Sedco Forex subsidiaries, or between those subsidiaries and
Sedco Forex itself. Some of these transfers may trigger Sedco Forex liabilities
that will not become payable by Sedco Forex until after the merger is completed.
Generally, Sedco Forex will not have any recourse against Schlumberger for these
liabilities except in the case of (1) certain tax liabilities, customs duties
and similar governmental charges for which a claim for indemnification is
asserted within specified time periods following the transfer in question and
(2) liabilities directly arising out of or directly resulting from the
transactions necessary to separate the Sedco Forex business, assets and
liabilities from the rest of Schlumberger's business, assets and liabilities,
except to the extent those liabilities would have directly arisen out of or
directly resulted from the merger.

TRANSOCEAN IS SUBJECT TO ANTI-TAKEOVER PROVISIONS.

Transocean's articles of association contain, and, accordingly, Transocean
Sedco Forex's articles of association will contain, provisions that could
prevent or delay an acquisition of Transocean Sedco Forex by means of a tender
offer, a proxy contest or otherwise. Such provisions also may adversely affect
prevailing market prices for Transocean Sedco Forex's ordinary shares. These
provisions, among other things:

- classify the Transocean Sedco Forex board into three classes of
directors, each of which will serve for staggered three-year periods;

- provide that the Transocean Sedco Forex board may designate the terms of
any new series of preference shares;

- provide that any shareholder of Transocean Sedco Forex who wishes to
propose any business or to nominate a person or persons for the election
as director at any annual meeting may only do so if advance notice is
given to the Secretary of Transocean Sedco Forex;

- provide that the exact number of directors on the board can be set
between two and twelve from time to time by a majority of the whole board
of directors and not by the shareholders;

- provide that directors can be removed from office only for cause, as
defined in the articles of association, by the affirmative vote of the
holders of the issued shares generally entitled to vote;

- provide that any vacancy on the board of directors will be filled by the
affirmative vote of the remaining directors and not by the shareholders;

- provide that any action required or permitted to be taken by the holders
of ordinary shares must be taken at a duly called annual or extraordinary
general meeting of shareholders unless taken by written consent of all
holders of ordinary shares;

- provide that only a majority of the directors may call extraordinary
general meetings of the shareholders;

- limit the ability of the shareholders of Transocean Sedco Forex to amend
or repeal certain provisions of Transocean Sedco Forex's articles of
association; and

- limit transactions between Transocean Sedco Forex and an "interested
shareholder," which is generally defined as a shareholder that, together
with its affiliates and associates, beneficially, directly or indirectly,
owns 15% or more of Transocean Sedco Forex's issued voting shares.

See "Description of Capital Stock of Transocean."

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41

THE TRANSOCEAN EXTRAORDINARY GENERAL MEETING

Transocean is furnishing this joint proxy statement/prospectus to its
shareholders in connection with the solicitation of proxies by Transocean's
board of directors for use at the extraordinary general meeting. Transocean is
first mailing this joint proxy statement/prospectus and accompanying form of
proxy to its shareholders beginning on or about November 8, 1999.

TIME, DATE AND PLACE

The extraordinary general meeting of Transocean's shareholders will be held
on December 10, 1999, at 4:00 p.m., Houston time, at 4 Greenway Plaza, Room
C-100 (Mall Level), Houston, Texas 77046.

PURPOSE OF THE TRANSOCEAN EXTRAORDINARY GENERAL MEETING

At the meeting, Transocean's board of directors will ask the shareholders
to vote to approve:

- the increase of Transocean's authorized ordinary share capital to
$3,000,000, consisting of 300,000,000 ordinary shares, par value$0.01
per share;

- the issuance, pursuant to the merger agreement, of Transocean ordinary
shares in exchange for all of the then-outstanding shares of Sedco Forex
capital stock;

- the change of Transocean's name to "Transocean Sedco Forex Inc." as a
special resolution to be implemented only upon completion of the merger;

- the amendment of Transocean's Long-Term Incentive Plan to, among other
things, increase the number of ordinary shares reserved for issuance
under the plan from 6,300,000 to 13,300,000;

- the amendment of Transocean's Employee Stock Purchase Plan to, among
other things, increase the number of ordinary shares reserved for
issuance under the plan from 250,000 to 750,000; and

- any other matters that properly come before the extraordinary general
meeting and any adjournments or postponements of the extraordinary
general meeting.

Transocean's board of directors has unanimously approved the increase in
authorized ordinary share capital, the issuance of ordinary shares to Sedco
Forex shareholders in the merger, the name change and the amendments to
Transocean's Long-Term Incentive Plan and its Employee Stock Purchase Plan, and
unanimously recommends that Transocean's shareholders vote "FOR" the same.

RECORD DATE; VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL

The Transocean board has fixed the close of business on November 1, 1999 as
the record date for Transocean's extraordinary general meeting.

Only holders of record of Transocean ordinary shares on the record date are
entitled to notice of and to vote at the meeting.

On the record date for Transocean's shareholder meeting, Transocean expects
there to be approximately 101 million Transocean ordinary shares issued and
entitled to vote at the meeting. Each Transocean ordinary share is entitled to
one vote.

The presence, in person or by proxy, of the holders of a majority of the
Transocean ordinary shares outstanding is necessary to constitute a quorum at
the extraordinary general meeting. Abstentions, proxies returned without
instructions and broker non-votes will count in the determination of shares
present at the meeting for purposes of determining the presence of a quorum.

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42

Assuming the presence of a quorum, the following shareholder votes are
required to approve the indicated proposals at the extraordinary general
meeting.

PROPOSAL                                  VOTE "FOR" REQUIRED
--------                                  -------------------

(1) Increase in authorized ordinary share      - holders of the majority of ordinary shares
capital                                      issued
(2) Issuance of ordinary shares in the merger  - holders of the majority of votes cast at
the meeting, provided votes cast represent
the majority of ordinary shares issued
(3) Name change to "Transocean Sedco Forex     - holders of 66 2/3% of votes cast at the
Inc."                                          meeting
(4) Amendment of Long-Term Incentive Plan      - holders of the majority of ordinary shares
present or represented and entitled to vote
at the meeting, provided votes cast
represent the majority of ordinary shares
issued
(5) Amendment of Employee Stock Purchase Plan  - holders of the majority of ordinary shares
present or represented and entitled to vote
at the meeting

Approval of the proposals to increase authorized ordinary share capital and
to issue ordinary shares in the merger are conditions to completion of the
merger. Approval of the name change proposal and the proposals to amend
Transocean's Long-Term Incentive Plan and Employee Stock Purchase Plan are not
conditions to the completion of the merger. The proposals to increase authorized
ordinary share capital, to issue ordinary shares in the merger, to change
Transocean's name and to increase the number of ordinary shares available for
grant under the Long-Term Incentive Plan, if approved, will be implemented only
if the merger is completed. The proposal to increase the shares available for
grant under the Employee Stock Purchase Plan, if approved, will be implemented
regardless of whether the merger is completed. A vote in favor of the proposal
to issue ordinary shares in the merger will also constitute a vote in favor of
Transocean's granting fully vested options to purchase Transocean Sedco Forex
ordinary shares to Sedco Forex employees holding nonvested options to purchase
Schlumberger common stock at the effective time of the spin-off, all of which
will terminate by their terms upon completion of the spin-off. The new
Transocean Sedco Forex options will be granted outside of the Long-Term
Incentive Plan, but will be subject to substantially identical terms and
conditions. Transocean Sedco Forex will grant these options with an exercise
price below fair market value at the date of grant to the extent a below market
price would be required by application of the exercise price adjustment formula
set forth in the employee matters agreement. However, French-based employees of
Sedco Forex who are eligible to receive new Transocean Sedco Forex options will
be granted options with an exercise price equal to the fair market value of
Transocean Sedco Forex ordinary shares at the date of grant, even if the
application of the adjustment formula otherwise would result in an exercise
price below the market price of Transocean Sedco Forex ordinary shares at that
date. To compensate these holders for the resulting diminution in value,
Transocean Sedco Forex will grant additional options with a fair market value
exercise price, the appropriate number of which will be determined by valuing
those options according to the Black-Scholes option pricing model and related
assumptions deemed reasonable by Transocean Sedco Forex. Transocean anticipates
that following the merger it will adopt a stand-alone plan pursuant to which

The directors and executive officers of Transocean intend to vote their
shares in favor of all of the proposals. On September 30, 1999, directors and
executive officers of Transocean and their affiliates beneficially owned less
than 2% of the issued Transocean ordinary shares.

PROXIES

All ordinary shares of Transocean represented by properly executed proxies
received at or prior to the Transocean extraordinary general meeting and not
revoked will be voted in accordance with the instructions indicated in such
proxies.

A properly executed proxy that is returned without instructions as the vote
desired on any or all of the proposals will be voted "FOR" such proposal or
proposals.

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43

Transocean's shareholders may abstain on any or all of the proposals, by
marking "ABSTAIN" with respect to any or all of the proposals.

Under New York Stock Exchange rules, brokers who hold shares in street name
for customers have the authority to vote on "routine" proposals when they have
not received instructions from beneficial owners, but are precluded from
exercising their voting discretion with respect to proposals for "nonroutine"
matters. Proxies submitted by brokers without instructions from customers for
these nonroutine matters are referred to as "broker non-votes." The proposals to
issue Transocean ordinary shares and to amend Transocean's Long-Term Incentive
Plan and its Employee Stock Purchase Plan are non-routine matters under NYSE
rules, while the other Transocean proposals are considered to be routine matters
under these rules.

The following table shows the effect that a proxy without instructions, an
abstention or, in the case of the proposals for non-routine matters, a "broker
non-vote" will have on the votes on Transocean's proposals.

EFFECT ON VOTE
-------------------------------------------------
PROXY WITHOUT
--------                   -------------   --------------   ----------------

(1)  Increase in authorized ordinary share           "FOR"       "AGAINST"(a)    Not applicable
capital
(2)  Issuance of ordinary shares in the              "FOR"         None(b)           None(c)
merger
(3)  Name change to "Transocean Sedco Forex          "FOR"           None        Not applicable
Inc."
(4)  Amendment of the Long-Term Incentive            "FOR"       "AGAINST"(d)        None(c)
Plan
(5)  Amendment of the Employee Stock Purchase        "FOR"       "AGAINST"(d)         None
Plan

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

(a)  An abstention on the proposal to increase authorized ordinary share capital
has the effect of a vote "AGAINST" the proposal because that proposal
requires approval by the majority of the holders of all ordinary shares
issued, whether voting or not.

(b)  An abstention from voting on the proposal to issue shares in the merger
will not affect the voting on that proposal as long as holders of a
majority of ordinary shares cast votes on the proposal. Otherwise, the
effect of such abstention is a vote "AGAINST" the proposal.

(c)  A broker non-vote on these proposals will not affect the voting on them as
long as holders of the majority of ordinary shares cast votes on the
proposal. Otherwise, the effect of such broker non-vote is a vote "AGAINST"
the proposal because the broker has no discretion to vote the shares to
help reach a majority participation in the vote.

(d)  An abstention from voting on the proposals to amend and restate the
Long-Term Incentive Plan and the Employee Stock Purchase Plan has the
effect of a vote "AGAINST" those proposals because they require the
approval of the majority of shares present or represented at the meeting
and entitled to vote. An abstention represents a share that is present or
represented and entitled to vote.

Transocean's shareholders may use the accompanying proxy card if they are
unable or do not wish to attend the extraordinary general meeting in person or
if they wish to have their shares voted by proxy even though they do attend the
meeting. Transocean's shareholders may revoke a proxy before it is voted by:

- delivering to the Secretary of Transocean at 4 Greenway Plaza, Houston,
Texas 77046, before or at the meeting, a written notice revoking their
proxy;

- delivering a later-dated, executed proxy card relating to the same
shares; or

- attending the meeting, notifying the Secretary and voting by ballot in
person; however, if a Transocean shareholder attends the meeting, but
does not vote in person, that shareholder's proxy will still be voted.

The cost of solicitation of proxies from holders of Transocean's ordinary
shares will be paid by Transocean. In addition to solicitation by mail,
Transocean will make arrangements with brokerage houses and other custodians,
nominees and fiduciaries to send the proxy materials to beneficial owners, and
Transocean will, upon request, reimburse such brokerage houses and custodians
for their reasonable related expenses. Transocean has retained D.F. King & Co.,
Inc. for a fee of $7,500, plus expenses, to aid in the solicitation of 37 44 proxies and to verify certain records related to the solicitations. To the extent necessary in order to ensure sufficient representation at its extraordinary general meeting, Transocean or its proxy solicitor may request the return of proxy cards by personal interview, mail, telephone, facsimile or other means of electronic transmission. The extent to which this will be necessary depends upon how promptly proxy cards are returned. Transocean's shareholders are urged to send in their proxies without delay. THE SCHLUMBERGER SPECIAL GENERAL MEETING Schlumberger is furnishing this joint proxy statement/prospectus to its shareholders in connection with the solicitation of proxies from those shareholders by Schlumberger's board of directors for use at the special general meeting of Schlumberger's shareholders. Schlumberger is first mailing this joint proxy statement/prospectus and accompanying form of proxy to its shareholders beginning on or about November 8, 1999. TIME, DATE AND PLACE Netherlands Antilles law and Schlumberger's articles of incorporation require that all general meetings be held on Curacao in the Netherlands Antilles. The special general meeting of Schlumberger's shareholders will be held at Avila Beach Hotel, Pennstraat 130, Willemstad, Curacao, Netherlands Antilles, on December 10, 1999, starting at 10:30 a.m. local time. PURPOSE OF THE SCHLUMBERGER GENERAL MEETING At the special general meeting, and any adjournment or postponement thereof, Schlumberger will ask its shareholders to consider and vote upon the proposal to distribute all of the capital stock of Sedco Forex to Schlumberger's shareholders such that each shareholder receives one share of Sedco Forex capital stock for each share of Schlumberger common stock owned as of the record date for the distribution. If Schlumberger's shareholders adopt and approve the distribution, and when all the conditions to the distribution and the merger have been satisfied or waived, the distribution will be made to the shareholders of Schlumberger as of a subsequent record date to be established by order of Schlumberger's Chairman of the Board. The same shareholders will then receive the Transocean ordinary shares to be issued in the merger. Schlumberger's board of directors has unanimously approved the proposal to distribute all the capital stock of Sedco Forex to Schlumberger's shareholders and unanimously recommends that Schlumberger's shareholders vote "FOR" the distribution. RECORD DATE; VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL Schlumberger's board of directors has fixed the close of business on November 1, 1999 as the record date for Schlumberger's special general meeting. Only holders of record of shares of Schlumberger common stock on the record date are entitled to notice of and to vote at the special general meeting. Each holder of record of Schlumberger common stock as of the record date is entitled to cast one vote for each share held on all matters submitted to Schlumberger's shareholders. On the record date for Schlumberger's special general meeting, Schlumberger expects that approximately 550 million shares of Schlumberger common stock will be issued and outstanding and entitled to vote at the meeting. The presence, in person or by proxy, of the holders of at least half of the outstanding shares of Schlumberger common stock is necessary to constitute a quorum at the special general meeting. The affirmative vote of a majority of the votes cast at the special general meeting is required to approve and adopt the proposal to distribute all the capital stock of Sedco Forex to Schlumberger's shareholders such that each shareholder receives one share of Sedco Forex capital stock for each share of Schlumberger common stock owned as of the record date for the distribution. 38 45 On September 30, 1999, directors and executive officers of Schlumberger and their affiliates beneficially owned approximately 5% of the outstanding Schlumberger common stock. PROXIES All shares of Schlumberger common stock represented by properly executed proxies received at or before the Schlumberger special general meeting and not revoked will be voted in accordance with the instructions indicated in such proxies. If no instructions are indicated on a properly executed returned proxy, such proxy will be voted "FOR" the approval of the proposal to distribute the Sedco Forex capital stock. Abstentions may be specified on the proposal. A properly executed proxy marked "ABSTAIN" with respect to the proposal will count as present for purposes of determining the presence of a quorum. That proxy will have no effect on the vote because the approval or disapproval of the proposal will be determined by the majority of the votes cast. Schlumberger's shareholders may use the accompanying Schlumberger proxy card if they are unable to attend the shareholder meeting in person or wish to have their shares voted by proxy even if they do attend the shareholder meeting. Schlumberger's shareholders may revoke a proxy before it is voted by: - delivering to the Secretary of Schlumberger at 277 Park Avenue, New York, New York 10172-0266, before or at the shareholder meeting, a written notice revoking their proxy; - delivering a later-dated proxy card relating to the same shares; or - attending the shareholder meeting, notifying the Secretary and voting by ballot in person; however, if a shareholder attends the shareholder meeting, but does not vote in person, that shareholder's proxy will still be voted. Under New York Stock Exchange rules, brokers who hold shares in street name for customers have the authority to vote on "routine" proposals when they have not received instructions from beneficial owners, but are precluded from exercising their voting discretion with respect to proposals for "nonroutine" matters. The proposal to distribute Sedco Forex capital stock is a nonroutine matter under NYSE rules and thus cannot be voted on by brokers without instructions from beneficial owners. The cost of solicitation of proxies from Schlumberger's shareholders will be paid by Schlumberger. In addition to solicitation by mail, Schlumberger will make arrangements with brokerage houses and other custodians, nominees and fiduciaries to send the proxy materials to beneficial owners, and Schlumberger will, upon request, reimburse such brokerage houses and custodians for their reasonable related expenses. Schlumberger has retained D.F. King & Co., Inc. for a fee of approximately$11,000, plus expenses, to aid in the solicitation of
proxies and to verify certain records related to the solicitations. To the
extent necessary in order to ensure sufficient representation at its shareholder
meeting, Schlumberger or its proxy solicitor may request the return of proxy
cards by personal interview, mail, telephone, facsimile or other means of
electronic transmission. The extent to which this will be necessary depends upon
how promptly proxy cards are returned. Shareholders are urged to send in their
proxies without delay.

Shareholders should not send in any stock certificates with their proxy
cards. In accordance with the distribution agreement, Schlumberger will
distribute the Sedco Forex shares to its shareholders through an agent who will
make book-entry transfers of the Sedco Forex shares to Schlumberger's
shareholders without the issuance of stock certificates for the Sedco Forex
shares. The Sedco Forex shares will then be exchanged for Transocean ordinary
shares in the merger. As soon as practicable after the consummation of the
merger, Transocean Sedco Forex will send to each of Schlumberger's shareholders
a physical stock certificate or a notice of book entry representing the number
of Transocean Sedco Forex ordinary shares that shareholder is entitled to

39
46

THE TRANSACTIONS

As further described in the distribution agreement, Schlumberger will
consolidate its offshore contract drilling business under its wholly owned
subsidiary, Sedco Forex Holdings Limited. To implement this consolidation,
before the spin-off:

- Schlumberger will transfer to Sedco Forex or its subsidiaries the capital
stock or other equity interests of several direct or indirect
subsidiaries of Schlumberger that conduct portions of Schlumberger's

- Schlumberger will transfer to Sedco Forex or its subsidiaries those
assets relating to Schlumberger's offshore contract drilling business
that were previously held by Schlumberger or its subsidiaries other than
Sedco Forex or its subsidiaries, including various drilling rigs, spares
and equipment; shore-based facilities; leases and personal property used
in the business; general intangibles relating to the transferred assets
such as drilling contracts; and patents, designs, drawings and other
intellectual property identified with such rigs and the offshore contract

- Sedco Forex will transfer to Schlumberger or its subsidiaries all of the
capital stock or other equity interests of those subsidiaries of Sedco
Forex that do not conduct Schlumberger's offshore contract drilling

- Schlumberger and Sedco Forex will use their best efforts to separate
various contractual arrangements to provide that those arrangements
relating to Sedco Forex do not remain obligations of Schlumberger and
that those arrangements not relating to Sedco Forex do not remain
obligations of Sedco Forex.

- Schlumberger and Sedco Forex will enter into a definitive employee
matters agreement with respect to personnel and employee benefit matters,
providing for (1) the transfer from Schlumberger to Sedco Forex of all
persons who are active Sedco Forex employees as of the spin-off date,
other than those whom Schlumberger and Transocean agree will remain with
Schlumberger, (2) the allocation of employee-related obligations and
liabilities, (3) the treatment of Schlumberger stock options held by
Sedco Forex employees at the spin-off date and (4) other transitional and

- Schlumberger and Sedco Forex will enter into a tax separation agreement
to allocate responsibility for the payment of taxes and entitlement to
tax refunds, to allocate responsibility and provide for cooperation in
the filing of tax returns and related matters, and to provide for certain
other matters relating to taxes not provided for in the distribution
agreement.

- Schlumberger and Sedco Forex will enter into a transition services
agreement to provide certain general administrative and logistical
support during the transitional period following the merger, which is
expected to cover about two years.

- Schlumberger and Sedco Forex will enter into agreements regarding the use
of shared facilities, such as maintenance yards, inventory warehouse
facilities, office space and data processing systems and for the
provision of transitional services by Sedco Forex to Schlumberger, such
as marine support and marine engineering services.

In addition, after Schlumberger has transferred substantially all of the assets
of the Sedco Forex business into Sedco Forex or its subsidiaries, Schlumberger
will ensure that the outstanding indebtedness of Sedco Forex, including
intercompany indebtedness, will be $435 million, subject to adjustment based on agreed levels of working capital and capital expenditures, among other matters, as described in the distribution agreement. 40 47 THE SPIN-OFF On a day preceding the merger, all then-outstanding shares of Sedco Forex capital stock will be distributed by Schlumberger to its shareholders on a pro rata basis such that each Schlumberger shareholder will receive one share of Sedco Forex capital stock for each share of Schlumberger common stock held. THE MERGER Following the spin-off, Merger Sub, a wholly owned subsidiary of Transocean, will merge with and into Sedco Forex, which will survive the merger as a wholly owned subsidiary of Transocean. In the merger, Schlumberger's shareholders will receive Transocean ordinary shares in exchange for their shares of Sedco Forex received in the spin-off. The number of Transocean ordinary shares each Schlumberger shareholder receives will be determined according to the formula in the merger agreement, which will result in the ownership by Schlumberger's shareholders of about 52% of the issued Transocean ordinary shares upon completion of the merger. Instead of fractional shares, the exchange agent will pay these shareholders cash equal to their proportionate interest in the net proceeds from the sale on the NYSE of the aggregate of all fractional Transocean ordinary shares that would otherwise have been issued to them in the merger. BACKGROUND OF THE MERGER Transocean has from time to time evaluated strategic consolidation opportunities with other offshore drilling contractors since becoming a public company in 1993, and has pursued such opportunities when its board has determined them to be in the best interests of Transocean and its shareholders. The business combination with Transocean ASA in September 1996 is an example of one such opportunity. Schlumberger has for some time been following a long-term strategy of focusing on value-added services to optimize reservoir performance. As part of this strategy, Schlumberger decided to analyze a transaction with respect to its offshore contract drilling business in order to increase its focus on its core reservoir optimization services and to create a premier drilling company. On March 5, 1999, Euan Baird, the Chairman and Chief Executive Officer of Schlumberger, telephoned J. Michael Talbert, the Chairman and Chief Executive Officer of Transocean. Mr. Talbert returned Mr. Baird's call and spoke to Victor Grijalva, Vice Chairman of Schlumberger, in Mr. Baird's absence. Mr. Grijalva stated that he and Mr. Baird would like to meet with Mr. Talbert to discuss whether there were anything the parties might do jointly with their contract drilling businesses that would be mutually beneficial. He indicated that Schlumberger was not contemplating an offer for Transocean. Mr. Talbert responded that Transocean would be interested in exploring such an opportunity, and they agreed to meet to commence discussions. On April 19, 1999, Mr. Talbert met with Messrs. Baird and Grijalva. Messrs. Baird and Grijalva proposed that Schlumberger spin off its offshore contract drilling business, which would then be combined with Transocean in a merger of equals. The parties discussed the Schlumberger assets that would be included in such a transaction. Mr. Baird indicated that, in his view, Mr. Talbert should be Chief Executive Officer of the combined company and that Transocean and Schlumberger would each designate an appropriate number of members of the board of directors. Mr. Talbert indicated that he would discuss the matter with Transocean's board of directors at its May 13, 1999 meeting prior to proceeding any further. At Schlumberger's April 21 board meeting, Mr. Baird, Mr. Grijalva and other senior executives briefed the board regarding the discussions with Mr. Talbert and the possible transaction. At Transocean's May 13 board meeting, Mr. Talbert briefed the Transocean board regarding the opportunity with Schlumberger. The board discussed the opportunity and authorized Mr. Talbert to proceed with discussions, and to enter into a confidentiality/standstill agreement with Schlumberger in customary form. Following the meeting, Mr. Talbert telephoned Mr. Baird and advised him of Transocean's interest. On May 17, 1999, Transocean executed a confidentiality letter in favor of Schlumberger and Schlumberger executed a confidentiality/standstill letter in favor of Transocean. 41 48 Senior executives of both parties met on May 20, 1999. At this meeting, the parties exchanged due diligence information and discussed valuation methodologies, due diligence issues and tax considerations. Shortly after this meeting, Transocean engaged Simmons & Company International as its financial advisor in connection with the proposed transaction. Schlumberger had previously engaged Goldman, Sachs & Co. as its financial advisor. On June 5, senior executives of the parties and their respective financial advisors met again to discuss additional issues in connection with the proposed transaction. The parties exchanged additional due diligence information and discussed their views as to the appropriate parameters to be used in the valuation analyses. From June 8 through June 12, senior executives of Transocean and Schlumberger and representatives of their respective financial advisors held a series of meetings. The parties exchanged additional information and indicated their respective ideas as to the relative enterprise and equity values of Transocean and Sedco Forex. In addition, Mr. Talbert met separately with Mr. Baird to discuss corporate governance issues. Mr. Baird proposed that Mr. Grijalva would be Chairman of the Board of the combined company, and Mr. Baird and Mr. Talbert discussed the composition of the initial board of directors. On June 15, Mr. Talbert updated Transocean's corporate governance committee regarding the status of negotiations. On June 24, the committee held an additional telephonic meeting for a further update on the transaction. Mr. Talbert and Robert L. Long, Transocean's Chief Financial Officer, briefed the committee regarding the discussions to date, and representatives of Simmons reviewed the valuation and pro forma analyses. Mr. Talbert also briefed the committee on his corporate governance discussions with Mr. Baird and Mr. Grijalva. Also on June 24, Transocean sent a proposed term sheet for the transaction to Schlumberger, and internal and external legal advisors of Transocean and Schlumberger met to discuss the legal framework for the transaction, the documents and agreements required, the SEC registration process and other legal issues. Shortly thereafter, Schlumberger's outside legal advisors delivered initial drafts of the distribution agreement and the merger agreement to Transocean and its outside legal advisors. Commencing June 27, senior executives of Transocean and Schlumberger and representatives of their respective financial advisors held a series of negotiations to further define the principal financial and legal terms of the transaction. The parties agreed on an exchange ratio mechanism that would result in Schlumberger's shareholders owning 52% of the combined company immediately following the merger and on the amount of debt to be included on the Sedco Forex balance sheet at the time of the merger. Mr. Talbert, Mr. Baird and Mr. Grijalva separately discussed corporate governance issues. From July 5 to July 10, executives and outside advisors of the parties held another series of negotiations with a view toward finalizing the definitive agreements, including related tax and employee benefits matters. Mr. Talbert and Mr. Grijalva also met to finalize corporate governance issues. On July 8, Schlumberger's board of directors met to consider the proposed transaction. Management of Schlumberger presented an overview of the offshore drilling industry, Schlumberger's strategy and the benefits of the transaction to Schlumberger's shareholders. Management also discussed the valuations of Sedco Forex and Transocean and the financial impact of the transaction on Schlumberger and the combined Transocean Sedco Forex. A representative of Goldman Sachs also made a financial presentation to the board regarding the proposed merger and indicated, subject to review of the final documentation, that it was in the position to render an opinion as to the fairness of the exchange ratio. Schlumberger's board then unanimously approved the distribution agreement, the merger agreement and related agreements, and authorized the officers to enter into these agreements, subject to final changes deemed appropriate by the officers. On July 11, the board of directors of Transocean met to consider the proposed merger and related transactions. Mr. Talbert briefly reviewed the events that had transpired since the June 24 corporate governance committee meeting. Representatives of Simmons then reviewed the strategic rationale for the merger, presented their valuation analyses of Transocean, Sedco Forex and the combined company, and rendered their opinion that the consideration to be received in the merger was fair to Transocean and its shareholders from a financial point of view. Following this presentation and further discussion of the transaction by the board of directors, the board voted unanimously to approve the merger agreement and 42 49 related agreements, and authorized the officers to enter into the merger agreement and related agreements, subject to final changes deemed appropriate by the officers. On July 12, 1999, Goldman Sachs orally rendered their fairness opinion to Schlumberger. Goldman Sachs later confirmed this opinion in writing as of the same date. See "-- Fairness Opinion -- Goldman, Sachs & Co." On July 12, 1999, the parties signed the merger agreement and the distribution agreement. That morning, the parties issued a press release announcing the transaction and held a conference call to brief analysts and the media on the transaction. TRANSOCEAN'S REASONS FOR THE MERGER The Transocean board of directors believes that the merger offers a unique opportunity to combine two successful offshore contract drilling businesses into the premier offshore drilling contractor, as measured by its size, technically advanced fleet, financial strength, engineering capabilities, management expertise and experienced workforce. The board views the merger as an excellent fit of the culturally diverse workforces of the two companies and their complementary strategic advantages in key geographic markets. In reaching its conclusions, Transocean's board of directors considered many factors, including the following: - At the time of the merger, Transocean Sedco Forex will be the largest offshore drilling contractor in the world, operating the largest fleet of mobile offshore drilling units. It is the board's view that the combined company will be better positioned to negotiate with customers, including increasingly larger oil companies formed by industry consolidation, and will possess the necessary efficiencies and resources to attract customers and qualified personnel. - The transaction should reposition the company in the financial markets. Immediately following the merger, Transocean Sedco Forex will have a broader group of large institutional investors, which may increase trading liquidity and potentially enhance trading multiples. In addition, the improved balance sheet, cash flow and earning capacity of the combined company should reduce the cost of borrowing and improve the company's ability to finance the cost of new rig construction and strategic acquisitions and other capital investments in the development of its business. - Transocean Sedco Forex will have a worldwide geographic scope, with a strong market presence in all major offshore operating areas, including the U.S. Gulf of Mexico, the North Sea, Brazil, West Africa and Southeast Asia. This geographic diversification will allow the combined company to meet its customers' needs on a global basis, may provide regional economies of scale and should reduce the possible impact of any future downturn in a single geographic area. - The technical expertise of both Transocean and Sedco Forex in deepwater drilling operations as demonstrated by their new rigs under construction. - The opportunity to create a non-exclusive strategic alliance with Schlumberger. - Potential cost savings achievable through elimination of duplicative overhead and redundant shore-based facilities. - The financial performance and condition, business operations and future prospects of Transocean and Sedco Forex. - The structure of the transactions and the terms and provisions of the merger agreement, the distribution agreement and the other agreements executed in connection with the proposed transactions, including the termination and termination fee provisions of the merger agreement. - The expected treatment of the merger as a "reorganization" for federal income tax purposes as described under "-- Certain U.S. Federal Income Tax Consequences." 43 50 - The expected accounting treatment of the merger as a purchase, with Sedco Forex as the accounting acquiror. - The effect on cash flow and earnings per share of the combined entity as compared to Transocean on a stand-alone basis. - The opinion of Simmons & Company International dated July 11, 1999 that the exchange ratio was fair, from a financial point of view, to Transocean and its shareholders, and the valuation and pro forma analyses of Simmons contained therein as described under "-- Fairness Opinion -- Simmons & Company International." - The compatibility of the corporate cultures of the management teams and the culturally diverse workforce of each company. - The challenges and potential costs of combining and integrating the businesses, and the attendant risks of not achieving expected cost savings. - The shorter-term nature of Sedco Forex's drilling contracts as compared to Transocean's. - Cancellation provisions in Sedco Forex's newbuild drilling contracts. - The fact that the assets, personnel and operations of Sedco Forex as of the time of the spin-off and merger will not previously have existed as a separate, consolidated entity within Schlumberger. - The fact that the historical and projected financial results for Sedco Forex used to model, negotiate and announce the transaction were unaudited and were based on numerous assumptions about cost allocations, among other things. In determining that the merger was advisable and in the best interests of Transocean's shareholders, the board of directors of Transocean considered the enumerated factors as a whole and did not quantify or otherwise assign relative weights to the different factors. Individual directors may have given different weights to different factors. Moreover, the foregoing discussion of the reasons for the merger is not intended to be exhaustive. RECOMMENDATION OF TRANSOCEAN'S BOARD OF DIRECTORS FOR THE REASONS DISCUSSED, TRANSOCEAN'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER, THE MERGER AGREEMENT AND THE OTHER TRANSACTIONS CONTEMPLATED IN THE MERGER AGREEMENT AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE INCREASE IN AUTHORIZED ORDINARY SHARE CAPITAL AND THE ISSUANCE OF ORDINARY SHARES NECESSARY TO COMPLETE THE MERGER, AS WELL AS THE NAME CHANGE TO "TRANSOCEAN SEDCO FOREX INC." SCHLUMBERGER'S REASONS FOR THE SPIN-OFF AND THE MERGER Schlumberger's strategy for its oilfield services segment is to be a leader in providing technologically driven reservoir optimization services and related integrated services. Schlumberger believes that the separation of its offshore contract drilling business from the rest of Schlumberger's oilfield services segment will sharpen the segment's focus on these core businesses. In addition, Schlumberger views the spin-off and the merger as an opportunity to provide Schlumberger's shareholders with ownership in a premier worldwide offshore contract drilling company as well as continuing ownership in a more focused Schlumberger. Schlumberger's board of directors has determined that (1) the spin-off of the capital stock of Sedco Forex to Schlumberger's shareholders and (2) the merger of Sedco Forex with a subsidiary of Transocean are advisable and in the best interests of Schlumberger's shareholders. Schlumberger's board of directors has approved the distribution agreement and the merger agreement and the transactions those agreements contemplate and recommends that the shareholders of Schlumberger vote to approve the spin-off. 44 51 In reaching its conclusion to approve the agreements and the transactions those agreements contemplate and to recommend that shareholders vote to approve the spin-off, Schlumberger's board of directors considered many factors, including: - A number of strategic alternatives available to Schlumberger with respect to Sedco Forex and the potential risks and benefits of each alternative. - The strategic fit of Sedco Forex with Schlumberger. - The impact of the transactions on Schlumberger's stock price, financial performance and condition, business operations and prospects. - The fact that the spin-off will allow Schlumberger management to focus more on value-added, technology-driven reservoir optimization services and integrated services. - The opportunity to create a premier worldwide offshore drilling company by combining Sedco Forex and Transocean. - The higher historical volatility of Sedco Forex's business as compared to the remainder of Schlumberger's business. - The relative long-term capital intensity of Sedco Forex's business as compared to the remainder of Schlumberger's business. - Information concerning the financial performance and condition, business operations and prospects of Sedco Forex and various other offshore drilling companies separately and on a combined basis. - Current industry, economic and market conditions. - Recent historical market prices and valuation multiples of Schlumberger and various offshore drilling companies. - The structure of the transactions and the terms and provisions of the merger agreement, the distribution agreement and the other agreements executed in connection with the proposed transactions, including the termination and termination fee provisions of the merger agreement. - The expectation that Schlumberger's shareholders will receive Transocean ordinary shares in a transaction that is not expected to have any immediate U.S. federal income tax impact to those shareholders, except for tax on any cash received for fractional shares. - The expectation that Sedco Forex would be deemed the accounting acquiror of Transocean under U.S. generally accepted accounting principles, and the resulting accounting treatment of the transactions. - The likelihood that the transactions would be consummated. - The opportunity to enter into a non-exclusive strategic alliance with Transocean Sedco Forex. - The fairness opinion of Goldman, Sachs & Co. attached to this joint proxy statement/prospectus as Annex C and described under the caption "-- Fairness Opinion -- Goldman, Sachs & Co." and the related financial analysis and presentation by Goldman Sachs. In determining that the spin-off and merger were advisable and in the best interests of Schlumberger's shareholders, Schlumberger's board of directors considered the factors above as a whole and did not assign specific or relative weights to those factors. Individual directors may have given different weights to different factors. Moreover, this discussion of the reasons for the spin-off and the merger is not intended to be exhaustive. Schlumberger's board of directors believes that the spin-off and the merger provide Schlumberger's shareholders with an opportunity to participate in both a more strategically focused Schlumberger and a premier offshore contract drilling company. 45 52 RECOMMENDATION OF SCHLUMBERGER'S BOARD OF DIRECTORS FOR THE REASONS DISCUSSED ABOVE, SCHLUMBERGER'S BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF SHARES OF SCHLUMBERGER COMMON STOCK VOTE TO APPROVE THE SPIN-OFF OF ALL OF THE CAPITAL STOCK OF SEDCO FOREX TO SCHLUMBERGER'S SHAREHOLDERS PURSUANT TO THE DISTRIBUTION AGREEMENT. FAIRNESS OPINION -- SIMMONS & COMPANY INTERNATIONAL On June 7, 1999, Transocean engaged Simmons to act as its financial advisor in connection with the merger and instructed Simmons to evaluate the fairness of the merger exchange ratio, as set forth in the merger agreement, to Transocean and its shareholders from a financial perspective. Transocean directed Simmons to conduct such investigations as Simmons deemed appropriate for making its evaluation. On July 11, 1999, Simmons delivered an oral opinion, subsequently confirmed in writing as of the same date, to Transocean's board of directors. The opinion stated that, as of such date, the merger exchange ratio was fair to Transocean and its shareholders from a financial point of view. The full text of Simmons' opinion, setting forth the assumptions that were made, factors that were considered and limitations placed upon Simmons' review in rendering its opinion, is included as Annex D to this joint proxy statement/prospectus. Simmons' opinion is incorporated herein by reference. The following summary does not describe all aspects of Simmons' opinion, and it is qualified in its entirety by reference to the full text of the written opinion. Transocean's shareholders should read the opinion in its entirety. Transocean did not impose any limitations on the scope of Simmons' investigation or the procedures to be followed in rendering the opinion. Transocean did not request Simmons to make any recommendation, and Simmons did not make any recommendation to Transocean's board of directors as to the form or amount of consideration to be issued in the merger. In arriving at its opinion, Simmons did not ascribe a specific range of values to Transocean or Sedco Forex, but instead made its determination as to the fairness of the merger exchange ratio on the basis of the financial and comparative analyses described below. Simmons' opinion is for the use and benefit of Transocean's board of directors and was rendered to that board of directors in connection with its consideration of the merger. Simmons' opinion does not constitute a recommendation to any shareholder of Transocean regarding how to vote with respect to the merger. Transocean did not request that Simmons opine as to, and its opinion does not address, Transocean's underlying business decision to proceed with or effect the merger. Simmons also expressed no opinion as to the prices at which Transocean or Transocean Sedco Forex ordinary shares will trade following announcement or completion of the merger. Transocean's shareholders should not view Simmons' opinion as providing any assurance that the market value of Transocean Sedco Forex ordinary shares to be held by shareholders after the merger will be in excess of the market value of the Transocean ordinary shares owned by such shareholders at any time before the announcement or completion of the merger. In reaching its opinion, Simmons reviewed and analyzed, among other things: - the most recent drafts of the merger agreement, the distribution agreement and the other ancillary transaction agreements; - the financial statements and other information concerning Transocean contained in Transocean's annual reports to shareholders and annual reports on Form 10-K for each of the three years ended December 31, 1998, 1997 and 1996; - certain interim reports to Transocean's shareholders, Transocean's quarterly report on Form 10-Q for the quarter ended March 31, 1999 and Transocean's proxy statement for its 1999 regular annual meeting; - the unaudited financial statements and 1998 pro forma statement of operations with respect to Sedco Forex described in Section 6.7 of the merger agreement; - business and financial analyses and information relating to Transocean and Sedco Forex, including certain internal financial forecasts prepared and provided to Simmons by the managements of Transocean and Schlumberger; 46 53 - publicly available information concerning the trading of, and the trading market for, Transocean's ordinary shares; - publicly available information with respect to other companies that Simmons believed to be comparable to Transocean and Sedco Forex and the trading markets for those companies' securities; - publicly available information concerning estimates of the future operating performance of Transocean, Sedco Forex and the comparable companies that were prepared by industry analysts unaffiliated with either Transocean or Sedco Forex and that Simmons considered relevant to the analyses; and - publicly available information concerning the nature and terms of certain other transactions Simmons considered relevant to the analyses. Additionally, Simmons: - met with certain officers and employees of Transocean, Schlumberger and Sedco Forex to discuss the assets, liabilities, operations and historical and projected performance of Transocean and Sedco Forex; - discussed with those officers and employees of Transocean, Schlumberger and Sedco Forex the cost savings and the strategic benefits expected to result from a combination of Transocean and Sedco Forex; and - considered other information, financial studies, analyses and investigations and other financial, economic and market criteria that it deemed relevant. Simmons, with Transocean's consent, assumed and relied upon the accuracy and completeness of all the foregoing information and did not independently verify any of that information. With respect to financial forecasts, Simmons utilized certain information set forth in those forecasts and assumed such information was reasonably prepared on bases reflecting the best estimates and judgments, as available at the time of preparation, of the respective managements of Transocean, Schlumberger and Sedco Forex on the future financial performance of Transocean and Sedco Forex. Simmons did not conduct a physical inspection of any of the assets, operations or facilities of Transocean or Sedco Forex and did not make or receive any independent evaluation or appraisal of any assets or liabilities, contingent or otherwise, of Transocean or Sedco Forex. In addition, Simmons was not authorized to solicit, and did not solicit, any indications of interest from any third party with respect to the purchase of all or a part of Transocean's business. Upon advice of Transocean, including its legal and accounting advisors, Simmons assumed that the merger should qualify as a tax-free transaction to Transocean. Described below are certain financial, comparative and other analyses Simmons performed in connection with rendering its opinion. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial and comparative analysis and the application of those methods to the particular circumstances. Therefore, such an opinion is not easily reduced to a summary description. Furthermore, in reaching its opinion, Simmons did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgements as to the significance and relevance of each analysis and factor. Accordingly, Simmons believes that its analyses must be considered as a whole and that considering any portion of such analyses and the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying the opinion. In performing its analyses, Simmons made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Transocean or Sedco Forex. Estimates contained in the analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth therein. Moreover, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which those businesses might actually be sold. 47 54 THE FOLLOWING SUMMARIES INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. TRANSOCEAN'S SHAREHOLDERS SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH SUMMARY. 1. VALUATION ANALYSES Simmons prepared valuations of both Transocean and Sedco Forex. In valuing Sedco Forex, Simmons, as instructed by Transocean, initially considered the value of Sedco Forex excluding the financial results of seven inland barge rigs, or "swamp barges," and two land rigs. Because these rigs will be assets of Sedco Forex, Simmons then added the suggested value, based upon selected valuation methodologies, of the seven inland barge rigs and two land rigs to the previous valuation of Sedco Forex. Simmons analyzed the valuations of the separate businesses conducted by Transocean and by Schlumberger through Sedco Forex without any consideration of any cost savings or operating synergies resulting from the merger. In determining valuations, Simmons used the following methodologies: - discounted cash flow analysis, including sensitivity analysis; - contribution analysis; - comparable companies analysis; - rig asset values analysis; and - selected transactions analysis. Each of these methodologies, except for the selected transactions analysis, was used to generate a suggested enterprise value contribution range for each of Transocean and Sedco Forex to Transocean Sedco Forex. The suggested enterprise value contribution range for Sedco Forex was 47.0% to 50.5% without the seven inland barge rigs and two land rigs. Simmons adjusted the suggested enterprise value contribution range for each of Transocean and Sedco Forex for appropriate on- and off-balance-sheet assets and liabilities to arrive at a suggested equity value contribution range. The suggested equity value contribution range for Sedco Forex was: - 50.3% to 54.3%, when excluding the seven inland barge rigs and two land rigs; and - 50.8% to 55.3%, when including the seven inland barge rigs and two land rigs. Simmons used the suggested equity value contribution range to evaluate the merger exchange ratio, which provides for Sedco Forex's shareholders to receive approximately 52.0% of the diluted ordinary share capital of Transocean Sedco Forex. The suggested equity contribution range, derived using the various valuation methodologies described above, supported the conclusion that the merger exchange ratio is fair to Transocean and Transocean's shareholders from a financial point of view. The various valuation analyses are summarized below. - Discounted Cash Flow Analysis. Simmons performed a discounted cash flow analysis of Transocean and Sedco Forex using financial forecasts through 2004 provided by Transocean. Simmons assessed the suggested enterprise value contribution of Sedco Forex to Transocean Sedco Forex at 49.5%. Simmons calculated this suggested enterprise value contribution using terminal values based on forecasted 2004 results and multiples ranging from 5.0x to 7.0x earnings before interest, taxes, depreciation and amortization, commonly known as EBITDA, and discounting those terminal values to present values using discount rates ranging from 12.0% to 15.0%. Simmons then used this suggested enterprise value contribution range to determine a suggested equity value contribution of 53.1% by Sedco Forex to Transocean Sedco Forex. Based on the assumptions of Transocean's management, Simmons also developed eight additional financial projections for each of Transocean and Sedco Forex using varying assumptions as to the market conditions for various classes of offshore rigs as well as for the occurrence of specific events relating to Sedco Forex. Using terminal values based on projected 2004 results and on multiples of 6.0x EBITDA and then discounting that terminal value to present value using a discount rate of 14.0%, 48 55 Simmons assessed the suggested enterprise value contribution range for Sedco Forex to Transocean Sedco Forex at 47.0% to 50.5%. Simmons used this suggested enterprise value contribution range to determine a suggested equity value contribution for Sedco Forex of 50.3% to 54.3%. Simmons did not include the financial results of the seven inland barge rigs and two land rigs of Sedco Forex in the discounted cash flow analysis. - Contribution Analysis. Simmons reviewed certain pro forma historical and forecasted operating and financial information for Transocean and Sedco Forex, including, among other things: - pro forma EBITDA; - pro forma EBITDA less maintenance capital expenditures; - pro forma unlevered net income; and - pro forma unlevered after-tax cash flow. Simmons based both the pro forma historical and the pro forma forecasted results on financial results and forecasts prepared by the management of Transocean, Schlumberger and Sedco Forex. Simmons analyzed the relative income statement contribution of Transocean and Sedco Forex to Transocean Sedco Forex on a pro forma basis, before taking into account any of the possible benefits from cost savings or operating synergies that may be realized following the merger and based on pro forma historical 1997 and 1998 financial data and forecasts of financial data from 1999 through 2004. The table below shows the enterprise value contributions for Sedco Forex as indicated by the analysis. CONTRIBUTION RANGES -------------------------------------------------------------------- COMBINED COMBINED PRO FORMA COMBINED PRO FORMA COMBINED EBITDA, LESS PRO FORMA UNLEVERED PRO FORMA MAINTENANCE CAPITAL UNLEVERED NET AFTER-TAX YEARS EBITDA EXPENDITURES INCOME CASH FLOW - ----- ------------ ------------------- ------------- --------------- (STATED IN PERCENTAGES) Each of 1997, 1998 and 1999.................... 40.0 to 51.1 38.5 to 50.9 -- -- Each of 2000, 2001, 2002, 2003 and 2004........... 45.9 to 47.7 45.0 to 47.3 49.4 to 54.6 44.0 to 49.9 Based on this contribution analysis, Simmons's suggested enterprise value contribution range of Sedco Forex to Transocean Sedco Forex was assessed to be 47.0% to 50.0%. Simmons then used this suggested enterprise value contribution range to determine a suggested equity value contribution range for Sedco Forex of 50.3% to 53.7%. Simmons did not include the financial results of the seven inland barge rigs and two land rigs of Sedco Forex in the initial contribution analysis. However, Simmons indicated to the board that based on the previous methodology and results of the contribution analysis, the seven inland barge rigs and two land rigs would be expected to increase Sedco Forex's suggested enterprise value and equity value contribution range by 0.5% to 1.0%, resulting in a suggested equity value contribution range for Sedco Forex of 50.8% to 54.7%. - Comparable Companies Analysis. Simmons reviewed and compared certain financial information relating to Transocean and Sedco Forex to corresponding financial information, ratios and public market multiples for eight publicly traded corporations: - Diamond Offshore Drilling, Inc. - ENSCO International, Inc. - Global Marine Inc. 49 56 - Noble Drilling Corporation - Pride International, Inc. - R&B Falcon Corporation - Rowan Companies, Inc. - Santa Fe International Corporation Simmons calculated and compared various financial multiples and ratios. Simmons calculated the multiples for Transocean and the comparable companies based on the most recent publicly available information. Simmons considered enterprise value as a multiple of 1998 EBITDA and as a multiple of estimated (based on estimates by First Call Corp.) 1999 and 2000 EBITDA. Enterprise value is calculated by adding the market value of common equity, the estimated market value of debt and minority interests and then subtracting investments in unconsolidated affiliates and excess cash. The table below indicates the suggested multiple ranges for Sedco Forex based on the multiples of comparable companies: SEDCO FOREX YEAR SUGGESTED EBITDA MULTIPLE TRANSOCEAN EBITDA MULTIPLE - ---- ------------------------- -------------------------- 1998 6.5x to 8.5x 5.9x 1999 12.5x to 15.0x 7.7x* 2000 10.5x to 12.0x 8.8x* - --------------- * Based on estimates provided by Transocean's management. The table below shows the suggested multiple ranges for Sedco Forex based on the comparable companies' actual 1998 and estimated 1999 and 2000 price to earnings ratios. SEDCO FOREX SUGGESTED PRICE TO TRANSOCEAN YEAR EARNINGS MULTIPLE PRICE TO EARNINGS RATIO - ---- ------------------ ----------------------- 1998 9.5x to 12.5x 8.7x 1999 21.0x to 25.0x 13.0x* 2000 20.0x to 24.0x 17.9x* - --------------- * Based on estimates provided by Transocean's management. The table below shows the suggested multiple ranges for Sedco Forex based on the comparable companies' 1998 and estimated 1999 and 2000 price to cash flow ratios. SEDCO FOREX TRANSOCEAN PRICE YEAR SUGGESTED CASH FLOW MULTIPLE TO CASH FLOW RATIO - ---- ---------------------------- ------------------ 1998.. 7.5x to 9.5x 6.4x 1999.. 11.0x to 15.0x 7.9x* 2000.. 11.0x to 13.0x 8.9x* - --------------- * Based on estimates provided by Transocean's management. Based on the comparable companies analysis, Simmons assessed Sedco Forex's suggested enterprise value contribution range to Transocean Sedco Forex to be 46.0% to 51.0%. Simmons then used this suggested enterprise value contribution range to determine a suggested equity value contribution range for Sedco Forex of 49.1% to 54.8% based on projected closing balance sheets. The financial results of Sedco Forex's seven inland barge rigs and two land rigs were not included in the initial comparable companies analysis. Based on EBITDA, inclusion of the financial results of Sedco Forex's seven inland barge rigs and two land rigs increased the suggested enterprise value 50 57 contribution range of Sedco Forex by 0.8% to 1.7%, resulting in a suggested equity value contribution range for Sedco Forex of 50.0% to 56.7%. - Rig Asset Values. Simmons assessed Sedco Forex's enterprise value contribution to Transocean Sedco Forex at 44.0% based on: - Transocean management's estimates as to the individual rig values for both Transocean's and Sedco Forex's fleets; - the estimated value of Transocean's drilling services business; and - adjustments for incremental capital expenditures needed to complete Sedco Forex's newbuild program. This suggested enterprise contribution was then used to determine a suggested equity contribution of Sedco Forex of 47.2%. Simmons did not emphasize the rig asset values in arriving at its opinion as Simmons did not believe the analysis captures the value of the respective businesses as ongoing enterprises. Furthermore, Simmons based the asset value estimates on limited information available on recent sales of rigs similar to those in the Transocean and Sedco Forex rig fleets. Also, the seven inland barge rigs and two land rigs included in the Sedco Forex fleet were not included in these rig asset values. Based on Schlumberger's estimated value of these seven inland barge rigs and two land rigs, Sedco Forex's suggested enterprise value would be increased by 0.6% and its suggested equity value contribution would be increased by 0.8%. - Selected Transactions Analysis. Simmons reviewed certain information relating to selected transactions in the oil service industry since 1995. However, due to the limited number of directly comparable transactions in the current operating environment, Simmons did not determine a suggested enterprise value or equity value contribution range for Sedco Forex under this analysis in arriving at its opinion. 2. PRO FORMA MERGER CONSEQUENCE ANALYSIS Simmons prepared a pro forma merger model that incorporated Transocean's and Sedco Forex's financial projections based on certain assumptions for the years 2000 through 2004 as well as the estimated pre-tax cost savings and synergies resulting from the merger, which assumed no savings in 2000,$15
million in 2001 and $25 million for each of the years 2002, 2003 and 2004. Simmons then compared the earnings and cash flow of Transocean on a stand-alone basis to the earnings and cash flow attributable to the Transocean shareholders' interest in Transocean Sedco Forex. Based on such analysis and excluding forecast financial results for Sedco Forex's seven inland barge rigs and two land rigs, the proposed transaction would, on both an earnings basis and a cash flow basis, be dilutive in 2000 and accretive thereafter. Simmons also conducted sensitivity analyses for eight additional scenarios developed by Transocean management, using varying assumptions as to the market conditions for various classes of offshore rigs as well as for the occurrence of specific events relating to Sedco Forex. These scenarios were identical to the scenarios used in the previously described discounted cash flow analysis. Additionally, Simmons performed several sensitivity analyses for potential operational benefits and risks not included in the forecasts prepared by Transocean and Sedco Forex. As a specialized, energy-related investment banking firm, Simmons is engaged, among other things, in the valuation of businesses and their securities in connection with mergers and acquisitions, in the management and underwriting and sales of equity and debt securities to the public and in private placements of equity and debt securities. The Transocean board selected Simmons because of its expertise, reputation and familiarity with Transocean and because its investment banking professionals have substantial experience in transactions comparable to the merger. Simmons has previously rendered certain financial advisory and investment banking services to Transocean, for which it received customary compensation, including acting as a co-manager in the initial public offering in June 1993 and a secondary offering of Transocean common stock in July 1995, as well as providing corporate finance advisory services in conjunction with the merger of Transocean and Transocean ASA in 1996. 51 58 Pursuant to the terms of an engagement letter agreement, dated June 7, 1999, between Simmons and Transocean, Transocean has agreed to pay Simmons the following amounts in association with Simmons's services related to the merger: - an initial advisory fee of$150,000;

- a fee of $250,000 on August 15, 1999; and - an additional fee of$11,600,000 upon closing of the merger.

In addition, Transocean has agreed to reimburse Simmons for its reasonable
expenses (including, without limitation, professional and legal fees and
disbursements) incurred in connection with its engagement, and to indemnify
Simmons and certain related persons against certain liabilities in connection
with its engagement, including certain liabilities that may arise under the
federal securities laws.

Simmons may also actively trade the securities of Transocean and
Schlumberger in the ordinary course of its business for its own account and for
the accounts of its customers. Accordingly, Simmons may at any time hold a long
or short position in such securities.

FAIRNESS OPINION -- GOLDMAN, SACHS & CO.

On July 12, 1999, Goldman Sachs rendered its oral opinion, which was
subsequently confirmed by a written opinion dated the same date, to the effect
that, as of that date and based upon and subject to the various considerations
set forth in the opinion, the exchange ratio pursuant to the merger agreement is
fair from a financial point of view to Schlumberger's shareholders, as if they
were current holders of the shares of Sedco Forex capital stock.

THE FULL TEXT OF THE WRITTEN FAIRNESS OPINION OF GOLDMAN SACHS, DATED JULY
12, 1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH SUCH
OPINION, IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX C AND IS
INCORPORATED HEREIN BY REFERENCE. SCHLUMBERGER'S SHAREHOLDERS SHOULD READ THE
OPINION IN ITS ENTIRETY.

In connection with its opinion, Goldman Sachs reviewed, among other things:

- the merger agreement;

- the distribution agreement;

- an unaudited balance sheet and combined statement of operations of Sedco
Forex as of and for the year ended December 31, 1998;

- a pro forma combined statement of operations of Sedco Forex for the year
ended December 31, 1998 to reflect the reversal of the effect of certain
non-recurring events and to provide for the elimination of shared costs
and certain intercompany insurance costs;

- Annual Reports to Shareholders and Annual Reports on Form 10-K of
Schlumberger and Transocean for each of the five years ended December 31,
1998;

- interim reports to shareholders and Quarterly Reports on Form 10-Q of
Schlumberger and Transocean deemed relevant;

- other communications from Schlumberger and Transocean to their respective
shareholders deemed relevant; and

- internal financial analyses and forecasts for Sedco Forex and Transocean
deemed relevant that were prepared by their respective managements in
consultation with each other, including certain cost savings and
operating synergies projected by the managements of Sedco Forex and
Transocean to result from the merger.

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59

Goldman Sachs also held discussions with members of the senior managements
of Schlumberger, Sedco Forex and Transocean regarding the strategic rationale
for, and the potential benefits of, the merger contemplated by the merger
agreement and the past and current business operations, financial conditions and
future prospects of the respective companies. In addition, Goldman Sachs:

- reviewed with third party consultants their asset valuation estimates of
Sedco Forex's and Transocean's drilling rig fleets;

- reviewed the reported price and trading activity for the Transocean
ordinary shares;

- compared financial and stock market information for Transocean deemed
relevant with similar information for other companies the securities of

- performed other studies and analyses as Goldman Sachs considered
appropriate.

Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. Goldman Sachs assumed, with
the consent of the Schlumberger board, that the internal financial forecasts
prepared by the managements of Sedco Forex and Transocean, including the
synergies, have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of Sedco Forex and Transocean.
Goldman Sachs also assumed that all material governmental, regulatory or other
consents and approvals necessary for the consummation of the merger will be
obtained without any adverse effect on Sedco Forex or Transocean or on the
contemplated benefits of the transactions contemplated by the merger agreement.

The opinion of Goldman Sachs does not address the relative merits of the
transactions contemplated pursuant to the merger agreement as compared to any
alternative business transaction that might be available to Sedco Forex or
Schlumberger. In addition, Goldman Sachs did not make an independent evaluation
or appraisal of the assets and liabilities of Sedco Forex, Transocean or any of
their subsidiaries and except for the asset valuation estimates of the third
party consultants, Goldman Sachs was not furnished with any such evaluation or
appraisal. Goldman Sachs' advisory services and its opinion were provided for
the information and assistance of the Schlumberger board in connection with its
consideration of the merger. Goldman Sachs' opinion does not constitute a
recommendation as to how the shareholders of Schlumberger should vote with
respect to the spin-off. The opinion relates solely to the exchange ratio in the
merger and does not address, and Goldman Sachs did not opine on, the spin-off or
the prices at which shares of Schlumberger common stock or Transocean ordinary
shares will trade following the merger.

The following is a summary of the material financial analyses reviewed by
Goldman Sachs and used in connection with its financial presentation to the
Schlumberger board on July 8, 1999 and its subsequent fairness opinion, dated
July 12, 1999. It does not purport to be a complete description of the analyses
performed by Goldman Sachs. The order of analyses described, and the results of
those analyses, do not represent relative importance or weight given to those
analyses by Goldman Sachs. The following quantitative information, to the extent
that it is based on market data, is based on market data as it existed at or
about July 2, 1999 and is not necessarily indicative of current market
conditions.

THE SUMMARY INCLUDES INFORMATION PRESENTED IN TABULAR FORMAT. THESE TABLES
SHOULD BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY.

1. CONTRIBUTION ANALYSIS

This analysis evaluates the historical and projected contributions of Sedco
Forex, on a percentage basis, to selected financial information of the combined
company resulting from the merger and compares these contributions to
shareholders' relative equity interests in the combined company resulting from
the merger. Based on the exchange ratio in the merger, former shareholders of
Sedco Forex will own on a diluted basis approximately 52% of the common equity
outstanding of Transocean with the remaining 48% held by existing Transocean
shareholders.

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60

Using historical and projected financial information of Sedco Forex and
Transocean from 1997 to 2000, Goldman Sachs computed the range of relative
contribution of Sedco Forex to the combined company in terms of the following:

- earnings before interest, taxes, depreciation and amortization or
EBITDA -- adjusted for Transocean and Sedco Forex debts, in which the
relative EBITDA contribution of Sedco Forex to the combined company was
computed based on the assumption that, as of December 31, 1999, the
projected debt balance for Sedco Forex would be $435 million and for Transocean would be$876 million;

- net income;

- net income -- adjusted for Sedco Forex debt, in which the relative net
income contribution of Sedco Forex to the combined company was computed
based on the assumption that as of December 31, 1999, the projected debt
balance for Sedco Forex would be $435 million, at an assumed interest rate of 7.0%; and - net income -- adjusted for non-recurring tax benefits, in which the relative net income contribution of Sedco Forex to the combined company was computed based on the assumptions that (1) the pro forma effective tax rate of Transocean would be reduced from 29.5% to 24.0% as a result of Transocean's recent incorporation as a Cayman Islands entity and (2) Transocean would not incur any tax charge associated with relocating rigs out of the Gulf of Mexico. Goldman Sachs also conducted a similar analysis using projected financial information that included the impact of the new rigs of Sedco Forex and Transocean on the EBITDAs and net incomes of the respective companies for the years 1997 to 2000, as if the rigs had been operating at full utilization during that period. The table below sets forth the results of the analyses: RELATIVE CONTRIBUTION OF SEDCO FOREX --------------------- FOUR-YEAR FOUR-YEAR RANGE AVERAGE --------- --------- Performance -- excluding new rigs EBITDA -- adjusted for Transocean and Sedco Forex debts... 38%-60% 49% Net income................................................ 33%-65% 49% Net income -- adjusted for Sedco Forex debt............... 26%-62% 44% Net income -- adjusted for non-recurring tax benefits..... 25%-60% 42% Performance -- including new rigs EBITDA -- adjusted for Transocean and Sedco Forex debts... 46%-61% 54% Net income................................................ 49%-68% 60% Net income -- adjusted for Sedco Forex debt............... 46%-66% 58% Net income -- adjusted for non-recurring tax benefits..... 45%-64% 56% Using asset value estimates provided by third party consultants to Schlumberger, Goldman Sachs computed the relative contribution of Sedco Forex to the combined company in terms of the following: - gross asset market value -- including new rigs, in which the relative asset contribution of Sedco Forex to the combined company was calculated based on the assumptions that (1) the value of the new rigs, computed based on current estimates of their construction costs, of Sedco Forex and Transocean were included in the asset values of the respective companies; (2) the market conditions were those of December 31, 1998; and (3) Sedco Forex would have incurred additional debt of$183 million and
Transocean would have incurred additional debt of $66 million, in each case to cover the estimated construction costs of the new rigs; - gross asset peak value -- including new rigs, in which the relative asset contribution of Sedco Forex to the combined company was calculated based on the assumptions that (1) the value of the new rigs, computed based on current estimates of their construction costs, of Sedco Forex and Transocean were 54 61 included in the asset values of the respective companies; (2) the market conditions were those of December 31, 1997; and (3) Sedco Forex would have incurred additional debt of$183 million and Transocean would have
incurred additional debt of $66 million, in each case to cover the estimated construction costs of the new rigs; and - gross asset market value -- excluding new rigs, in which the relative asset contribution of Sedco Forex to the combined company was calculated based on the assumption that the market conditions were those of December 31, 1998. - gross asset peak value -- excluding new rigs, in which the relative asset contribution of Sedco Forex to the combined company was calculated based on the assumption that the market conditions were those of December 31, 1997. Goldman Sachs conducted a similar contribution analysis using the net asset value of the rigs, based on the additional assumption that the projected debt balance as of December 31, 1999 of Sedco Forex would be$435 million and of
Transocean would be $876 million, using estimates provided by the managements of Sedco Forex and Transocean for their respective companies. In cases where the value of the new rigs was included, Goldman Sachs also assumed that Sedco Forex would have incurred additional debt of$183 million and Transocean would have
incurred additional debt of $66 million to cover the estimated construction costs of the new rigs. The table below sets forth the results of the analyses: CONTRIBUTION BY SEDCO FOREX ----------------------------- BASED ON GROSS BASED ON NET ASSET VALUE ASSET VALUE -------------- ------------ Market value -- including new rigs......................... 51% 56% Peak value -- including new rigs........................... 52% 54% Market value -- excluding new rigs......................... 49% 59% Peak value -- excluding new rigs........................... 51% 56% 2. SELECTED COMPANIES ANALYSIS This analysis assesses how the public market values shares of similar publicly traded companies. Goldman Sachs reviewed and compared pro forma financial information of the combined company with financial information of various publicly traded large service companies and offshore drilling companies. Goldman Sachs reviewed the following large service companies: - Schlumberger - Baker Hughes Incorporated - Halliburton Co. Goldman Sachs reviewed the following offshore drilling companies: - Diamond Offshore Drilling, Inc. - Ensco International, Inc. - Global Marine Inc. - Noble Drilling Corporation - R&B Falcon Corporation - Rowan Companies, Inc. - Santa Fe International Corporation - Transocean 55 62 The financial information of the selected companies was based on the following: - share prices of the selected companies were based on the closing prices of their common stock on July 2, 1999; - dividend yields of the selected companies were computed by annualizing the companies' quarterly dividends based on their Quarterly Reports on Form 10-Q for the first quarter of 1999; - net debts and enterprise values (defined as the sum of equity market capitalization and net debt) of the selected companies as of the end of the first quarter of 1999 were based on their Quarterly Reports on Form 10-Q for the first quarter of 1999; - projected earnings of the selected companies for the years 1999 and 2000 were based on median earnings estimates of the Institutional Brokers Estimate System as of July 2, 1999; - EBITDAs of the selected companies for the year 1998 were based on their Annual Reports on Form 10-K for the year 1998; and - projected EBITDAs of the selected companies for the years 1999 and 2000 were based on a Goldman Sachs oil services industry research report dated June 18, 1999; Salomon Smith Barney research reports dated April 20, 1999, April 28, 1999 and May 27, 1999; and estimates of the Institutional Brokers Estimate System as of July 2, 1999. The financial information of the combined company was based on the following: - pro forma share price of the combined company was calculated based on the assumption that shares of the combined company would have the same closing price as that of Transocean ordinary shares as of July 2, 1999; - pro forma dividend yield of the combined company was calculated based on the assumption that the combined company would maintain the same dividend as that of Transocean ordinary shares for the first quarter of 1999; - pro forma net debt of the combined company was calculated based on Transocean's net debt of$659 million as per the Form 10-Q for the first
quarter of 1999 and Sedco Forex's pro forma contribution of $435 million; - pro forma enterprise value of the combined company was calculated based on the assumption that the combined company would have 209.5 million pro forma shares outstanding; - projected pro forma earnings of the combined company for the years 1999 and 2000 were calculated based on the estimates provided by the managements of Sedco Forex and Transocean for their respective companies; and - historical pro forma EBITDA of the combined company for the year 1998 and projected pro forma EBITDAs of the combined company for the years 1999 and 2000 were calculated based on estimates provided by the managements of Sedco Forex and Transocean for their respective companies, adjusted for non-recurring items. 56 63 The results of the analysis are summarized as follows: OFFSHORE DRILLING COMPANIES LARGE SERVICE COMPANIES (INCLUDING TRANSOCEAN) ----------------------- ------------------------ COMBINED RANGE MEDIAN RANGE MEDIAN TRANSOCEAN COMPANY -------------- ------ --------------- ------ ---------- -------- Stock Price as a % of 52-week high...... 89%- 93% 93% 39%- 91% 72% 58% n/a Dividend Yield.......................... 1.1%- 1.4% 1.2% 0.0%- 1.8% 0.2% 0.5% 0.5% Net Debt/Enterprise Value............... (0.2)%- 21.1% 8.0% (7.2)%- 55.2% 15.3% 19.8% 16.5% P/E Multiple 1999 (estimated)...................... 51.1x- 66.7x 54.0x 11.9x- 30.6x 22.2x 11.9x 17.0x 2000 (estimated)...................... 31.8x- 38.5x 36.5x 16.0x- 128.8x 26.0x 16.0x 17.3x EBITDA/Enterprise Value 1998.................................. 10.9x- 13.3x 12.8x 5.1x- 10.1x 6.8x 5.7x 6.0x 1999 (estimated)...................... 11.1x- 18.1x 16.2x 7.0x- 33.5x 12.6x 7.0x 9.5x 2000 (estimated)...................... 9.8x- 14.6x 12.7x 7.0x- 17.9x 9.5x 8.1x 9.1x 3. PRO FORMA MERGER ANALYSIS Goldman Sachs analyzed the pro forma financial impact of the merger on the diluted per share earnings of Transocean ordinary shares on an after-tax basis. Using estimates provided by the managements of Transocean and Sedco Forex for their respective companies, Goldman Sachs computed the pro forma per share earnings of the combined company based on the following assumptions: - the merger would result in$210 million of incremental goodwill to be
amortized over 40 years;

- Transocean would write up its assets pursuant to the merger by $483 million to be amortized over 18 years; - Sedco Forex would contribute$435 million of debt to the merger at an
assumed interest rate of 7.0%; and

- the effective tax rates would be 29.5% in 1998 and 24% in 2000.

Based on estimates provided by the management of Sedco Forex, Goldman Sachs
also assumed that the merger would generate $23 million in annual after-tax synergies. Goldman Sachs analyzed the impact of the merger on the 1998 per share earnings of Transocean ordinary shares based on Transocean's reported per share earnings for the year 1998. Taking synergies into account, the merger would be 12.4% accretive. Without taking synergies into account, the merger would be 8.8% accretive. In addition, Goldman Sachs analyzed the impact of the merger on (1) the 1998 per share earnings of Transocean ordinary shares based on Transocean's reported per share earnings for the year 1998, adjusted for non-recurring gains totaling$50 million, and (2) the 2000 per share earnings of Transocean ordinary
shares based on Transocean's earnings estimates for the year 2000 provided by
the management of Transocean. Goldman Sachs conducted this analysis by applying
the effective tax rates of 29.5%, 20% and 15%.

The results of the analysis are as follows:

PRO FORMA             PRO FORMA
WITH SYNERGIES       WITHOUT SYNERGIES
-------------------   -------------------
1998       2000       1998       2000
-----   -----------   -----   -----------
(ESTIMATED)           (ESTIMATED)

% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 29.5%)...........  24.7%       5.0%      20.5%      (2.2%)
% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 20%).............  15.6%      (1.8%)     11.9%      (8.1%)
% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 15%).............  11.7%      (4.7%)      8.1%     (10.7%)

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Goldman Sachs conducted a similar analysis using earnings estimates for
Transocean provided by the Institutional Brokers Estimate Service as of July 2,
1999. The results of the analysis are as follows:

PRO FORMA             PRO FORMA
WITH SYNERGIES       WITHOUT SYNERGIES
-------------------   -------------------
1998       2000       1998       2000
-----   -----------   -----   -----------
(ESTIMATED)           (ESTIMATED)

% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 29.5%)...........  24.7%       0.1%      20.5%      (6.5%)
% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 20%).............  15.6%      (6.1%)     11.9%     (11.9%)
% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 15%).............  11.7%      (8.8%)      8.1%     (14.2%)

Goldman Sachs compared the historical trading prices of Transocean ordinary
shares with the following: (1) the S&P 500 index; and (2) an offshore drilling
composite index comprised of the common stock of (A) Diamond Offshore Drilling,
Inc., (B) Ensco International, Inc., (C) Global Marine Inc., (D) Noble Drilling
Corporation, (E) R&B Falcon Corporation, (F) Rowan Companies, Inc. and (G) Santa
Fe International Corporation. The analysis indicates that:

- for the period from July 3, 1998 to July 6, 1999, the daily trading price
of Transocean ordinary shares decreased by 40%, compared to an increase
of 21% for the S&P 500 index and a decrease of 24% for the offshore
drilling composite index; and

- for the period from July 5, 1996 to July 6, 1999, the weekly trading
price of Transocean ordinary shares increased by 4%, compared to an
increase of 111% for the S&P 500 index and a decrease of 2% for the
offshore drilling composite index.

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying the opinion of Goldman Sachs. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses and did
not attribute any particular weight to any factor or analysis considered by it;
rather, Goldman Sachs made its determination as to fairness on the basis of its
experience and professional judgment after considering the results of all such
analyses. No company used in the above analyses as a comparison is directly
comparable to Schlumberger or Transocean.

Goldman Sachs prepared these analyses solely for purposes of providing an
opinion to the Schlumberger board. The analyses do not purport to be appraisals,
nor do they necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by these analyses. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of
Schlumberger, Transocean, Sedco Forex or Goldman Sachs assumes responsibility if
future results are materially different from those forecasted.

As described above, the opinion of Goldman Sachs to the Schlumberger board
was one of many factors taken into consideration by the Schlumberger board in
making its determination to approve the merger agreement. The foregoing summary
does not purport to be a complete description of the analyses performed by
Goldman Sachs.

Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and

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valuations for estate, corporate and other purposes. Goldman Sachs is familiar
with Sedco Forex, having provided certain investment banking services to
Schlumberger from time to time, including having acted as its financial advisor
in connection with the merger with Camco International, Inc. in August 1998, and
having acted as financial advisor in connection with, and having participated in
certain negotiations leading to, the merger agreement. Goldman Sachs has also
provided certain investment banking services to Transocean from time to time,
including having acted as (1) financial advisor to Transocean in its merger with
Transocean Drilling ASA in September 1996; (2) lead-managing underwriter of a
public offering of 7.45% Notes due 2027 and 8% Debentures due 2027 in April
1997; and (3) agent in Transocean's stock repurchase program. Goldman Sachs may
provide investment banking services to Transocean or Transocean Sedco Forex in
the future.

Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may, from time to
time, effect transactions and hold securities, including derivative instruments,
of Schlumberger and Transocean for its own account and for the accounts of
customers. As of July 12, 1999, Goldman Sachs accumulated a net long position of
58,895 shares of Schlumberger common stock and options to sell 123,500 shares of
Schlumberger common stock and a net long position of 128,800 Transocean ordinary
shares and options to sell 20,000 Transocean ordinary shares.

Pursuant to a letter agreement, dated April 12, 1999, between Schlumberger
and Goldman Sachs, Schlumberger engaged Goldman Sachs to act as its financial
advisor in connection with the possible distribution to Schlumberger's
shareholders of the shares of Sedco Forex capital stock and possible merger or
business combination of Sedco Forex with all or substantially all of Transocean.
Pursuant to the terms of this letter:

- if the merger is consummated, Schlumberger will pay Goldman Sachs a
transaction fee equal to $10,000,000 upon consummation of the merger; or - if the merger agreement is terminated and Schlumberger is entitled to certain payments according to the terms thereof, Schlumberger will pay Goldman Sachs a transaction fee equal to 20% of the payment, up to a maximum amount of$10,000,000, upon receipt of that payment by
Schlumberger.

In addition, Schlumberger has agreed to reimburse Goldman Sachs
periodically, upon request, and upon consummation of the merger or upon
termination of its services pursuant to the letter agreement, for its reasonable
out-of-pocket expenses, including the fees and disbursements of Goldman Sachs'
attorneys, plus any sales, use or similar taxes, including additions to such
taxes, if any, arising in connection with any matter referred to in the letter.
Schlumberger has also agreed to indemnify Goldman Sachs and certain related
persons against certain liabilities in connection with its engagement, including
certain liabilities under federal securities laws.

TRANSOCEAN SEDCO FOREX MANAGEMENT

J. Michael Talbert, the present Chairman of the Board and Chief Executive
Officer of Transocean, will become the President and Chief Executive Officer of
Transocean Sedco Forex.

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In addition, the following persons will hold the positions set forth
opposite their names below:

Jean P. Cahuzac..........  Executive Vice President and President, Europe, Middle
East and Africa
W. Dennis Heagney........  Executive Vice President and President, Asia and the
Americas
Jon C. Cole..............  Executive Vice President, Marketing
Robert L. Long...........  Executive Vice President, Chief Financial Officer and
Treasurer
Donald R. Ray............  Senior Vice President, Technical Services
Eric B. Brown............  Vice President, General Counsel and Secretary
Barbara S.                 Vice President, Information Systems and Communications
Koucouthakis...........  Technology
David Mullen.............  Vice President, Human Resources
Ricardo Rosa.............  Vice President and Controller

Messrs. Heagney, Cole, Long, Ray and Brown and Ms. Koucouthakis are
currently executive officers of Transocean, and Messrs. Cahuzac, Mullen and Rosa
are currently employed by Schlumberger.

TRANSOCEAN SEDCO FOREX BOARD OF DIRECTORS

Upon completion of the merger, Victor E. Grijalva, the present Vice
Chairman of Schlumberger, will become the Chairman of the board of directors of
Transocean Sedco Forex and is expected to serve until he reaches age 65. Mr.
Grijalva will enter into a consulting agreement with Transocean Sedco Forex in
connection with his becoming Chairman. Mr. Grijalva will also retain his
position as Vice Chairman of Schlumberger. See "Interests Of Certain
Persons -- Transocean Sedco Forex Chairman's Consulting Agreement."

The board of directors of Transocean Sedco Forex will consist initially of
ten members, five of whom the board of directors of Schlumberger has designated
in consultation with Transocean and five of whom the current board of directors
of Transocean has designated in consultation with Schlumberger. Schlumberger and
Transocean will allocate those directors to the three staggered board classes as
evenly as possible. The Transocean Sedco Forex board of directors will have the
following four standing committees: the Audit Committee, the Executive
Compensation Committee, the Finance and Benefits Committee and the Corporate
Governance Committee. Under the merger agreement, Transocean and Schlumberger
agreed that these committees, as well as any other committee of the board of
directors, will consist of an equal number of Transocean and Schlumberger
designees. Transocean and Schlumberger agreed that the Transocean designees to
the board of directors will designate the committee chairmen of the Executive
Compensation and the Finance and Benefits Committees and that the Schlumberger
designees to the board of directors will designate the committee chairmen of the
Audit and Corporate Governance Committees. Transocean and Schlumberger also
agreed that the chairmen of any other committees will be designated as equally
as practicable by their respective board designees. See "Management of
Transocean Sedco Forex."

To configure the board of directors as it will be constituted following the
merger, the four members of the current Transocean board who will not be
continuing directors have submitted their resignations from the board to be
effective after the merger is completed. To fill these vacancies, Schlumberger,
in consultation with Transocean, has designated five nominees, each of whom has
been elected by the Transocean board of directors to be effective after the
merger is completed.

Under the merger agreement, Transocean agreed to use all reasonable efforts
to maintain the proportional allocation between Transocean and Schlumberger
designees to the board and its committees for a period of three years after the
completion of the merger. Transocean and Schlumberger also agreed that if a
director dies, resigns or is removed from the board prior to the expiration of
the three-year period following the merger, the remaining Transocean designees,
if the director was a director designated by Transocean, or Schlumberger
designees, if the director was a director designated by Schlumberger, on the
board will nominate a replacement for action by the full board.

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STOCK EXCHANGE LISTING

The Transocean Sedco Forex ordinary shares to be issued to Schlumberger's
shareholders in the merger will be listed on the NYSE, subject to official
notice of issuance. The completion of the merger is conditioned upon such
authorization for listing.

ACCOUNTING TREATMENT AND CONSIDERATIONS

Transocean Sedco Forex will account for the merger using the purchase
method of accounting, with Sedco Forex treated as the acquiror. As a result, the
assets and liabilities of Sedco Forex will be recorded at historical amounts,
without restatement to fair values. The assets and liabilities of Transocean
will be recorded at their estimated fair values at the date of the merger, with
the excess of the purchase price over the sum of such fair values recorded as
goodwill. The purchase price is based upon the market capitalization of
Transocean, using an average trading price of Transocean ordinary shares for a
reasonable period of time immediately before and after the merger was announced,
plus the estimated fair value of Transocean stock options assumed by Transocean
Sedco Forex. The purchase price is estimated to be $2.98 billion, which was calculated using a$29.2411 per share valuation of Transocean ordinary shares.
The calculated purchase price is for accounting purposes only and is not
indicative of the price at which shares of Transocean ordinary shares will trade
immediately before the completion of the merger or the value of the Transocean
ordinary shares to be received by shareholders of Schlumberger in connection
with the merger.

CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES

SCOPE OF DISCUSSION

The following discussion summarizes the material U.S. federal income tax
consequences to Schlumberger's shareholders of (1) the receipt of Sedco Forex
shares in the spin-off and the subsequent exchange of those shares for
Transocean ordinary shares in the merger and (2) the subsequent ownership and
disposition of Transocean ordinary shares. For a description of the manner in
which the spin-off and merger will be carried out, see "The Schlumberger Special
General Meeting," beginning on page 38. This discussion is based upon existing
U.S. tax law, including legislation, regulations, administrative rulings and
court decisions, as in effect on the date of this proxy statement/prospectus,
all of which are subject to change, possibly with retroactive effect.

For purposes of this discussion, (1) a "U.S. holder" is a beneficial owner
of stock that is (a) an individual citizen or resident of the United States, (b)
a corporation created or organized in or under the laws of the United States or
of a state of the United States or the District of Columbia or (c) a
partnership, trust or estate treated, for U.S. tax purposes, as a domestic
partnership, trust, or estate, (2) a "non-U.S. holder" is any shareholder other
than a U.S. holder and (3) the term "U.S. tax" means U.S. federal income tax
under the Internal Revenue Code. The discussion assumes that U.S. holders hold
their Schlumberger shares, the Sedco Forex shares that they will receive in the
spin-off and the Transocean ordinary shares that they will receive in the merger
as a capital asset. Tax consequences that are different from or in addition to
those described below may apply to Schlumberger's shareholders who are subject
to special treatment under U.S. tax law, such as tax exempt organizations,
financial institutions, insurance companies, broker-dealers, persons who hold
their Schlumberger shares as part of a hedge, straddle, wash sale, synthetic
security, conversion transaction or other integrated investment comprised of
Schlumberger shares and one or more other investments, persons who acquired
their shares in compensatory transactions, or non-U.S. holders who are or have
previously been engaged in the conduct of a trade or business in the United
States. The discussion is limited to U.S. federal income tax considerations and
does not address other U.S. federal tax considerations or state, local, or non-
U.S. tax considerations.

THIS SUMMARY IS NOT A SUBSTITUTE FOR AN INDIVIDUAL ANALYSIS OF THE TAX
CONSEQUENCES OF THE SPIN-OFF AND MERGER TO A SCHLUMBERGER SHAREHOLDER. EACH
SCHLUMBERGER SHAREHOLDER SHOULD CONSULT A TAX ADVISOR AS TO THE U.S. FEDERAL
INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS, INCLUDING ANY SUCH CONSEQUENCES
ARISING FROM THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE SCHLUMBERGER
SHAREHOLDER, AND AS TO ANY ESTATE, GIFT, STATE, LOCAL OR NON-U.S. TAX
CONSEQUENCES OF THE TRANSACTIONS.

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CERTAIN U.S. TAX CONSEQUENCES OF THE SPIN-OFF AND THE MERGER TO U.S. HOLDERS
AND TO SCHLUMBERGER, SEDCO FOREX AND TRANSOCEAN

The spin-off is intended to qualify as a distribution that is tax-free to
Schlumberger's shareholders under Section 355 of the U.S. Internal Revenue Code,
and the merger is intended to qualify as a tax-free reorganization under Section
368(a)(1)(B) of the U.S. Internal Revenue Code. The obligations of Schlumberger
and Sedco Forex to carry out the spin-off and the merger are conditioned upon
the receipt by Schlumberger and Sedco Forex from their counsel, Baker & Botts,
L.L.P., of an opinion that the spin-off and merger should so qualify. It is
anticipated that this opinion will be delivered shortly before the spin-off. The
opinions of Baker & Botts summarized in this joint proxy statement/prospectus
are and will be subject to qualifications and limitations, including those
described below.

On the basis of their opinion regarding the spin-off and the merger, as
just described, in the opinion of Baker & Botts:

- a U.S. holder who complies with the reporting requirements described
below should recognize no gain or loss, and should not otherwise be
required to include any amount in income, as a result of the receipt of
Sedco Forex shares in the spin-off;

- the holder's aggregate basis in the Schlumberger shares and the Sedco
Forex shares held immediately after the spin-off should be equal to the
holder's basis in the Schlumberger shares immediately before the spin-off
and should be allocated between the Schlumberger shares and the Sedco
Forex shares in accordance with the relative fair market values of the
Schlumberger shares and the Sedco Forex shares on the date of the
spin-off;

- the holding period of the Sedco Forex shares should include the holding
period of the Schlumberger stock on which the spin-off of the Sedco Forex

- U.S. holders should recognize no gain or loss on the exchange in the
merger of Sedco Forex shares for Transocean ordinary shares (except that
"5% shareholders" of Transocean Sedco Forex who fail to file a "gain
recognition agreement" with the Internal Revenue Service will be required
to recognize gain on the exchange, as described below);

- the basis of the Transocean ordinary shares received by each U.S. holder
in the merger should be the same as the basis of the Sedco Forex shares
surrendered in exchange for the Transocean ordinary shares, adjusted for
any portion of the holder's basis in the Sedco Forex shares that is
allocable to a fractional share of Transocean ordinary shares;

- the holding period of such Transocean ordinary shares should include the
U.S. holder's holding period in the Sedco Forex shares; and

- a U.S. holder should recognize capital gain or loss on a cash payment for
a fractional share of Transocean ordinary shares in an amount equal to
the difference between the amount of cash received and the portion of the
holder's basis in the Sedco Forex shares surrendered that is allocable to
the fractional share.

In addition, in the opinion of Baker & Botts, (1) without regard to the
rules which would be applicable to Schlumberger if it were a U.S. corporation,
Schlumberger will not be required to include in income any gain arising from the
spin-off because no such gain will be effectively connected with the conduct by
Schlumberger of a trade or business within the United States and (2) Transocean
and Sedco Forex will recognize no gain or loss as a result of the merger.

Since Schlumberger and Sedco Forex are not U.S. corporations, in order to
qualify for tax-free treatment under Section 355, U.S. holders must comply with
reporting requirements prescribed by Treasury regulations under Section 367(b)
of the Internal Revenue Code. In addition, U.S. holders should comply with the
normal reporting requirements applicable to any distribution under Section 355
and reorganization under Section 368 of the Internal Revenue Code. A U.S. holder
may comply with all applicable reporting requirements under Section 367(b),
Section 355 and Section 368 by attaching a statement to the holder's U.S. tax
return for the
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year in which the spin-off occurs. A form of a statement that, with appropriate
insertions and modifications, U.S. holders may use for this purpose will be
provided with the Transocean Sedco Forex shares issued to these holders. Except
with respect to "5% shareholders" of Transocean Sedco Forex, as described below,
U.S. holders are not subject to any separate reporting requirements with respect
to the merger under Section 367 of the Internal Revenue Code.

A U.S. holder who is a "5% shareholder" of Transocean Sedco Forex after the
merger in accordance with applicable Treasury regulations under Section 367(a)
of the Internal Revenue Code and who would otherwise recognize gain in the
merger on the exchange of Sedco Forex shares for Transocean ordinary shares will
qualify for tax-free treatment in the merger, as described above, only if the
U.S. holder files a "gain recognition agreement" with the Internal Revenue
Service. The general effect of a gain recognition agreement would be to require
the U.S. holder to recognize the holder's gain, with interest, on the exchange
of Sedco Forex shares for Transocean ordinary shares in the event that, at any
time prior to the close of the fifth full calendar year following the year in
which the merger occurs, Transocean Sedco Forex disposes of part or all of the
stock of Sedco Forex or Sedco Forex disposes of substantially all of its assets.
Any U.S. holder who will be a "5% shareholder" of Transocean Sedco Forex after
the merger should consult the holder's own tax adviser concerning the decision
to file a gain recognition agreement and the procedures to be followed in
connection with such filing.

The opinions of counsel referred to above are and will be based on present
law, which is subject to change, possibly with retroactive effect. In providing
its opinions, Baker & Botts has relied and will rely upon the accuracy of
certain representations made to Baker & Botts by representatives of
Schlumberger, Sedco Forex and Transocean, including representations to the
effect that Sedco Forex will not be a passive foreign investment company, as
defined in Section 1297(a) of the U.S. Internal Revenue Code, for the calendar
year in which the merger occurs, and upon the accuracy of other information
provided by Schlumberger to Baker & Botts. In addition, Baker & Botts has relied
and will rely upon the accuracy of the information in this joint proxy
statement/prospectus and in other documents filed by Schlumberger and Transocean
with the SEC. No ruling will be requested from the Internal Revenue Service on
any aspect of the spin-off or merger. The opinions of counsel are not binding
upon the Internal Revenue Service or a court and will not preclude the Internal
Revenue Service or a court from adopting a contrary position.

If the spin-off did not qualify under Section 355 of the U.S. Internal
Revenue Code, each U.S. holder of Schlumberger stock would receive a taxable
distribution in an amount equal to the fair market value of the Sedco Forex
shares received in the spin-off. Such distribution would be taxable as a
dividend to the extent paid out of current and accumulated earnings and profits
of Schlumberger, computed according to U.S. tax principles. The remainder of the
distribution, if any, would be applied against and would reduce the U.S.
holder's basis in the Schlumberger shares and, to the extent exceeding such
basis, would be taxable as a capital gain. The U.S. holder's basis in the Sedco
Forex shares would be equal to the fair market value of that stock on the date
of the spin-off. If the merger did not qualify as a reorganization under Section
368(a)(1)(B) of the U.S. Internal Revenue Code, a U.S. holder would recognize
capital gain or loss in an amount equal to the difference between the aggregate
fair market value of the Transocean ordinary shares that the U.S. holder
received in the merger and the holder's basis in the Sedco Forex shares
surrendered in the exchange.

CERTAIN U.S. TAX CONSEQUENCES OF HOLDING AND DISPOSING OF TRANSOCEAN ORDINARY
SHARES

General

The following is a discussion of the material U.S. federal income tax
consequences of the ownership and disposition of Transocean ordinary shares by
U.S. holders who receive Sedco Forex shares in the spin-off and exchange those
shares for Transocean ordinary shares in the merger. The discussion is subject
to the assumptions and limitations set forth above in "-- Scope of Discussion."

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Distributions on and Sale of the Transocean Ordinary Shares

U.S. holders will be required to include in gross income as ordinary income
the gross amount of any distribution on the Transocean ordinary shares, to the
extent that the distribution is paid out of Transocean's current or accumulated
earnings and profits as determined for U.S. tax purposes (a "dividend"). These
dividends generally will not be eligible for the dividends received deduction
that is allowed to U.S. corporate shareholders on dividends received from a
domestic corporation. Distributions in excess of those earnings and profits will
be applied first to reduce the U.S. holder's tax basis in the holder's shares.
To the extent that the distribution exceeds the U.S. holder's tax basis, the
excess will constitute gain from a sale or exchange of the shares.

Transocean expects that, for foreign tax credit purposes, dividends paid on
the Transocean ordinary shares will generally be foreign source income and will
be "passive income" or, in some cases, "financial services income." However,
under Section 904(g) of the U.S. Internal Revenue Code, dividends paid by a
foreign corporation that is treated as at least 50% owned by U.S. persons will
be treated as U.S. source income for foreign tax credit purposes to the extent
that the dividends are paid out of earnings and profits from sources within the
United States and are paid out of the earnings and profits of a taxable year of
the foreign corporation in which at least 10% of the total earnings and profits
are from sources within the United States. A portion of the dividends paid by
Transocean may be treated as U.S. source income either under Section 904(g) of
the Code or because the dividends were treated as having been paid out of
earnings and profits accumulated by a U.S. predecessor of Transocean.

A U.S. holder of Transocean ordinary shares will generally recognize gain
or loss for U.S. tax purposes upon the sale or exchange of such shares in an
amount equal to the difference between the amount realized from such sale or
exchange and the U.S. holder's tax basis for such shares. Such gain or loss will
be a capital gain or loss and, in the case of an individual U.S. holder, any
such gain would be subject to U.S. tax at a maximum rate of 20% if the U.S.
holder's holding period for the Transocean ordinary shares at the time of the
sale or exchange exceeds one year.

Special Status of Certain Corporations for U.S. Tax Purposes

For U.S. federal income tax purposes, a foreign (i.e., non-U.S.)
corporation, such as Transocean, is classified as a passive foreign investment
company for each taxable year in which either (1) 75% or more of its gross
income is passive income as defined for U.S. tax purposes or (2) on average for
such taxable year, 50% or more in value of its assets produce passive income or
are held for the production of passive income. For purposes of applying the
foregoing tests, the foreign corporation is deemed to own its proportionate
share of the assets of and to receive directly its proportionate share of the
income of any other corporation of which the foreign corporation owns, directly
or indirectly, at least 25% by value of the stock.

Classification of a foreign corporation as a passive foreign investment
company can have various adverse consequences to U.S. holders. These include
taxation of gain on a sale or other disposition of the stock of the corporation
at ordinary income rates and imposition of an interest charge on gain on or
distributions with respect to the stock. These consequences would not apply if
the U.S. holder elected to treat the foreign corporation as a qualified electing
fund (a "QEF election") for all taxable years during which the U.S. holder held
stock of the corporation and during which the corporation was a passive foreign
investment company. The general effect of a QEF election is to require the U.S.
holder to include in income the holder's pro rata share of the income of the
foreign corporation for each year in which the corporation is classified as a
passive foreign investment company, even if no distributions are received. U.S.
holders of stock of a passive foreign investment company may also make certain
other elections that are not here described.

Transocean believes that it will not be a passive foreign investment
company following the merger. However, the tests for determining passive foreign
investment company status are applied annually, and it is difficult to predict
accurately future income and assets relevant to this determination. Accordingly,
Transocean cannot assure U.S. holders that it will not become a passive foreign
investment company. If Transocean should determine in the future that it is a
passive foreign investment company, it will endeavor so to notify U.S. holders,
although there can be no assurance that it will be able to do so in a timely and
complete manner.

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U.S. holders should consult their own tax advisers about the passive foreign
investment company rules, including QEF elections.

Transocean would be a controlled foreign corporation if certain U.S.
holders, as described below, owned, actually or constructively, stock
representing more than 50% of the voting power or value of Transocean. Stock
owned by any U.S. holder who owns, actually or constructively, stock
representing 10% or more of the voting power of Transocean would be taken into
account in making the determination just described, but stock owned by other
U.S. holders and stock owned by all non-U.S. holders would be disregarded.
Transocean does not expect to be a controlled foreign corporation following the
merger. If it nevertheless were a controlled foreign corporation, such status
would have no effect on any U.S. holder who at no time owned, actually or
constructively, stock representing 10% or more of the voting power of
Transocean.

United States Information Reporting and Backup Withholding

Dividends on Transocean ordinary shares paid within the United States or
through certain U.S.-related financial intermediaries are subject to information
reporting and may be subject to backup withholding at a 31% rate unless the
holder (1) is a corporation or other exempt recipient or (2) provides a taxpayer
identification number and certifies that no loss of exemption from backup
withholding has occurred. Information reporting requirements and backup
withholding may also apply to the cash proceeds of a sale of the Transocean
ordinary shares.

NON-U.S. HOLDERS

A non-U.S. holder of Schlumberger shares will not in any case be subject to
U.S. federal income or withholding tax on gain or income with respect to the
spin-off and merger, and will not be subject to U.S. federal income or
withholding tax on any gain recognized on a subsequent disposition of Transocean
ordinary shares received in the merger, as long as:

- such income or gain is not effectively connected with the conduct by the
holder of a trade or business within the United States or, if a tax
treaty applies, is not attributable to a permanent establishment or fixed
place of business maintained by the holder in the United States;

- in the case of certain capital gains, the holder either is not present in
the United States for 183 days or more during the taxable year in which
the capital gain is recognized or otherwise qualifies for an exemption;
and

- the holder qualifies for an exemption from backup withholding, as
discussed below.

Moreover, such a holder will not generally be subject to U.S. tax on
distributions made by Transocean on the Transocean ordinary shares. However,
dividends paid by Transocean Sedco Forex to non-U.S. holders out of earnings and
profits accumulated by a U.S. predecessor of Transocean Sedco Forex may be
subject to U.S. withholding tax. In order to qualify for an exemption from
backup withholding tax on dividends on and gain from dispositions of the
Transocean ordinary shares, a non-U.S. holder may be required to provide a
taxpayer identification number, certify the holder's foreign status, or
otherwise establish an exemption.

REGULATORY MATTERS

Transocean and Schlumberger must make certain filings and receive certain
authorizations from various governmental agencies, both in the United States and
internationally, to complete the merger. These filings, notifications and
authorizations relate primarily to antitrust and securities law issues.
Transocean and Schlumberger intend to pursue vigorously all required regulatory
approvals. However, neither Transocean nor Schlumberger can assure that it will
obtain all such approvals by the time of its shareholder meeting or at all. In
addition, neither Transocean nor Schlumberger can assure that governmental
authorities will not impose unfavorable conditions for granting the required
approvals.

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U.S. ANTITRUST LAWS

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
rules and regulations promulgated thereunder, the parties cannot complete the
merger until they have notified and furnished certain information to the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice and a specified waiting period expires or is terminated. The parties
received notice of early termination of the required waiting period under the
U.S. Hart-Scott-Rodino Act on August 16, 1999.

OTHER ANTITRUST LAWS

Each other country and U.S. state in which Transocean or Schlumberger has
operations also may review the merger under its antitrust laws. The parties
received clearance from the U.K. competition/antitrust authorities on October
14, 1999. A competition/antitrust filing will also be made in Brazil.

At any time before the completion of the merger, any of the relevant
governmental authorities or a private person or entity could seek under
antitrust laws, among other things, to enjoin the spin-off or the merger or to
cause Transocean or Sedco Forex to divest assets or businesses as a condition to
completing the merger. Neither Transocean nor Schlumberger can assure that a
challenge to the spin-off or the merger will not be made or, if such a challenge
is made, that Transocean, Schlumberger or Sedco Forex will prevail.

Furthermore, any of the relevant governmental authorities or a private
person or entity could seek, under antitrust laws, to take action against
Schlumberger or Transocean after the completion of the merger. Transocean and
Schlumberger are unable to predict whether such action will be taken or what the
outcome of such action may be.

The parties' obligation to complete the merger is subject to the condition
that no decree, order or injunction of a court of competent jurisdiction
prohibits such completion. The parties agreed to use their commercially
reasonable best efforts to have any such decree, order or injunction lifted or
vacated. The parties also conditioned the completion of the merger on the
requirement that no statute, rule or regulation of a governmental authority
prohibits the merger or would make it unlawful.

COOPERATION OF THE PARTIES

Under the merger agreement, the parties agreed to use their best efforts to
cooperate in determining which filings need to be made and which consents,
approvals, permits or authorizations will need to be obtained prior to the
completion of the merger. The parties also agreed to use their best efforts to
make or obtain all material filings, consents, approvals, permits or
authorizations in a timely manner and to furnish each other with necessary
information and reasonable assistance in so doing. Under the merger agreement,
the parties must use their best efforts to take any and all steps necessary to
gain any consents, approvals, permits or authorizations material to completing
the merger or to eliminate any impediments that would restrain, prevent or delay
that completion. However, the merger agreement provides that neither party is
required to dispose of any material amount of assets to obtain any consents,
approvals, permits or authorizations or to remove any impediments to the merger.

FEDERAL SECURITIES LAWS CONSEQUENCES; RESALE RESTRICTIONS

All Transocean ordinary shares that Transocean will issue to Schlumberger's
shareholders in connection with the merger will be freely transferable, except
for certain restrictions applicable to "affiliates" of Sedco Forex under the
Securities Act of 1933. Those affiliates may resell those shares they receive
only in transactions permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Sedco Forex for these purposes generally include individuals or
entities that control, are controlled by, or are under common control with,
Sedco Forex, and would not include shareholders who are not executive officers,
directors or significant shareholders of Sedco Forex.

The merger agreement requires Sedco Forex to prepare and deliver a list
that identifies all persons whom Sedco Forex believes may be deemed to be
affiliates of Sedco Forex prior to the completion of the merger.

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Sedco Forex is also required, pursuant to the merger agreement, to use its best
efforts to cause each person it identifies on the list as a potential affiliate
to deliver to Transocean, at or prior to the completion of the merger, a written
agreement that such affiliate will not sell, pledge, transfer or otherwise
dispose of any of the Transocean ordinary shares issued to the affiliate
pursuant to the merger unless such sale, pledge, transfer or other disposition
meets one of the following criteria:

- it is made pursuant to an effective registration statement filed under
the Securities Act;

- it is in compliance with Rule 145; or

- it is otherwise exempt from the registration requirements of the
Securities Act.

Transocean's receipt of such an agreement from each potential Rule 145
affiliate is a condition to its obligation to complete the merger.

This joint proxy statement/prospectus does not cover any resales of the
Transocean ordinary shares to be received by Schlumberger's shareholders in the
merger, and no person is authorized to make any use of this joint proxy
statement/prospectus in connection with any such resale.

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THE TRANSACTION AGREEMENTS

This section describes the material provisions of the distribution
agreement and the merger agreement. The distribution agreement includes the
terms and conditions according to which Sedco Forex will be separated from
Schlumberger and spun off to Schlumberger's shareholders. The merger agreement
includes the terms and conditions according to which a wholly owned subsidiary
of Transocean will merge with and into Sedco Forex, with Sedco Forex surviving
the merger as a wholly owned subsidiary of Transocean. The merger agreement is
attached to this joint proxy statement/prospectus as Annex A, and the
distribution agreement is attached as Annex B. The merger agreement and the
distribution agreement are incorporated into this joint proxy
statement/prospectus by this reference. This section does not describe all of
the provisions of the merger agreement or the distribution agreement, so we urge
you to read those agreements carefully in their entirety.

THE DISTRIBUTION AGREEMENT

SEPARATION OF OFFSHORE CONTRACT DRILLING BUSINESS FROM SCHLUMBERGER

Before Sedco Forex is spun off to Schlumberger's shareholders, it must be
restructured to separate its business, assets and liabilities from
Schlumberger's other business, assets and liabilities. After that separation,
Sedco Forex will own, directly or through subsidiaries, Schlumberger's offshore
contract drilling assets and businesses, other than four jackups and seven
multi-purpose service vessels and related assets in the Middle East, Indonesia
and Lake Maracaibo, Venezuela. At that time, Schlumberger and its remaining
subsidiaries will own substantially all of the Sedco Forex assets that are not
related to the offshore contract drilling business.

The Sedco Forex assets and the Schlumberger assets will, to the extent
reasonably practicable, be separated. Where complete separation is not
reasonably practicable, Sedco Forex and Schlumberger will, subject to
Transocean's consent, enter into appropriate arrangements regarding the use of
shared assets. Additionally, Sedco Forex and Schlumberger will use their best
efforts to amend certain contracts to separate the contractual rights and duties
of Sedco Forex from those of Schlumberger. If an amendment cannot be obtained,
or if an amendment would be ineffective or would adversely affect the rights of
Sedco Forex or Schlumberger under the affected contract, Sedco Forex and
Schlumberger will cooperate in negotiating a mutually agreeable arrangement to
transfer the economic benefit of the contract to the intended party to the
extent possible.

Prior to or in conjunction with the completion of the business separation,
Sedco Forex and Schlumberger will negotiate and execute a reciprocal transition
services agreement anticipated to remain in force for up to two years from the
time that the business separation is complete. Sedco Forex and Schlumberger will
also conclude independent service agreements whereby Sedco Forex will support
certain Schlumberger operations, in some cases for at least three years from the
completion of the merger. Each of these transition services agreements will be
subject to Transocean's consent.

INTERCOMPANY INDEBTEDNESS AND OTHER FINANCING MATTERS

After the end of the month in which Schlumberger notifies Transocean that
it has transferred substantially all of the offshore contract drilling assets to
be transferred to Sedco Forex under the distribution agreement, Schlumberger is
to deliver to Transocean an audited balance sheet as of the end of that month.
As of the date of that pre-closing balance sheet, Sedco Forex will have $435 million in indebtedness, some of which may be intercompany indebtedness. The$435 million of indebtedness is subject to adjustment for changes in working
capital, capital expenditures and other accounts described in the distribution
agreement between the date of the agreement and the date of the pre-closing
balance sheet. Sedco Forex and Schlumberger will, and will cause their
respective subsidiaries to, pay all other intercompany borrowings and payables
before the date of that balance sheet. Sedco Forex is required to pay off any
intercompany indebtedness included in the $435 million of retained indebtedness no later than the close of business on the day after the distribution of the capital stock of Sedco Forex to Schlumberger's shareholders. On the date of the pre-closing balance sheet, Sedco Forex and its subsidiaries, collectively, are required to have a minimum 68 75 of$35 million on hand in cash. See "Summary -- The Companies -- Transocean
Offshore Inc. -- Recent Developments."

OPERATIONS OF SEDCO FOREX AFTER THE PRE-CLOSING BALANCE SHEET DATE

Except as otherwise provided for in the merger agreement, the distribution
agreement or other agreements executed as part of the transaction, after the
date of the pre-closing balance sheet, Sedco Forex will be prohibited from doing
any of the following:

- paying dividends or distributing any cash or cash equivalents to
Schlumberger and its subsidiaries that will not be subsidiaries of Sedco
Forex after the spin-off;

- incurring any indebtedness outside the ordinary course of business; and

- engaging in any transaction with Schlumberger and its subsidiaries that
will not be subsidiaries of Sedco Forex after the spin-off except on an
arm's-length basis on terms no less favorable than Sedco Forex could
obtain from a third party.

RESTRUCTURING LIABILITIES

Generally, Sedco Forex will be responsible for all liabilities associated
with the assets and businesses it will hold when it is distributed to
Schlumberger's shareholders, whether those liabilities arose before or arise
after the spin-off date. Generally, Schlumberger will be responsible for all
liabilities associated with the assets and businesses it will retain following
the spin-off, whether arising before or after the spin-off date. Schlumberger
will also be responsible for any liabilities directly arising out of or directly
resulting from the transactions that are necessary to separate the Sedco Forex
assets and liabilities, except to the extent those liabilities would have
directly arisen out of or directly resulted from the merger. In general,
Schlumberger will be liable for taxes arising from the separation and spin-off,
except for taxes that are first asserted by the local taxing authorities more
than eight years after the spin-off or, in the case of customs duties, more than
six years after the spin-off.

INTERCOMPANY AGREEMENTS

All existing intercompany agreements between Schlumberger and its
subsidiaries that will not be subsidiaries of Sedco Forex after the spin-off, on
the one hand, and Sedco Forex and its subsidiaries, on the other, will be
terminated prior to the spin-off, except for those provided for in the
distribution agreement. Sedco Forex and Schlumberger agreed not to solicit any
active employees of the other for a period of two years after the date of the
spin-off without the prior consent of the other party. Sedco Forex and
Schlumberger also agreed to discontinue the use of any existing materials
referencing the other party no later than six months after the date of the
spin-off.

Prior to the date of the pre-closing balance sheet, Sedco Forex will seek
to terminate all obligations of Schlumberger or its subsidiaries, as guarantor,
original tenant or primary obligor for Sedco Forex liabilities and any liens or
encumbrances on the assets of Schlumberger or its subsidiaries related to the
Sedco Forex liabilities. Likewise, prior to the date of the pre-closing balance
sheet, Schlumberger will seek to terminate all obligations of Sedco Forex as
guarantor, original tenant or primary obligor for the liabilities of
Schlumberger or its subsidiaries and any liens or encumbrances on the assets of
Sedco Forex related to the liabilities of Schlumberger or its subsidiaries.

THE SPIN-OFF

After the separation of Sedco Forex from Schlumberger, Schlumberger will
distribute all outstanding Sedco Forex shares to Schlumberger's shareholders.
Each Schlumberger shareholder will receive one Sedco Forex share for each share
of Schlumberger common stock owned and will continue to own the same number of
shares of Schlumberger common stock. No Sedco Forex shares will be issued with
respect to shares of Schlumberger common stock held by Schlumberger in treasury.
The spin-off is generally subject to the same conditions as the merger and will
not be effected until the other conditions to the merger are fulfilled or
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waived. See "-- Conditions to the Spin-Off and the Merger." If the parties
terminate the merger agreement, the board of directors of Schlumberger may
abandon the spin-off and terminate the distribution agreement.

THE MERGER AGREEMENT

On a day after the spin-off, Merger Sub, which is a wholly owned subsidiary
of Transocean organized under the laws of the British Virgin Islands, will merge
into Sedco Forex with Sedco Forex surviving as a wholly owned subsidiary of
Transocean. The closing of the merger will take place promptly after all of the
conditions to the merger described in "-- Conditions to the Spin-off and the
Merger" are fulfilled or waived. The merger will be effective at the time
Transocean and Schlumberger specify in the articles of merger they will file in
the British Virgin Islands.

In the merger, shareholders of Schlumberger who receive shares of Sedco
Forex in the spin-off will receive, for each Sedco Forex share held, a number of
Transocean ordinary shares equal to fifty-two forty-eighths times the number of
diluted Transocean ordinary shares, divided by the number of diluted Sedco Forex
shares, in each case as calculated immediately prior to the effectiveness of the
merger. The number of diluted Transocean ordinary shares will be calculated
according to the treasury method under U.S. generally accepted accounting
principles and includes all shares issued at that time and a portion of the
shares issuable pursuant to outstanding options to purchase Transocean ordinary
shares and unvested restricted shares. The number of diluted Sedco Forex shares
will be calculated on the same basis using the treasury method. All nonvested
options to acquire shares of Schlumberger common stock held by Sedco Forex
employees at the spin-off date will be treated as fully vested options to
acquire shares of Sedco Forex common stock. The parties expect there will be
approximately 101 million diluted Transocean ordinary shares and approximately
565 million diluted Sedco Forex shares at the time of the merger. Based on those
estimates, each Sedco Forex share would be converted into approximately 0.194 of
a Transocean ordinary share.

If Transocean changes the number of its ordinary shares or Sedco Forex
changes the number of its shares that are issued and outstanding, in either case
as a result of a stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, before the effectiveness of the
merger and other than as provided for in the distribution agreement, Transocean
and Schlumberger will adjust the exchange ratio appropriately.

COVENANTS

Interim Operations

Transocean and Sedco Forex agreed to take or refrain from taking the
actions described below from the date of the merger agreement, July 12, 1999,
until the merger is completed or the merger agreement is terminated. Compliance
with these covenants may be modified to allow the transactions contemplated by
the merger agreement, the distribution agreement or any of the other agreements
executed in connection with the spin-off and the merger or by the written
consent of Schlumberger and Transocean. Each of Transocean and Sedco Forex will:

- conduct its operations in the usual, regular and ordinary course in
substantially the same manner as previously conducted;

- use its commercially reasonable best efforts to:

- preserve its business organizations and goodwill;

- keep available the services of its officers and employees; and

- not amend its charter documents;

- promptly notify the other party of any material change in its condition
or business or any material litigation or material governmental
complaints, investigations or hearings, or the material breach of any of
the representations and warranties of the merger agreement;

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- promptly deliver to the other party any SEC filings it makes;

- not issue any shares of its capital stock, effect any stock split or
otherwise change its capitalization, except upon exercise of options,
warrants and other rights that exist on the date of the merger agreement
or that the merger agreement permits to be issued;

- not grant any new options, warrants or other rights not existing on the
date of the merger agreement to acquire shares of its capital stock,
except for automatic grants to nonemployee directors under existing
plans, certain grants to new employees and other specified option grants;

- not increase any compensation or benefits or enter into or amend any
employment agreement with any officer or director, except as consistent
with past practice;

- not adopt any new employee benefit plan or materially amend any existing
employee benefit plan in any material respect;

- not declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock and not redeem,
purchase or otherwise acquire any shares of its capital stock, except:

- Transocean may declare and pay regular, quarterly dividends, consistent
with past practice, not to exceed $0.03 per ordinary share per quarter; - Transocean may make transfers between its subsidiaries in the ordinary course of business; and - before the date of the Sedco Forex pre-closing financial statements called for under the distribution agreement, Sedco Forex and its subsidiaries may distribute cash to their parent entities; - not sell, lease or otherwise dispose of any material assets, except in the ordinary course of business; - not acquire or agree to acquire any material business, entity, assets or securities for an aggregate consideration in excess of$10 million or
where a filing under the U.S. Hart-Scott-Rodino Antitrust Improvements
Act of 1976 or any non-U.S. competition, antitrust or premerger

- not change any accounting principle or practice except as required by a
change in law or generally accepted accounting principles;

- maintain insurance in such amounts and against such risks and losses as
is customary for it;

- not make or rescind any material tax election;

- not settle or compromise any material tax claim or controversy;

- not materially change its methods of reporting income or deductions for
tax purposes;

- except for (1) general corporate purposes, (2) refinancings of existing
debt, including, in the case of Transocean, the lease securitization
facility incurred to finance the Discoverer Enterprise and Transocean
Amirante capital projects through bank financing, public debt financing
or under Transocean's existing shelf registration statement or otherwise,
(3) financing previously disclosed projects and (4) other immaterial
borrowings, not:

- incur or guarantee any indebtedness for borrowed money;

- issue or sell any debt securities, warrants or rights to acquire any
debt securities, or guarantee any debt securities of others;

- enter into any material lease or create any material encumbrance on any
of its property in connection with any indebtedness, except in the

- not make capital expenditures in excess of $10 million over its previously disclosed capital expenditure forecast, except, in the case of Transocean, (1) in connection with the Discoverer Enterprise, Discoverer Spirit and Discoverer Deep Seas construction projects, (2) capital expendi- 71 78 tures reimbursed or included in dayrates under drilling contracts and (3) capital expenditures deemed necessary by Transocean's management to secure drilling contracts; - diligently carry out the covenants and agreements set forth in the distribution agreement; - not purchase any Transocean ordinary shares, Schlumberger common stock or Sedco Forex common stock; - not take any action likely to delay materially or adversely affect the ability of any of the parties to obtain required consents, authorizations, orders or approvals of governmental or other regulatory authorities; - not agree to take any action inconsistent with the foregoing; - not terminate, amend, modify or waive any provision of any confidentiality or standstill agreement to which it is a party; and - enforce, to the fullest extent permitted under applicable law, the provisions of any confidentiality or standstill agreement, including obtaining injunctions to prevent any breaches of such agreements and enforcing specifically the terms and provisions of such agreements. Additional Agreements Pursuant to the merger agreement, Schlumberger, Sedco Forex and Transocean also agreed that: - Transocean will call a meeting of its shareholders as promptly as practicable to consider and vote upon: - increasing its authorized ordinary share capital to an amount sufficient to complete the merger and the related transactions; - issuing Transocean ordinary shares pursuant to the merger; and - changing its name to "Transocean Sedco Forex Inc."; - Schlumberger will call a meeting of its shareholders as promptly as practicable to consider and vote upon the spin-off; - the parties will provide to each other access to their respective properties, records, files and other information as the other parties may reasonably request; - the parties will consult with one another and mutually agree upon any press releases and other announcements regarding the merger; - Transocean will prepare and submit to the New York Stock Exchange a listing application covering the Transocean ordinary shares issuable in the merger and will use its best efforts to obtain, prior to the effective time, the NYSE's approval for the listing of those shares; - Sedco Forex will provide Transocean a list of persons who may be its Rule 145 affiliates, and Sedco Forex will use its best efforts to obtain from each Rule 145 affiliate an undertaking not to transfer Transocean ordinary shares issued to such person pursuant to the merger except (1) pursuant to an effective registration statement, (2) in compliance with Rule 145 or (3) pursuant to an exemption from the registration requirements under the Securities Act; - Transocean and Transocean Sedco Forex will indemnify the officers and directors of Sedco Forex and its subsidiaries and divisions, and will maintain directors' and officers' liability insurance, provided such insurance is reasonably available, for those officers and directors covered by any existing Sedco Forex officers' and directors' insurance, for six years after the effective time of the merger; - Transocean will provide at least ten days' prior written notice to Schlumberger if Transocean proposes to transfer any of its material assets or capital stock or that of its subsidiaries to any other subsidiary of Transocean or to Transocean; 72 79 - the parties will use all commercially reasonable efforts to establish a nonexclusive strategic alliance on commercially agreed terms to address integrated services opportunities; - Sedco Forex will use all commercially reasonable best efforts to renegotiate a drilling contract for one of its semisubmersibles under construction to remove the termination provisions for late delivery; - the parties will promptly make their respective filings and make any other required submissions under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976 and any applicable non-U.S. competition, antitrust or premerger notification laws with respect to the merger; - the parties will use their reasonable best efforts to cooperate with one another in: - determining which filings the parties must make before the effective time with, and which consents, approvals, permits or authorizations the parties must obtain before the effective time from, governmental or regulatory authorities of the United States and other jurisdictions in connection with the merger and the related transactions; and - making all such filings and seeking all such consents, approvals, permits or authorizations in a timely manner; - the parties will furnish each other with such necessary information and reasonable assistance that the other parties reasonably request in connection with their preparation of necessary filings, registrations or submissions of information to any governmental or regulatory authorities; - the parties will use their best efforts to avoid the entry of, or to have vacated or terminated, any decree, order or judgment that would restrain, prevent or delay the closing; and - the parties will use their best efforts to take any and all steps necessary to obtain any consents or eliminate any impediments to the merger. However, no party is required to dispose of any material amount of assets to obtain any consents, approvals, permits or authorizations or to remove any impediments to the merger. No Solicitation Sedco Forex and Schlumberger will not permit any of their officers, directors, employees, agents or representatives, directly or indirectly, to solicit, initiate or encourage any inquiry, proposal or offer to merge, consolidate, purchase or otherwise acquire: - 15% or more of the consolidated assets of Sedco Forex; - 15% or more of any class of capital stock of Sedco Forex; - any subsidiary of Schlumberger that holds 15% or more of the assets of Sedco Forex; or - capital stock of Schlumberger, if the transaction is conditioned on termination of the merger agreement. Any such proposal, offer or transaction may be referred to in this joint proxy statement/prospectus as a "Sedco Forex acquisition proposal." Sedco Forex and Schlumberger agreed not to cooperate with or engage in any discussions or negotiations concerning a Sedco Forex acquisition proposal. Sedco Forex and Schlumberger agreed to cease immediately any existing negotiations with any parties with respect to any of the foregoing. However, nothing contained in the merger agreement prevents Sedco Forex or Schlumberger from: - complying with Rule 14e-2 promulgated under the Exchange Act with regard to a Sedco Forex acquisition proposal; or 73 80 - before Schlumberger's shareholders approve the spin-off, providing information to or engaging in any negotiations with any person who has made an unsolicited bona fide Sedco Forex acquisition proposal with respect to all the outstanding Sedco Forex common stock or all or substantially all the assets of Sedco Forex or other unsolicited bona fide Sedco Forex acquisition proposal that, in the good faith judgment of a committee composed solely of outside directors of Schlumberger, taking into account the likelihood of financing and consummation, and based on the written advice of a financial adviser of recognized national reputation, is superior to the merger, if that committee, after consultation with its outside legal counsel, determines that the failure to do so would be inconsistent with its fiduciary obligations. Any information so provided is required to be provided pursuant to a confidentiality agreement at least as favorable to Sedco Forex and Schlumberger as the confidentiality agreement entered into with Transocean in connection with the merger. If Sedco Forex or Schlumberger intends to participate in any discussions or negotiations or to provide any information to any third party, Sedco Forex or Schlumberger is required to give prompt prior written notice to Transocean of each such action. Sedco Forex or Schlumberger is required to notify Transocean immediately in writing of any requests for information or the receipt of any Sedco Forex acquisition proposal, including the identity of the person or group (1) engaging in such discussions or negotiations, (2) requesting such information or (3) making such Sedco Forex acquisition proposal, and the material terms and conditions of any Sedco Forex acquisition proposal. Sedco Forex or Schlumberger is required to keep Transocean fully informed on a timely basis of the status and details, including any amendments or proposed amendments, of any such requests, Sedco Forex acquisition proposals or inquiries. Transocean will not permit any of its officers, directors, employees, agents or representatives, directly or indirectly, to solicit, initiate or encourage any inquiry, proposal or offer to merge, consolidate, purchase or otherwise acquire 15% or more of its consolidated assets or 15% or more of any class of its share capital. Any such proposal, offer or transaction may be referred to in this joint proxy statement/prospectus as a "Transocean acquisition proposal." Transocean agreed not to cooperate with or engage in any discussions or negotiations concerning a Transocean acquisition proposal. Transocean agreed to cease immediately any existing negotiations with any parties with respect to any of the foregoing. However, nothing contained in the merger agreement prevents Transocean from: - complying with Rule 14e-2 promulgated under the Exchange Act with regard to a Transocean acquisition proposal; or - before Transocean obtains the shareholder votes required in connection with the merger, providing information to or engaging in any negotiations with any person who has made an unsolicited bona fide Transocean acquisition proposal with respect to all the outstanding Transocean ordinary shares or all or substantially all the assets of Transocean that, in the good faith judgment of a committee composed solely of the outside directors of Transocean, taking into account the likelihood of financing and consummation, and based on the written advice of a financial advisor of recognized national reputation, is superior to the merger, if that committee, after consultation with its outside legal counsel, determines that the failure to do so would be inconsistent with its fiduciary obligations. Any information so provided is required to be provided pursuant to a confidentiality agreement at least as favorable to Transocean as the confidentiality agreement entered into with Schlumberger in connection with the merger. If Transocean intends to participate in any discussions or negotiations or provide any information to any third party, Transocean is required to give prompt prior written notice to Sedco Forex and Schlumberger of each such action. Transocean is required to notify Sedco Forex and Schlumberger immediately in writing of any requests for information or the receipt of any Transocean acquisition proposal, including the identity of the person or group (1) engaging in such discussions or negotiations, (2) requesting such information or (3) making such Transocean acquisition proposal, and the material terms and conditions of any Transocean acquisition proposal. Transocean is required to keep Sedco Forex and Schlumberger fully informed on a timely 74 81 basis of the status and details, including any amendments or proposed amendments, of any such requests, Transocean acquisition proposals or inquiries. REPRESENTATIONS AND WARRANTIES Schlumberger and Sedco Forex, on the one hand, and Transocean and Merger Sub, on the other hand, make various representations and warranties in the merger agreement which, in the cases of Sedco Forex and Transocean, are substantially reciprocal. Those representations and warranties include: - their organization, good standing and foreign qualification; - the authorization, execution, delivery and enforceability of the merger agreement, the distribution agreement and related matters; - capitalization; - compliance with laws and possession of permits; - whether each party's execution and delivery of the merger agreement and distribution agreement or consummation of the transactions contemplated thereby causes any conflict with charter documents, a default under any material agreements or a violation of any applicable law; - the documents and reports Transocean has filed with the SEC, the financial statements of Sedco Forex and the accuracy of the information contained in those reports and financial statements; - litigation; - whether certain events, changes or effects have occurred; - taxes; - retirement and other employee plans and matters relating to the Employee Retirement Income Security Act of 1974; - labor matters; - environmental matters; - intellectual property matters; - Year 2000 readiness matters; - maintenance of insurance; - brokerage and similar fees; - receipt of fairness opinions from financial advisors; - beneficial ownership of another party's common stock; - qualification of the merger as a reorganization for federal income tax purposes; - the shareholder votes required in connection with the merger agreement; - Transocean's and Sedco Forex's ownership of their respective drilling rigs and drillships; - liabilities not disclosed in the materials related to the merger; - non-compete agreements and material contracts; - capital expenditure programs; - material court orders; and - improper payments. 75 82 None of these representations and warranties survives the effectiveness of the merger. CONDITIONS TO THE SPIN-OFF AND THE MERGER Conditions to Each Party's Obligations Schlumberger, Sedco Forex, Transocean and Merger Sub will be obligated to effect the merger only if the following conditions are satisfied or waived at or before the closing date. Shareholder Approval Transocean shall have received the necessary shareholder approvals to: - increase its authorized ordinary share capital in an amount sufficient to complete the merger and the related transactions; and - issue Transocean ordinary shares pursuant to the merger. Schlumberger shall have received the necessary shareholder approval to approve the spin-off. Antitrust Waiting Periods Any mandatory waiting period under any applicable non-U.S. competition, antitrust or premerger notification law or regulation, where the failure to observe such waiting period would have a material adverse effect on Sedco Forex or Transocean, shall have expired or been terminated without intervention by a reviewing agency and without the commencement of proceedings in any court of competent jurisdiction challenging all or part of the merger, which intervention or commencement of proceedings would have a material adverse effect on Transocean or Sedco Forex. The parties received notice of early termination of the required waiting period under the U.S. Hart-Scott-Rodino Act on August 16, 1999. The parties also received clearance from the U.K. competition/antitrust authorities on October 14, 1999. No Injunctions or Restraints None of the parties to the merger agreement shall be subject to any decree, order or injunction of a court of competent jurisdiction that prohibits the merger. No governmental authority shall have enacted any statute, rule or regulation that prohibits or makes unlawful the merger. Registration Statement The SEC shall have declared the registration statement, of which this joint proxy statement/prospectus forms a part, to be effective, and no stop order concerning the registration statement shall be in effect. NYSE Listing The New York Stock Exchange shall have authorized for listing the Transocean ordinary shares to be issued pursuant to the merger. Spin-off The spin-off shall have been completed in accordance with the distribution agreement on a day preceding the closing date of the merger. Sedco Forex Pre-Closing Financial Statements Sedco Forex shall have delivered the pre-closing financial statements as defined in the distribution agreement. 76 83 Title to Sedco Forex Assets Sedco Forex or its subsidiaries shall have good and valid title to substantially all of the Sedco Forex assets, unconditionally and of record, subject to any permitted liens. Governmental Claims There shall not be pending or threatened in writing any governmental claim, proceeding or action seeking to restrain or prohibit the transactions contemplated by the merger agreement or any other agreement executed in connection with the merger or the spin-off. Transaction Agreements Schlumberger, Sedco Forex, Transocean and Merger Sub shall have executed and delivered all agreements contemplated by the merger agreement and the distribution agreement on or before the spin-off date or the closing date, as applicable. Additional Conditions to Obligations of Schlumberger and Sedco Forex to Effect the Merger Schlumberger and Sedco Forex are not obligated to effect the merger unless the following additional conditions are satisfied or waived at or before the closing date. Covenants, Representations and Warranties Transocean and Merger Sub shall have performed in all material respects the covenants and agreements that the merger agreement requires them to perform on or before the closing date. The representations and warranties of Transocean and Merger Sub contained in the merger agreement and in any document delivered in connection with the merger agreement shall be true and correct in all material respects as of the date of the merger agreement and as of the closing date. Representations and warranties made as of a specified date need only be true and correct in all material respects as of the specified date. Sedco Forex is entitled to receive a certificate of Transocean and Merger Sub, executed by a respective President or Vice President, certifying that Transocean's and Merger Sub's representations and warranties are true and correct. Tax Opinion Baker & Botts, L.L.P., counsel to Schlumberger and Sedco Forex, shall have delivered to Schlumberger and Sedco Forex an opinion, in form and substance reasonably satisfactory to Schlumberger and Sedco Forex, dated the closing date, stating that, for U.S. federal income tax purposes: - the spin-off should qualify as a distribution described in Section 355 of the U.S. Internal Revenue Code; and - the merger should qualify as a reorganization under Section 368(a)(1)(B) of the U.S. Internal Revenue Code. No Material Adverse Effect At any time after the date of the merger agreement, no event or occurrence shall have transpired that has had or is likely to have a material adverse effect on Transocean. For purposes of the merger agreement, "material adverse effect" means a material adverse effect or change in: - the business, operations, financial condition or prospects of a party and its subsidiaries on a consolidated basis, except for such changes or effects in general economic, capital market, regulatory or political conditions or changes that affect generally the offshore drilling services industry; or - the ability of the party to consummate the transactions contemplated by the merger agreement or to fulfill the conditions to closing. 77 84 Additional Conditions to Obligations of Transocean and Merger Sub to Effect the Merger Transocean and Merger Sub are not obligated to effect the merger unless the following additional conditions are satisfied or waived at or before the closing date. Covenants, Representations and Warranties Schlumberger and Sedco Forex shall have performed in all material respects the covenants and agreements that the merger agreement requires them to perform on or before the closing date. The representations and warranties of Schlumberger and Sedco Forex contained in the merger agreement and in any document delivered in connection with the merger agreement shall be true and correct in all material respects as of the date of the merger agreement and as of the closing date. Representations and warranties made as of a specified date need only be true and correct in all material respects as of the specified date. Transocean is entitled to receive a certificate of Sedco Forex and Schlumberger, executed by a respective President or Vice President, certifying that Sedco Forex's and Schlumberger's representations and warranties are true and correct. Tax Opinion Weil, Gotshal & Manges LLP, counsel to Transocean, shall have delivered to Transocean an opinion, in form and substance reasonably satisfactory to Transocean, dated the closing date, stating that, for U.S. federal income tax purposes, the merger should qualify as a reorganization under Section 368(a)(1)(B) of the U.S. Internal Revenue Code. No Material Adverse Effect At any time after the date of the merger agreement, no event or occurrence shall have occurred that has had or is likely to have a material adverse effect on Sedco Forex. Rule 145 Affiliate Agreements Transocean shall have received a written agreement from each person who is an "affiliate" of Sedco Forex, as defined under Rule 145 of the Securities Act, that such person will not sell, pledge, transfer or otherwise dispose of any Transocean ordinary shares received in the merger except pursuant to an effective registration statement or in compliance with Rule 145 or an exemption from the registration requirements of the Securities Act. TERMINATION OF THE MERGER AGREEMENT Schlumberger, Sedco Forex and Transocean may terminate the merger agreement by mutual written consent. Schlumberger, Sedco Forex or Transocean may terminate the merger agreement if: - The parties have not consummated the merger by April 30, 2000, and the party desiring to terminate the merger agreement for this reason has not failed to perform or observe in any material respect any of its obligations under the merger agreement in any manner that caused the merger not to occur on or before that date. - At a meeting of the shareholders of Schlumberger, those shareholders do not approve the spin-off. - At a meeting of the shareholders of Transocean, those shareholders do not approve the required increase in Transocean's authorized ordinary share capital and the issuance of ordinary shares in the merger. - A U.S. federal or state court of competent jurisdiction or federal or state or non-U.S. governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken 78 85 any other action permanently restraining, enjoining or otherwise prohibiting the merger, and such order, decree, ruling or other action shall have become final and unappealable. Sedco Forex or Schlumberger may terminate the merger agreement if: - Sedco Forex or Schlumberger concurrently enters into a binding written agreement concerning a transaction that constitutes a superior proposal for Sedco Forex after the board of directors of Sedco Forex or Schlumberger: - determines that proceeding with the merger would be inconsistent with its fiduciary obligations by reason of the superior proposal; and - elects to terminate the merger agreement effective before Schlumberger's shareholders have approved the spin-off. However, Sedco Forex or Schlumberger may not effect that termination: - unless and until Transocean receives at least one week's prior written notice from Sedco Forex of its intention to effect that termination; and - during that week, Schlumberger and Sedco Forex consider, and cause their respective financial and legal advisors to consider, any adjustment in the terms and conditions of the merger agreement that Transocean may propose. Any such termination of the merger agreement will not be effective until Schlumberger has paid to Transocean the$100 million termination fee
described under "-- Expenses and Termination Fees."

- Transocean or Merger Sub has materially breached any representation,
warranty, covenant or agreement set forth in the merger agreement, or any
representation or warranty of Transocean or Merger Sub shall have become
materially untrue, in either case such that a condition to the merger
would not be met, and such breach is not curable or, if curable, is not
cured within 30 days after Sedco Forex gives written notice of the breach
to Transocean, and Sedco Forex is not, at that time, in material breach
of any representation, warranty, covenant or agreement set forth in the
merger agreement.

- the board of directors of Transocean shall have withdrawn or materially
modified, in a manner adverse to Sedco Forex, its approval or
recommendation of the merger or recommended a competing acquisition
proposal for Transocean, or resolved to do so.

- Schlumberger provides a timely objection notice to Transocean pursuant to
the merger agreement concerning a Transocean structuring plan and, after
receipt of such objection notice, Transocean transfers any asset or
capital stock as provided in such structuring plan, and Schlumberger
reasonably believes that implementation of the structuring plan creates
significant risks of causing a Transocean material adverse effect.

A "Transocean structuring plan" refers to a proposal by Transocean to
transfer any of its material assets or capital stock or that of its
subsidiaries to any other subsidiary of Transocean or to Transocean.

Transocean may terminate the merger agreement if:

- Transocean concurrently enters into a binding written agreement
concerning a transaction that constitutes a superior proposal for
Transocean after its board of directors:

- determines that proceeding with the merger would be inconsistent with
its fiduciary obligations by reason of the superior proposal; and

- elects to terminate the merger agreement effective before Transocean's
shareholders have approved the increase in its authorized ordinary share
capital and issuance of its ordinary shares necessary in each case to
complete the merger.

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86

However, Transocean may not effect that termination:

- unless and until Sedco Forex receives at least one week's prior written
notice from Transocean of its intention to effect that termination; and

- during that week, Transocean considers, and causes its financial and
of the merger agreement that Sedco Forex may propose.

Any such termination of the merger agreement will not be effective until
Transocean has paid to Schlumberger the $100 million termination fee described under "-- Expenses and Termination Fees." - Sedco Forex or Schlumberger has materially breached any representation, warranty, covenant or agreement set forth in the merger agreement, or any representation or warranty of Sedco Forex or Schlumberger shall have become materially untrue, in either case such that a condition to the merger would not be met, and such breach is not curable or, if curable, is not cured within 30 days after Transocean gives written notice of the breach to Sedco Forex or Schlumberger, and Transocean is not, at that time, in material breach of any representation, warranty, covenant or agreement set forth in the merger agreement. - the board of directors of Schlumberger shall have withdrawn or materially modified, in a manner adverse to Transocean, its approval or recommendation of the spin-off or recommended a competing acquisition proposal for Sedco Forex, or resolved to do so. No party may terminate the merger agreement after the effectiveness of the merger. EXPENSES AND TERMINATION FEES Whether or not the merger is consummated, all costs and expenses incurred in connection with the merger agreement, the distribution agreement and the transactions contemplated by those agreements will be paid by the party incurring those expenses, except as expressly provided in those agreements. Transocean will bear no portion of any expenses incurred by Schlumberger or Sedco Forex in connection with the separation of Sedco Forex from the rest of Schlumberger's business or incurred by Schlumberger or Sedco Forex in connection with the spin-off. However, Transocean and Schlumberger will split evenly SEC filing fees, printing expenses and some regulatory fees paid by the parties in connection with the merger. Schlumberger is required to pay Transocean a cash termination fee of$100
million at the time of the termination if the merger agreement is terminated as
follows:

- by Schlumberger or Sedco Forex because the board of directors of
Schlumberger or Sedco Forex determines that proceeding with the merger
would be inconsistent with its fiduciary duties and concurrently enters
into a binding agreement concerning a transaction that constitutes a
superior proposal for Sedco Forex, or for Schlumberger where the proposal
is conditioned on termination of the merger agreement;

- by Schlumberger, Sedco Forex or Transocean because Schlumberger's
shareholders do not approve the spin-off after the public announcement of
a competing acquisition proposal for Sedco Forex; or

- by Transocean because the board of directors of Schlumberger has
withdrawn or materially modified its approval or recommendation of the
spin-off or recommended a competing acquisition proposal for Sedco Forex
after the public announcement of that competing proposal or receipt by
Schlumberger's or Sedco Forex's board of directors of a competing
acquisition proposal for Sedco Forex, whether or not that proposal is
still pending or has been consummated.

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87

Transocean is required to pay Schlumberger a cash termination fee of $100 million at the time of the termination if the merger agreement is terminated as follows: - by Transocean because the board of directors of Transocean determines that proceeding with the merger would be inconsistent with its fiduciary duties and concurrently enters into a binding agreement concerning a transaction that constitutes a superior proposal for Transocean; - by Schlumberger, Sedco Forex or Transocean because Transocean's shareholders do not approve the proposed increase in Transocean's authorized ordinary share capital or the issuance of its ordinary shares in the merger after the public announcement of a competing acquisition proposal for Transocean; or - by Schlumberger or Sedco Forex because the board of directors of Transocean has withdrawn or materially modified its approval or recommendation of the proposals for Transocean's shareholders, passage of which is necessary to complete the merger, or recommended a competing acquisition proposal for Transocean after the public announcement of that competing proposal or receipt by Transocean's board of directors of a competing acquisition proposal for Transocean, whether or not that proposal is still pending or has been consummated. If the merger agreement is terminated because the shareholders of Schlumberger do not approve the spin-off and there was no public announcement of a competing acquisition proposal for Sedco Forex before the shareholders' vote, then Schlumberger is required to pay Transocean a fee of$10 million to
reimburse it for its costs and expenses incurred in connection with the merger
and related transactions.

If the merger agreement is terminated because the shareholders of
Transocean do not approve the proposed increase in Transocean's authorized
ordinary share capital or the issuance of the ordinary shares in the merger and
there was no public announcement of a competing acquisition proposal for
Transocean before the shareholders' vote, then Transocean is required to pay
Schlumberger a fee of $10 million to reimburse it for its costs and expenses incurred in connection with the merger and related transactions. AMENDMENT The parties may amend the merger agreement, by action taken or authorized by their boards of directors, at any time before or after approval by the shareholders of the parties of the matters presented in connection with the merger. After any shareholder approval, the parties may not amend the merger agreement if the law requires further approval by those shareholders, unless such further approval is obtained. Schlumberger and Sedco Forex may amend the distribution agreement, by action taken or authorized by their boards of directors, at any time before or after approval by Schlumberger's shareholders, but any amendment must be consented to by Transocean in writing. EMPLOYEE MATTERS AGREEMENT Before the date on which Schlumberger distributes the capital stock of Sedco Forex to Schlumberger's shareholders, Schlumberger and Sedco Forex will enter into a definitive employee matters agreement concerning personnel and employee benefit matters that will incorporate the basic terms and conditions set forth below. Schlumberger and Sedco Forex agreed to amend, modify and/or terminate, as necessary, the various employee benefit plans, arrangements, policies and practices of the parties, or to create new employee benefit plans, arrangements, policies and practices, to transition successfully the Sedco Forex employees from Schlumberger to Sedco Forex and to accomplish the transactions contemplated in the merger agreement and distribution agreement. 81 88 TRANSFER OF EMPLOYEES; BENEFIT MAINTENANCE PERIOD Not later than the spin-off date, Schlumberger will transfer to Sedco Forex or its subsidiaries all persons who are active employees of Sedco Forex, each person who is on an approved leave of absence from Sedco Forex and each person who is on short-term disability from Sedco Forex. Persons who are on an approved leave of absence or on short-term disability will be transferred only if such persons return to the active employment of Sedco Forex. Sedco Forex will transfer to Schlumberger or its subsidiaries, other than Sedco Forex or a Sedco Forex subsidiary, all employees of Schlumberger and its subsidiaries other than Sedco Forex employees described in the first sentence of this paragraph. For a period of one year after the spin-off date, but not later than December 31, 2000, Transocean Sedco Forex generally will maintain, for Sedco Forex employees, benefits and benefit arrangements that, in the aggregate, are substantially comparable to the benefits and benefit arrangements provided by Schlumberger and its subsidiaries to Sedco Forex employees as of the date of the distribution agreement. ALLOCATION OF LIABILITIES Under the terms of the distribution agreement, generally Schlumberger will retain the following employee-related liabilities: - all employment and benefit-related liabilities of Schlumberger employees and former employees, including former Sedco Forex employees, whether incurred before or after the spin-off date, including any liabilities under any benefit and compensation plans, employment and benefit arrangements maintained by Schlumberger or any Schlumberger subsidiary; - all benefit-related liabilities concerning Sedco Forex employees, including former Sedco Forex employees, under all employment and benefit arrangements maintained by Schlumberger that cover Sedco Forex employees (1) that are funded through employer or employee contributions and (2) as to which Schlumberger maintains a separate trust or other funding vehicle to provide part or all of the benefits pursuant to such plans; - any liabilities for severance or similar benefits of Sedco Forex employees incurred by Schlumberger arising before the spin-off date as a result of the restructuring of Sedco Forex in anticipation of the spin-off; - certain identified severance benefit obligations arising after the date of the spin-off with respect to Sedco Forex employees; and - the accrued pro-rata liability through the spin-off date with respect to Sedco Forex employees under the Schlumberger Incentive Compensation Plan for 1999, and accrued employer contributions through the spin-off date with respect to Sedco Forex Employees for the Schlumberger International Staff Profit-Sharing Plan, the Schlumberger Cash Separation Indemnity Plan and the Schlumberger International Staff Pension Plan. Sedco Forex generally will assume all other employment and benefit-related liabilities of the Sedco Forex employees not specifically allocated to Schlumberger under the employee matters agreement, generally as described above. PARTICIPATION IN SCHLUMBERGER PLANS Effective as of the spin-off date, Sedco Forex will adopt the Schlumberger International Staff Pension Plan as a participating employer for the benefit of all eligible Sedco Forex employees, including those who are participating in the Schlumberger International Staff Pension Plan immediately before the spin-off date. Sedco Forex will maintain its status as a participating employer, including all rights and responsibilities associated with such status through December 31, 2000. Effective as of the spin-off date, Sedco Forex may, at its option, adopt any of the employment and benefit arrangements maintained by Schlumberger that cover Sedco Forex employees as a participating employer for the benefit of all eligible Sedco Forex employees, including those employed after the spin-off date, and may maintain such status as a participating employer, including all rights and responsibilities associated with such status, through December 31, 2000. Sedco Forex will pay the employer contributions or costs for each Sedco Forex employee required under any Schlumberger plan in which Sedco Forex participates. 82 89 STOCK OPTIONS As of the effective time of the spin-off, all nonvested options to purchase Schlumberger common stock held by Sedco Forex employees at such time will terminate by their terms. Upon completion of the merger, the Sedco Forex employees who held these options will be granted fully vested options to acquire Transocean Sedco Forex ordinary shares. The number of Transocean Sedco Forex ordinary shares for which a newly granted option will be exercisable will equal the number of Schlumberger shares subject to the terminated Schlumberger option times a fraction, the numerator of which is the closing price of Schlumberger common stock at the close of trading on the day immediately prior to the spin-off date, determined without regard to the spin-off of Sedco Forex, and the denominator of which is the price of a Transocean ordinary share at the close of trading on the day immediately prior to the spin-off date. The exercise price of each such option will be the price of a Transocean ordinary share at the close of trading on that date times a fraction, the numerator of which is the exercise price under the terminated Schlumberger option and the denominator of which is the price of Schlumberger common stock at the close of trading on the day immediately prior to the spin-off date, determined without regard to the spin-off of Sedco Forex. The formula will likely require Transocean Sedco Forex to grant some of these options with exercise prices below fair market value. Transocean Sedco Forex will grant these options with an exercise price below fair market value at the date of grant to the extent a below market price would be required by application of the exercise price adjustment formula. However, French-based employees of Sedco Forex who are eligible to receive new Transocean Sedco Forex options will be granted options with an exercise price equal to the fair market value of Transocean Sedco Forex ordinary shares at the date of grant, even if the application of the adjustment formula otherwise would result in an exercise price below the market price of Transocean Sedco Forex ordinary shares at that date. To compensate these holders for the resulting diminution in value, Transocean Sedco Forex will grant additional options with a fair market value exercise price, the appropriate number of which will be determined by valuing those options according to the Black-Scholes option pricing models and related assumptions deemed reasonable by Transocean Sedco Forex. The Transocean Sedco Forex options will be granted outside of the Long-Term Incentive Plan, but will be subject to substantially identical terms and conditions. Transocean anticipates that following the merger it will adopt a stand-alone plan pursuant to which these newly granted options will be administered. This plan would be substantially identical to Transocean's existing Long-Term Incentive Plan, except the new plan would permit Transocean Sedco Forex to grant these options with an exercise price below fair market value at the date of grant to the extent a below market price would be required by application of the exercise price adjustment formula set forth in the employee matters agreement. All vested options to purchase Schlumberger common stock held by Sedco Forex employees will remain outstanding as options to purchase Schlumberger common stock for the period following completion of the merger established by Schlumberger's stock option plan, which is generally 90 days after the completion of the merger. Options to acquire Schlumberger common stock that are held by persons other than Sedco Forex employees will remain options to purchase Schlumberger shares. The exercise price and number of shares of Schlumberger common stock purchasable upon exercise under all Schlumberger options outstanding immediately after completion of the merger, including those vested options held by Sedco Forex employees, will be equitably adjusted to reflect the approximate decrease in the value of Schlumberger common stock as a result of the spin-off. Shortly after the transactions are completed, Schlumberger will communicate with affected optionholders regarding how these Schlumberger options will be adjusted. OTHER TRANSITIONAL EMPLOYEE MATTERS Sedco Forex will assume all worker's compensation liability of Sedco Forex employees after the spin-off date. Schlumberger will administer all Sedco Forex employees' worker's compensation claims that arose up to the spin-off date for a period of five years after the spin-off date. However, Sedco Forex will pay all worker's compensation payments that become due after the spin-off date. Schlumberger will provide all administrative or professional services required for the operation of any Sedco Forex plans. Sedco Forex will reimburse Schlumberger for the cost of such services. 83 90 BUSINESS OF SEDCO FOREX The following summary describes Sedco Forex's business as it is expected to be constituted after its separation from Schlumberger and at the time of its spin-off to Schlumberger's shareholders. Sedco Forex is a leading international provider of offshore contract drilling services for oil and gas exploration, development and production. Sedco Forex currently owns, has an ownership interest in or operates 40 mobile offshore drilling rigs. Sedco Forex's fleet consists of three fourth-generation semisubmersibles, twenty second- and third-generation semisubmersibles, one first-generation semisubmersible, two drillships, ten jackup rigs and four tenders. Sedco Forex also has under construction three Sedco Express-class semisubmersibles, the Sedco Express, Cajun Express and Sedco Energy, and one independent-leg cantilevered jackup rig, the Trident 20. In addition, the fleet includes one multi-purpose service jackup rig, six swamp barges and two land drilling rigs. Sedco Forex contracts these drilling rigs, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells. Sedco Forex also provides additional drilling services, including well intervention and management of third-party well service activities. Sedco Forex Holdings Limited is organized as an international business company under the laws of the British Virgin Islands in 1990. Its registered office in the British Virgin Islands is located at Citco B.V.I. Limited, Citco Building, Wickhams Cay, P. O. Box 662, Road Town, Tortola, British Virgin Islands. DRILLING RIG TYPES Sedco Forex principally uses five types of drilling rigs: - semisubmersibles - drillships - jackups - tenders - swamp barges Semisubmersibles are floating vessels that can be submerged such that a substantial portion of the lower hull is below the water surface during drilling operations. They are well suited for operations in rough water conditions. Fourth-generation semisubmersibles are those that were built after the mid-eighties or have been recently upgraded and have larger physical size than other semisubmersibles, harsh environment capability, variable deck load capability of greater than 4,000 metric tons and superior motion characteristics. Fourth-generation semisubmersibles, which are generally rated for drilling in water depths of over 4,000 feet, are often considered the most suitable units for operations in deep water and harsh environments or for development drilling that requires larger variable loads and the ability to handle large pieces of subsea equipment. Sedco Forex is constructing three newbuild semisubmersibles based on Sedco Forex's proprietary Sedco Express design. See "Sedco Forex Management's Discussion and Analysis of Financial Condition and Results of Operations." Drillships are generally self-propelled and designed to drill in the deepest waters in which offshore drilling rigs currently operate. Shaped like conventional ships, they are the most mobile of the major rig types. Sedco Forex's drillships are either dynamically positioned, which allows them to maintain position without anchors through the use of their onboard propulsion and station-keeping systems, or are operated in a moored configuration. Jackup rigs are mobile self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established to support the drilling platform. Once a foundation is established, the drilling platform is then jacked further up the legs so that the platform is above the highest expected waves. The rig hull includes the drilling rig, jacking system, crew quarters, loading and unloading facilities, 84 91 storage areas, helicopter landing deck and related equipment. They are generally suited for water depths of 400 feet or less. Tenders are usually barges or semisubmersibles that are not self-propelled, but can be moored alongside a platform, and contain quarters, mud pits, mud pumps, power generation and other equipment. Tenders allow smaller, less costly platforms to be used for development projects. Self-erecting tenders carry their own derrick equipment set and have a crane capable of erecting it on the platform, thereby eliminating the cost associated with a separate derrick house and related equipment. Tenders are generally suited for water depths of 460 feet or less. Swamp barges are usually not self-propelled, but can be moored alongside a platform, and contain quarters, mud pits, mud pumps, power generation and other equipment. Like tenders, swamp barges allow smaller, less costly platforms to be used for development projects. Swamp barges often carry their own derrick equipment set and crane. Swamp barges are generally suited for water depths of 25 feet or less. Sedco Forex's drilling equipment is suitable for both exploration and development drilling, and Sedco Forex is normally engaged in both types of drilling activity. Sedco Forex's drilling rigs are mobile and can be moved to new locations in response to client demand. All of the Sedco Forex offshore drilling units are designed for operations away from port for extended periods of time and have living quarters for the crews, a helicopter landing deck and storage space for pipe and drilling supplies. FLEET ENHANCEMENTS AND UPGRADES Sedco Forex performed life enhancement and upgrade projects during 1999 for the Trident IV jackup rig and the Sedco 709 semisubmersible. Sedco Forex spent in excess of$75 million on these two projects to increase significantly the
capacity, marketability and dayrates of these two rigs. Both of these rigs are
currently under contract.

DRILLING RIG STATUS

The following table shows information about Sedco Forex's drilling rigs,
including rigs under construction, as of September 30, 1999:

DRILLING
YEAR ENTERED   WATER DEPTH     DEPTH
SERVICE/     CAPABILITY    CAPABILITY                                     ESTIMATED
TYPE AND NAME                     UPGRADED(A)     (IN FEET)    (IN FEET)      LOCATION       CLIENT         EXPIRATION(B)
- -------------                     ------------   -----------   ----------     --------       ------         -------------

SEMISUBMERSIBLES (27)
Actinia.........................         1982       1,500        25,000     Libya         Nimir         October 1999
Cajun Express(c)................     Newbuild       8,500        25,000     Shipyard      Marathon      March 2003
(Singapore)
Drillstar(d)....................         1982       1,500        25,000     U.K.          --            Idle
FPS Bill Shoemaker(e)...........    1976/1991       1,500        25,000     Canada        Husky Oil     October 1999
Omega(e)........................         1983       3,000        25,000     South Africa  Soekor        December 1999
Sedco 135D......................    1966/1977         600        25,000     Brazil        (f)           Idle (f)
Sedco 600.......................    1983/1994       1,500        25,000     Singapore     --            Idle
Sedco 601.......................         1983       1,500        25,000     Indonesia     Unocal        April 2000
Sedco 602.......................         1983       1,500        25,000     Indonesia     --            Idle
Sedco 700.......................    1973/1997       3,600        25,000     Turkey/       Arco/Hunt     October 1999/ February
Ghana                       2000
Sedneth 701.....................    1972/1993       1,500        25,000     Congo         Elf           April 2000
Sedco 702.......................    1973/1992       1,500        25,000     Australia     Globex (g)    October 1999 (g)
Sedco 703.......................    1973/1995       1,500        25,000     Australia     (h)           Idle (h)
Sedco 704.......................    1974/1993       1,000        25,000     U.K.          Shell         September 1999
Sedco 706.......................    1976/1994       1,000        25,000     U.K.          Total         June 2000
Sedco 707.......................    1976/1997       6,500        25,000     Brazil        Petrobras     January 2002
Sedco 708.......................         1976       1,500        25,000     Angola        Chevron       April 2000
Sedco 709.......................    1977/1999       5,000        25,000     Nigeria       Shell         April 2002
Sedco 710.......................         1983       6,000        25,000     Brazil        Petrobras     January 2000
Sedco 711.......................         1982       1,800        25,000     Ireland       Enterprise    January 2000

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DRILLING
YEAR ENTERED   WATER DEPTH     DEPTH
SERVICE/     CAPABILITY    CAPABILITY                                     ESTIMATED
TYPE AND NAME                     UPGRADED(A)     (IN FEET)    (IN FEET)      LOCATION       CLIENT         EXPIRATION(B)
- -------------                     ------------   -----------   ----------     --------       ------         -------------

Sedco 712.......................         1983       1,600        25,000     U.K.          Shell         December 1999
Sedco 714.......................    1983/1997       1,600        25,000     U.K.          Shell         October 1999
Sedco Energy(i).................     Newbuild       7,500        25,000     Shipyard      Texaco        December 2005
(France)
Sedco Explorer(d)...............    1975/1995       1,000        25,000     U.K.          --            Idle
Sedco Express(j)................     Newbuild       7,500        25,000     Shipyard      Elf           February 2003
(France)
Sedco I-Orca(e).................    1970/1987         900        25,000     South Africa  Soekor        May 2001
Sovereign Explorer..............         1984       3,500        25,000     U.K.          --            Idle
JACKUPS (12)
Mr. John(k).....................    1985/1993         N/A           N/A     Nigeria       Texaco        December 1999
Trident II......................    1977/1985         300        25,000     India         Enron         January 2000
Trident IV......................    1980/1999         300        25,000     Angola        Chevron       October 1999
Trident VI......................         1981         300        21,000     Nigeria       --            Idle
Trident VIII....................         1981         300        21,000     Cameroon      Elf Shell     November 1999 November
Nigeria                     2000
Trident IX(l)...................         1982         400        21,000     Indonesia     Gulf          November 1999
Trident XII.....................    1982/1992         300        25,000     Brunei        Shell         June 2000
Trident XIV.....................    1982/1994         300        20,000     Angola        Chevron       December 1999
Trident 15......................         1982         300        25,000     Vietnam       Petrovietnam  December 1999
Trident 16(l)...................         1982         300        25,000     Thailand      Harrods       February 1999
PTT           June 2000
Trident 17......................         1983         355        25,000     Vietnam       JVPC          October 1999
Trident 20(m)...................     Newbuild         300                   Shipyard      Elf           September 2005
(Azerbaijan)
DRILLSHIPS (2)
Joides Resolution(n)............         1978      27,000        30,000     Worldwide     Texas A&M     September 2003
Sagar Vijay(e)..................         1985       2,950        20,000     India         ONGC          December 2000
TENDERS (4)
Searex 5........................         1983         440        20,000     Malaysia      --            Idle
Searex 9........................         1981         460        21,000     Congo         Elf           February 2000
Searex 10.......................    1983/1994         450        21,000     Angola        --            Idle
Searex 11.......................         1983         350        20,000     Indonesia     Total         October 1999
SWAMP BARGES (6)
Searex 4........................    1981/1989          21        25,000     Nigeria       --            Idle
Searex 6........................    1981/1991          22        25,000     Nigeria       --            Idle
Searex 7........................         1980          25        20,000     Indonesia     --            Idle
Searex 8........................    1985/1989          25        21,000     Indonesia     --            Idle
Searex 12.......................    1982/1992          25        25,000     Nigeria       Shell         August 2000
Hibiscus(m).....................    1979/1993          25        16,000     Indonesia     Total         April 2000
LAND RIGS (2)
Rig 1...........................    1976/1996         N/A        15,000     Nigeria       Shell         October 1999
Rig 54..........................         1981         N/A        15,000     Nigeria       --            Idle

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

(a)  Dates shown are the original service date and the date of the most recent

(b)  Expiration dates represent Sedco Forex's current estimate of the earliest
date the contract for each rig is likely to expire. Some rigs have two
contracts in continuation, so the second line shows the estimated earliest
availability. Some contracts have options under which the rigs could
continue to work on the same terms after the estimated expiration.

(c)  The Cajun Express is expected to be operational in the second quarter of
2000. The contract provides for termination if the rig is not delivered by
March 31, 2001.

(d)  Operated under a bareboat charter with the rig's owner, Sea Wolf Drilling
Limited, in which Schlumberger has an indirect 25% interest. See Note 12 to
the Combined Financial Statements of Sedco Forex. Although the owner of the
remaining 75% interest in the venture has, to date, not consented to the
transfer of Schlumberger's interest, Schlumberger is taking steps to
achieve resolution of this issue. The

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parties cannot predict whether Schlumberger's ownership interest in the
venture or the right to use these rigs will be transferred to Transocean
Sedco Forex or whether an alternative resolution acceptable to Transocean
will be achieved.

(e)  Operated under a management contract with the rig's owner.

(f)  Under contract with Petrobras for the period from third quarter 2000 to
third quarter 2008.

(g)  Also under contract with BHP for the period from December 1999 to May 2000.

(h)  Under contract with Japex for January 2000 and Inpex for February 2000.

(i)  The Sedco Energy is expected to be operational in the first quarter of
2000. If delivery of the rig is delayed beyond the contract delivery date,
the contract provides for a reduction in its term equivalent to the period
of delayed delivery.

(j)  The Sedco Express is expected to be operational in the first quarter of
2000. The contract provides for termination if the rig is not delivered by
May 28, 2000.

(k)  Considered a multi-purpose service vessel capable of being used for
workovers or associated services.

(l)  Owned by an unrelated third party and leased by Sedco Forex. Sedco Forex
has an option to purchase, and the owner has an option to cause Sedco Forex
to purchase, the rig.

(m)  Owned by a joint venture owned more than 50% by Sedco Forex. The Trident 20
is expected to be operational in the fourth quarter of 2000. The contract
provides for termination if the rig is not delivered by February 12, 2002.

(n)  Currently engaged in scientific geological coring activities; owned by a
joint venture owned 50% by Sedco Forex.

Upon the expiration of existing contracts, there can be no assurance that
such contracts will be renewed or extended, that new contracts will be available
or, if contracts are available, that they will provide revenues adequate to
cover all fixed and variable costs associated with the rigs.

As of September 30, 1999, Sedco Forex's rigs, excluding rigs under
construction, were located in:

- the United Kingdom (7 units);

- Ireland (1 unit);

- Africa-Mediterranean Sea (18 units);

- Middle East-India (2 units);

- Asia (16 units);

- Brazil (3 units); and

The Joides Resolution is contracted for a worldwide research program and as
of September 30, 1999 was in a shipyard in Singapore undergoing an upgrade. It
is expected to be back in operation in mid-November 1999.

DRILLING CONTRACTS

Sedco Forex's contracts to provide offshore drilling services are
individually negotiated and vary in their terms and provisions. Sedco Forex
obtains most of its contracts through competitive bidding against other
contractors. Drilling contracts generally provide for payment on a dayrate
basis, with higher rates while the drilling unit is operating and lower rates
for periods of mobilization or when drilling operations are interrupted or
restricted by equipment breakdowns, adverse environmental conditions or other
conditions beyond the control of Sedco Forex. Sedco Forex typically does not
drill turnkey wells, under which the contractor agrees to drill a well to a
specified depth for a fixed price.

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A dayrate drilling contract generally extends over a period of time
covering either the drilling of a single well or group of wells or covering a
stated term. These contracts typically can be terminated by the client in the
event the drilling unit is destroyed or lost, or if drilling operations are
suspended for a specified period of time as a result of a breakdown of major
equipment or, in some cases, due to other events beyond the control of either
party. In addition, the drilling contracts for Sedco Forex's newbuild rigs
contain termination or term reduction provisions tied to late delivery of these
units.

The contract term in many instances may be extended by the client
exercising options for the drilling of additional wells or for an additional
term. In reaction to depressed market conditions, Sedco Forex's clients may seek
renegotiation of firm drilling contracts to reduce their obligations or may seek
to terminate their contracts by paying a termination fee to Sedco Forex.

SIGNIFICANT CLIENTS

During the past five years, Sedco Forex has engaged in offshore drilling
for most of the world's leading international oil companies or their affiliates,
as well as for many government-controlled and independent oil companies. During
this period, Sedco Forex's principal clients have included Shell, Chevron,
Total, Woodside, Petrobras, Unocal and Elf. During 1998, Shell accounted for
approximately 19 percent of Sedco Forex's consolidated operating revenues. No
other unaffiliated client accounted for ten percent or more of Sedco Forex's
1998 consolidated operating revenues. The loss of any of these major clients
could, at least in the short term, have a material adverse effect on Sedco
Forex.

INDUSTRY CONDITIONS AND COMPETITION

Sedco Forex's business depends on the level of activity in offshore oil and
gas exploration, development and production in markets worldwide. Oil and gas
prices, market expectations of potential changes in these prices and a variety
of political and economic factors significantly affect this level of activity.
Oil and gas prices are extremely volatile and are affected by numerous factors,
including:

- worldwide demand for oil and gas;

- the ability of the Organization of Petroleum Exporting Countries,
commonly called "OPEC," to set and maintain production levels and
pricing;

- the level of production of non-OPEC countries;

- the policies of the various governments regarding exploration and
development of their oil and gas reserves;

- advances in exploration and development technology; and

- the political environment of oil-producing regions.

The offshore contract drilling industry is highly competitive with numerous
industry participants, none of which has a dominant market share. Some of Sedco
Forex's competitors may have greater resources than Sedco Forex.

Drilling contracts are traditionally awarded on a competitive bid basis.
Intense price competition is often the primary factor in determining which
qualified contractor is awarded a job, although rig availability and the quality
and technical capability of service and equipment may also be considered.

Sedco Forex's industry has historically been cyclical. There have been
periods of high demand, short rig supply and high dayrates, followed by periods
of lower demand, excess rig supply and low dayrates. The industry is currently
in a period of low demand, and Sedco Forex is unable to predict when the market
will change and if so, to what extent. In addition, rig availability has
increased as a result of contract expirations and construction by other drilling
contractors of new rigs that are competing with Sedco Forex's rigs. Periods of
excess rig supply intensify the competition in the industry and often result in
rigs being idled for long periods of time.

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Sedco Forex requires highly skilled personnel to operate and provide
technical services and support for its drilling units. To the extent demand for
drilling services and the size of the worldwide industry fleet increase,
shortages of qualified personnel similar to those experienced in 1996-97 could
arise, creating upward pressure on wages.

As of September 30, 1999, Sedco Forex had four new rigs in shipyards under
construction. These construction projects are subject to the risks of delay or
cost overruns inherent in any large construction project resulting from numerous
factors, including the following:

- shipyard unavailability;

- shortages of equipment, materials or skilled labor;

- unscheduled delays in the delivery of ordered materials and equipment;

- engineering problems, including those relating to the commissioning of
newly designed equipment;

- work stoppages;

- weather interference;

- unanticipated cost increases; and

- difficulty in obtaining necessary permits or approvals.

These factors may contribute to cost variations and delays in the delivery
of Sedco Forex's drilling units under construction. Delays in delivery of these
units would result in delays in contract commencements, resulting in a loss of
revenue to Sedco Forex. These delays may also cause customers to terminate the
drilling contracts for these rigs pursuant to late delivery termination clauses.
In the event of termination of a drilling contract for one of these rigs, it is
unlikely that Sedco Forex would be able to secure a replacement contract on as
favorable terms.

MARKETS

Rigs can be moved from one region to another, but the cost of moving a rig
and the availability of rig-moving vessels may cause the supply and demand
balance to vary somewhat between regions. However, significant variations
between regions do not tend to exist long-term because of rig mobility. Rig
mobility causes markets to be defined more by water depth capability than
region. Sedco Forex has the capability of drilling in water depths from as
shallow as a few feet with its swamp barges to as deep as 6,500 feet with its
Sedco 707 semisubmersible. In addition, each of Sedco Forex's three newbuild
semisubmersibles will be capable of drilling in water depths of at least 7,500
feet.

In recent years, there has been increased emphasis by oil companies on
exploring for hydrocarbons in deeper waters. This is, in part, because of
technological developments that have made such exploration more feasible and
cost-effective. Shallow water regions have been developed much more than deep
water regions because these regions are more accessible and operations there are
less costly to conduct.

OPERATING RISKS

Sedco Forex's operations are subject to the usual hazards inherent in the
drilling of oil and gas wells, such as blowouts, loss of well control,
punchthroughs, cratering or fires, the occurrence of which could result in the
suspension of drilling operations, damage to or destruction of the equipment
involved and injury or death to rig personnel. Operations also may be suspended
because of machinery breakdowns, abnormal drilling conditions, failure of
subcontractors to perform or supply goods or services or personnel shortages. In
addition, offshore drilling operations are subject to perils peculiar to marine
operations, including capsizing, grounding, collision and loss or damage from
severe weather. Damage to the environment could also result from Sedco Forex's
operations, particularly through oil spillage or extensive uncontrolled fires.

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Sedco Forex maintains broad insurance coverage, including insurance against
general and marine third party liabilities. Sedco Forex's offshore drilling
equipment is insured by all risks physical damage insurance policies, which
cover against marine and other perils, including losses due to capsizing,
grounding, collision, fire, lightning, hurricanes, wind, storms, action of
waves, punchthroughs, cratering, blowouts, explosions and war risks. Sedco Forex
also carries employer's liability and other insurance customary in the offshore

Consistent with standard industry practice, Sedco Forex's clients generally
assume, and indemnify Sedco Forex against, well control and subsurface risks
under dayrate contracts. These risks are those associated with the loss of
control of a well, such as blowout or cratering, the cost to regain control or
redrill the well and associated pollution. Sedco Forex typically does not carry
insurance against such risks under dayrate contracts. However, Sedco Forex
cannot guarantee that these clients will necessarily be financially able to
indemnify it against all these risks.

Sedco Forex believes it is adequately insured in accordance with industry
standards against normal risks in its operations; however, such insurance
coverage may not in all situations provide sufficient funds to protect Sedco
Forex from all liabilities that could result from its drilling operations. Sedco
Forex insures its rigs on an agreed value basis that is at least equal to the
net book value of the rig and is regularly reviewed and modified for each
individual rig based on market value, technology, such as deep water or dynamic
positioning capability, utilization, dayrate and earnings potential. This means
that some rigs are not insured for replacement value. Business interruption is
not generally insured against, except in the event of total loss where an
element of lost earnings can be included in the total insured value of the rig.
This "top up" to the insured value is added where considered appropriate.
Accordingly, the occurrence of a casualty or loss against which Sedco Forex is
not fully insured could have a material adverse effect on Sedco Forex's
financial position and results of operations.

Sedco Forex is subject to liability under various environmental laws and
regulations. See "-- Regulation." Generally, Sedco Forex has been able to obtain
some degree of contractual indemnification pursuant to which Sedco Forex's
client agrees to protect and indemnify Sedco Forex from liability for pollution,
well and environmental damages; however, there is no assurance that Sedco Forex
can obtain such indemnities in all of its contracts or that, in the event of
extensive pollution and environmental damages, the clients will have the
financial capability to fulfill their contractual obligations to Sedco Forex.
Also, these indemnities may not be enforceable in all instances. For some
contracts where the risk allocation or counterparty risk exposure is considered
high, Sedco Forex can purchase additional insurance such as "operators extra
expense insurance" against well control risks.

INTERNATIONAL OPERATIONS

Sedco Forex operates in various regions throughout the world that expose
Sedco Forex to various political and other uncertainties, including risks of:

- war and civil disturbances;

- expropriation of equipment;

- the inability to repatriate income or capital; and

- changing taxation policies.

Sedco Forex is protected to a substantial extent against capital loss, but
generally not loss of revenue, from most of these risks through insurance,
indemnity provisions in its drilling contracts or both. As of September 30,
1999, all areas in which Sedco Forex was operating were covered by existing
insurance policies.

Sedco Forex's operations are also subject to significant government
regulation in different jurisdictions. Many governments favor or effectively
require the awarding of drilling contracts to local contractors or require
foreign contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction. These practices

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may adversely affect Sedco Forex's ability to compete. Sedco Forex expects to
continue its efforts to structure its operations in order to remain competitive
in the international markets.

Another risk inherent in Sedco Forex's operations is the possibility of
currency exchange losses where revenues are received and expenses are paid in
nonconvertible currencies. Sedco Forex may also incur losses as a result of an
inability to collect revenues because of a shortage of convertible currency
available to the country of operations. Sedco Forex seeks to limit these risks
by structuring contracts such that compensation is made in freely convertible
currencies and, to the extent possible, by limiting acceptance of blocked
currencies to amounts that match its expense requirements in local currency.

REGULATION

Sedco Forex's operations are affected from time to time in varying degrees
by governmental laws and regulations. The drilling industry is dependent on
demand for services from the oil and gas exploration industry and, accordingly,
is affected by changing tax and other laws relating to the energy business
generally.

International contract drilling operations are subject to various laws and
regulations in countries in which Sedco Forex operates, including laws and
regulations relating to equipping and operating of drilling units, currency
conversions and repatriation, oil exploration and development, taxation of
offshore earnings and earnings of expatriate personnel and use of local
employees and suppliers by foreign contractors. Governments in some countries
have become increasingly active in regulating and controlling the ownership of
concessions and companies holding concessions, the exportation of oil and other
aspects of the oil industries in their countries. In addition, government
action, including initiatives by OPEC, may continue to cause oil price
volatility. In some areas of the world, this governmental activity has adversely
affected the amount of exploration and development work done by major oil
companies and may continue to do so.

Some of the countries in whose waters Sedco Forex is presently operating or
may operate in the future have regulations covering the discharge of oil and
other contaminants in connection with drilling operations.

In some cases, Sedco Forex, as an operator of mobile offshore drilling
units, may be liable for damages and costs incurred in connection with oil
spills for which it is held responsible, subject to certain limitations. Laws
and regulations protecting the environment have become more stringent in recent
years, and may in certain circumstances impose "strict liability," rendering a
person liable for environmental damage without regard to negligence or fault on
the part of such person. Such laws and regulations may expose Sedco Forex to
liability for the conduct of or conditions caused by others, or for acts that
were in compliance with all applicable laws at the time such acts were
performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on Sedco Forex's financial
position and results of operations.

Sedco Forex believes that it has conducted its operations in substantial
compliance with applicable environmental laws and regulations governing its
activities. Although significant capital expenditures may be required to comply
with such governmental laws and regulations, such compliance has not materially
adversely affected the earnings or competitive position of Sedco Forex.

EMPLOYEES

As of September 30, 1999, Sedco Forex had approximately 4,500 employees.
Sedco Forex requires highly skilled personnel to operate its drilling units. As
a result, Sedco Forex conducts extensive personnel recruiting, training and
safety programs.

On a worldwide basis, Sedco Forex had approximately 13 percent of its
employees working under collective bargaining agreements at September 30, 1999.
Some of those agreements have expired and negotiations are ongoing for new
contracts. Sedco Forex has not experienced any work stoppages as a result of
these expirations and negotiations. Sedco Forex believes it has good relations
with its employees.

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PROPERTIES

Sedco Forex owns or leases office space or other facilities in most of the
countries where it conducts operations. Sedco Forex does not consider any of
these facilities to be material to its overall operations.

LEGAL PROCEEDINGS

Global Marine Drilling Company initiated an arbitration proceeding in
London in December 1997 against Sedco Forex. Global Marine alleges a claim for
approximately $85 million against Sedco Forex for an alleged late return of a chartered rig and for breach of maintenance obligations under the charter. In February 1998, the tribunal held that the charter expired January 20, 1998, plus time for physical delivery, meaning Sedco Forex is liable to Global Marine for the "market dayrate" from that time until actual delivery in 1998. It is expected that the balance of the proceedings, including the final determination of any damages, will take place in 2000. On October 15, 1999, an arrestment of the Sedco Forex rig, Sovereign Explorer, was executed in connection with the proceedings. The rig is currently idle, and Sedco Forex does not expect this action to have any impact on the case or the operations of the rig. Sedco Forex disputes the allegations and arrestment and is vigorously defending the case. Sedco Forex does not expect that the ultimate liability, if any, resulting from the matter will have a material adverse effect on its business, financial position or results of operations. RIGCO North America, LLC, a subsidiary of Tatham Offshore Inc., filed a lawsuit in Texas state court in July 1999 asserting various claims against Sedco Forex in connection with shipyard and rig management contracts for two rigs managed on behalf of RIGCO. RIGCO alleges breach of contract, negligence and fraud and claims damages of approximately$51 million, plus exemplary damages,
attorney's fees and other unspecified damages. In August 1999, RIGCO filed for
voluntary bankruptcy protection in bankruptcy court in Texas. As part of the
bankruptcy proceedings, RIGCO filed a preference action against Sedco Forex in
September 1999. RIGCO seeks to avoid alleged transfers of approximately $4.2 million to Sedco Forex and to have those funds returned to the RIGCO bankruptcy estate. Sedco Forex disputes the allegations and is vigorously defending the case. Sedco Forex does not expect that the liability, if any, resulting from the matter will have a material adverse effect on its business, financial position or results of operations. The Indian Customs Department, Mumbai, filed a "show cause notice" against Sedco Forex and various other parties on July 8, 1999. The show cause notice alleges that the entry into India and other subsequent movements of a rig operated by Sedco Forex constituted imports and exports for which proper customs procedures were not followed and customs duties should have been paid, and seeks payment of customs duties, with interest and penalties, and confiscation of the rig. Sedco Forex has filed a response to the show cause notice. Hearings on this matter are continuing, and Sedco Forex expects an initial phase adjudication by the Customs Department by the first quarter of 2000. Sedco Forex disputes the allegations and is vigorously defending the case. Sedco Forex does not expect that the ultimate liability, if any, resulting from the matter will have a material adverse effect on its business, financial position or results of operations. Sedco Forex and its subsidiaries are involved in various other legal proceedings and claims that have arisen in the ordinary course of business. Sedco Forex believes that the ultimate liability, if any, resulting from such matters will not have a material adverse effect on its business, financial position, or results of operations. Sedco Forex is involved in certain other legal proceedings with respect to which Schlumberger has agreed to indemnify Sedco Forex against all costs and expenses and any ultimate liability that may be incurred. 92 99 SEDCO FOREX SELECTED HISTORICAL COMBINED FINANCIAL DATA Schlumberger prepared the selected historical combined financial data of Sedco Forex in the table below using the combined financial statements of Sedco Forex. Schlumberger derived the combined financial information below for each of the three years ended December 31, 1998, and the combined balance sheet data as of December 31, 1997 and 1998, from combined financial statements appearing elsewhere in this joint proxy statement/prospectus audited by PricewaterhouseCoopers LLP, independent accountants. Schlumberger derived the combined statement of income data for the six months ended June 30, 1999 and 1998 and the years ended December 31, 1995 and 1994 and the combined balance sheet data as of June 30, 1999 and December 31, 1995 and 1994 from unaudited combined financial statements. In the opinion of management, the unaudited interim financial statements for the six months ended June 30, 1999 and 1998 include all adjustments consisting only of normal recurring adjustments necessary for a fair statement of the results for the unaudited periods. Operating results for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1999. SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ----------- ---------------------------------- 1999 1998 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- (IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNAUDITED) COMBINED STATEMENT OF INCOME DATA Operating revenues..........................................$352   $534$1,091   $891$663   $437$391
Net income..................................................    39    158      342    260    148     62     34
Pro forma earnings per share
Basic.....................................................  0.35            3.13
Diluted...................................................  0.35            3.13
Pro forma average shares outstanding
Basic(1)..................................................   109             109
Diluted(2)................................................   109             109

DECEMBER 31,
JUNE 30,     ------------------------------------
1999        1998     1997    1996   1995   1994
-----------   ------   ------   ----   ----   ----
(IN MILLIONS)
(UNAUDITED)                        (UNAUDITED)

COMBINED BALANCE SHEET DATA
Working capital.............................................    $57$  217   $168$113   $130$ 86
Total assets................................................     1,515       1,473    1,051    899    781    742
Long-term debt..............................................        77          86      139     46     40     28
Equity......................................................       519         564      363    462    574    593

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

(1) Average basic shares outstanding represent Transocean Sedco Forex shares to
be issued to Schlumberger's shareholders pursuant to the merger agreement.

(2) Average diluted shares outstanding adjust average basic shares outstanding
for the dilutive effect of stock options.

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SEDCO FOREX MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in connection with the information
contained in Sedco Forex's combined financial statements and the notes thereto
included elsewhere in this joint proxy statement/prospectus. As used in this
discussion, the term "Sedco Forex" refers to the historical offshore contract
drilling service business of Schlumberger Limited that is to be spun off and
merged with Transocean and to that business as consolidated under Sedco Forex
Holdings Limited from and after the time of the spin-off.

OVERVIEW

Sedco Forex is a leading international provider of offshore contract
drilling services for offshore oil and gas exploration, development and
production. Sedco Forex currently owns, has an ownership interest in or operates
40 mobile offshore drilling rigs. Sedco Forex's fleet consists of three
fourth-generation semisubmersibles, twenty second- and third-generation
semisubmersibles, one first-generation semisubmersible, two drillships, ten
jackup rigs and four tenders. Sedco Forex also has under construction three
Sedco Express-class semisubmersibles, the Sedco Express, Cajun Express and Sedco
Energy, and one independent-leg cantilevered jackup rig, the Trident 20. In
addition, the fleet includes one multi-purpose service jackup rig, six swamp
barges and two land drilling rigs. Sedco Forex contracts these drilling rigs,
related equipment and work crews primarily on a dayrate basis to drill oil and
gas wells. Sedco Forex also provides additional drilling services, including
well intervention and management of third-party well service activities.

OPERATING RESULTS

Comparative data relating to Sedco Forex's operating results for the three
years ended December 31, 1998, 1997 and 1996 and for the six months ended June
30, 1999 and 1998 are summarized below. The results of interim periods are not
necessarily indicative of a full year's operations.

SIX MONTHS ENDED
JUNE 30,         YEAR ENDED DECEMBER 31,
-----------------   --------------------------
1999      1998       1998      1997     1996
-------   -------   --------   ------   ------
(IN MILLIONS)
(UNAUDITED)

REVENUE:
Operating......................................  $352$534.4    $1,090.5$891.3   $663.2 Interest and other income...................... 6.7 3.3 8.8 8.3 8.1 ------ ------ -------- ------ ------ 358.3 537.7 1,099.3 899.6 671.3 EXPENSES: Cost of services............................... 297.1 329.3 674.7 561.8 476.3 Research and engineering....................... 6.3 6.1 11.3 9.8 10.2 General and administrative..................... 8.4 12.3 26.3 15.9 13.8 Interest expense, net.......................... 6.9 9.9 13.0 19.6 7.9 ------ ------ -------- ------ ------ Income before taxes.............................. 39.6 180.1 374.0 292.5 163.1 Income taxes..................................... (0.9) (21.8) (32.4) (32.0) (15.6) ------ ------ -------- ------ ------ Net income.............................$ 38.7    $158.3$  341.6   $260.5$147.5
======    ======    ========   ======   ======

Six months ended June 30, 1999 compared to six months ended June 30, 1998

Operating revenues for the six months ended June 30, 1999 were $352 million compared to$534 million for the same period in 1998, a decrease of $182 million or 34 percent. The decrease resulted primarily from decreased demand in the worldwide drilling market as a direct consequence of depressed oil prices in 1998 and early 1999. As a result, average utilization for the first six months of 1999 fell to 75 percent compared to an average of 96 percent for the same period in 1998. In addition, average dayrates for the first six months of 1999 fell to approximately$61,000 compared to approximately $67,000 for the same period in 1998. 94 101 Cost of services for the six months ended June 30, 1999 was$297 million
compared to $329 million for the same period in 1998, a decrease of$32 million
or 10 percent. The decrease resulted primarily from reduced rig activity in 1999
due to the decline in demand and resulting oversupply of rigs in the market. A
large portion of Sedco Forex's cost of services consists of depreciation and
employee-related costs and is fixed or only semi-variable. Accordingly, cost of
services does not vary in direct proportion to activity. Cost of services for
the six months ended June 30, 1999 also includes charges totaling $42 million in respect of severance liabilities and provisions for contractual disputes. Research and engineering expense for the six months ended June 30, 1999 was$6 million compared to $6 million for the same period in 1998. In both periods, approximately$2 million of research and engineering expense was allocated by
Schlumberger to Sedco Forex. This allocation is dependent on a number of
factors, including the nature and scale of research and engineering projects,
the level of central costs and the proportion of Sedco Forex's revenues to
Schlumberger's worldwide group revenues. Accordingly, while the allocation
methods are considered to be reasonable, the level of research and engineering
expenses may not be indicative of ongoing costs for Sedco Forex upon completion
of the spin-off from Schlumberger and the merger with Transocean.

General and administrative expense for the six months ended June 30, 1999
was $8 million compared to$12 million for the same period in 1998, a decrease
of $4 million or 33 percent. The decrease resulted from cost reduction measures taken in response to reduced activity levels and the lower allocation of central overhead due to Sedco Forex's lower revenues. General and administrative expense includes an allocation by Schlumberger to Sedco Forex that amounts to approximately$3 million for the six months ended June 30, 1999 and $5 million for the same period in 1998. The amount allocated by Schlumberger is dependent on a number of factors, including the level of central costs and the proportion of Sedco Forex's revenues to Schlumberger's worldwide group revenues. Accordingly, while the allocation methods are considered to be reasonable, the level of general and administrative expenses may not be indicative of ongoing costs for Sedco Forex upon completion of the spin-off from Schlumberger and the merger with Transocean. Interest expense for the six months ended June 30, 1999 was$7 million
compared to $10 million for the same period in 1998, a decrease of$3 million or
30 percent. The net decrease includes an increase in gross interest expense for
the first six months of 1999 to $17 million compared to$11 million for the same
period of 1998. This increase resulted primarily from interest incurred on loans
to finance newbuild construction projects. The increase was more than offset by
the capitalization of $12 million of interest for the period ended June 30, 1999 in respect of construction projects compared to the capitalization of only$2
million for the comparable 1998 period.

Income tax expense for the six months ended June 30, 1999 was $1 million compared to$22 million for the same period in 1998, a decrease of $21 million or 95 percent. The decrease resulted primarily from the reduction in activity and dayrates in countries where taxes are charged on a "deemed profit" basis (equivalent to a fixed percentage of revenue) coupled with the tax effect of the charges included in cost of services. Net income for the six months ended June 30, 1999 was$39 million compared
to $158 million for the same period in 1998, a decrease of$119 million or 75
percent. The decrease resulted primarily from the significant reduction in
revenues compared to 1998, as well as the impact of charges in the first quarter
of 1999.

1998 compared to 1997

Operating revenues for the year ended December 31, 1998 were $1,091 million compared to$891 million for 1997, an increase of $200 million or 22 percent. The increase in revenues for 1998 resulted primarily from an increase in dayrates from an average of approximately$56,000 in 1997 to approximately
$70,000 in 1998 and from increased utilization, which improved from an average of 90 percent in 1997 to 91 percent in 1998. Dayrates increased in early 1998 as a result of higher market demand converging with tightening supply. Cost of services for the year ended December 31, 1998 was$675 million
compared to $562 million for 1997, an increase of$113 million or 20 percent.
The increase in 1998 resulted primarily from rig reactivation

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and mobilization costs and enhanced maintenance costs and employee compensation.
A large portion of Sedco Forex's cost of services consists of depreciation and
employee-related costs and is fixed or only semi-variable. Accordingly, cost of
services does not vary in direct proportion to activity. Cost of services for
the year ended December 31, 1998 also includes charges totaling $23 million relating to severance liabilities, the write-down of obsolete fixed assets and contract disputes. Research and engineering expense for the year ended December 31, 1998 was$11 million compared to $10 million for 1997, an increase of$1 million or
approximately 10 percent. The increase in 1998 resulted primarily from the
higher allocation of central overhead due to Sedco Forex's higher revenues. For
1998, approximately $3 million of research and engineering expense was allocated by Schlumberger to Sedco Forex compared to approximately$2 million in 1997.
This allocation is dependent on a number of factors, including the nature and
scale of research and engineering projects, the level of central costs and the
proportion of Sedco Forex's revenues to Schlumberger's worldwide group revenues.
Accordingly, while the allocation methods are considered to be reasonable, the
level of research and engineering expenses may not be indicative of ongoing
costs for Sedco Forex upon completion of the spin-off from Schlumberger and the
merger with Transocean.

General and administrative expense for the year ended December 31, 1998 was
$26 million compared to$16 million for 1997, an increase of $10 million or 63 percent. The increase in 1998 resulted from the higher allocation of central overhead due to Sedco Forex's higher revenues and from increased marketing and business development efforts. General and administrative expense includes an allocation by Schlumberger to Sedco Forex that amounts to approximately$9
million for 1998 and $4 million for 1997. The general and administrative expense allocation by Schlumberger to Sedco Forex is dependent on a number of factors, including the level of central costs and the proportion of Sedco Forex's revenues to Schlumberger's worldwide group revenues. Accordingly, while the allocation methods are considered to be reasonable, the level of general and administrative expenses may not be indicative of ongoing costs for Sedco Forex upon completion of the spin-off from Schlumberger and the merger with Transocean. Interest expense for the year ended December 31, 1998 was$13 million
compared to $20 million for 1997, a decrease of$7 million or 35 percent. The
decrease in 1998 resulted primarily from the capitalization of $9 million in interest relating to construction projects. Income tax expense for the year ended December 31, 1998 was$32 million
compared to $32 million for 1997. Sedco Forex operates in a number of countries where income tax is charged on a deemed profit basis. Accordingly, income tax expense does not necessarily vary in direct proportion with pre-tax income. The decrease in income tax expense in relation to pre-tax income for 1998 resulted primarily from the release of the remaining valuation allowance relating to U.K. tax loss carryforwards of$15 million. This carryforward, which Sedco Forex
believes will be fully utilized, is available to Sedco Forex indefinitely.

Net income for the year ended December 31, 1998 was $342 million compared to$261 million for 1997, an increase of $81 million or 31 percent. The increase in 1998 resulted primarily from higher revenues due to increased dayrates and rig utilization, partially offset by charges included in cost of services totaling$20 million.

1997 compared to 1996

Operating revenues for the year ended December 31, 1997 were $891 million compared to$663 million for 1996, an increase of $228 million or 34 percent. The increase in revenues for 1997 resulted primarily from increased dayrates, which improved from an average of approximately$44,000 in 1996 to approximately
$56,000 in 1997. Dayrates increased in 1997 as a result of higher market demand converging with tightening supply. Rig utilization increased to 90 percent in 1997 from 88 percent in 1996. Cost of services for the year ended December 31, 1997 was$562 million
compared to $476 million for 1996, an increase of$86 million or 18 percent. The
increase in 1997 resulted primarily from rig reactivation and mobilization costs
and higher maintenance costs and employee compensation. A large portion of Sedco
Forex's cost of services consists of depreciation and employee-related costs and
is generally fixed or only semi-variable. Accordingly, cost of services
generally does not vary in direct proportion to activity.

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Research and engineering expense for the year ended December 31, 1997 was
$10 million compared to$10 million for 1996. For each of 1997 and 1998,
approximately $2 million of research and engineering expense was allocated by Schlumberger to Sedco Forex. General and administrative expense for the year ended December 31, 1997 was$16 million compared to $14 million for 1996, an increase of$2 million or 14
percent. General and administrative expense includes an allocation by
Schlumberger to Sedco Forex that amounts to approximately $4 million for each of 1997 and 1996. Interest expense for the year ended December 31, 1997 was$20 million
compared to $8 million for 1996, an increase of$12 million or 150 percent. The
increase in 1997 resulted primarily from the financing of the Trident IX and the
Trident 16 rigs and borrowings to finance the acquisition of the Actinia and the
refinancing of the Sedco 703.

Income tax expense for the year ended December 31, 1997 was $32 million compared to$16 million for 1996, an increase of $16 million or 100 percent. Sedco Forex operates in a number of countries where income tax is charged on a deemed profit basis. Accordingly, income tax expense does not necessarily vary in direct proportion with pre-tax income. The increase in 1997 resulted primarily from increased profits that generally were earned in jurisdictions with higher effective tax rates. Net income for the year ended December 31, 1997 was$261 million compared
to $148 million for 1996, an increase of$113 million or 76 percent. The
increase in 1997 resulted primarily from increased revenues arising from
improved dayrates.

MARKET OUTLOOK

Rig utilization for the third quarter of 1999 averaged approximately 73
percent fleetwide compared to 74.5 percent fleetwide in the second quarter of
1999. The decrease in fleetwide utilization was primarily due to four rigs
becoming idle upon the expiration of existing contracts in the second quarter
and early in the third quarter, which were not completely offset by three new
contracts starting in the third quarter. Average dayrates during the third
quarter of 1999 declined to approximately $55,400 from approximately$58,200 in
the second quarter of 1999, due primarily to several rigs commencing new
lower-rate contracts during the third quarter or being stacked following
completion of higher rate contracts. As of September 30, 1999, Sedco Forex had
60% of its fleet days committed for the remainder of 1999 and 27% for the year
2000.

Reduced exploration and development activity by Sedco Forex's customers,
resulting from the sustained period of low oil prices from late 1997 through
early 1999 and industry consolidation over the same time period, continued in
the second quarter despite the upturn in prices since February 1999. Rig
availability has also increased as a result of expiring contracts and
construction by drilling contractors of new rigs that are capable of competing
with Sedco Forex's rigs. This decline in exploration and development activity
and increased rig availability has created a highly competitive market for
contract drilling services, with corresponding reductions in utilization and
dayrates for all classes of offshore rigs.

Oil prices have rallied from lows experienced in 1998, reaching a price in
excess of $24 per barrel in September before falling back to about$22 in
October. This level of oil prices suggests that there could be an improving
long-term fundamental outlook for the offshore drilling business. Sedco Forex
has recently experienced an increase in customer inquiries in all of its
principal market areas, but this has not yet led to meaningful increases in
dayrates or rig utilization. It is expected that in the near term, customers
will continue a cautious approach to exploration and development spending until
these commodity price gains prove to be sustainable.

Sedco Forex's efforts to secure contracts for its drilling units becoming
available due to contract expirations have been and will continue to be
adversely affected by continuing market weakness. Some units have been
contracted at lower rates in order to secure work and others have been stacked.
As of September 30, 1999, eight semisubmersibles, one jackup, four swamp barges,
two tenders and one land rig were stacked. However, two idled semisubmersibles
will be reactivated under new contracts scheduled to commence in the fourth
quarter of 1999. In addition to the loss of revenues associated with stacking
rigs and maintaining them
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in idle status, Sedco Forex has incurred and may incur additional expenses
associated with severance and related payments to rig operating personnel made
redundant as a result.

OTHER FACTORS AFFECTING OPERATING RESULTS

Sedco Forex's business depends on the level of activity in offshore oil and
gas exploration, development and production in markets worldwide. Oil and gas
prices, market expectations of potential changes in these prices and a variety
of political and economic factors significantly affect this level of activity.
Oil and gas prices are extremely volatile and are affected by numerous factors,
including

- worldwide demand for oil and gas;

- the ability of the Organization of Petroleum Exporting Countries,
commonly called "OPEC," to set and maintain production levels and
pricing;

- the level of production of non-OPEC countries;

- the policies of the various governments regarding exploration and
development of their oil and gas reserves;

- advances in exploration and development technology; and

- the political environment of oil-producing regions.

The offshore contract drilling industry is highly competitive with numerous
industry participants, none of which has a dominant market share. Some of Sedco
Forex's competitors may have greater resources than Sedco Forex.

Drilling contracts are traditionally awarded on a competitive bid basis.
Intense price competition is often the primary factor in determining which
qualified contractor is awarded a job, although rig availability and the quality
and technical capability of service and equipment may also be considered.

Sedco Forex's industry has historically been cyclical. There have been
periods of high demand, short rig supply and high dayrates, followed by periods
of lower demand, excess rig supply and low dayrates. The industry is currently
in a period of low demand, and Sedco Forex is unable to predict when the market
will change and if so, to what extent. In addition, rig availability has
increased as a result of contract expirations and construction by other drilling
contractors of new rigs that are competing with Sedco Forex's rigs. Periods of
excess rig supply intensify the competition in the industry and often result in
rigs being idled for long periods of time.

Sedco Forex's customers may terminate many of Sedco Forex's term drilling
contracts if the drilling unit is destroyed or lost or if drilling operations
are suspended for a specified period of time as a result of a breakdown of major
equipment or, in some cases, due to other events beyond the control of either
party. In addition, the drilling contracts for Sedco Forex's newbuild rigs
contain termination or term reduction provisions tied to late delivery of these
units. In reaction to depressed market conditions, Sedco Forex's customers may
also seek renegotiation of firm drilling contracts to reduce their obligations.

As of September 30, 1999, Sedco Forex had four new rigs in shipyards under
construction. These construction projects are subject to the risks of delay or
cost overruns inherent in any large construction project resulting from numerous
factors, including the following:

- shipyard unavailability;

- shortages of equipment, materials or skilled labor;

- unscheduled delays in the delivery of ordered materials and equipment;

- engineering problems, including those relating to the commissioning of
newly designed equipment;

- work stoppages;

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- weather interference;

- unanticipated cost increases; and

- difficulty in obtaining necessary permits or approvals.

These factors may contribute to cost variations and delays in the delivery
of Sedco Forex's drilling units under construction. Delays in delivery of these
units would result in delays in contract commencements, resulting in a loss of
revenue to Sedco Forex, and may also cause customers to terminate the drilling
contracts for these rigs pursuant to late delivery termination clauses. In the
event of termination of a drilling contract for one of these rigs, it is
unlikely that Sedco Forex would be able to secure a replacement contract on as
favorable terms.

Sedco Forex operates in various regions throughout the world that may
expose Sedco Forex to political and other uncertainties, including risks of:

- war and civil disturbances;

- expropriation of equipment;

- the inability to repatriate income or capital; and

- changing taxation policies.

Sedco Forex is protected to a substantial extent against loss of capital
assets, but generally not loss of revenue, from most of these risks through
insurance, indemnity provisions in its drilling contracts or both. As of
September 30, 1999, all areas in which Sedco Forex was operating were covered by
existing insurance policies.

The offshore drilling business is subject to significant government
regulations in different jurisdictions. Many governments favor or effectively
require the awarding of drilling contracts to local contractors or require
foreign contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction. These practices may adversely affect Sedco Forex's
ability to compete. Sedco Forex expects to continue its efforts to structure its
operations in order to remain competitive in international markets.

Another risk inherent in its operations is the possibility of currency
exchange losses where revenues are received and expenses are paid in
nonconvertible currencies. Sedco Forex may also incur losses as a result of an
inability to collect revenues because of a shortage of convertible currency
available to the country of operation. Sedco Forex seeks to limit these risks by
structuring contracts such that compensation is made in freely convertible
currencies and, to the extent possible, by limiting acceptance of blocked
currencies to amounts that match its expense requirements in local currency.

Sedco Forex requires highly skilled personnel to operate and provide
technical services and support for its drilling units. To the extent demand for
drilling services and the size of the worldwide industry fleet increase,
shortages of qualified personnel similar to those experienced in 1996-97 could
arise, creating upward pressure on wages. Sedco Forex is continuing its
recruitment and training programs as required to meet its anticipated personnel
needs.

On a worldwide basis, Sedco Forex had approximately 13 percent of its
employees working under collective bargaining agreements at September 30, 1999.
Some of those agreements have expired and negotiations are ongoing for new
contracts. Sedco Forex has not experienced any work stoppages as a result of
these expirations and negotiations.

The general rate of inflation in the majority of the countries in which
Sedco Forex operates has been moderate over the past several years and has not
had a material impact on Sedco Forex's results of operations. The increase in
the demand for offshore drilling rigs experienced in 1996 and 1997 led to higher
labor, transportation and other operating expenses as a result of an increased
need for qualified personnel and services. Because of the decline in demand for
offshore drilling services commencing in 1998, these inflationary pressures have
decreased.
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LIQUIDITY AND CAPITAL RESOURCES

SOURCES AND USES OF CASH

Six months ended June 30, 1999 compared to six months ended June 30, 1998

Cash flows provided by operations for the six months ended June 30, 1999
were $151 million compared to$165 million for the same period in 1998, a
decrease of $14 million or approximately 8 percent. The decrease in cash flows provided by operations resulted primarily from reduced net income, partly offset by movements in working capital. Cash flows used in investing activities for the six months ended June 30, 1999 were$250 million compared to $160 million for the same period in 1998, an increase of$90 million or approximately 56 percent. The increase in cash flows
used in investing activities resulted primarily from increased capital
expenditures on construction projects.

Cash flows provided by financing activities for the six months ended June
30, 1999 were $10 million compared to cash flows used in financing activities of$66 million for the same period in 1998, an increase of $76 million. The increase in cash provided by financing activities resulted primarily from proceeds from the issuance of related party debt during the six months ended June 30, 1999. 1998 compared to 1997 Cash flows provided by operations for the year ended December 31, 1998 were$473 million compared to $318 million for 1997, an increase of$155 million or
approximately 49 percent. The increase in cash provided by operations resulted
primarily from increased net income.

Cash flows used in investing activities for the year ended December 31,
1998 were $422 million compared to$19 million for the same period in 1997, an
increase of $403 million. The increase in cash used in investing activities resulted primarily from increased capital expenditures on construction projects in 1998 and the receipt of proceeds in 1997 from the sale of two rigs. Cash flows provided by financing activities for the year ended December 31, 1998 were$27 million compared to cash flows used in financing activities of
$269 million for the same period in 1997, an increase of$296 million. The
increase in cash provided by financing activities resulted primarily from
greater proceeds from the issuance of debt during the year ended December 31,
1998 together with the impact of dividends paid in 1997 that were not paid in
1998 and lower repayment of advances from related parties in 1998.

CAPITAL EXPENDITURES

Sedco Forex's investments in its existing fleet and previously announced
fleet additions continue to require significant capital expenditures. Capital
expenditures, including capitalized interest, totaled $425 million during the year ended December 31, 1998 and are expected to be approximately$581 million
in 1999, including amounts that will be spent on newbuild construction projects
as summarized below. In 1999, Sedco Forex has made capital expenditures
aggregating $250 million through June 30, and approximately$420 million through
September 30.

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The projected total cost, including capitalized interest, and completion
dates for Sedco Forex's major rig construction projects are as follows:

SEDCO     SEDCO     CAJUN    TRIDENT
EXPRESS   ENERGY    EXPRESS     20       TOTAL
-------   -------   -------   -------   -------
(EXPENDITURES IN MILLIONS)

Cumulative at December 31, 1998..........  $118$   107   $58$    40   $323 Actual for six months ended June 30, 1999................................... 60 62 73 23 218 Actual for July 1 to September 30, 1999................................... 41 48 41 21 151 ------- ------- ------- ------- ------- Cumulative at September 30, 1999......... 219 217 172 84 692 Projected for fourth quarter 1999........ 33 39 29 21 122 Projected 2000........................... 46 51 64 27 188 ------- ------- ------- ------- ------- Projected total cost.....................$   298   $307$   264   $132$ 1,002
=======   =======   =======   =======   =======
Estimated completion date................  1Q 2000   1Q 2000   2Q 2000   4Q 2000

These construction projects are subject to the risks of delay or cost
overruns inherent in any large construction project resulting from numerous
factors, including those listed previously. See "-- Liquidity and Capital
Resources -- Capital Expenditures."

Sedco Forex intends to fund the cash requirements relating to its capital
commitments through available cash balances, borrowings from Schlumberger prior
to the spin-off or third parties and other commercial bank or capital market
financings.

DEBT

Sedco Forex's third-party and related party indebtedness are summarized
below:

Third-party Indebtedness

Sedco Forex has entered into financing arrangements with a commercial bank
for the Trident IX and Trident 16 pursuant to which $60 million was financed originally in connection with the Trident IX and$60 million was financed
originally in connection with the Trident 16. The payments under these
financings include an interest component of 7.95% for the Trident IX and 7.20%
for the Trident 16, and the remaining terms run through 2003 for the Trident IX
and 2005 for the Trident 16. The arrangements provide for a call right on the
part of Sedco Forex to repay the financings at a predetermined price, which
declines over time, prior to end of the term and to take unencumbered ownership
of the rigs. Additionally, under some circumstances, the bank has a put right to
cause Sedco Forex to repay the financings at the same price as would apply in
the case of a Sedco Forex call. As of June 30, 1999, remaining payments
aggregate $42 million under the Trident IX arrangement and$50 million under the
Trident 16 arrangement. As of September 30, 1999, remaining payments aggregated
$41 million under the Trident IX arrangement and$48 million under the Trident
16 arrangement. Cash to fund the satisfaction of these obligations is expected
to be generated from Sedco Forex's operating activities.

Related Party Indebtedness

At June 30, 1999 Sedco Forex had long-term debt to related parties of $506 million. As of September 30, 1999, this debt totaled$496 million. These loans
bear interest at a rate of LIBOR plus 0.5%. These loans have been used to
finance both Sedco Forex's existing fleet of rigs and ongoing major construction
projects. The loans are repayable in fixed annual amounts over agreement terms
ranging from eight to fourteen years, commencing from the date of drawdown or,
in the case of the construction projects, on commencement of operating
activities by the relevant rig. Sedco Forex has the option to repay the debt in
full at any time, subject to an agreed notice period. Cash to fund the repayment
of these borrowings is expected to be generated from Sedco Forex's operating
activities. Sedco Forex is required to repay the portion of this indebtedness
that remains following the spin-off, which is estimated to be approximately $350 million upon completion of the 101 108 spin-off. See "Summary -- The Companies -- Transocean Offshore Inc. -- Recent Developments" and "The Transaction Agreements -- The Distribution Agreement -- Intercompany Indebtedness and Other Financing Matters." DERIVATIVE INSTRUMENTS Occasionally, Sedco Forex uses derivative instruments such as forward currency contracts and foreign currency options. Forward currency contracts provide a hedge against currency fluctuations on assets/ liabilities denominated in other than a functional currency. Options are usually entered into to hedge against currency variations on firm commitments generally involving the construction of drilling rigs. Sedco Forex defers gains and losses on these currency contracts, which qualify as accounting hedges, and recognizes them when the underlying foreign exchange exposure is realized. See "-- Quantitative and Qualitative Disclosures About Market Risk." ASSET DIVESTITURES In September 1997, Sedco Forex sold two of its rigs, the Sedco Explorer and the Drill Star, to Sea Wolf Drilling Limited, an entity in which Schlumberger has an indirect 25% interest and which is 75% owned by a third-party investment company. The rigs are being operated by Sedco Forex under bareboat charters. The proceeds from these asset divestitures were used to fund capital expenditures. See "Business of Sedco Forex -- Drilling Rig Status." SOURCES OF LIQUIDITY Sedco Forex believes that its cash and cash equivalents, cash generated from operations, borrowing capacity and access to other financing sources will be adequate to meet its anticipated short-term and long-term liquidity requirements, including scheduled debt repayments and capital expenditures for new rig construction and upgrade projects. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB 133 to delay the required effective date for adoption of SFAS No. 133 to fiscal years beginning after June 15, 2000. Because of Sedco Forex's limited use of derivatives to manage its exposure to fluctuations in foreign exchange rates, Sedco Forex does not anticipate that the adoption of the new statement will have a significant effect on the results of operations or the financial position of the company. Sedco Forex will adopt SFAS 133 as of January 1, 2001. YEAR 2000 ISSUES OVERVIEW The "year 2000 issue" is the inability of computers and computing technology to correctly process the year 2000 date change. Sedco Forex recognizes that the year 2000 issue creates a significant uncertainty to its business, and has a proactive, year 2000 readiness program. As part of its program, most nonready systems are being replaced or upgraded with new systems that will provide certain competitive benefits, as well as ensure year 2000 readiness to minimize customer and shareholder business disruptions caused by this issue. Schlumberger formed a company-wide task force in late 1997 to provide guidance to its business units, including Sedco Forex, and monitor progress of the program. Sedco Forex has dedicated internal resources and has consulted with and engaged various third parties, including outside consultants and service providers, to assist it in its year 2000 efforts. 102 109 Overall, the program is proceeding on schedule. In 1994, Schlumberger decided to upgrade its main internal business systems, including those of Sedco Forex, with year 2000 ready programs. This is expected to be completed by the end of 1999. Those aspects of Schlumberger's internal business systems that are not scheduled to be covered by this upgrade effort are being separately addressed through an upgrade of existing legacy systems to year 2000 ready status. PROGRAM Sedco Forex's year 2000 program uses a business risk assessment and prioritization approach, and is intended to produce year 2000 ready products and services and to minimize disruptions in business operations. The program is divided into three major readiness categories: - assets - information technology ("IT") - commercial Within each category, there are two program stages: - Stage I: assessment and preparation -- this stage focuses on up-front planning, data gathering and correction planning. This includes -- raising year 2000 awareness; -- carrying out a detailed asset inventory; -- assessing the scope of the year 2000 problem; -- determining appropriate corrections, testing/validation, acceptance and deployment approaches; and -- preparing project plans and budgets. - Stage II: repairs, testing, and deployment -- this stage focuses on "fixing" year 2000 problems and testing those fixes, followed by user-acceptance, redeployment and operational validation of the repaired, replaced or otherwise fixed systems. Assets. This category consists of (1) equipment that Sedco Forex uses to provide services to its customers and (2) hardware and software associated with embedded computer chips that are used in the operation of Sedco Forex's rigs. Program progress under this category is on schedule with the majority of Stage I activities completed; Sedco Forex is now finalizing Stage II activities. Sedco Forex expects activities associated with year 2000 readiness of assets to be completed by December 1999. Information Technology. This category deals with traditional IT infrastructure, such as business applications, computer hardware/software, IT networks and communication equipment. Implementation of the business applications software system has been completed. The activities associated with other systems in this IT category, such as computer hardware/software, IT networks and communications equipment, also are on schedule. Stage I activities have been completed and Stage II activities are being finalized and are expected to be completed by November 1999. Commercial. This category deals with Sedco Forex's efforts to avoid being adversely affected by year 2000 issues from external entities, suppliers, financial institutions and service providers not affiliated with Sedco Forex. Stage I of the program includes a process for mitigating the year 2000 issues associated with key suppliers. Sedco Forex is communicating with its key suppliers, business partners and customers seeking their assurances that they will be year 2000 ready. Based on responses, Sedco Forex has developed contingency plans for those areas that pose significant risk from the year 2000 issue; however, Sedco Forex could potentially experience disruptions to some aspects of its operations from non-compliant systems utilized by unrelated third-party entities. Work in this category is on schedule. The Stage I activities have been 103 110 completed and Stage II efforts are being finalized. Sedco Forex expects these efforts to be completed by November 1999. CONTINGENCY PLANNING Sedco Forex is reviewing the activities associated with each category and is determining those activities at risk of not being completed in time to prevent a year 2000 disruption. Appropriate contingency plans are being designed for each of the "at risk" activities to provide an alternative means of functioning that minimizes the effect of the potential year 2000 disruption, both internally and on Sedco Forex's customers. These contingency-planning activities are expected to be completed in November 1999. COSTS Year 2000 program funding requirements have been incorporated into Sedco Forex's capital and operating plans and are not expected to have a material adverse impact on its financial condition or results of operations. Sedco Forex estimates the cost of its year 2000 program to be around$3 million, of which
approximately $2 million has been spent to date. The estimated breakdown of these costs is 53% for employee resources, 18% for IT-related upgrades and repair and 29% for non-IT embedded chip technology. In addition, through cost allocations from Schlumberger, Sedco Forex has contributed to the year 2000 work performed on common legacy systems. These allocations amounted to less than$1
million. The above costs do not include the normal upgrading of business and
financial systems that would be year 2000 ready, or rationalization costs of

RISKS

Dates and schedules for Sedco Forex's year 2000 program are based on
management's best estimates, which involve numerous assumptions, including:

- the results of Stage I assessments;

- the continued availability of certain resources;

- third-parties' year 2000 status and plans; and

- other factors.

There can be no guarantee that these estimates will be achieved, or that
there will not be delays in, or increased costs associated with, implementation
of the year 2000 program. Specific factors that might cause differences between
present estimates and actual results include:

- the availability and cost of skilled personnel;

- consultants, and independent contractors;

- the ability to locate and correct all relevant computer code;

- timely and effective action by third parties and suppliers;

- the ability to implement interfaces between year 2000 ready systems and
those systems not being replaced; and

- similar uncertainties.

Because of the general uncertainty inherent in the year 2000 issues, which
is partially attributable to the interconnection of global businesses, Sedco
Forex cannot assure that it will be able to resolve appropriately all year 2000
issues that may affect its operations and business or expose it to third-party
liability. The failure to correct a year 2000 problem could result in an
interruption in, or a failure of, all or part of normal business activities or
operations. Such failures could materially and adversely affect Sedco Forex's
financial condition and results of operations. Because of the uncertainties
described above, Sedco Forex presently is unable to

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determine whether the consequences of such year 2000 failures will have a
material impact on its financial condition or results of operations.

EURO DISCLOSURES

On January 1, 1999, the euro became the official single currency of the
European Union. As of that date, the conversion rates of the national currencies
of the eleven member states adopting the euro were fixed irrevocably. The
national currencies will initially remain in circulation as nondecimal subunits
of the euro and will be replaced by euro bills and coins by July 2002. During
the transition period from January 1999 to January 2002, public and private
parties may pay for goods and services using either the euro or the national
currency on a "no compulsion, no prohibition" basis. Sedco Forex operates for
the most part in a U.S. dollar-denominated environment and does not expect the
introduction of the euro to have a material adverse effect on its business,
financial position or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. Exposure to market risk for changes in interest rates
relates primarily to Sedco Forex's long-term debt obligations. Because these
obligations consist solely of fixed rate indebtedness or related party variable
rate indebtedness that is required to be repaid following the spin-off, Sedco
Forex does not believe its exposure to interest rate market risk is material.

Foreign Exchange Risk. Sedco Forex operates internationally, resulting in
exposure to foreign exchange risk. Sedco Forex uses a variety of techniques to
minimize the exposure to foreign exchange risk, including customer contract
terms and the use of foreign exchange derivative instruments or spot purchases.
Sedco Forex does not enter into derivative transactions for speculative
purposes. At December 31, 1998, Sedco Forex had no material open foreign
exchange contracts and had foreign currency options totalling $68 million. MANAGEMENT OF SEDCO FOREX The following table lists the names, ages as of September 30, 1999 and titles of the "executive officers" of Sedco Forex, as defined under the rules of the SEC. The persons listed have no employment relationship with Sedco Forex Holdings Limited and do not serve as officers or directors of that corporation. These individuals are employed by various affiliates of Sedco Forex Holdings Limited that are incorporated in France, the United Kingdom, the United States and the British Virgin Islands and provide support services to the Sedco Forex companies. NAME AGE TITLE - ---- --- ----- Jean P. Cahuzac....................... 45 President Yves Le Moign......................... 45 Business Manager Continental Europe, CIS & Africa Ricardo Rosa.......................... 43 Controller Michael I. Unsworth................... 40 Business Manager Asia Robert F. MacChesney.................. 42 Business Manager North Sea Patrick C. Lowe....................... 40 Business Manager North & South America Jean P. Cahuzac has served as President of Sedco Forex since January 1999. He was appointed Vice President-Operations Manager in May 1998, Region Manager - Europe, Africa and CIS in September 1994 and Vice President/General Manager - North Sea Region in February 1994. Mr. Cahuzac has been with Schlumberger since 1979. Yves Le Moign has served as Business Manager Continental Europe, CIS & Africa since February 1998. He served as Engineering Manager for Sedco Forex from March 1994 until February 1998. Mr. Le Moign has been with Schlumberger and Sedco Forex since 1977. 105 112 Ricardo Rosa has served as Controller at Sedco Forex since September 1995. He was appointed Gas Management Controller in October 1993. Mr. Rosa has been with Schlumberger since 1983. Michael I. Unsworth has served as Business Manager Asia since March 1998. He served as Sedco Forex Manager in Indonesia from July 1995 until February 1998 and as Sedco Forex Marketing Manager Scotland prior to July 1995. Mr. Unsworth has been with Schlumberger since 1981. Robert F. MacChesney has served as Business Manager North Sea since July 1997. He served as District Manager - Brazil from September 1993 until June 1997. Mr. MacChesney has been with Schlumberger since 1979. Patrick C. Lowe has served as Business Manager North & South America since August 1999. He served as Geomarket Manager - Saudi Arabia, Bahrain & Kuwait for Schlumberger Oilfield Services from February 1998 until August 1999, as Sedco Forex Division Manager Middle East from September 1996 until February 1998 and as District Manager - Pakistan from August 1993 until September 1996. Mr. Lowe has been with Schlumberger since May 1980. EXECUTIVE COMPENSATION The table below shows information regarding the compensation for each of the five most highly compensated Sedco Forex executive officers for the last three full fiscal years. All share amounts and related matters have been adjusted to reflect a two-for-one stock split of Schlumberger shares effected in June 1997. SUMMARY COMPENSATION TABLE LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION SECURITIES NAME AND PRINCIPAL ----------------------------- UNDERLYING ALL OTHER POSITION WITH SEDCO FOREX SALARY ($)(1)    BONUS ($)(1) OPTIONS (#) COMPENSATION ($)(2)
- -------------------------                        -------------    ------------   ------------   -------------------

Jean P. Cahuzac.........................  1998      218,182          64,560          5,000            24,131
President                                 1997      197,487          49,600         10,000            16,882
1996      202,041          47,990         12,000            17,264
Yves Le Moign...........................  1998      152,728          36,396              0                 0
Business Manager                          1997      143,627          36,364          3,500             5,675
Continental Europe, CIS                   1996      156,123          37,296          5,000             3,741
and Africa
Ricardo Rosa............................  1998      154,546          32,560          3,000            18,420
Controller                                1997      143,627          35,637         10,000            16,884
1996      153,062          39,049          5,000            16,231
Michael I. Unsworth.....................  1998      131,680(3)       36,790          3,000            12,313
Business Manager Asia                     1997       92,640          18,548          4,000            16,477
1996       85,800          15,544          4,000            12,313
Robert F. MacChesney....................  1998      114,375          15,381              0                 0
Business Manager                          1997       91,700          14,021          6,000            14,142
North Sea                                 1996       84,900          12,344          5,000            13,402

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

(1) Salary and bonus amounts which are paid in non-U.S. currency are converted
into U.S. dollars.

(2) Employer contributions to Schlumberger's Profit Sharing Plans. Contributions
are invested and final amounts depend on investment results.

(3) Includes geographical coefficient of $13,680. 106 113 STOCK OPTION GRANTS TABLE The table below contains information with respect to stock options granted to the executive officers in the last fiscal year. OPTION GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZABLE VALUE AT ASSUMED % OF TOTAL ANNUAL RATES OF NUMBER OF OPTIONS SCHLUMBERGER STOCK SECURITIES GRANTED TO PRICE APPRECIATION FOR UNDERLYING SEDCO FOREX EXERCISE OPTION TERM OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------- NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2)    DATE(3)     5% ($)(4) 10% ($)(4)
- ----                                --------------   ------------   ---------   ----------   ---------   ----------

Jean P. Cahuzac...................      5,000            28.5        78.375      4/15/08      246,448     624,548
Yves Le Moign.....................          0              --            --           --           --          --
Ricardo Rosa......................          0              --            --           --           --          --
Michael I. Unsworth...............      3,000            17.1        78.375      4/15/08      147,869     374,729
Robert F. MacChesney..............          0              --            --           --           --          --

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

(1) Schlumberger has not granted any stock appreciation rights. These options
become exercisable in installments of 20% each year following date of the
grant.

(2) The exercise price of the options is equal to the average of the high and
low share price on the option grant date.

(3) The stock options are subject to termination prior to their expiration date
in some cases where employment is terminated.

(4) These columns show the gains the named executives could realize if
Schlumberger's stock appreciates at a 5% or 10% rate. These growth rates are
arbitrary assumptions specified by the Securities and Exchange Commission,
not Schlumberger predictions.

For details concerning the treatment of outstanding options to acquire
Schlumberger common stock held by these executive officers, see "The Transaction
Agreements -- Employee Matters Agreement -- Stock Option Plans."

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STOCK OPTION EXERCISES AND DECEMBER 31, 1998 STOCK OPTION VALUE TABLE

The following table shows information concerning stock options the
executive officers exercised during last fiscal year, and unexercised stock
options they held as of December 31, 1998:

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF
SECURITIES       VALUE OF
UNDERLYING      UNEXERCISED
UNEXERCISED    IN THE MONEY
OPTIONS AT      OPTIONS AT
SHARES                           FY-END (#)     FY-END ($)(2) ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISES (#) REALIZED ($)(1)   UNEXERCISABLE   UNEXERCISABLE
- ----                                   ----------------   ---------------   -------------   -------------

Jean P. Cahuzac......................       10,000            426,560          14,800/         177,846/
22,200           68,970
Yves Le Moign........................            0                 --          16,500/         235,110/
7,000           35,979
Ricardo Rosa.........................        2,400            125,251          27,500/         380,262/
10,000           67,534
Michael I. Unsworth..................            0                 --          10,200/         132,807/
10,800           44,685
Robert F. MacChesney.................            0                 --          10,400/         128,408/
8,600           27,429

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

(1) Market value on date of exercise less exercise price.

(2) Closing price of Schlumberger common stock on December 31, 1998 ($46.375) less the exercise price. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SEDCO FOREX The following table shows information concerning the number of shares of Schlumberger common stock beneficially owned as of September 30, 1999, directly or indirectly, by the executive officers of Sedco Forex. Except as footnoted, each named individual has sole voting and investment power over the shares listed by that individual's name. As of the date of this joint proxy statement/prospectus, Schlumberger knows of no person who holds five percent or more of Schlumberger's outstanding common stock. PERCENTAGE OF SCHLUMBERGER BENEFICIAL OWNER SHARES OF SCHLUMBERGER SHARES - ---------------- ---------------------- ------------- Ricardo Rosa......................................... 32,922(1) * Jean P. Cahuzac...................................... 24,949(2) * Yves Le Moign........................................ 24,631(3) * Patrick C. Lowe...................................... 23,503(4) * Robert F. MacChesney................................. 16,484(5) * Michael I. Unsworth.................................. 10,499(6) * All executive officers as a group (6 persons)........ 132,988(7) * - --------------- * Less than one percent (1%) (1) Includes 31,800 shares which Mr. Rosa is deemed to own because he has the right to acquire such shares within 60 days through the exercise of stock options. (2) Includes 22,200 shares which Mr. Cahuzac is deemed to own because he has the right to acquire such shares within 60 days through the exercise of stock options. 108 115 (3) Includes 19,400 shares which Mr. Le Moign is deemed to own because he has the right to acquire such shares within 60 days through the exercise of stock options. (4) Includes 17,600 shares which Mr. Lowe is deemed to own because he has the right to acquire such shares within 60 days through the exercise of stock options. (5) Includes 13,400 shares which Mr. MacChesney is deemed to own because he has the right to acquire such shares within 60 days through the exercise of stock options. (6) Includes 8,400 shares which Mr. Unsworth is deemed to own because he has the right to acquire such shares within 60 day through the exercise of stock options. (7) Includes 112,800 shares the executive officers are deemed to own because they have the right to acquire such shares within 60 days through the exercise of stock options. 109 116 BUSINESS OF TRANSOCEAN Transocean is a leading international provider of offshore contract drilling services for oil and gas exploration, development and production. Transocean owns, has partial ownership interests in or operates 30 mobile offshore drilling units. Transocean's fleet consists of seven fourth-generation semisubmersibles, thirteen second- and third-generation semisubmersibles, four drillships, including two newbuild drillships, the Discoverer Enterprise, which is currently in the final stages of commissioning and testing, and the Discoverer Spirit, which is en route to a U.S. Gulf Coast shipyard for outfitting with drilling equipment, and six jackup rigs. Transocean also has under construction one additional Discoverer Enterprise-class drillship, to be named Discoverer Deep Seas. Transocean contracts these drilling rigs, related equipment and work crews primarily on a dayrate basis to drill offshore wells. Transocean also provides additional services, including turnkey drilling, coiled tubing drilling and well intervention and management of third-party well service activities. Transocean was founded in 1953 by predecessors of Sonat Inc. and J. Ray McDermott & Co., Inc. to design and construct the first jackup rig in the Gulf of Mexico. Transocean, then known as "The Offshore Company," began international drilling operations in the late 1950s and was one of the first contractors to offer drilling services in the North Sea. Transocean was publicly traded from 1967 until 1978, when it became a wholly owned subsidiary of Sonat Inc. In June 1993, Transocean, then known as "Sonat Offshore Drilling Inc.," completed an initial public offering of approximately 60 percent of the outstanding shares of its common stock. In July 1995, Sonat Inc. sold its remaining 40 percent interest in Transocean through a secondary public offering and currently owns no Transocean share capital. In September 1996, Transocean acquired substantially all of the outstanding capital shares of Transocean ASA, a Norwegian offshore drilling company, for an aggregate purchase price of approximately$1.5 billion
in common stock and cash, including direct transaction costs and costs of
purchasing minority shares completed in 1997, and changed its name to
"Transocean Offshore Inc." On May 14, 1999, Transocean completed a corporate
reorganization pursuant to which it reorganized from a Delaware corporation into
a Cayman Islands corporation.

Transocean Offshore Inc. is a Cayman Islands corporation with offices
located at 4 Greenway Plaza, Houston, Texas 77046. Its telephone number at that

For a more detailed description of the business of Transocean, see the
description set forth in Transocean's 1998 Annual Report on Form 10-K, which is

Further information about Transocean's drilling rigs, including rigs under
construction, as of September 30, 1999 is set forth below.

YEAR         WATER       DRILLING
ENTERED       DEPTH        DEPTH
SERVICE/     CAPABILITY   CAPABILITY                                            ESTIMATED
TYPE AND NAME                 UPGRADED(A)   (IN FEET)    (IN FEET)    LOCATION              CLIENT           EXPIRATION(B)
- -------------                 -----------   ----------   ----------   --------              ------           -------------

FOURTH-GENERATION
SEMISUBMERSIBLES(7)
Polar Pioneer...............     1985          1,500       25,000     Norwegian North Sea   Norsk Hydro      August 2001
Transocean Arctic(c)........     1986          1,650       25,000     Norwegian North Sea   Statoil          February 2002
Henry Goodrich(d)...........     1985          2,000       30,000     U.K. North Sea        BP Amoco         October 1999
Newfoundland          Terra Nova       January 2002
Paul B. Loyd, Jr.(d)........  1991/1993        2,000       25,000     U.K. North Sea        BP Amoco         January 2000
Transocean Leader...........  1987/1997        4,500       25,000     U.K. North Sea        --               Idle
Transocean Rather...........     1988          4,500       25,000     U.S. Gulf of Mexico   Mariner Energy   November 1999
Transocean Richardson.......     1988          5,000       25,000     U.S. Gulf of Mexico   Unocal           November 1999
OTHER SEMISUBMERSIBLES(13)
Transocean Explorer.........     1976          1,250       25,000     U.K. North Sea        --               Idle
Transocean Discoverer.......  1977/1985        1,250       25,000     U.K. North Sea        Talisman         February 2000
Transocean Wildcat(c).......  1977/1985        1,300       25,000     Norwegian North Sea   Statoil          June 2001
Transocean Winner(c)........     1983          1,500       25,000     Norwegian North Sea   Statoil          July 2003
Transocean Searcher(c)......  1983/1988        1,500       25,000     Norwegian North Sea   Statoil          July 2003
Transocean Prospect(c)......  1983/1992        1,500       25,000     Norwegian North Sea   Statoil          October 2000
Transocean John Shaw........     1982          1,800       25,000     U.K. North Sea        Texaco           November 1999
Transocean 96...............  1975/1997        2,300       25,000     U.S. Gulf of Mexico   Phillips         November 1999

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YEAR         WATER       DRILLING
ENTERED       DEPTH        DEPTH
SERVICE/     CAPABILITY   CAPABILITY                                            ESTIMATED
TYPE AND NAME                 UPGRADED(A)   (IN FEET)    (IN FEET)    LOCATION              CLIENT           EXPIRATION(B)
- -------------                 -----------   ----------   ----------   --------              ------           -------------

Transocean 97...............  1977/1997        2,300       25,000     U.S. Gulf of Mexico   --               Idle
Transocean Driller..........     1991          3,000       25,000     Brazil                Petrobras        June 2000
Transocean Legend...........     1983          3,500       25,000     Brazil                Petrobras        December 1999
Transocean Amirante.........   19781997        3,500       25,000     U.S. Gulf of Mexico   BP Amoco         September 2002
Transocean Marianas.........  1979/1998        7,000       25,000     U.S. Gulf of Mexico   Shell            September 2003
DRILLSHIPS(5)
Discoverer Seven Seas(e)....  1976/1997        7,000       25,000     Brazil                Petrobras        February 2002
Discoverer 534(e)...........  1975/1991        7,000       25,000     U.S. Gulf of Mexico   BP Amoco         February 2000
Discoverer
Enterprise(e)(f)..........     1999         10,000       35,000     U.S. Gulf of Mexico   BP Amoco         November 2004
Discoverer Spirit(e)(g).....     2000         10,000       35,000     Astano Shipyard       Unocal           (g)
Discoverer Deep
Seas(e)(h)................     2000         10,000       35,000     Astano Shipyard       Chevron          (h)
JACKUP RIGS(6)
Transocean Jupiter..........  1981/1997          170       16,000     UAE                   --               Idle
Offshore Comet..............     1980            250       20,000     Gulf of Suez, Egypt   GUPCO            October 2000
Offshore Mercury............  1969/1998          250       20,000     Gulf of Suez, Egypt   GUPCO            October 2000
Transocean III..............  1978/1993          300       20,000     UAE                   --               Idle
Shelf Explorer..............     1982            300       25,000     Danish North Sea      Maersk           August 2000
Transocean Nordic...........     1984            300       25,000     Dutch North Sea       Wintershall      March 2000

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

(a)  Dates shown are the original service date and the date of the most recent

(b)  Expiration dates represent Transocean's current estimate of the earliest
date the contract for each rig is likely to expire. Many contracts permit
the customer to extend the contract.

(c)  Participating in a cooperation agreement with Statoil.

(d)  Owned by Arcade Drilling AS, a Norwegian company in which Transocean has a
25% interest and which is controlled by a competitor.

(e)  Dynamically positioned.

(f)  The Discoverer Enterprise is currently in the final stages of commissioning
and testing. The rig will initially be equipped with sufficient riser to
drill in 8,500 feet of water but will be capable of operating in up to
10,000 feet of water with additional riser.

(g)  The Discoverer Spirit recently departed Spain and is en route to a U.S.
Gulf Coast shipyard for outfitting with drilling equipment. Transocean
expects it to be operational in the first quarter of 2000, working under a
five-year contract for Spirit Energy 76, a division of Unocal.

(h)  The Discoverer Deep Seas is being constructed at the Astano shipyard and is
expected to be operational in the third quarter of 2000, working under a
five-year contract for Chevron. The rig will initially be equipped with
sufficient riser to drill in 8,000 feet of water but will be capable of
operating in up to 10,000 feet of water with additional riser.

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MANAGEMENT OF TRANSOCEAN SEDCO FOREX

DIRECTORS AND EXECUTIVE OFFICERS

Following the merger, there will be ten directors of Transocean Sedco
Forex. Transocean, in consultation with Schlumberger, has designated five of the
initial directors, and Schlumberger, in consultation with Transocean, has
designated the remaining five directors.

The following table sets forth the names, ages as of September 30, 1999 and
titles of the directors and executive officers of Transocean Sedco Forex
following the merger:

NAME                                    AGE                  POSITION
- ----                                    ---                  --------

Victor E. Grijalva(1).................  61    Chairman of the Board of Directors
J. Michael Talbert(2).................  52    President, Chief Executive Officer and
Director
Jean P. Cahuzac.......................  45    Executive Vice President and
President, Europe, Middle East and
Africa
W. Dennis Heagney.....................  52    Executive Vice President and
President, Asia and the Americas
Jon C. Cole...........................  46    Executive Vice President, Marketing
Robert L. Long........................  53    Executive Vice President and Chief
Financial Officer
Donald R. Ray.........................  53    Senior Vice President, Technical
Services
Eric B. Brown.........................  48    Vice President, General Counsel and
Secretary
Barbara S. Koucouthakis...............  41    Vice President, Information Systems
and Communications Technology
David Mullen..........................  41    Vice President, Human Resources
Ricardo Rosa..........................  43    Vice President and Controller
Richard D. Kinder(2)..................  54    Director
Ronald L. Kuehn, Jr.(2)...............  64    Director
Arthur Lindenauer(1)..................  62    Director
Martin B. McNamara(2).................  51    Director
Roberto Monti(1)......................  60    Director
Alain Roger(1)........................  68    Director
Kristian Siem(2)......................  50    Director
Ian C. Strachan(1)....................  56    Director

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

(1) Schlumberger designee.

(2) Transocean designee.

Victor E. Grijalva will be the Chairman of the Board of Transocean Sedco
Forex following the merger. Mr. Grijalva was named Vice Chairman of Schlumberger
in April 1998. Before serving as Vice Chairman, he served as Executive Vice
President of Schlumberger's Oilfield Services division from 1994 to April 1998
and as Executive Vice President of Schlumberger's Wireline, Testing & Anadrill
division from 1992 to 1994.

J. Michael Talbert will be the President and Chief Executive Officer and a
member of the board of directors of Transocean Sedco Forex following the merger.
Mr. Talbert was named Chairman of the Board and Chief Executive Officer of
Transocean in August 1994. Mr. Talbert is also a director of Equitable
Resources, Inc. Prior to assuming his duties with Transocean, Mr. Talbert served
as President and Chief Executive Officer of Lone Star Gas Company, a natural gas
distribution company and a division of Enserch Corporation.

Jean P. Cahuzac will be the Executive Vice President and President, Middle
East, Europe and Africa of Transocean Sedco Forex following the merger. Mr.
Cahuzac was named President of Sedco Forex in January

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1999. Mr. Cahuzac was appointed Vice President-Operations Manager of Sedco Forex
in May 1998, Region Manager-Europe, Africa and CIS of Sedco Forex in September
1994 and Vice President/General Manager-North Sea Region of Sedco Forex in
February 1994. Mr. Cahuzac has been employed with Schlumberger since 1979.

W. Dennis Heagney will be the Executive Vice President and President, Asia
and the Americas of Transocean Sedco Forex following the merger. Mr. Heagney was
elected to the board of directors of Transocean effective June 12, 1997 and
President of Transocean effective April 1, 1986. He currently serves in those
capacities and also serves as Chief Operating Officer for Transocean. Mr.
Heagney has been employed by Transocean since 1969 and was elected Vice
President in 1983 and Senior Vice President in 1984.

Jon C. Cole will be the Executive Vice President, Marketing of Transocean
Sedco Forex following the merger. Mr. Cole was elected Senior Vice President of
Transocean effective April 1, 1993, and currently serves in that capacity, with
responsibility for worldwide marketing. He joined Transocean in 1978 and was
elected Vice President in 1990.

Robert L. Long will be the Executive Vice President and Chief Financial
Officer of Transocean Sedco Forex following the merger. Mr. Long was elected
Senior Vice President of Transocean effective May 1, 1990, Treasurer of
Transocean effective September 1, 1997 and currently serves in those capacities
and as Chief Financial Officer of Transocean. He has been employed by Transocean
since 1976 and was elected Vice President in 1987.

Donald R. Ray will be the Senior Vice President, Technical Services of
Transocean Sedco Forex following the merger. He was elected Senior Vice
President of Transocean effective December 1, 1996 and currently serves in that
capacity, with responsibility for technical services. Mr. Ray has been employed
by Transocean since 1972 and has served as a Vice President of Transocean since
1986.

Eric B. Brown will be the Vice President, General Counsel and Secretary of
Transocean Sedco Forex following the merger. Mr. Brown was elected Vice
President and General Counsel of Transocean effective February 1, 1995 and
Secretary of Transocean effective September 29, 1995 and he currently serves in
those capacities. Prior to assuming his current position with Transocean, Mr.
Brown served as General Counsel of Coastal Gas Marketing Company.

Barbara S. Koucouthakis will be the Vice President of Information Systems
and Communications Technology of Transocean Sedco Forex following the merger.
She was elected Controller of Transocean effective January 1, 1990 and Vice
President effective April 1, 1993, and currently serves in those capacities. She
has been employed by Transocean since 1982.

David Mullen will be the Vice President, Human Resources of Transocean
Sedco Forex following the merger. Mr. Mullen has served Schlumberger as Director
of Personnel Geco-Prakla since 1998. Mr. Mullen was elected Managing
Director-Schlumberger (Nigeria) Ltd. in 1996, District Manager-Eastern Venezuela
Schlumberger (Wireline & Testing) in 1994 and has been employed by Schlumberger
since 1983.

Ricardo Rosa will be Vice President and Controller of Transocean Sedco
Forex following the merger. He has served as Controller at Sedco Forex since
September 1995. He was appointed Gas Management Controller in October 1993. Mr.
Rosa has been with Schlumberger since 1983.

Richard D. Kinder will be a director of Transocean Sedco Forex following
the merger. Mr. Kinder is Chairman of the Board and Chief Executive Officer of
Kinder Morgan, Inc. and Kinder Morgan Energy Partners L.P., a master limited
partnership that owns and operates diversified energy assets. He has served
Transocean as a director since November 1994. Mr. Kinder is also a director of
Baker Hughes Incorporated and Waste Management, Inc. During the past five years
prior to assuming his present position, Mr. Kinder served as President and Chief
Operating Officer of Enron Corp.

Ronald L. Kuehn, Jr. will be a director of Transocean Sedco Forex following
the merger. Mr. Kuehn is Chairman of the Board, President and Chief Executive
Officer of Sonat Inc., a diversified natural gas company. He has served
Transocean as a director since 1975. Mr. Kuehn is also a Director of AmSouth
Bancorporation, The Dun & Bradstreet Corporation, Praxair, Inc., Protective Life
Corporation and Union
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120

Carbide Corporation, and is a member of the Board of Trustees of Tuskegee
University. During the past five years, Mr. Kuehn has served as an executive
officer of Sonat Inc.

Arthur Lindenauer will be a director of Transocean Sedco Forex following
the merger. Effective January 1, 1999, he became Chairman of Schlumberger
Technology Corporation, Schlumberger's principal U.S. subsidiary. He previously
served as Executive Vice President-Finance and Chief Financial Officer of
Schlumberger from January 1980 to December 1998. Mr. Lindenauer was a partner
with the accounting firm of Price Waterhouse from 1972 to 1980. Mr. Lindenauer
is also a director of the New York Chapter of the Cystic Fibrosis Foundation and
a Trustee of the American University in Cairo.

Martin B. McNamara will be a director of Transocean Sedco Forex following
the merger. Mr. McNamara is Partner-in-Charge of the Dallas, Texas office of the
law firm of Gibson, Dunn & Crutcher and a member of the firm's executive
committee. He has served Transocean as a director since November 1994. During
the past five years, Mr. McNamara has been in the private practice of law.

Roberto Monti will be a director of Transocean Sedco Forex following the
merger. He has served as the Executive Vice President of Exploration and
Production for Repsol YPF since July 1999. He was the President and Chief
Executive Officer of YPF Sociedad Anonima from September 1995 to June 1999 prior
to its acquisition by Repsol. From October 1993 to July 1995, he served as
President of Dowell, a division of Schlumberger.

Alain Roger will be a director of Transocean Sedco Forex following the
merger. He is a retired executive officer of Schlumberger. He served as
Executive Vice President of Health, Safety and Environment for Schlumberger from
October 1993 to December 1995. He served as Executive Vice President of Drilling
and Pumping for Schlumberger from July 1991 to September 1993 and as President
of Sedco Forex from 1985 to 1991.

Kristian Siem will be a director of Transocean Sedco Forex following the
merger. Mr. Siem is Chairman and Chief Executive Officer of Siem Industries,
Inc., an industrial holding company that owns offshore and onshore oil and gas
drilling, subsea construction services and passenger cruise line businesses
through subsidiaries in Bermuda, the U.K., Norway and the U.S. Mr. Siem has
served Transocean as a director since September 1996. During the past five
years, Mr. Siem has served as an executive officer with Siem Industries, Inc.
and as Chairman of Wilrig AS and Transocean ASA, which subsequently combined
with Transocean. Mr. Siem also serves on the boards of Norwegian Cruise Line,
DSND ASA, Ivar Holding ASA, Lambert, Fenchurch Group Holdings plc, Four Seasons
Capital A.B. and Oslo Reinsurance ASA. He was also a member of the board of
directors of Saga Petroleum ASA until its merger with Norsk Hydro in September
1999.

Ian C. Strachan will be a director of Transocean Sedco Forex following the
merger. He currently serves as Deputy Chairman of Invensys plc. He served as
Chief Executive Officer from January 1996 and Executive Director from May 1995
of BTR plc until its merger with Siebe plc in 1999, when it changed its name to
Invensys plc. From 1987 until 1995, Mr. Strachan was with Rio Tinto plc, serving
as Chief Financial Officer and Executive Director from 1989 until 1991 and as
Deputy Chief Executive Officer and Executive Director from 1991 until 1995.

Upon completion of the merger, Victor E. Grijalva, the present Vice
Chairman of Schlumberger, will become the Chairman of the board of directors of
Transocean Sedco Forex and is expected to serve until he reaches age 65. Mr.
Grijalva will enter into a consulting agreement with Transocean Sedco Forex in
connection with his becoming Chairman. Mr. Grijalva will also retain his
position as Vice Chairman of Schlumberger. See "Interests Of Certain
Persons -- Transocean Sedco Forex Chairman's Consulting Agreement."

The board of directors of Transocean Sedco Forex will be divided into three
staggered classes. Messrs. Siem, Talbert, Grijalva and Lindenauer will be the
Class I directors, with terms expiring at the annual shareholders' meeting in
2000. Messrs. Kinder, McNamara and Roger will be the Class II directors, with
terms expiring at the annual shareholders' meeting in 2001. Messrs. Kuehn, Monti
and Strachan will be the

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Class III directors, with terms expiring at the annual shareholders' meeting in
2002. After the initial expiration of class terms described above, each class
will serve for three-year terms.

The Transocean Sedco Forex board of directors initially will have the
following four standing committees: the Audit Committee, the Executive
Compensation Committee, the Finance and Benefits Committee and the Corporate
Governance Committee. Under the merger agreement, Transocean and Schlumberger
agreed that these committees, as well as any other committee of the board of
directors, will consist of an equal number of Transocean and Schlumberger
designees. The Transocean designees to the board of directors will designate the
committee chairmen of the Executive Compensation and the Finance and Benefits
Committees, and the Schlumberger designees to the board of directors will
designate the committee chairmen of the Audit and Corporate Governance
Committees. The chairmen of any other committees will be designated as equally
as practicable by Transocean's and Schlumberger's respective board designees.

Under the merger agreement, Transocean and Schlumberger agreed to use all
reasonable efforts to maintain the proportional allocation between Transocean
and Schlumberger designees to the board and its committees for a period of three
years after the completion of the merger. Transocean and Schlumberger also
agreed that if a director dies, resigns or is removed from the board prior to
the expiration of the three-year period following the merger, the remaining
Transocean designees, if the director was a director designated by Transocean,
or Schlumberger designees, if the director was a director designated by
Schlumberger, on the board will nominate a replacement for action by the full
board.

COMPENSATION OF DIRECTORS

Following is a summary of Transocean's director compensation as in effect
prior to the spin-off and merger. It is expected that the compensation for
directors will be reviewed by the board of directors of Transocean Sedco Forex
following the merger.

FEES AND RETAINERS

Employees of Transocean receive no extra pay for serving as directors. Each
director who is not an officer or employee of Transocean or any of its
subsidiaries receives an annual retainer of $30,000. A committee chairman receives an additional$5,000 annual retainer. Non-employee directors also
receive a fee of $1,000 for each board meeting and each board committee meeting attended, plus expenses incurred where appropriate. STOCK OPTIONS/STOCK APPRECIATION RIGHTS When elected, each outside director will be granted options to purchase 4,000 shares of Transocean Sedco Forex ordinary shares at the fair market value of those shares on the date of grant. Following the initial grant, if the outside director remains in office, the director is granted additional options to purchase 4,000 ordinary shares after each annual meeting at the fair market value of those shares on the date of grant. For tax reasons, directors residing in Norway may receive stock appreciation rights, commonly referred to as SARs, instead of options. Each stock option and SAR has a ten-year term and becomes exercisable in equal annual installments on the first, second and third anniversaries of the date of grant assuming continued service on the board. In the event of an outside director's retirement in accordance with the board's retirement policy or his or her earlier death or disability, or in the event of a change of control of Transocean Sedco Forex as described under "Interests of Certain Persons -- Transocean Benefits Under a Change of Control," options and SARs will become immediately exercisable and will remain exercisable for the remainder of their ten-year term. Options and SARs will terminate 60 days after an outside director leaves the board for any other reason. However, if that person ceases to be director for the convenience of Transocean Sedco Forex, as determined by the board, the board may at its discretion accelerate the exercisability of those options and SARs. Transocean has reserved an aggregate of 200,000 ordinary shares for issuance to outside directors under its Long-Term Incentive Plan of which 43,698 remained available for grant as of September 30, 1999. The 115 122 provisions of this incentive plan relating to grants to outside directors will terminate on July 1, 2003, unless terminated earlier by the board. OFFICER AND DIRECTOR INDEMNIFICATION No Transocean Sedco Forex director will be personally liable to Transocean Sedco Forex for monetary damages for breach of fiduciary duty as a director, except for liability - for any breach of the director's duty of loyalty to Transocean Sedco Forex; - for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; or - for any transaction from which the director derived an improper personal benefit. Transocean Sedco Forex will indemnify its officers and directors to the fullest extent permitted by the laws of the Cayman Islands if they are or become a party or are threatened to be made a party to, or otherwise require representation by counsel in connection with, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, whether or not an action by or in the right of Transocean Sedco Forex, by reason of any of the following circumstances: - he is or was an officer or director of Transocean Sedco Forex; - while serving as an officer or director of Transocean Sedco Forex, he is or was serving at the request of Transocean Sedco Forex as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; or - he took or omitted to take any action while serving in these capacities. Transocean Sedco Forex officers' and directors' rights to indemnification will also include the right to be paid in advance by Transocean Sedco Forex for their expenses to the fullest extent permitted by the laws of the Cayman Islands. Cayman Islands law does not limit the extent to which a company's articles of association may provide for the indemnification of its directors, officers, employees and agents, except to the extent that such provision may be held by a Cayman Islands court to be contrary to public policy. INTERESTS OF CERTAIN PERSONS IN THE MERGER EXISTING SCHLUMBERGER/SEDCO FOREX OFFICERS AND DIRECTORS WHO WILL JOIN TRANSOCEAN SEDCO FOREX AT THE EFFECTIVE TIME Upon completion of the merger, Jean P. Cahuzac, currently President of Sedco Forex, will be appointed Executive Vice President and President, Europe, Middle East and Africa of Transocean Sedco Forex, and David Mullen, currently Director of Personnel for Geco Prakla, a unit of Schlumberger, will be appointed Vice President, Human Resources of Transocean Sedco Forex. In addition, Victor E. Grijalva, who is currently Vice Chairman of Schlumberger, and Arthur Lindenauer, who is currently a Senior Advisor of Schlumberger and President of Schlumberger Technology Corporation, will be elected to the Transocean Sedco Forex board of directors. Under the merger agreement, Transocean agreed to use its reasonable best efforts to maintain a 50 percent allocation of directorships of Transocean Sedco Forex for Schlumberger designees and to maintain the initial appointments thereunder for a period of three years following the merger. Pursuant to the merger agreement, Mr. Grijalva will be appointed Chairman of the Board of Transocean Sedco Forex and will enter into a consulting agreement with Transocean Sedco Forex. See "-- Transocean Sedco Forex Chairman's Consulting Agreement." 116 123 INDEMNIFICATION OF SEDCO FOREX OFFICERS AND DIRECTORS The merger agreement provides that, following the merger, Transocean Sedco Forex will indemnify, defend and hold harmless, to the fullest extent permitted under applicable law, (1) each person who is, or has been at any time prior to the effective time of the merger, an officer or director of Sedco Forex or any of its subsidiaries or divisions and (2) each person who served as a director, officer, trustee or fiduciary of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or enterprise at the request of Sedco Forex against all losses, claims, damages, liabilities, costs or expenses, including attorneys' fees, judgments, fines, penalties and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation that arises out of or pertains to actual or alleged acts or omissions by them in the capacities set forth in (1) and (2) above. Transocean Sedco Forex's duty to indemnify, defend and hold harmless applies whether or not such actions are commenced, asserted or claimed prior to the effective time of the merger. In the event of such claim, action, suit, proceeding or investigation, Transocean Sedco Forex is required to pay the fees and expenses of counsel selected by the party to be indemnified, to the fullest extent permitted by applicable law in advance of the final disposition of any such action and cooperate in the defense of any such matter. The merger agreement provides that the rights to indemnification will survive the merger and continue in full force and effect for six years after the completion of the merger. The merger agreement also provides that for a period of six years after the effective time of the merger, Transocean will maintain officers' and directors' liability insurance covering those individuals described in (1) and (2) above who were covered prior to the effective time of the merger by officers' and directors' liability insurance policies maintained by Sedco Forex on terms substantially no less advantageous to those individuals than the existing Sedco Forex insurance, provided that such insurance is available at a reasonable cost. TRANSOCEAN SEDCO FOREX CHAIRMAN'S CONSULTING AGREEMENT As part of the merger and as a condition to his appointment as chairman of the Transocean board, Victor E. Grijalva, Vice Chairman of Schlumberger, will enter into a consulting agreement with Transocean Sedco Forex. The consulting agreement will contain the following material terms: - Transocean Sedco Forex will nominate Mr. Grijalva to its board of directors to serve as Chairman until his 65th birthday, at which time he will resign such position; - until the time of his resignation, Mr. Grijalva will provide consulting services to Transocean Sedco Forex, as an independent contractor, with regard to long-range planning, strategic direction and integration and rationalization matters; - Transocean Sedco Forex will pay Mr. Grijalva$400,000 per year;

- Transocean Sedco Forex will indemnify Mr. Grijalva in connection with the
services he provides to the fullest extent available under Transocean
Sedco Forex's articles of association; and

- Mr. Grijalva will be entitled to the non-cash compensation and benefits
Transocean Sedco Forex provides to non-employee directors.

EMPLOYMENT AGREEMENTS

Under each of the agreements described below, a change of control will be
deemed to have occurred upon completion of the spin-off and the merger.

Transocean has entered into employment agreements with its executive
officers, including J. Michael Talbert, W. Dennis Heagney, Robert L. Long, Jon
C. Cole, Donald R. Ray, Eric B. Brown, Barbara S. Koucouthakis and Alan A.
Boussard. The occurrence of a change in control under these agreements triggers
provisions that generally guarantee a minimum salary and bonus for a period of
three years following the change of control. In consideration of cash payments
or, in some cases, elimination of some restrictions on vesting of certain
restricted stock grants, each of these executive officers has agreed to waive
the guarantee of a minimum bonus. The employment agreements also provide
generally that, in the event that the executive
117
124

officer's employment with Transocean is terminated within three years of a
change of control (1) for reasons other than death, disability or for "cause,"
(2) by the executive officer for good reason, which includes a diminution of
responsibilities or compensation or (3) by a voluntary determination of the
executive officer to leave during the 30-day period immediately following the
first anniversary of the change of control, the executive would receive the
following:

- any unpaid portion of his then-annual base salary and prorated portion of
his highest bonus paid either in the last three years before the change
of control or for the last completed fiscal year after the change of
control (the "highest bonus");

- a lump-sum payment equal to three times the sum of his highest bonus and
his annual base salary, based on the highest monthly salary paid in the
twelve months prior to the change of control;

- health and welfare benefits to him and his family for a three-year period
at least equal to those that would have been provided had his employment
not been terminated; and

- a lump sum amount equal to the excess of (1) the actuarial equivalent of
the benefit under Transocean's Retirement Plan and Supplemental
Retirement Plan had the executive's employment continued for three years
after termination over (2) the actuarial equivalent of the executive's
actual benefit under those plans.

Neither Transocean nor Schlumberger has determined whether any of the above
named executives subject to employment agreements will be terminated following
the effective time of the merger. Assuming that all such executives are
terminated in a qualifying termination of employment, Transocean Sedco Forex
would be required to pay the executive officers aggregate payments currently
estimated to be approximately $15 million. In addition, the employment agreements provide that Transocean is obligated to pay an additional amount sufficient to make the executive officer whole with respect to any excise tax that may be imposed by Section 4999 of the U.S. Internal Revenue Code and any taxes imposed on such additional amounts. Because the merger will constitute a change of control under the employment agreements, each of the above-named executives will have the right to leave Transocean Sedco Forex voluntarily for any reason at any time during the 30-day period beginning on the first anniversary of the merger, and in so leaving will receive the benefits described above. LONG-TERM INCENTIVE PLAN The Transocean Long-Term Incentive Plan, which applies to non-employee directors, officers and other key employees, provides that all outstanding and unvested options to purchase shares of Transocean ordinary shares, share appreciation rights and grants of restricted shares will vest upon a change of control, as defined in the plan. Because of a change in the definition of change of control that was adopted in April 1996, the merger constitutes a change of control only for those options, share appreciation rights and restricted shares awarded after that time. The options so vested will be exercisable for the duration of their term, notwithstanding an optionee's prior termination of employment or cessation of service as a director. With respect to the executive officers of Transocean, an aggregate of approximately 55,600 Transocean restricted ordinary shares and 440,837 options to acquire Transocean ordinary shares will vest upon completion of the merger. With respect to the non-employee directors of Transocean, no restricted ordinary shares and an aggregate of approximately 44,000 options to acquire Transocean ordinary shares and 7,300 SARs will vest upon completion of the merger. PERFORMANCE AWARD AND CASH BONUS PLAN Under Transocean's Performance Award and Cash Bonus Plan, upon a change of control as defined in the plan, plan participants will be deemed to have fully attained all performance objectives under the plan. The merger will constitute a change of control under the plan. Therefore, performance awards for the portion of the 118 125 performance period prior to the change of control will be deemed to be the maximum amount of the award that, in the judgment of the Executive Compensation Committee, could have been earned assuming full attainment of the performance objectives. DESCRIPTION OF CAPITAL STOCK OF TRANSOCEAN TRANSOCEAN ORDINARY SHARES DESCRIPTION OF AUTHORIZED SHARES OF TRANSOCEAN The following discussion is a summary of Transocean's share capital. This summary is not complete and is subject to the complete text of Transocean's memorandum of association and its articles of association. For information on how to obtain a copy of Transocean's memorandum of association and articles of association, see "Where You Can Find More Information." We encourage you to read those documents carefully. AUTHORIZED SHARE CAPITAL Transocean's authorized share capital is$6,500,000, divided into
150,000,000 ordinary shares, par value $0.01, and 50,000,000 other shares, par value$0.10, which shares may be designated and created as shares of any other
classes or series of shares with the respective rights and restrictions
determined by action of the board of directors. If the proposed resolution to
increase the ordinary share capital is approved, Transocean's authorized share
capital will be increased to $8,000,000 and the number of ordinary shares authorized will increase to 300,000,000. As of September 30, 1999, 100,574,790 ordinary shares and no other class or series of shares had been issued. VOTING The holders of Transocean's ordinary shares are entitled to one vote per share other than on the election of directors. With respect to the election of directors, each holder of Transocean's ordinary shares entitled to vote at the election has the right to vote, in person or by proxy, the number of shares held by him for as many persons as there are directors to be elected and for whose election that holder has a right to vote. The directors are divided into three classes, with only one class being up for election each year. Directors are elected by a plurality of the votes cast in the election. Cumulative voting, for the election of directors, is prohibited by Transocean's articles of association. There are no limitations imposed by Cayman Islands law or Transocean's articles of association on the right of nonresident shareholders to hold or vote their Transocean ordinary shares. The rights attached to any separate class or series of shares, unless otherwise provided by the terms of the shares of that class or series, may be varied only with the consent in writing of the holders of all of the issued shares of that class or series or by a special resolution passed at a separate general meeting of holders of the shares of that class or series. The necessary quorum for that meeting is the presence of holders of at least a majority of the shares of that class or series. Each holder of shares of the class or series present, in person or by proxy, will have one vote for each share of the class or series of which he is the holder. Outstanding shares will not be deemed to be varied by the creation or issuance of additional shares that rank in any respect prior to or equivalent with those shares. Under Cayman Islands law, some matters, like altering the memorandum of association or the articles of association, changing the name of a company, voluntarily winding up a company or resolving to be registered by way of continuation in a jurisdiction outside the Cayman Islands, require approval of the company's shareholders by a special resolution. A special resolution is a resolution (1) passed by the holders of two-thirds of the shares voted at a general meeting or (2) approved in writing by all shareholders of a company entitled to vote at a general meeting of the company. 119 126 QUORUM FOR GENERAL MEETINGS The presence of shareholders, in person or by proxy, holding at least a majority of the issued shares generally entitled to vote at a meeting constitutes a quorum for the transaction of most business. However, different quorums are required in some cases to approve a change in Transocean's articles of association. Shareholders present, in person or by proxy, holding at least 95% of the issued shares entitled to vote at a meeting constitutes the required quorum at a general meeting to consider or adopt a special resolution to amend, vary, suspend the operation of or disapply any of the following provisions of the articles of association: - Section 17 -- which relates to the convening of general meetings; - Section 19 -- which relates to proceedings and procedures at general meetings; - Section 21.1 -- which relates to the election and appointment of directors; - Section 26 -- which requires shareholders to approve the sale, lease or exchange of all or substantially all of Transocean's property or assets; or - Section 27 -- which requires shareholders to approve business combinations with interested shareholders (with the exceptions described below). However, shareholders present, in person or by proxy, holding at least a majority of the issued shares entitled to vote at the meeting constitutes a quorum if: - a majority of the board of directors has, at or prior to the meeting, recommended a vote in favor of the special resolution; and - in the case of a special resolution to amend, vary, suspend the operation of or disapply Section 27 of the articles of association, other than a special resolution referred to below, the favorable board of directors' recommendation is made at a time when a majority of the board of directors then in office were directors prior to any person becoming an interested shareholder during the previous three years or were recommended for election or elected to succeed those directors by a majority of those directors. In addition, shareholders present, in person or by proxy, holding at least a majority of the issued shares entitled to vote at a meeting constitute the required quorum to consider or adopt a special resolution to delete Section 27 of the articles of association if: - the resolution will not be effective until 12 months after the passing of the resolution; and - the restriction in Section 27 of the articles of association will otherwise continue to apply to any business combination between Transocean and any person who became an interested shareholder on or before the passing of the resolution. The shareholders present at a duly constituted general meeting may continue to transact business until adjournment, despite the withdrawal of shareholders that leaves less than a quorum. DIVIDEND RIGHTS Subject to any rights and restrictions of any other class or series of shares, the board of directors may, from time to time, declare dividends on the shares issued and authorize payment of the dividends out of Transocean's lawfully available funds. The board of directors may declare that any dividend be paid wholly or partly by the distribution of shares of Transocean and/or specific assets. RIGHTS UPON LIQUIDATION Upon the liquidation of Transocean, after holders of any issued shares ranking senior to the ordinary shares as to distribution on liquidation or winding up have been paid in full, or the full amounts have been set aside for payment, the holders of Transocean's ordinary shares are entitled to receive, pro rata, any remaining 120 127 assets of Transocean available for distribution. The liquidator may deduct from the amount payable in respect of those ordinary shares any liabilities the holder has to or with Transocean. The assets received by the holders of Transocean ordinary shares in a liquidation may consist, in whole or in part, of property. That property is not required to be of the same kind for all shareholders. NO SINKING FUND The Transocean ordinary shares have no sinking fund provisions. NO LIABILITY FOR FURTHER CALLS OR ASSESSMENTS The Transocean ordinary shares to be issued in the merger will be duly and validly issued, fully paid and nonassessable. NO PREEMPTIVE RIGHTS Holders of Transocean ordinary shares have no preemptive or preferential right to purchase any securities of Transocean. REDEMPTION AND CONVERSION The Transocean ordinary shares are (1) not convertible into shares of any other class or series or (2) subject to redemption by Transocean or by the holder of the shares. REPURCHASE Under Transocean's articles of association, Transocean may purchase any issued ordinary shares in the circumstances and on the terms as are agreed by Transocean and the holder of the shares. Transocean may, from time to time, with the agreement of a holder, purchase all or part of the holder's ordinary shares whether or not Transocean has made a similar offer to all or to any of the other holders of ordinary shares. RESTRICTIONS ON TRANSFER Subject to the rules of any stock exchange on which the ordinary shares may be listed, the board of directors may, in its absolute discretion and without assigning any reason, decline to register any transfer of shares. OTHER CLASSES OR SERIES OF SHARES The board of directors is authorized, without obtaining any vote or consent of the holders of any class or series of shares unless expressly provided by the terms of issue of that class or series, to provide from time to time for the issuance of other classes or series of shares and to establish the characteristics of each class or series, including the number of shares, designations, relative voting rights, dividend rights, liquidation and other rights, redemption, repurchase or exchange rights and any other preferences and relative, participating, optional or other rights and limitations not inconsistent with applicable law. COMPULSORY ACQUISITION OF SHARES HELD BY MINORITY HOLDERS An acquiring party is generally able to acquire compulsorily the ordinary shares of minority holders in one of two ways: - By a procedure under the Companies Law of the Cayman Islands known as a "scheme of arrangement." A scheme of arrangement is made by obtaining the consent of the Cayman Islands corporation, the consent of a Cayman Islands court and approval of the arrangement by holders of ordinary shares (1) representing a majority in number of the shareholders present, in person or by proxy, at the meeting held to consider the arrangement and (2) holding at least 75% of all the issued ordinary shares other than those held by the acquiring party, if any. If a scheme of arrangement 121 128 receives all necessary consents, all holders of ordinary shares of the company would be compelled to sell their shares under the terms of the scheme of arrangement. - By acquiring pursuant to a tender offer 90% of the ordinary shares not already owned by the acquiring party. If the acquiring party has, within four months after the making of an offer for all the ordinary shares not owned by the acquiring party, obtained the approval of not less than 90% of all the shares to which the offer relates, the acquiring party may, at any time within two months after the end of that four month period, require any nontendering shareholder to transfer its shares on the same terms as the original offer. In those circumstances, nontendering shareholders will be compelled to sell their shares, unless within one month from the date on which the notice to compulsorily acquire was given to the nontendering shareholder, the nontendering shareholder is able to convince a Cayman Islands court to order otherwise. TRANSOCEAN PREFERENCE SHARES Transocean is authorized to issue preference shares but currently has no preference shares outstanding. LIMITATION ON DIRECTOR'S LIABILITY Cayman Islands law, which governs Transocean, does not allow the limitation of a director's liability for fraud, willful neglect or willful default. Transocean's articles of association provide that the directors will have no personal liability to Transocean or, if any, its shareholders for monetary damages for breach of fiduciary duty as a director, except for: - breaching the duty of loyalty to the company or, if any, its shareholders; - failing to act in good faith; - engaging in intentional misconduct or a known violation of the law; or - obtaining an improper personal benefit from the company. LIMITATION ON CHANGES IN CONTROL Transocean's articles of association have provisions that could have an anti-takeover effect. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and in the policies formulated by the board of directors and to discourage transactions that may involve an actual or threatened change of control of Transocean. The articles of association provide that Transocean's board of directors will be divided into three classes serving staggered three-year terms. Directors can be removed from office only for cause, as defined in the articles of association, and by the affirmative vote of the holders of a majority of the issued shares generally entitled to vote. The board of directors does not have the power to remove directors. Vacancies on the board of directors may only be filled by the remaining directors and not by the shareholders. Each of these provisions can delay a shareholder from obtaining majority representation on the board of directors. The articles of association provide that the board of directors will consist of not less than two nor more than twelve persons, the exact number to be set from time to time by a majority of the whole board of directors. Accordingly, the board of directors, and not the shareholders, has the authority to determine the number of directors and could delay any shareholder from obtaining majority representation on the board of directors by enlarging the board of directors and filling the new vacancies with its own nominees until a general meeting at which directors are to be appointed. The articles of association establish an advance notice procedure that must be followed by shareholders if they wish to nominate candidates for election as directors or propose any business at an annual general meeting of shareholders. The articles of association provide generally that, if a shareholder desires to nominate candidates for election as directors or to propose any business at an annual general meeting, he must give Transocean notice not less than 90 days prior to the anniversary of the originally scheduled date of the 122 129 immediately preceding annual general meeting. However, if the date of the forthcoming annual general meeting is more than 30 days before or after the anniversary date, the deadline is the close of business on the tenth day after Transocean publicly discloses the meeting date. In each case, the notice must contain specified information concerning the shareholder submitting the proposal. Subject to the terms of any other class of shares in issue, any action required or permitted to be taken by the holders of Transocean's ordinary shares must be taken at a duly called annual or special general meeting of shareholders unless taken by written consent of all holders of ordinary shares. Special general meetings may only be called by a majority of the entire board of directors. The board of directors is authorized, without obtaining any vote or consent of the holders of any class or series of shares unless expressly provided by the terms of issue of a class or series, to issue, from time to time, any other classes or series of shares with the designations and relative powers, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or terms or conditions of redemption as they consider fit. The board of directors could authorize the issuance of preference shares with terms and conditions that could discourage a takeover or other transaction that holders of some or a majority of the ordinary shares might believe to be in their best interests or in which holders might receive a premium for their shares over the then market price of the shares. No preference shares have been issued as of the date of this document. The special quorum provisions contained in the articles of association require the holders of 95% of all the voting shares to be present, in person or by proxy, at a general meeting to consider or adopt a special resolution to amend, vary, suspend the operation of or disapply the following provisions of the articles of association, unless a majority of the board of directors has recommended that the shareholders vote in favor of the special resolution: - Section 17 -- which relates to the convening of general meetings; - Section 19 -- which relates to proceedings and procedures at general meetings; - Section 21.1 -- which relates to the election and appointment of directors; - Section 26 -- which requires shareholders to approve the sale, lease or exchange of all or substantially all of Transocean's property or assets; or - Section 27 -- which requires shareholders to approve business combinations with interested shareholders (for a description of exceptions to the quorum requirements to amend Section 27, see "-- Quorum for General Meetings"). Transocean's articles of association generally prohibit "business combinations" between Transocean and an "interested shareholder." Specifically, "business combinations" between an interested shareholder and Transocean are prohibited for a period of three years after the time the interested shareholder acquired its shares, unless: - the business combination or the transaction resulting in the person becoming an interested shareholder is approved by the board of directors prior to the date the interested shareholder acquired shares; - the interested shareholder acquired at least 85% of Transocean's shares in the transaction in which it became an interested shareholder; or - the business combination is approved by a majority of the board of directors and by the affirmative vote of disinterested shareholders holding at least two-thirds of the shares generally entitled to vote. "Business combinations" is defined broadly to include mergers, consolidations of majority owned subsidiaries, sales or other dispositions of assets having an aggregate value in excess of 10% of the consolidated assets of Transocean and most transactions that would increase the interested shareholder's proportionate share ownership in Transocean. "Interested shareholder" is defined as a person who, together with any affiliates and/or associates of that person, beneficially owns, directly or indirectly, 15% or more of the issued voting shares of Transocean. 123 130 TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for Transocean's ordinary shares is the Bank of New York. STOCK EXCHANGE LISTING Transocean ordinary shares are listed on the New York Stock Exchange under the symbol "RIG." 124 131 COMPARISON OF RIGHTS OF SHAREHOLDERS As a result of the spin-off and the merger, shareholders of Schlumberger will also become shareholders of Transocean. The rights of Schlumberger's shareholders are governed by Netherlands Antilles law, including the Commercial Code, and Schlumberger's articles of incorporation and bylaws. The rights of Transocean's shareholders are governed by Cayman Islands law, including the Companies Law (1998 Revision), and Transocean's memorandum of association and articles of association. This section describes some of the material differences between the rights of Schlumberger's shareholders and the rights of Transocean's shareholders. However, this section does not describe all of those differences. If you wish to review all of the differences or see the precise terms of these provisions, you should read Transocean's memorandum of association and articles of association, Schlumberger's articles of incorporation and bylaws and the applicable laws in their entirety. For information on obtaining Transocean's memorandum of association and articles of association and Schlumberger's articles of incorporation and bylaws, see "Where You Can Find More Information." SHAREHOLDER APPROVAL OF BUSINESS COMBINATIONS SCHLUMBERGER TRANSOCEAN Netherlands Antilles law does not include a statu- Cayman Islands law does not include a statutory tory merger procedure. However, under Schlum- merger procedure. Cayman Islands law does, however, berger's articles of incorporation, any sale or other provide for a procedure known as a "scheme of disposition of all or substantially all of the assets arrangement." A scheme of arrangement is made by of Schlumberger may only be made pursuant to a obtaining the consent of the Cayman Islands corpo- resolution duly adopted at a general meeting of ration, the consent of a Cayman Islands court and shareholders by holders of at least a majority of the approval by holders of ordinary shares (1) repre- shares of capital stock of Schlumberger at that time senting a majority in number of the shareholders outstanding and entitled to vote. The notice of any present, in person or by proxy, at the meeting held such meeting is required to specify the terms of the to consider the arrangement and (2) holding at least proposed sale or other disposition. 75% of all the issued ordinary shares other than those held by the acquiring party, if any. If a scheme of arrangement receives all of the necessary consents, all holders of ordinary shares of a com- pany would be compelled to sell their shares under the terms of the scheme of arrangement. Trans- ocean's Cayman Islands counsel, Walkers, has ad- vised that Cayman Islands courts are likely to sanction such a scheme of arrangement in the absence of bad faith, fraud or unequal treatment of shareholders. In addition, Cayman Islands companies may be acquired by other corporations by the direct acquisition of the share capital of the Cayman Islands company or by direct asset acquisition. Cayman Islands law provides that when an offer is made for ordinary shares of a Cayman Islands company and, within four months of the offer, the holders of not less than 90% of those shares accept, the offeror may, for two months after that four-month period, require the remaining ordinary shareholders to transfer their ordinary shares on the same terms as the original offer. 125 132 Transocean's articles of association provide that, in order for it to sell, lease or exchange all or substantially all of its property or assets, other than transactions with entities it controls, it must first obtain: - approval of the board of directors; and - approval of the holders of at least a majority of the issued shares generally entitled to vote. SPECIAL VOTE REQUIRED FOR COMBINATIONS WITH INTERESTED SHAREHOLDERS SCHLUMBERGER TRANSOCEAN Schlumberger is not subject to any special provi- Transocean's articles of association provide that, in sions regarding combinations with interested general, it may not engage in a business combina- shareholders. tion with an interested shareholder for a period of three years after the time of the transaction in which the person became an interested shareholder. The prohibition on business combinations with in- terested shareholders does not apply in some cases, including if: - Transocean's board of directors, prior to the time of the transaction in which the person became an interested shareholder, approves (1) the business combination or (2) the transaction in which the shareholder becomes an interested shareholder; - as a result of the business combination, the inter- ested shareholder owns at least 85% of the voting shares of Transocean issued at the time the trans- action commenced; or - Transocean's board of directors and the holders of at least 66 2/3% of the outstanding voting shares not owned by the interested shareholder approve the business combination on or after the time of the transaction in which the person became an inter- ested shareholder. Transocean's articles of association define an inter- ested shareholder to include any person who, to- gether with that person's affiliates or associates, (1) owns 15% or more of Transocean's issued voting shares or (2) is an affiliate or associate of Trans- ocean and owned 15% or more of the outstanding voting shares of Transocean at any time within the previous three years. 126 133 RESTRICTIONS ON ACQUISITIONS OF LARGE BLOCKS OF SHARES SCHLUMBERGER TRANSOCEAN Under Netherlands Antilles law, when a person's Acquirors of Transocean shares are not subject to any ownership in voting stock, or right to exercise the such restrictions. voting rights, of Schlumberger reaches or exceeds 5%, 10%, 33 1/3%, 50% or 66 2/3% of all outstanding Schlumberger voting shares, that person must promptly notify Schlumberger in writing. If the voting percentage equals or exceeds 10%, the acquiring person is required to include in its notification whether, during the next 12 months, it is intending to (1) acquire more voting shares or otherwise extend its voting rights of Schlumberger or (2) use its participation in Schlumberger to influence Schlumberger's board of directors, or to bring about decisions that do not fit in with normal investment policies, or to acquire representation in Schlumberger's board or to obtain proxies for an upcoming meeting of shareholders. If the acquiring party states in the notification that it is not contemplating any of the actions described in (1) or (2), it may not take any of those actions during that 12-month period without first notifying Schlumberger's board at least four weeks in advance. Schlumberger is required to make public any such notification it receives. Also under Netherlands Antilles law, before a person makes an acquisition of Schlumberger stock following which the person will own more than 20% of the outstanding voting shares of Schlumberger, the acquiring person must first notify Schlumberger's board of directors in writing and give the board at least two weeks to consult with the acquiring person regarding the acquisition. If Schlumberger's board does not consent to the acquisition, there are restrictions on the manner in which the acquisition may be made. The offer is required to be made publicly for all Schlumberger shares. The offering price shall be payable in cash and be no less than the greater of (1) the highest price reported for Schlumberger shares by recognized stock exchanges during the preceding 12 months and (2) the highest price offered by the acquiring person and its affiliates during the preceding 24 months. The offer must remain outstanding for at least four weeks and at most ten weeks. The offer may only be subject to specified permitted conditions, which include: (1) obtaining tender of at least 50% of the voting shares; (2) a competing third-party offer not being announced; (3) all necessary judicial or administration 127 134 authorizations being obtained and (4) no circumstances occurring during the offer period that, if known by the offering party prior to the offer, would have caused the offering party to not make the offer. APPRAISAL RIGHTS AND COMPULSORY ACQUISITION SCHLUMBERGER TRANSOCEAN Neither Netherlands Antilles law nor Schlumberger's Neither Cayman Islands law nor Transocean's articles of incorporation or bylaws specifically memorandum of association or articles of associa- provides for appraisal rights. tion specifically provides for appraisal rights. How- ever, in connection with the compulsory transfer of shares to a 90% shareholder of a Cayman Islands company as described under "-- Shareholder Approval of Business Combinations," a minority shareholder may apply to the court within one month of receiving notice of the compulsory transfer objecting to that transfer. In these circumstances, the burden is on the minority shareholder to show that the court should exercise its discretion to prevent the compulsory transfer. Transocean has been advised that the court is unlikely to grant any relief to the minority shareholder in the absence of bad faith, fraud, unequal treatment of shareholders or collu- sion between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders. SHAREHOLDER CONSENT TO ACTION WITHOUT MEETING SCHLUMBERGER TRANSOCEAN Schlumberger's articles of incorporation provide that Cayman Islands law and Transocean's articles of shareholders may take action by written consent if association provide that shareholders may take ac- signed by the holders of at least a majority of the tion requiring a special resolution without a meeting outstanding voting shares, or such higher per- only by unanimous written consent. centage as is required to take such action by Netherlands Antilles law or Schlumberger's articles of incorporation. Each shareholder is entitled to advance notice of any action proposed to be taken by written consent. 128 135 MEETINGS OF SHAREHOLDERS SCHLUMBERGER TRANSOCEAN Under Netherlands Antilles law, a general shareholder Under Transocean's articles of association, a general meeting is required to be held within nine months of meeting of shareholders is required to be held at the fiscal year end of Schlumberger, which is least annually. That meeting can be held anywhere. December 31. Pursuant to Netherlands Antilles law and Schlumberger's articles of incorporation and bylaws, Under Transocean's articles of association, an all meetings of shareholders are to be held in extraordinary general meeting of Transocean may be Curacao. called only by a majority of the board of directors of Transocean. Under Schlumberger's articles of incorporation, general meetings of shareholders, including special general meetings, may be called by the Chairman, the President, the board of directors or the holders of at least half of the outstanding shares of Schlumberger voting stock. In addition, holders of one-tenth of the issued capital may petition the board of directors to convene a shareholder meeting subject to applicable law. FINANCIAL STATEMENTS SCHLUMBERGER TRANSOCEAN Schlumberger is required to present its annual fi- Transocean is not required to present its annual nancial statements to its shareholders for approval financial statements to its shareholders for approval and adoption. or adoption. 129 136 DISTRIBUTIONS AND DIVIDENDS; REPURCHASES AND REDEMPTIONS SCHLUMBERGER TRANSOCEAN Under Netherlands Antilles law and Schlumberger's Transocean is not required to present proposed articles of incorporation, Schlumberger is required dividends to its shareholders for approval or to present any proposed dividends to its shareholders adoption. for approval and adoption. Schlumberger may pay interim dividends out of its expected current year Under Cayman Islands law, the board of directors of profits or distribute the undistributed profits of Transocean may declare the payment of dividends to previous years. If Schlumberger suffers a loss in any the ordinary shareholders out of Transocean's: year, no dividends may be paid unless Schlumberger has sufficient undistributed profits or reserves from - profits; or previous years to cover the loss or until it covers the loss with profits from subsequent years. - "share premium account," which represents the excess of the price paid to Transocean on issue of Under Schlumberger's articles of incorporation, its shares over the par or "nominal" value of those Schlumberger may repurchase or redeem fully paid shares, which is similar to the U.S. concept of shares of its stock provided that at least one-fifth additional paid in capital. of its authorized capital remains outstanding with holders other than Schlumberger. However, no dividends may be paid if, after pay- ment, Transocean would not be able to pay its debts as they come due in the ordinary course of business. Under Cayman Islands law, shares of a Cayman Islands company may be redeemed or repurchased out of profits of the company, out of the proceeds of a fresh issue of shares made for that purpose or out of capital, provided the company has the ability to pay its debts as they come due in the ordinary course of business. NUMBER OF DIRECTORS SCHLUMBERGER TRANSOCEAN Under Schlumberger's articles of incorporation, the Under Transocean's articles of association, the min- minimum number of directors is five and the maximum imum number of directors is two and the maximum number of directors is 24. number is 12. VACANCIES ON BOARD OF DIRECTORS SCHLUMBERGER TRANSOCEAN Vacancies on Schlumberger's board of directors may be Transocean's articles of association provide that a filled by the remaining directors. However, if the vacancy or a newly created directorship may only be number of remaining directors is less than a majority filled by a majority of the remaining directors. of the whole board of directors, then the remaining directors are required immediately to call a general meeting of shareholders to fill the vacancies. Newly created directorships can be filled by Schlumberger's shareholders. 130 137 REMOVAL OF DIRECTORS; STAGGERED TERM OF DIRECTORS SCHLUMBERGER TRANSOCEAN Schlumberger's directors are elected annually at a Transocean's articles of association provide for a general meeting of Schlumberger's shareholders. classified board of directors and also provide that Directors may be removed at any general meeting of directors may only be removed by the holders of a shareholders with or without cause. majority of the shares entitled to vote on the elec- tion of directors and only for "cause." Transocean's articles of association define "cause" for this pur- pose to mean: - an action by a director involving willful malfea- sance, which conduct has a material adverse effect on Transocean; or - conviction of a felony. INSPECTION OF BOOKS AND RECORDS SCHLUMBERGER TRANSOCEAN Netherlands Antilles law does not expressly provide Cayman Islands law does not expressly provide shareholders of a Netherlands Antilles company with shareholders of a Cayman Islands company with any any general rights to inspect or obtain copies of the general rights to inspect or obtain copies of the list of shareholders or corporate records of the list of shareholders or corporate records of a com- company. However, if shares of a Netherlands An- pany, other than the register of mortgages and tilles company are not fully paid-up, the company is charges. However, Transocean's articles of associa- required to maintain a list of the holders and the tion provide that any shareholder may inspect its amounts paid that is open for public inspection or books and records for a proper purpose. Trans- copying at its corporate office. ocean's board of directors may establish procedures or conditions regarding these inspection rights for the following purposes: - protecting the interests of Transocean; - protecting the confidentiality of the information contained in those books and records; - the convenience of Transocean; or - protecting any other interest of Transocean that the board of directors deems proper. 131 138 AMENDMENT OF GOVERNING DOCUMENTS SCHLUMBERGER TRANSOCEAN Schlumberger's articles of incorporation provide that Under Cayman Islands law, Transocean's memorandum of they may be amended only pursuant to a resolution association and articles of association may only be adopted at a general meeting of shareholders by the amended by a special resolution of its shareholders. holders of at least a majority of the shares of Transocean's board of directors may not effect capital stock of Schlumberger at the time outstanding amendments to Transocean's articles of association on and entitled to vote. The notice of any such meeting its own. Some amendments to Transocean's articles of is required to set forth the exact text of the association require as a quorum the presence of proposed amendment or state that a copy of that text shareholders holding at least 95% of the shares has been deposited at the Schlumberger office in entitled to vote at that meeting. See "Description of Curacao for inspection by its shareholders until the Capital Stock of Transocean." conclusion of the meeting. Schlumberger's bylaws may only be amended by the board of directors at a meeting of the board for which notice was given to all directors specifying the amendment to be voted on. However, the bylaws may not be amended to be inconsistent with the articles of incorporation. INDEMNIFICATION OF DIRECTORS AND OFFICERS SCHLUMBERGER TRANSOCEAN Netherlands Antilles law does not expressly limit the Cayman Islands law does not limit the extent to which extent to which a company may indemnify its a company may indemnify its directors, officers, directors, officers, employees and agents. Schlum- employees and agents except to the extent that such berger's articles of incorporation and bylaws provide provision may be held by the Cayman Islands courts to that Schlumberger may indemnify its directors, of- be contrary to public policy. For instance, a ficers, employees and agents and those persons provision purporting to provide indemnification serving in such capacities for other entities at against the consequences of committing a crime may be Schlumberger's request for actions by third parties deemed contrary to public policy. In addition, an against those persons by reason of their serving in officer or director may not be indemnified for his those capacities if that person acted in good faith own fraud, willful neglect or willful default. and in a manner he reasonably believed to be in or not opposed to the best interests of Schlumberger Transocean's articles of association make indemnifi- and, with respect to any criminal proceeding, he had cation of directors and officers and advancement of no reason to believe his conduct was unlawful. expenses to defend claims against directors and Schlumberger's articles of incorporation and bylaws officers mandatory on the part of Transocean to the allow for the same indemnification with respect to fullest extent allowed by law. actions against those same persons by or in the right of Schlumberger except that if such a person is adjudged liable to Schlumberger by a court, Schlumberger may only indemnify that person to the extent a court deems proper. 132 139 LIMITED LIABILITY OF DIRECTORS SCHLUMBERGER TRANSOCEAN Netherlands Antilles law provides that a director may Cayman Islands law will not allow the limitation of a be liable to a company for his negligent acts in the director's liability for his own fraud, willful performance of his duties. neglect or willful default. Transocean's articles of association provide that its directors have no personal liability to Transocean or, if any, its shareholders for monetary damages for breach of fiduciary duty as a director, except for: - breaching the duty of loyalty to Transocean or, if any, its shareholders; - failing to act in good faith; - engaging in intentional misconduct or a known violation of law; or - obtaining an improper personal benefit from Transocean. ADVANCE NOTIFICATION REQUIREMENTS FOR PROPOSALS OF SHAREHOLDERS SCHLUMBERGER TRANSOCEAN There are no provisions relating to advance notice Transocean's articles of association require share- requirements of shareholder proposals under holders wishing to nominate directors or propose Schlumberger's articles of incorporation or Schlum- business for a shareholders' meeting to give advance berger's bylaws. However, shareholders of Schlum- notice as described under "Future Shareholder Pro- berger are required to comply with the advance posals." notification requirements prescribed by the SEC. RESTRICTIONS AS TO PROXIES SCHLUMBERGER TRANSOCEAN Under Schlumberger's bylaws, no director, officer or Transocean's directors, officers and employees are employee of Schlumberger may act as a proxy at any not subject to such a restriction. general meeting of shareholders or in connection with action taken by shareholders without a meeting. 133 140 TRANSOCEAN'S PROPOSAL TO INCREASE ITS AUTHORIZED ORDINARY SHARE CAPITAL GENERAL The board of directors of Transocean has unanimously adopted a resolution to submit to a vote of the shareholders a proposal to increase Transocean's authorized ordinary share capital to$3,000,000 and the number of authorized
ordinary shares to 300,000,000.

The terms of the additional ordinary shares will be identical to those of
the currently outstanding ordinary shares. However, because shareholders have no
preemptive rights to purchase any additional ordinary shares that may be issued,
the issuance of additional ordinary shares will reduce the percentage interest
of current shareholders in the total outstanding ordinary shares. Approval of
this proposal will not affect the number of other shares authorized. The
relative rights and limitations of the ordinary shares and other shares
authorized would remain unchanged under this proposal.

PURPOSES AND EFFECTS OF INCREASING THE NUMBER OF AUTHORIZED ORDINARY SHARES

If this proposal is approved by Transocean's shareholders and the merger is
completed, the number of ordinary shares that Transocean is authorized to issue
would increase from 150,000,000 to 300,000,000. The additional 150,000,000
shares, if and when issued, would have the same rights and privileges as the
currently issued Transocean ordinary shares.

The primary purpose of the proposed increase in the authorized number of
ordinary shares is to ensure that enough shares are available to complete the
merger. Currently, Transocean has only about 49 million authorized ordinary
shares available for issuance and it expects that it will need to issue about
109 million new ordinary shares in the merger. In addition, Transocean's board
of directors recommends the proposed increase in the authorized number of
ordinary shares over and above that required to complete the merger to ensure an
adequate supply of authorized and unissued ordinary shares for one or more of
the following purposes:

- to provide sufficient ordinary shares to cover obligations under
Transocean's Long-Term Incentive Plan and Employee Stock Purchase Plan;
and

- to raise additional capital for ongoing operations and other corporate
purposes.

Except as described in this joint proxy statement/prospectus, there are
currently no plans or arrangements relating to the issuance of any of the
additional ordinary shares proposed to be authorized. Such shares would be
available for issuance without further action by shareholders, except as
required by New York Stock Exchange rules.

The increase in the number of authorized ordinary shares has not been
proposed for any anti-takeover purpose and the board of directors and members of
management of Transocean have no knowledge of any current effort to obtain
control of Transocean or to accumulate large amounts of its ordinary shares.
However, the availability of additional ordinary shares could make any attempt
to gain control of Transocean or of the board of directors more difficult.
Authorized but unissued ordinary shares could be issued in an effort to dilute
the share ownership and voting power of any person or entity desiring to acquire
control of Transocean. Such issuance may have the effect of discouraging or
lessening the likelihood of the change of control. These shares could also be
issued to other persons or entities who support the board of directors in
opposing a takeover attempt that the board considers not to be in the best
interests of Transocean and its shareholders.

In evaluating this proposal, shareholders should consider the effect of
certain other provisions of Transocean's articles of association that may have
anti-takeover consequences, which are described in this joint proxy
statement/prospectus under "Description of Capital Stock of
Transocean -- Limitation on Changes in Control."

134
141

VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS

Approval of this proposal requires the affirmative vote of holders of the
majority of Transocean ordinary shares. Approval of the proposal is a condition
to the merger because Transocean does not have enough authorized but unissued
ordinary shares to effect the merger. If approved, this proposal will be
implemented only if the merger is completed.

FOR THE REASONS DESCRIBED ABOVE, TRANSOCEAN'S BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO INCREASE
TRANSOCEAN'S AUTHORIZED ORDINARY SHARE CAPITAL TO $3,000,000, CONSISTING OF 300,000,000 ORDINARY SHARES, PAR VALUE$0.01 PER SHARE.

PROPOSAL TO AMEND TRANSOCEAN'S LONG-TERM INCENTIVE PLAN

DESCRIPTION OF THE PROPOSAL

The board of directors of Transocean has unanimously adopted a resolution
to submit to a vote of its shareholders a proposal to amend Transocean's
Long-Term Incentive Plan:

- to increase the number of ordinary shares reserved for issuance under the
incentive plan from 6,300,000 to 13,300,000, such increase of 7,000,000
shares to consist of 6,800,000 to be reserved for issuance to employees
and 200,000 shares to be reserved for issuance to outside directors; and

- to increase the aggregate number of shares subject to awards of
freestanding share appreciation rights to employees from 100,000 to
250,000.

Currently under the incentive plan there remain only about 1,300,000 shares
available for issuance in connection with option grants. Because the merger will
approximately double the size of Transocean and the number of employees, the
board believes that the proposed increase in shares reserved for issuance is
necessary to maintain adequate flexibility to use the incentive plan to attract
and retain qualified employees and directors.

PRINCIPAL PROVISIONS OF THE LONG-TERM INCENTIVE PLAN

The following summary of the incentive plan is qualified by reference to
the full text of the current plan, which, as conformed through Amendment No. 1
effected in May 1999, is attached as Annex E to this joint proxy
statement/prospectus.

The incentive plan is administered by the executive compensation committee
of the board of directors, all of the members of which are "non-employee
directors" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 and "outside directors" within the meaning of Section 162(m) of the U.S.
Internal Revenue Code. It is intended that the grant of awards under the amended
incentive plan, after approval by shareholders, will satisfy the requirements of
Section 162(m) of the code, as applicable to limitations on deductions of
compensation expenses in excess of $1 million for certain executive officers. The committee designates the employees of Transocean and its subsidiaries and affiliated companies to be granted awards under the incentive plan and the type and amount of awards to be granted. The committee has authority to interpret and amend the incentive plan, adopt administrative regulations for the operation of the incentive plan and determine and amend the terms of awards to employees under the incentive plan. However, the committee has no authority to vary the amount or terms of awards to outside directors from those set forth in the incentive plan. Under the incentive plan, options to purchase ordinary shares, share appreciation rights in tandem with options, freestanding share appreciation rights, restricted shares and cash performance awards may be granted to employees at the discretion of the committee. The committee may provide for a supplemental cash payment upon the exercise of an option or share appreciation right to cover the employee's tax burden associated with such exercise. In addition, the incentive plan provides for automatic awards to outside directors of options to purchase 4,000 ordinary shares or, in the case of outside directors who reside in Norway, 135 142 share appreciation rights with respect to 4,000 ordinary shares. An automatic award to an outside director is granted at the time the individual becomes such a director, as well as at each annual meeting of Transocean's shareholders at which the individual remains or is reelected as a director. The aggregate number of ordinary shares that may be issued under the incentive plan may not exceed 6,100,000 shares with respect to awards to employees, reduced by the number of shares which have previously been issued with respect to awards to employees. Cash tax-offset supplemental payments will not count against these limits. Lapsed, forfeited or canceled awards, including options canceled upon the exercise of tandem share appreciation rights, will not count against these limits and can be regranted under the incentive plan. If the exercise price of an option is paid in ordinary shares or if ordinary shares are withheld from payment of an award to satisfy tax obligations with respect to the award, such shares will also not count against the above limits. No employee may be granted options or restricted shares with respect to more than 600,000 ordinary shares in any fiscal year. The aggregate number of ordinary shares subject to awards to outside directors may not exceed 200,000. The aggregate number of ordinary shares subject to awards of freestanding share appreciation rights to employees may not exceed 100,000. The shares issued under the incentive plan may be ordinary shares held in treasury or authorized but unissued ordinary shares. Transocean's officers are eligible to participate in the incentive plan, as are employees of Transocean and its subsidiaries, and of partnerships or joint ventures in which Transocean and its subsidiaries have a significant ownership interest, as determined by the committee. Outside directors of Transocean are automatically granted options or, for outside directors residing in Norway, share appreciation rights that have the terms specified in the incentive plan. Outside directors are not eligible for any other awards under the incentive plan. Approximately 130 current employees and seven current outside directors have received awards under the incentive plan. It is estimated that the total number of employees who are eligible to receive awards under the incentive plan at present would not exceed approximately 140 persons. The committee determines, in connection with each option awarded to an employee, the exercise price, whether that price is payable in cash, ordinary shares or by cashless exercise, the terms and conditions of exercise, whether the option will qualify as an incentive stock option under the U.S. Internal Revenue Code, or a non-qualified option, restrictions on transfer of the option and other provisions not inconsistent with the incentive plan. The committee is also authorized to grant share appreciation rights to incentive plan participants, either as freestanding awards or in tandem with an option. Every share appreciation right entitles the participant, upon exercise of the share appreciation right, to receive in cash or ordinary shares a value equal to the excess of the market value of a specified number of ordinary shares at the time of exercise, over the exercise price established by the committee. The incentive plan requires that the exercise price of options and share appreciation rights be at least equal to fair market value on the date of grant, except with respect to options granted within 90 days of the closing of Transocean's initial public offering in June 1993. The term of options and share appreciation rights under the incentive plan may not exceed 10 years, except that the committee may extend the term for up to one year following the death of the participant. The committee is authorized to grant employees awards of restricted shares. The committee determines the terms, conditions, restrictions and contingencies applicable to awards of restricted shares. Awards of restricted shares may be designated as "qualified performance-based compensation" under Section 162(m) of the U.S. Internal Revenue Code. The performance goals will be based on the same criteria as the cash performance awards discussed below. The committee may also provide for cash performance awards to employees based on the achievement of one or more objective performance goals. Cash performance awards may be designated as "qualified performance-based compensation" under Section 162(m) of the U.S. Internal Revenue Code. If so designated, the cash performance awards will be contingent upon the performance of Transocean during the performance period, as measured by targets established by the committee, based on any one or more of: - sales; - operating profits; - operating profits before interest expense and taxes; - net earnings; - earnings per share; - return on equity; - return on assets; 136 143 - return on invested capital; - total shareholder return; - cash flow; - debt-to-equity ratio; - market share; - stock price; - economic value added; and - market value added. Such performance measures may be applied to Transocean on a consolidated basis and to a business unit, as an absolute measure or as a measure relative to a peer group of companies. The committee will establish the performance objectives for an award in writing no later than 90 days after beginning of the fiscal year to which the award relates. The number and kind of shares covered by the incentive plan and by outstanding awards under the incentive plan and the exercise price of outstanding awards are subject to adjustment in the event of any: - reorganization; - recapitalization; - stock dividend; - stock split; - merger; - consolidation; - extraordinary cash dividend; - split-up; - spin-off; - combination; or - exchange of shares. Upon the occurrence of a change of control, following the grant of an award, (1) all outstanding restricted shares will immediately vest, (2) all options and share appreciation rights held by outside directors will become immediately exercisable and will remain exercisable for the remainder of their term, and (3) all outstanding options, tandem share appreciation rights and freestanding share appreciation rights held by then-current employees will become immediately exercisable and will remain exercisable for the remainder of their term. The incentive plan is not limited in duration by its terms. However, pursuant to Section 422(b)(2) of the U.S. Internal Revenue Code, no option that is intended to constitute an incentive stock option may be granted under the incentive plan after May 1, 2003. The Transocean board of directors may at any time amend, suspend or terminate the incentive plan, but in doing so cannot adversely affect any outstanding awards without the grantee's written consent. In addition, the board of directors may not increase the number of shares reserved for issuance under the incentive plan or change the minimum option or share appreciation right price without shareholder approval. The amount and type of awards to be granted in the future under the incentive plan to the named officers, to all executive officers as a group and to all other employees are not currently determinable. U.S. FEDERAL INCOME TAX CONSEQUENCES The following is a summary of the general rules of present U.S. federal income tax law relating to the tax treatment of incentive stock options, non-qualified stock options, share appreciation rights and restricted share awards issued under the incentive plan. The discussion is general in nature and does not take into account a number of considerations that may apply based on the circumstances of a particular participant under the incentive plan, including the possibility that a participant may not be subject to U.S. federal income taxation. When the term "Transocean" is used in this section, the term is understood to mean the U.S. subsidiary of Transocean. Options. Some of the options issuable under the incentive plan may constitute "incentive stock options" within the meaning of Section 422 of the U.S. Internal Revenue Code, while other options granted under the incentive plan will be non-qualified stock options. The U.S. Internal Revenue Code provides for tax treatment of stock options qualifying as incentive stock options that may be more favorable to employees than the tax treatment accorded non-qualified stock options. Generally, upon the exercise of an incentive stock option, the optionee will recognize no income for U.S. federal income tax purposes. However, the difference between the exercise price of the incentive stock option and the fair market value of the shares at the time of exercise is an item of tax adjustment that may require payment of an alternative minimum tax. On the sale of shares 137 144 acquired by exercise of an incentive stock option, assuming that the sale does not occur within two years of the date of grant of the option or within one year from the date of exercise, referred to as a disqualifying disposition, any gain will be taxed to the optionee as the appropriate type of capital gain, depending on the actual holding period from the exercise date. In contrast, upon the exercise of a non-qualified option, the optionee recognizes taxable ordinary income, subject to withholding, in an amount equal to the difference between the fair market value of the shares on the date of exercise and the exercise price. Upon any sale of such shares by the optionee, any difference between the sale price and the fair market value of the shares on the date of exercise of the non-qualified option will be treated generally as capital gain or loss. No deduction is available to Transocean upon the grant or exercise of an incentive stock option, although a deduction may be available if the employee sells the shares acquired upon exercise before the applicable holding period expires, whereas upon exercise of a non-qualified stock option, Transocean is entitled to a deduction in an amount equal to the income recognized by the employee. Except in the case of the death or disability of an optionee, an optionee has three months after termination of employment in which to exercise an incentive stock option and retain favorable tax treatment at exercise. An option exercised more than three months after an optionee's termination of employment other than upon death or disability of an optionee cannot qualify for the tax treatment accorded incentive stock options. Such option would be treated as a non-qualified stock option instead. Share Appreciation Rights. The amount of any cash or the fair market value of any share received by the holder upon the exercise of share appreciation rights under the incentive plan will be subject to ordinary income tax in the year of receipt, and Transocean will be entitled to a deduction for such amount. Restricted Share Awards. Generally, a grant of ordinary shares under the incentive plan, which shares are subject to vesting and transfer restrictions, will not result in taxable income to the recipient for U.S. federal income tax purposes or a tax deduction to Transocean in the year of the grant. Generally, the recipient will be taxed on the value of the ordinary shares as ordinary income in the years in which the restrictions on the shares lapse. Such value will be the fair market value of the shares on the dates the restrictions terminate, less any consideration paid for the ordinary shares. Under Section 83(b) of the U.S. Internal Revenue Code, any recipient may elect to treat the fair market value of such shares on the date of such grant as compensation income in the year of the grant, provided the recipient makes the election pursuant to Section 83(b) of the code within 30 days after the date of the grant. In any case, Transocean will receive a deduction for U.S. federal income tax purposes equal to the amount of compensation included in the recipient's income in the year in which that amount is so included. Cash Performance Awards. Payments of cash performance awards will be ordinary income to the recipient in the year paid, and Transocean will be entitled to a deduction for such amount in the year in which that amount is so included. Other. In general, a U.S. federal income tax deduction is allowed to Transocean in an amount equal to the ordinary income recognized by a participant with respect to awards under the incentive plan, provided that such amount constitutes an ordinary and necessary business expense of Transocean. However, Transocean will not be entitled to a deduction to the extent compensation in excess of$1 million is paid to an executive officer named in Transocean's proxy
statement who was employed by Transocean at year-end, unless the compensation
qualifies as "performance based" under Section 162(m) of the U.S. Internal
Revenue Code or certain other exceptions apply. In addition, Transocean will not
be entitled to a deduction with respect to payments to employees that are
contingent upon a change of control if such payments are deemed to constitute
"excess parachute payments" under Section 280G of the U.S. Internal Revenue Code
and do not qualify as reasonable compensation pursuant to that section; such
payments will subject the recipients to a 20 percent excise tax.

A participant's tax basis in shares acquired upon exercise of an option
under the incentive plan is equal to the sum of the price paid for the ordinary
shares, if any, and the amount of ordinary income recognized by the participant
on the receipt or transfer of the shares acquired upon exercise of an option.
The participant's holding period for the shares begins upon the receipt of the
ordinary shares acquired upon exercise of an option. If a participant sells the
ordinary shares, assuming there is no disqualifying disposition of an "incentive
stock option," any difference between the amount realized in the sale and the
participant's tax basis in the

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shares is taxed as long-term, mid-term or short-term capital gain or loss,
provided the shares are held as a capital asset on the date of sale, and
depending on the participant's holding period for the shares.

VOTE REQUIRED; RECOMMENDATION OF TRANSOCEAN'S BOARD OF DIRECTORS

The affirmative vote of a majority of the Transocean ordinary shares
present or represented and entitled to vote at the extraordinary general meeting
is required for approval of the amendment of the incentive plan, provided that
votes cast represent a majority of ordinary shares issued. For this purpose, an
abstention will count as a vote against the amendment, and broker non-votes
applicable to ordinary shares represented at the meeting will have no effect.

Approval of this proposal is not a condition to the merger but, if
approved, it will be implemented only if the merger is completed.

TRANSOCEAN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO APPROVE AND RATIFY THE ADOPTION OF THE AMENDMENT TO TRANSOCEAN'S
LONG-TERM INCENTIVE PLAN.

PROPOSAL TO AMEND TRANSOCEAN'S EMPLOYEE STOCK PURCHASE PLAN

DESCRIPTION OF THE PROPOSAL

The board of directors of Transocean has unanimously adopted a resolution
to submit to a vote of the shareholders a proposal to amend Transocean's
Employee Stock Purchase Plan to increase the number of ordinary shares reserved
for issuance under the stock purchase plan to 750,000. In addition, if this
proposal is approved and the merger is completed, the stock purchase plan will
be amended to permit eligible participants, including participating Sedco Forex
employees, to make a lump-sum contribution for the plan year 2000 in the first
quarter of the year 2000. The purpose of this amendment is to afford the Sedco
Forex employees the opportunity to transfer their existing account balances
under the Schlumberger discounted stock purchase plan to their new accounts
under the Transocean Sedco Forex employee stock purchase plan.

The purpose of Transocean's stock purchase plan is to encourage and assist
Transocean's employees to acquire an equity interest in Transocean through the
purchase of ordinary shares. Transocean's board of directors believes the stock
purchase plan is achieving its purpose, and believes that to continue to carry
out its purpose and to provide for the approximate doubling in size of the
workforce as a result of the merger, it is necessary to amend the stock purchase
plan to increase the number of ordinary shares reserved for issuance under the
stock purchase plan from 250,000 ordinary shares to 750,000 ordinary shares.

Of the 250,000 ordinary shares reserved for issuance under the plan,
approximately 75,000 shares are expected to remain available after giving effect
to the 1999 purchase period. Approval of the amendment to increase the number of
shares reserved for issuance under the stock purchase plan is not a condition to
the merger. If this proposal is approved, it will be implemented regardless of
whether the merger is completed in order to fulfill Transocean's ongoing
obligations under the plan. The stock purchase plan will terminate after all
Transocean ordinary shares covered by the stock purchase plan have been
purchased, unless Transocean's board of directors terminates it earlier.

PRINCIPAL PROVISIONS OF THE EMPLOYEE STOCK PURCHASE PLAN

The following summary of the stock purchase plan is qualified by reference
to the full text of the current plan, which, as conformed through Amendment No.
1 effected in May 1999, is attached as Annex F to this joint proxy
statement/prospectus.

Under the stock purchase plan, all full-time employees of Transocean, and
of any subsidiary of Transocean, that has, with the consent of Transocean's
board of directors, adopted the stock purchase plan, who do not own, or hold
options to acquire, five percent or more of the total combined voting power or
value of Transocean's ordinary shares are eligible to participate in the stock
purchase plan. As of August 31, 1999, approximately 3,500 employees of
Transocean are eligible to participate in the stock purchase plan. Participants
in the stock purchase plan may purchase Transocean ordinary shares through
payroll deductions
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on an after-tax basis over a plan year beginning on each January 1 and ending on
the following December 31 during the term of the stock purchase plan. A
participant's right to participate in the stock purchase plan terminates
immediately when a participant ceases to be employed by Transocean. An employee
may elect to participate in the stock purchase plan as of any January 1
following his or her completion of six consecutive months of employment by
Transocean. A participant may elect to make contributions each pay period in an
amount not less than $50, subject to a monthly limitation equal to ten percent of his base monthly earnings or such other amount established by the Transocean board of directors compensation committee, taking into account a "maximum share limitation." The maximum share limitation is the number of ordinary shares derived by dividing$25,000 by the fair market value, as defined below, of
ordinary shares determined as of the date of grant. The contributions will be
held in trust during a plan year, and interest will be credited to the
participant's account. Unless a participant elects otherwise, the dollar amount
in the participant's account at the end of the plan year will then be used to
purchase as many whole ordinary shares as the funds in his or her account will
allow. The purchase price for the stock will be 85 percent of the lesser of (1)
its fair market value on the first trading day of the plan year or (2) its fair
market value on the last trading day of the plan year. "Fair market value" means
the closing composite sales price per ordinary share on the New York Stock
Exchange on the applicable date. Any cash remaining in the participant's account
will be carried over to the next plan year. If the participant elects not to
purchase ordinary shares at the end of the plan year, such participant will
receive a return of his or her payroll deductions during the plan year plus the
interest accrued on such deductions. At the end of each plan year, participants
will receive a statement of their account balances, including interest earned
and the number of whole ordinary shares purchased and in the accounts. Any
dividends on ordinary shares held in a participant's account will be credited to
his or her account.

A participant may elect to withdraw his or her entire contributions for the
current year from the stock purchase plan at any time prior to the purchase of
Transocean ordinary shares. Any participant who so elects will receive his or
her entire account balance, including interest and dividends, if any. A
participant who suspends his or her payroll deductions or withdraws
contributions cannot resume participation in the stock purchase plan during that
plan year and must reenroll in the stock purchase plan the following year in
order to participate. A participant may also elect at any time to withdraw
ordinary shares held in his or her account for at least one year. A participant
may not sell ordinary shares held in the participant's account for less than
three months. In the event of a participant's death, amounts credited to his or
her account, including interest and dividends, if applicable, will be paid in
cash, and a certificate for any ordinary shares will be delivered to his or her
designated beneficiaries or other legal representative.

Transocean's board of directors generally may amend or terminate the stock
purchase plan at any time, provided that approval of Transocean's shareholders
must be obtained for any amendment to the stock purchase plan if required under
Section 423 of U.S. Internal Revenue Code or any other applicable law or
regulation. Section 423 of the U.S. Internal Revenue Code currently requires
shareholder approval of a plan amendment that would change the number of shares
reserved for issuance under the stock purchase plan.

The shares to be issued pursuant to the stock purchase plan may be ordinary
shares held in treasury or authorized but unissued ordinary shares.

U.S. FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the general rules of present U.S. federal
income tax law relating to the tax treatment of employee stock purchase plans.
The discussion is general in nature and does not take into account a number of
considerations that may apply based on the circumstances of a particular
participant under the stock purchase plan, including the possibility that a
participant may not be subject to U.S. federal income taxation. When the term
"Transocean" is used in this section, the term is understood to mean the U.S.
subsidiary of Transocean.

Transocean intends for the stock purchase plan to constitute an "employee
stock purchase plan" under the provisions of Section 423 of the U.S. Internal
Revenue Code. Stock purchase plan participants will recognize taxable ordinary
income upon disposition of the ordinary shares acquired under the stock purchase
plan if such shares are disposed of in a "disqualifying disposition," which is a
disposition of the shares before

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the later of (1) two years from the date an option to purchase stock was issued
under the plan or (2) one year from the date that shares acquired pursuant to
the plan were transferred to the participant. This taxable income will equal the
amount by which the fair market value of the shares on the exercise date exceeds
the purchase price of the shares, but in no event will the income recognized
exceed the sales proceeds for such shares reduced by the purchase price for such
shares. If a participant sells or otherwise disposes of his or her shares after
the above holding period so that there is no disqualifying disposition, the
participant would realize ordinary income equal to the lesser of (a) the excess
of the fair market value of the shares at the time of the disposition over the
exercise price or (b) the excess of the fair market value of the shares at the
time the option was granted over the option price. If a participant sells the
ordinary shares acquired under the stock purchase plan, assuming there is no
disqualifying disposition, any difference between the amount realized in the
sale and the participants' tax basis in the shares (which would include any
ordinary income recognized with respect to the shares) is taxed as long-term,
mid-term or short-term capital gain or loss, provided the shares are held as a
capital asset on the date of sale, and depending on the participant's holding
period for the shares.

Transocean is entitled to a deduction for U.S. federal income tax purposes
for dispositions of shares acquired by participants in the stock purchase plan
only to the extent that a participant realizes ordinary income as a result of a
disqualifying disposition of shares acquired under the stock purchase plan.

VOTE REQUIRED; RECOMMENDATION OF TRANSOCEAN'S BOARD OF DIRECTORS

The affirmative vote of a majority of the Transocean ordinary shares
present or represented and entitled to vote at the extraordinary general meeting
is required for approval of the amendment of the stock purchase plan. For this
purpose, an abstention will count as a vote against the amendment, and broker
non-votes applicable to ordinary shares represented at the meeting will have no
effect.

If approved, this proposal will be implemented regardless of whether the
merger is completed.

TRANSOCEAN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO APPROVE AND RATIFY THE ADOPTION OF THE AMENDMENT TO TRANSOCEAN'S
EMPLOYEE STOCK PURCHASE PLAN.

LEGAL MATTERS

The validity of the Transocean ordinary shares to be issued pursuant to the
terms of the merger agreement will be passed upon for Transocean by Walkers,
Cayman Islands.

Baker & Botts, L.L.P., Houston, Texas, will pass upon certain U.S. federal
income tax consequences of the spin-off and the merger for Schlumberger. Weil,
Gotshal & Manges LLP, New York, New York, will also pass upon certain U.S.
federal income tax consequences of the merger for Transocean.

EXPERTS

The combined financial statements of Sedco Forex as of December 31, 1998
and 1997 and for each of the three years in the period ended December 31, 1998
included in this document have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The consolidated financial statements incorporated in this joint proxy
statement/prospectus by reference to the Annual Report on Form 10-K for
Schlumberger for the year ended December 31, 1998, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.

The consolidated financial statements of Transocean Offshore Inc. appearing
in Transocean's Annual Report (Form 10-K) for the year ended December 31, 1998,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by

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reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.

FUTURE SHAREHOLDER PROPOSALS

TRANSOCEAN SHAREHOLDER PROPOSALS

SHAREHOLDER PROPOSALS IN A PROXY STATEMENT.

Rule 14a-8 under the Securities Exchange Act of 1934 addresses when a
company must include a shareholder's proposal in its proxy statement and
identify the proposal in its form of proxy when the company holds an annual or
special meeting of shareholders. Under Rule 14a-8, in order for proposals to be
considered for inclusion in the proxy statement and proxy card relating to the
2000 annual meeting of shareholders of Transocean, those proposals must be
received at Transocean's principal executive offices, 4 Greenway Plaza, Houston,
Texas 77046, by no later than December 13, 2000. However, if the date of the
2000 annual meeting changes by more than 30 days from the date of the 1999
annual meeting, the deadline is a reasonable time before Transocean begins to
print and mail their proxy materials. Transocean will notify shareholders of
this deadline in a Quarterly Report on Form 10-Q or in another communication to
shareholders. Shareholder proposals must also be otherwise eligible for
inclusion.

SHAREHOLDER PROPOSALS AND NOMINATIONS FOR DIRECTORS TO BE PRESENTED AT
MEETINGS.

If you desire to bring a matter before an annual meeting and the proposal
is submitted outside the process of Rule 14a-8, you must follow the procedures
set forth in Transocean's articles of association. The articles of association
provide generally that if you desire to propose any business at an annual
meeting of shareholders, you must give Transocean written notice not less than
90 days prior to the anniversary of the originally scheduled date of the
immediately preceding annual meeting. The deadline under Transocean's articles
of association for submitting proposals will be February 13, 2000 for the 2000
annual meeting unless it is more than 30 days before or after the anniversary of
the 1999 annual meeting. However, if the date of the forthcoming annual meeting
is more than 30 days before or after that anniversary date, the deadline is the
close of business on the tenth day after Transocean publicly discloses the
meeting date. Your notice must set forth:

- a brief description of the business desired to be brought before the
meeting and the reasons for conducting the business at the meeting;

- a representation that you are a holder of record of Transocean ordinary
shares entitled to vote at the meeting, or if the record date for the
meeting is subsequent to the date required for shareholder notice, a
representation that you are a holder of record at the time of the notice
and intend to be a holder of record on the date of the meeting, and, in
either case, intend to appear in person or by proxy at the meeting to

- any material interest you have in the business.

If you desire to nominate directors at an annual meeting, you must give
Transocean written notice within the time period described in the preceding
paragraph. If you desire to nominate directors at a special meeting at which the
board of directors has determined that directors will be elected, you must give
Transocean written notice by the close of business on the tenth day following
Transocean's public disclosure of the meeting date. Your notice must set forth:

to be nominated;

- a representation that you are a holder of record of Transocean ordinary
shares entitled to vote at the meeting or, if the record date for the
meeting is subsequent to the date required for that shareholder notice, a
representation that you are a holder of record at the time of the notice
and intend to be a

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holder of record on the date of the meeting and, in either case, setting
forth the class and number of shares so held, including shares held
beneficially;

- a representation that you intend to appear in person or by proxy as a
holder of record at the meeting to nominate the person or persons
specified in the notice;

- a description of all arrangements or understandings between you and each
nominee you propose and any other person or persons under which the
nomination or nominations being made by you;

- any other information regarding each nominee you propose that would be
required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission; and

- the consent of each nominee to serve as a director if so elected.

The chairman of the meeting may refuse to transact any business or to
acknowledge the nomination of any person if you fail to comply with the
foregoing procedures.

You may obtain a copy of Transocean's articles of association, in which
these procedures are set forth, upon written request to Eric B. Brown,
Secretary, Transocean Offshore Inc., 4 Greenway Plaza, Houston, Texas 77046 or

SCHLUMBERGER SHAREHOLDER PROPOSALS

In order for a shareholder proposal to be considered for inclusion in
Schlumberger's proxy statement for its 2000 annual general meeting of
shareholders, written proposals must be received by the Secretary of
Schlumberger, 277 Park Avenue, New York, New York 10172-0266, no later than
November 10, 1999. Pursuant to the rules under the Securities Exchange Act of
1934, Schlumberger may use discretionary authority to vote proxies with respect
to shareholder proposals to be presented in person at the 2000 annual general
meeting if the shareholder making the proposal has not given Schlumberger notice
of the proposal by January 25, 2000.

Federal securities law requires Transocean and Schlumberger to file
information with the Securities and Exchange Commission concerning their
respective business and operations. Accordingly, Transocean and Schlumberger
file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document Transocean and
Schlumberger file at the SEC's public reference rooms located at 450 Fifth
Street, N.W., Washington, D.C. 20549.

Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. These SEC filings are also available to the public on the SEC's
web site at: http://www.sec.gov. Copies of these reports, proxy statements and
other information can also be inspected at the offices of the New York Stock
Exchange at 20 Broad Street, New York, New York 10005.

Transocean has filed with the SEC a registration statement on Form S-4.
This joint proxy statement/prospectus is a part of the registration statement
and constitutes a prospectus of Transocean for the Transocean ordinary shares to
be issued to Schlumberger's shareholders in the merger. As allowed by the SEC
rules, this joint proxy statement/prospectus does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement. For further information with respect to Transocean and
the Transocean ordinary shares, you should consult the registration statement
and its exhibits. Statements contained in this joint proxy statement/prospectus
concerning the provisions of any documents are summaries of those documents, and
we refer you to the document filed with the SEC for additional information. The
registration statement and any of its amendments, including exhibits filed as a
part of the registration statement or an amendment to the registration
statement, are available for inspection and copying as described above.

SEC rules and regulations permit us to "incorporate by reference" the
information Transocean and Schlumberger files with the SEC. This means that we
can disclose important information to you by referring
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you to the other information Transocean and Schlumberger have filed with the
SEC. The information that we incorporate by reference is considered to be part
of this joint proxy statement/prospectus. Information that Transocean and
Schlumberger file later with the SEC will automatically update and supersede
this information.

We incorporate by reference the documents listed below and any filings
Transocean or Schlumberger will make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 following the date of this
document, but prior to the date of their respective shareholder meeting:

For Transocean:

- Annual Report on Form 10-K of Transocean for the fiscal year ended
December 31, 1998;

- Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and
June 30, 1999; and

- Current Reports on Form 8-K dated March 15, 1999, May 17, 1999 and July
27, 1999.

For Schlumberger:

- Annual Report on Form 10-K of Schlumberger for the Fiscal Year ended
December 31, 1998; and

- Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and
June 30, 1999.

You can request a free copy of the above filings or any filings
subsequently incorporated by reference into this joint proxy
statement/prospectus by writing or calling:

For Transocean:
Transocean Offshore Inc.
4 Greenway Plaza
Houston, Texas 77046
Attn: Jeffrey L. Chastain, Director of Investor Relations and
Communications

Telephone requests may be directed to (713) 232-7500.

For Schlumberger:
Schlumberger Limited
277 Park Avenue
New York, New York 10172
Attn: Simone Crook, Director Investor Relations & Communications

Telephone requests may be directed to (212) 350-9432.

In order to ensure timely delivery of these documents, you should make such
request by December 3, 1999.

Neither Transocean nor Schlumberger has authorized anyone to give any
information or make any representation about the spin-off or the merger or about
the respective companies that differs from or adds to the information in this
joint proxy statement/prospectus or in the documents that Transocean files
publicly with the SEC. Therefore, you should not rely upon any information that
differs from or is in addition to the information contained in this joint proxy
statement/prospectus or in the documents that Transocean files publicly with the
SEC.

If you live in a jurisdiction where it is unlawful to offer to exchange or
securities offered by this joint proxy statement/prospectus, or if you are a
person to whom it is unlawful to direct such activities, the offer presented by
this joint proxy statement/prospectus is not extended to you.

The information contained in this joint proxy statement/prospectus speaks
only as of the date on the cover, unless the information specifically indicates
that another date applies.

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INDEX TO FINANCIAL STATEMENTS

PAGE
----

SEDCO FOREX HOLDINGS LIMITED COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants.........................   F-2
Combined Statements of Income.............................   F-3
Combined Balance Sheets...................................   F-4
Combined Statements of Cash Flows.........................   F-5
Combined Statements of Equity.............................   F-6
Notes to Combined Financial Statements....................   F-7
Quarterly Results (Unaudited).............................  F-20

F-1
152

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Schlumberger Limited

In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of equity and of cash flows present fairly, in
all material respects, the financial position of Sedco Forex Holdings Limited at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Sedco Forex Holdings Limited's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP

New York, New York
August 6, 1999

F-2
153

SEDCO FOREX HOLDINGS LIMITED

COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FOR THE YEARS ENDED           SIX MONTHS ENDED
DECEMBER 31,                  JUNE 30,
--------------------------------   -------------------
1998        1997       1996       1999       1998
----------   --------   --------   --------   --------
(UNAUDITED)

Revenue:
Operating............................  $1,090,523$891,334   $663,245$351,590   $534,388 Interest and other income............ 8,750 8,242 8,066 6,696 3,348 ---------- -------- -------- -------- -------- 1,099,273 899,576 671,311 358,286 537,736 ---------- -------- -------- -------- -------- Expenses: Cost of services..................... 674,685 561,784 476,374 297,118 329,339 Research and engineering............. 11,343 9,803 10,179 6,317 6,093 General and administrative........... 26,274 15,891 13,800 8,335 12,361 Interest expense, net................ 12,950 19,639 7,887 6,911 9,868 ---------- -------- -------- -------- -------- 725,252 607,117 508,240 318,681 357,661 ---------- -------- -------- -------- -------- Income before taxes.................... 374,021 292,459 163,071 39,605 180,075 Income taxes........................... 32,443 32,004 15,536 911 21,810 ---------- -------- -------- -------- -------- Net income.............................$  341,578   $260,455$147,535   $38,694$158,265
==========   ========   ========   ========   ========
Unaudited pro forma basic earnings per
share................................  $3.13$    .35
==========                         ========
Unaudited pro forma basic shares
outstanding..........................     109,111                          109,111
==========                         ========
Unaudited pro forma diluted earnings
per share............................  $3.13$    .35
==========                         ========
Unaudited pro forma shares outstanding
assuming dilution....................     109,144                          109,185
==========                         ========

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

F-3
154

SEDCO FOREX HOLDINGS LIMITED

COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)

ASSETS

DECEMBER 31,
-----------------------    JUNE 30,
1998         1997         1999
----------   ----------   -----------
(UNAUDITED)

Current assets:
Cash and short-term investments........................  $174,481$   95,117   $84,868 Receivables, less allowance for doubtful accounts of$829, $1,662 and$5,155.............................     216,209      199,408      170,253
Receivables from related parties.......................      52,620       35,109       38,214
Materials and supplies.................................      45,976       42,419       52,410
Deferred taxes on income...............................          --           --        6,500
Other current assets...................................      25,407       26,520       15,129
----------   ----------   ----------
Total current assets...........................     514,693      398,573      367,374
----------   ----------   ----------
Fixed assets, less accumulated depreciation of
$1,039,538,$931,465 and $1,091,043.................... 915,423 626,324 1,101,585 Deferred taxes on income................................. 17,938 1,899 20,471 Equity in affiliated companies........................... 24,865 24,051 25,209 ---------- ---------- ---------- Total assets...................................$1,472,919   $1,050,847$1,514,639
==========   ==========   ==========

LIABILITIES AND EQUITY

Current liabilities:
Bank overdrafts........................................  $2,990$    4,017   $6,483 Accounts payable and accrued liabilities............... 180,628 139,922 203,522 Payables to related parties............................ 32,960 14,248 27,763 Estimated liability for taxes on income................ 41,058 26,102 31,584 Current portion of deferred gain....................... 26,000 26,000 26,000 Current portion of long-term debt...................... 14,348 20,689 14,597 ---------- ---------- ---------- Total current liabilities...................... 297,984 230,978 309,949 ---------- ---------- ---------- Long-term debt........................................... 86,100 139,165 77,428 Postretirement benefits.................................. 5,578 5,277 5,428 Related party debt....................................... 407,402 179,385 506,258 Deferred gain on sale of rigs............................ 97,000 123,000 84,000 Other long-term liabilities.............................. 14,473 10,148 12,644 ---------- ---------- ---------- Total liabilities.............................. 908,537 687,953 995,707 Commitments and contingencies (Note 13).................. -- -- -- Equity................................................... 564,382 362,894 518,932 ---------- ---------- ---------- Total liabilities and equity...................$1,472,919   $1,050,847$1,514,639
==========   ==========   ==========

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

F-4
155

SEDCO FOREX HOLDINGS LIMITED

COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

FOR THE YEARS ENDED            SIX MONTHS ENDED
DECEMBER 31,                    JUNE 30,
---------------------------------   --------------------
1998        1997        1996        1999        1998
---------   ---------   ---------   ---------   --------
(UNAUDITED)

Cash flows from operating activities:
Net income..................................   $341,578$ 260,455   $147,535$  38,694   $158,265 Adjustments to reconcile net income to net cash provided by operating activities Depreciation.............................. 124,707 110,780 103,610 63,739 60,615 Amortization of deferred gain on sale of rigs.................................... (26,000) (8,667) -- (13,000) (13,000) 1998 and 1999 charges..................... 20,350 -- -- 32,549 -- Deferred taxes on earnings................ (13,039) 501 (2,400) 467 (1,517) Equity in income of affiliated companies............................... (5,389) (4,946) (5,647) (2,527) (1,661) Changes in operating assets and liabilities: Accounts receivable....................... (18,297) (41,319) (51,191) 45,956 (38,631) Receivables from related parties.......... (17,511) (5,152) (18,233) 14,406 (6,780) Materials and supplies.................... (4,077) (8,642) (11,403) (6,434) (7,595) Accounts payable and accrued liabilities............................. 27,703 146 61,564 (10,581) 20,515 Payables to related parties............... 18,712 (3,609) 8,215 (5,197) 8,142 Estimated liability for taxes on income... 15,062 6,788 5,201 (9,474) 9,832 Other assets and liabilities, net......... 9,615 12,149 (906) 1,908 (23,153) --------- --------- --------- --------- -------- Net cash provided by operating activities..... 473,414 318,484 236,345 150,506 165,032 --------- --------- --------- --------- -------- Cash flows from investing activities: Capital expenditures........................ (424,749) (187,411) (150,757) (250,425) (160,311) Net proceeds on sale of drilling rigs....... -- 174,000 -- -- -- Sales/retirements of fixed assets and other..................................... 3,205 (5,842) 1,490 524 643 --------- --------- --------- --------- -------- Net cash used in investing activities......... (421,544) (19,253) (149,267) (249,901) (159,668) --------- --------- --------- --------- -------- Cash flows from financing activities: Dividends paid.............................. -- (71,195) (168,341) -- -- Advances and other to related parties....... (140,090) (287,952) (91,201) (84,144) (33,994) Bank overdrafts............................. (1,027) (11,277) 11,320 3,493 465 Proceeds from issuance of long-term debt.... -- 120,060 15,715 -- -- Payments of principal of long-term debt..... (59,406) (13,369) (6,640) (8,423) (21,385) Proceeds from issuance of related party debt...................................... 250,080 40,000 137,000 163,577 -- Payments of principal of related party debt...................................... (22,063) (45,118) (4,147) (64,721) (10,790) --------- --------- --------- --------- -------- Net cash provided by (used in) financing activities.................................. 27,494 (268,851) (106,294) 9,782 (65,704) --------- --------- --------- --------- -------- Net increase (decrease) in cash and short-term investments................................. 79,364 30,380 (19,216) (89,613) (60,340) Cash and short-term investments, beginning of year........................................ 95,117 64,737 83,953 174,481 95,117 --------- --------- --------- --------- -------- Cash and short-term investments, end of year........................................$ 174,481   $95,117$  64,737   $84,868$ 34,777
=========   =========   =========   =========   ========

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

F-5
156

SEDCO FOREX HOLDINGS LIMITED

COMBINED STATEMENTS OF EQUITY
(AMOUNTS IN THOUSANDS)

EQUITY
---------

Balance, January 1, 1996....................................  $573,593 Net income.................................................. 147,535 Dividends paid.............................................. (168,341) Advances to related parties and other....................... (91,201) --------- Balance, December 31, 1996.................................. 461,586 --------- Net income.................................................. 260,455 Dividends paid.............................................. (71,195) Advances to related parties and other....................... (287,952) --------- Balance, December 31, 1997.................................. 362,894 --------- Net income.................................................. 341,578 Dividends paid.............................................. -- Advances to related parties and other....................... (140,090) --------- Balance, December 31, 1998.................................. 564,382 --------- Net income (unaudited)...................................... 38,694 Dividends paid (unaudited).................................. -- Advances to related parties and other (unaudited)........... (84,144) --------- Balance, June 30, 1999 (unaudited)..........................$ 518,932
=========

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

F-6
157

SEDCO FOREX HOLDINGS LIMITED

NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)

1. PRINCIPLES OF COMBINATION AND MERGER

Principles of Combination

The accompanying combined Sedco Forex Holdings Limited financial statements
include the offshore contract drilling service business of Schlumberger Limited
and its subsidiaries ("Schlumberger"), which is comprised of certain businesses,
operations, assets and liabilities of Sedco Forex, its subsidiaries and
Schlumberger, in accordance with a distribution agreement described below
(collectively referred to as "Sedco Forex"). Although Sedco Forex is not a
separate public company, the accompanying combined financial statements are
presented as if Sedco Forex had existed as an entity separate from its parent,
Schlumberger. The combined financial statements include the historical assets,
liabilities, revenues and expenses that were directly related to the offshore
contract drilling service business of Schlumberger during the periods presented
and have been prepared using Schlumberger's historical bases in the assets and
liabilities and the historical results of operations of Sedco Forex.

Certain amounts of Schlumberger's corporate expenses, including centralized
research and engineering, legal, accounting, employee benefits, real estate,
insurance, information technology services, treasury and other corporate and
infrastructure costs, although not directly attributable to Sedco Forex's
operations, have been allocated to Sedco Forex on bases that Schlumberger and
Sedco Forex considered to be a reasonable reflection of the utilization of
services provided or the benefit received by Sedco Forex (see Note 11). However,
the financial information included herein may not reflect the combined financial
position, operating results, changes in equity and cash flows of Sedco Forex in
the future or what they would have been had Sedco Forex been a separate,
stand-alone entity during the periods presented. All significant intercompany
accounts and transactions within Sedco Forex have been eliminated.

Because Sedco Forex was historically not operated as a separate,
stand-alone entity, and in many cases Sedco Forex's results were included in the
consolidated financial statements of Schlumberger on a divisional basis, there
are no separate meaningful historical equity accounts for Sedco Forex. Changes
in stockholders' equity represent Schlumberger's contribution of its net
investment in Sedco Forex after giving effect to the net earnings of Sedco
Forex, dividends paid, plus net cash transfers to and from Schlumberger and
other transfers from Schlumberger.

Certain assets and liabilities included in these financial statements,
primarily associated with employee benefits, income taxes, and balances due to
or from Schlumberger companies other than Sedco Forex, will be retained by
Schlumberger in accordance with the distribution agreement described below. In
addition, certain financial matters have been agreed to which limit debt and
require a minimum cash level at the time of the audited pre-closing financial
statements to be delivered prior to the distribution.

Sedco Forex provides offshore drilling services with semisubmersibles,
jackup rigs, dynamically positioned drillships and drilling tenders to customers
throughout the world.

Distribution to Shareholders and Merger with Transocean Offshore Inc.

On July 12, 1999, Sedco Forex, Schlumberger, Transocean Offshore Inc.
("Transocean") and a wholly owned subsidiary of Transocean entered into a merger
agreement. At the same time, Schlumberger and Sedco Forex entered into a
distribution agreement that provides for a series of combination transactions
which will include: the transfer of certain assets and liabilities between Sedco
Forex and Schlumberger and the distribution of Sedco Forex stock to Schlumberger
shareholders. After the distribution, Sedco Forex will merge with a wholly-owned
subsidiary of Transocean and Schlumberger shareholders will receive shares of
Transocean in exchange for their shares of Sedco Forex. Following the
distribution and merger, Schlumberger shareholders will own approximately 52
percent of the diluted ordinary shares of the combined company that

F-7
158
SEDCO FOREX HOLDINGS LIMITED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)

will be renamed Transocean Sedco Forex. These transactions are expected to be
completed by December 31, 1999.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Combined Financial Statements of Sedco Forex have been prepared in
accordance with accounting principles generally accepted in the United States.

Principles of Combination

All significant intercompany accounts and transactions are eliminated. The
equity method of accounting is used for investments in affiliates in which Sedco
Forex owns between 20% and 50%.

Interim Financial Information

The financial information as of June 30, 1999 and for the six months ended
June 30, 1999 and 1998 is unaudited but includes all adjustments, consisting
only of normal and recurring adjustments, that management considers necessary
for a fair presentation of its financial position, operating results and cash
flows. Results for the six months ended June 30, 1999 are not necessarily
indicative of results to be expected for the full year 1999 or for any future
period.

Revenue Recognition

Operating revenues are recognized as earned, based on contractual daily
rates. In connection with drilling contracts, Sedco Forex may receive lump sum
fees for the mobilization of equipment and personnel or for capital improvements
to rigs. In connection with contracted mobilizations, to the extent that
expenses exceed fees received, the net costs are deferred and amortized over the
appropriate periods of benefit, generally the term of the contract. If losses
are anticipated on the contract, net mobilization costs are expensed
immediately. Profits are recognized based on contractual daily rates.

Use of Estimates

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

Translation of Non-US Currencies

Sedco Forex uses the US dollar as its functional currency. All realized and
unrealized transaction gains and losses are included in income in the period in
which they occur. Transaction gains (losses) included in results of operations
were $1.0 million,$5.0 million, and $(274) in 1998, 1997 and 1996, respectively. Investments Short-term investments are stated at cost plus accrued interest, which approximates market, and are comprised primarily of Eurodollar time deposits, certificates of deposit and commercial paper, Canadian treasury bills, Euronotes and Eurobonds, substantially all denominated in US dollars. These investments have F-8 159 SEDCO FOREX HOLDINGS LIMITED NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED) original maturity dates not exceeding three months, and are considered cash equivalents for purposes of reporting cash flows. Fair Value of Financial Instruments The fair value of cash, accounts receivable, trade accounts payable, short-term borrowings, long-term debt and accrued expenses are not materially different than their carrying amounts as reported at December 31, 1998 and 1997. Concentration of Credit Risk Financial instruments which potentially subject Sedco Forex to concentration of risk consist primarily of accounts receivable. Sedco Forex maintains an allowance for uncollectible accounts receivable based upon expected collectibility. Sedco Forex performs ongoing credit evaluations of its customers' financial condition. For the years ended December 31, 1998, 1997 and 1996, one customer accounted for approximately 19.2%, 24.1%, and 25.6%, respectively, of Sedco Forex's total revenue. Total accounts receivable from this customer were$44
million and $46 million at December 31, 1998 and 1997, respectively. Materials and Supplies Inventories are stated principally at average cost less an allowance for obsolescence. Fixed Assets and Depreciation Fixed assets are stated at cost less accumulated depreciation, which is provided for by charges to income over the estimated useful lives of the assets by the straight-line method. Expenditures for renewals, replacements, and improvements are capitalized. Maintenance and repairs are charged to operating expenses as incurred. Upon sale or other disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to income. Estimated useful lives of rigs range from 10 to 25 years, buildings and improvements from 10 to 30 years and machinery and equipment from 4 to 12 years. From time to time, major improvements are performed on the rigs which extend their useful lives. These improvements are amortized over 10 to 15 years. Capitalized Interest Sedco Forex capitalizes interest expense during the new construction or upgrade of qualifying assets. Interest expense capitalized was$8.7 million for
the year ended 1998 and $11.7 million (unaudited) for the six months ended June 30, 1999. Sedco Forex did not capitalize any interest during 1997 or 1996. Impairment of Long-Lived Assets Sedco Forex reviews the appropriateness of the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. Sedco Forex assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value. F-9 160 SEDCO FOREX HOLDINGS LIMITED NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED) Research and Engineering All research and engineering expenditures are expensed as incurred, including costs relating to patents or rights that may result from such expenditures. Research and engineering is performed on a centralized basis and the expense is allocated from Schlumberger to Sedco Forex. Taxes on Income Sedco Forex's operating results historically have been included in Schlumberger's consolidated US and state income tax returns and in tax returns of Schlumberger's foreign subsidiaries. The provision for income taxes in Sedco Forex's combined financial statements has been determined on a separate return basis. Taxes on income are computed in accordance with the tax rules and regulations of the taxing authorities where the income is earned. The income tax rates imposed by these taxing authorities vary substantially. Taxable income may differ from pre-tax income for financial accounting purposes. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax asset will not be realized. Comprehensive Income Sedco Forex has no material components of other comprehensive income and accordingly comprehensive income is the same as net income for all periods presented. Derivative Financial Instruments Occasionally, Sedco Forex uses derivative instruments such as forward currency contracts and foreign currency options. Forward currency contracts provide a hedge against currency fluctuations on assets/ liabilities denominated in other than a functional currency. Options are usually entered into to hedge against currency variations on firm commitments generally involving the construction of drilling rigs. Sedco Forex defers gains and losses on these currency contracts which qualify as accounting hedges and recognizes them when the underlying foreign exchange exposure is realized. As of December 31, 1998, options were outstanding for the US dollar equivalent of$68 million in various
foreign currencies.

New Accounting Standards

In 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that Sedco Forex recognize
all derivative instruments as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The standard is
effective for Sedco Forex for fiscal years beginning after June 15, 2000. Sedco
Forex does not anticipate that the implementation of the new standard in the
first quarter of 2001 will have a material effect on the combined financial
position and results of operations.

3. 1998 CHARGE

During 1998, Sedco Forex recorded a charge of $20.4 million after tax, which included charges of$3.6 million for severance and termination costs, $9.8 million for asset impairments and a$7 million provision for a potential legal
claim. The severance and termination costs and asset impairment charges resulted
from the slowdown in business. The charge has been classified in cost of
services. As of June 30, 1999, all of the severance and termination costs had
been incurred.

F-10
161
SEDCO FOREX HOLDINGS LIMITED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)

4. FIXED ASSETS

Fixed assets at December 31, 1998 and 1997 consist of the following:

1998          1997
-----------   ----------

Land........................................................  $3,216$    3,326
Buildings and improvements..................................       13,437        8,767
Machinery and equipment.....................................    1,938,308    1,545,696
-----------   ----------
Total cost..................................................    1,954,961    1,557,789
Less: Accumulated depreciation..............................   (1,039,538)    (931,465)
-----------   ----------
Fixed assets................................................  $915,423$  626,324
===========   ==========

Depreciation expense aggregated $125 million in 1998,$111 million in 1997
and $104 million in 1996. 5. DEBT At December 31, 1998 and 1997, Sedco Forex had$86 million and $139 million, respectively, of long-term debt at fixed rates up to 7.95%, secured by 2 jackup rigs. The financing arrangements provide for a call right on the part of Sedco Forex to repay the financings prior to expiration of their scheduled terms, and in some circumstances a put right on the part of the banks to call Sedco Forex to repay the financings. Under either circumstance, Sedco Forex would retain ownership of the rigs. Long-term debt at December 31, 1998, is due as follows:$17.6 million in
2000, $18.0 million in 2001,$19.4 million in 2002, $14.5 million in 2003 and$16.6 million thereafter.

6. TAXES ON INCOME

Pretax book income subject to US and foreign income taxes for each of the
three years ending December 31, was as follows:

FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1998       1997       1996
--------   --------   --------

United States........................................  $4,590$  3,074   $1,508 Foreign.............................................. 369,431 289,385 161,563 -------- -------- -------- Pretax income........................................$374,021   $292,459$163,071
========   ========   ========

F-11
162
SEDCO FOREX HOLDINGS LIMITED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)

The following table shows the components of current and deferred income tax
expense by taxing jurisdiction, both domestic and foreign:

FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1998      1997      1996
--------   -------   -------

Current:
United States -- federal.............................  $2,201$   108   $523 Foreign.............................................. 46,281 31,395 17,413 48,482 31,503 17,936 -------- ------- ------- Deferred: United States -- federal............................. (1,490) -- -- Foreign.............................................. (14,549) 501 (2,400) -------- ------- ------- (16,039) 501 (2,400) -------- ------- ------- Total income tax expense.....................$ 32,443   $32,004$15,536
========   =======   =======

At December 31, 1998 and 1997, gross deferred tax assets were $17.9 million and$1.9 million, respectively. The principal components of net deferred tax
assets were:

DECEMBER 31,
-------------------
1998         1997
-------      ------

Employee and retiree benefits...............................  $3,129$1,724
Accrued liabilities.........................................      226         332
Property, plant and equipment...............................       34        (143)
Net operating loss carryforward.............................   14,549          --
Others, net.................................................       --         (14)
-------      ------
$17,938$1,899
=======      ======

In the fourth quarter of 1998, Sedco Forex released the remaining valuation
allowance related to its UK tax loss carryforward. This carryforward, which
Sedco Forex believes will be fully utilized, is available to Sedco Forex
indefinitely. Prior to 1998, Sedco Forex had recorded a 100% valuation allowance
on this tax loss carryforward.

Reconciliation between the US federal income tax rate and the effective tax
rate is:

FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1998         1997         1996
-------      -------      -------

Statutory tax rate......................................    35.0%        35.0%        35.0%
Difference in effective tax rate on foreign earnings....  ( 22.4)      ( 24.1)      ( 25.5)
Net operating loss carryforward.........................  (  3.9)          --           --
------       ------       ------
8.7%        10.9%         9.5%
======       ======       ======

7. PENSION AND OTHER BENEFIT PLANS

Schlumberger sponsors several defined benefit pension plans that cover
substantially all US employees. The benefits are based on years of service and
compensation on a career-average pay basis. These plans are substantially fully
funded with a trustee in respect to past and current service. Charges to expense
are based upon costs computed by independent actuaries. The funding policy is to
contribute annually amounts that are

F-12
163
SEDCO FOREX HOLDINGS LIMITED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)

allowable for federal income tax purposes. These contributions are intended to
provide for benefits earned to date and those expected to be earned in the
future.

The assumed discount rate, rate of compensation increases and return on
plan assets used to determine pension expense in 1998 were 7.5%, 4.5% and 9%,
respectively. In 1997, the assumptions were 8%, 4.5% and 8.5%, respectively. In
1996, the assumptions were 7.5%, 4.5% and 8.5%, respectively.

Net pension cost in the US for 1998, 1997 and 1996, included the following
components:

1998    1997    1996
-----   -----   -----

Service cost -- benefits earned during the period...........  $396$ 243   $171 Interest cost on projected benefit obligation............... 460 416 370 Expected return on plan assets (actual return: 1998 --$1,049; 1997 -- $1,108; 1996 --$623).............   (485)   (392)   (346)
Amortization of transition asset............................     (6)     (6)     (6)
Amortization of prior service cost/other....................     43      40      64
-----   -----   -----
$408$ 301   $253 ===== ===== ===== The change in the projected benefit obligation, plan assets and funded status of the plans at December 31, 1998 and 1997, was as follows: 1998 1997 ------ ------ Projected benefit obligation at beginning of the year.......$6,297   $5,299 Service cost................................................ 396 243 Interest cost............................................... 460 416 Actuarial losses............................................ 467 436 Benefits paid............................................... (277) (229) Amendments.................................................. -- 132 ------ ------ Projected benefit obligation at end of the year.............$7,343   $6,297 Plan assets at market value at beginning of the year........ 6,336 5,100 Actual return on plan assets................................ 1,049 1,108 Employer contribution....................................... 315 357 Benefits paid............................................... (277) (229) ------ ------ Plan assets at market value at end of the year..............$7,423   $6,336 Excess of assets over projected benefit obligation.......... 80 39 Unrecognized net gain....................................... (366) (290) Unrecognized prior service cost............................. 402 467 Unrecognized net asset at transition date................... (17) (24) ------ ------ Prepaid pension cost........................................$   99   $192 ====== ====== Non-US Pension Plans Outside the US, Sedco Forex sponsors several defined benefit and defined contribution plans that cover substantially all employees who are not covered by statutory plans. For defined benefit plans, charges to expense are based upon costs computed by independent actuaries. These plans are substantially fully funded with trustees in respect to past and current service. For defined contribution plans, funding and cost are generally based upon a predetermined percentage of employee compensation. Expenses for both defined F-13 164 SEDCO FOREX HOLDINGS LIMITED NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED) benefit plans and defined contribution plans were immaterial to Sedco Forex for each of the three years ended December 31, 1998. Other Deferred Benefits In addition to providing pension benefits, Sedco Forex has other deferred benefit programs. Expenses for these programs were$9.2 million, $9.1 million and$8.2 million for 1998, 1997 and 1996, respectively.

Health Care Benefits

Sedco Forex provides health care benefits for certain active employees. The
cost of providing these benefits is recognized as an expense when incurred and
aggregated $721,$668 and $471 in 1998, 1997 and 1996 respectively. Outside the US, such benefits are mostly provided through government-sponsored programs. Postretirement Benefits Other Than Pensions Sedco Forex provides certain health care benefits to former employees who have retired under the US pension plans. The principal actuarial assumptions used to measure costs were a discount rate of 7.5% in 1998 and 8% in 1997 and 1996. The overall medical cost trend rate assumption beginning December 31, 1996 was 9% graded \to 5% thereafter. Previously, the overall assumption had been 10% graded to 6% over the next six years and thereafter. Net periodic postretirement benefit cost in the US for 1998, 1997 and 1996 included the following components: 1998 1997 1996 ---- ---- ---- Service cost-benefits earned during the period..............$136   $80$ 58
Interest cost on accumulated postretirement benefit
obligation................................................   295    291    328
Amortization of unrecognized net gain and other.............   (65)   (71)    --
----   ----   ----
$366$300   $386 ==== ==== ==== The changes in accumulated postretirement benefit obligation and funded status in 1998 and 1997 were as follows: 1998 1997 ------ ------ Accumulated postretirement benefit obligation at the beginning of the year.......................................$4,056   $3,755 Service cost................................................ 136 80 Interest cost............................................... 295 291 Actuarial losses............................................ 283 171 Benefits paid............................................... (232) (241) ------ ------ Accumulated postretirement benefit obligation at the end of the year.................................................. 4,538 4,056 Unrecognized net gain....................................... 972 1,148 Unrecognized prior service cost............................. 68 73 ------ ------ Postretirement benefit liability at December 31.............$5,578   $5,277 ====== ====== F-14 165 SEDCO FOREX HOLDINGS LIMITED NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED) The components of the accumulated postretirement benefit obligation at December 31, 1998 and 1997 were as follows: 1998 1997 ------ ------ Accumulated postretirement benefit obligation: Retirees..................................................$2,417   $2,388 Fully eligible............................................ 815 709 Actives................................................... 1,306 959 ------ ------ Accumulated postretirement benefit liability................$4,538   $4,056 ====== ====== The assumed discount rate used to determine the accumulated postretirement benefit obligation was 7% for 1998 and 7.5% for 1997. If the assumed medical cost trend rate was increased by one percentage point, health care cost in 1998 would have been$0.5 million, and the
accumulated postretirement benefit obligation would have been $5.2 million at December 31, 1998. If the assumed medical cost trend rate was decreased by one percentage point, health care cost in 1998 would have been$0.4 million, and the
accumulated postretirement benefit obligation would have been $4.0 million at December 31, 1998. 8. LEASES AND LEASE COMMITMENTS Minimum rental commitments under noncancellable operating leases, primarily real estate and office facilities and bareboat charters, in effect at December 31, 1998 are as follows: YEAR ENDED DECEMBER 31, ----------------------- 1999........................................................$34,162
2000........................................................   25,438
2001........................................................      319
2002........................................................       52
2003........................................................       46
Thereafter..................................................      496

Operating lease rental expense aggregated $56 million,$30 million and $16 million for 1998, 1997 and 1996, respectively. Included in the rental expense and future minimum rental commitments above are office space rentals and the semisubmersible rigs Drillstar and Sedco Explorer. These rigs are being operated by Sedco Forex under bareboat charters with an entity in which Sedco Forex has a 25% equity interest. 9. SEGMENT AND GEOGRAPHIC AREA INFORMATION Sedco Forex operates in one industry segment, offshore contract drilling services. For the years ended December 31, 1998, 1997 and 1996, one customer accounted for approximately 19.2%, 24.1%, and 25.6%, respectively, of Sedco Forex's total revenue. Sedco Forex did not have revenue from third-party customers in its country of domicile during the last three years. Only Nigeria, Indonesia and the United Kingdom represent countries for which revenues and long-lived assets exceeded 10% of the totals for the three years ended F-15 166 SEDCO FOREX HOLDINGS LIMITED NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED) December 31, 1998 and for the sixth month periods ended June 30, 1999 and 1998. Revenues and long-lived assets for these countries are as follows: UNITED REST OF KINGDOM NIGERIA INDONESIA THE WORLD TOTAL -------- -------- --------- --------- ---------- Revenue (based on location of customer): Year ended December 31, 1996...$267,913   $97,659$ 46,274    $251,399$  663,245
Year ended December 31, 1997...   312,141     97,140    104,229     377,824       891,334
Year ended December 31, 1998...   344,061    118,935    124,904     502,623     1,090,523
Six months ended June 30, 1998
(unaudited).................   175,209     53,799     55,581     249,799       534,388
Six months ended June 30, 1999
(unaudited).................    70,385     27,711     46,168     207,326       351,590
Long-lived assets:
December 31, 1996..............   205,339     51,248     39,329     279,935       575,851
December 31, 1997..............   125,387     43,146     44,211     413,580       626,324
December 31, 1998..............   110,451     59,351     50,283     695,338       915,423
June 30, 1999 (unaudited)......   108,024     74,475     40,105     878,981     1,101,585

10. STOCK OPTION PLANS

Schlumberger applies Accounting Principles Board Opinion (APB) 25 and
related Interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized for its stock option plans. Had
compensation cost for the Schlumberger plans been determined based on the fair
value at the grant dates for awards under these plans, consistent with the
methodology of SFAS 123, Sedco Forex's net income would have been the pro forma
amounts indicated below:

1998       1997       1996
--------   --------   --------

Net income
As reported........................................  $341,578$260,455   $147,535 Pro forma.......................................... 339,537 259,244 146,817 As required by SFAS 123, the above pro forma data reflect the effect of stock option grants during 1998, 1997, and 1996. During 1998, 1997, 1996 and in prior years, key employees of Sedco Forex were granted stock options under the Schlumberger stock option plans. For all of the stock options granted, the exercise price of each option equals the market price of Schlumberger stock on the date of grant; an option's maximum term is ten years, and options generally vest in 20% increments over five years. As required by SFAS 123, the fair value of each grant is estimated on the date of grant using the multiple option Black-Scholes option-pricing model with the following weighted-average assumptions used for 1998, 1997 and 1996: dividend of$0.75; expected volatility of 21%-25% for 1998 grants, 21% for 1997
grants and 20% for 1996 grants; risk-free interest rates of 4.35%-5.62% for the
1998 grants, 5.80%-6.77% for the 1997 grants and 5.09%-6.01% for the 1996
grants; and expected option lives of 5.02 years for the 1998 grants, 5.09 years
for the 1997 grants and 5.39 years for the 1996 grants.

F-16
167

SEDCO FOREX HOLDINGS LIMITED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Schlumberger stock option plans for Sedco
Forex as of December 31, 1998, 1997 and 1996, and changes during the years
ending on those dates is presented below:

WEIGHTED              WEIGHTED               WEIGHTED
AVERAGE               AVERAGE                AVERAGE
1998     EXERCISE     1997     EXERCISE     1996      EXERCISE
FIXED OPTIONS                   SHARES     PRICE      SHARES     PRICE      SHARES      PRICE
- -------------                  --------   --------   --------   --------   ---------   --------

Outstanding at beginning of
year.........................   798,320    $43.60 720,400$33.18      688,400    $29.61 Granted...................... 14,500$78.38     167,000    $81.51 203,500$42.08
Exercised....................   (49,900)   $30.31 (89,080)$30.43     (171,500)   $29.42 -------- ------ -------- ------ --------- ------ Outstanding at end of year... 762,920$45.13     798,320    $43.60 720,400$33.18
========              ========              =========
Options exercisable at
year-end...................   444,220               367,220                324,700
Weighted-average fair value
of options granted during
the year...................  $23.18$  24.04              $11.03 The following table summarizes information concerning currently outstanding and exercisable options by range of exercise price at December 31, 1998: OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------- ---------------------- WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE OUTSTANDING CONTRACTUAL EXERCISE AS OF EXERCISE RANGE OF EXERCISE PRICES AS OF 12/31/98 LIFE PRICE 12/31/98 PRICE - ------------------------ -------------- ----------- -------- ----------- --------$20.78 -- $20.99.............. 176,400 5.57$27.30      135,100      $27.28$30.00 -- $39.99.............. 224,720 3.42$31.87      206,420      $31.87$40.00 -- $49.99.............. 188,600 7.30$42.33       70,100      $42.33$50.00 -- $59.99.............. 40,200 8.21$53.84        7,400      $53.65$80.00 -- $90.50.............. 133,000 8.81$90.50       25,200      $90.50 ------- ---- ------ ------- ------ 762,920 6.12$45.13      444,220      $35.80 ======= ======= 11. RELATED PARTY TRANSACTIONS In certain countries, Sedco Forex participates in Schlumberger's centralized treasury and cash processes. In these countries, cash is managed either through zero balance accounts or an interest-bearing offsetting mechanism. Cash disbursements for operations, acquisitions and other investments are funded as needed from Schlumberger. The combined financial statements include allocations of certain corporate expenses, including centralized research and engineering, legal, accounting, employee benefits, real estate, insurance, information technology services, treasury and other corporate and infrastructure costs. These allocations have been determined on bases that Schlumberger and Sedco Forex considered to be a reasonable reflection of the utilization of services provided or the benefit received by Sedco Forex. The allocation methods include relative sales, headcount, square footage, transaction processing costs, adjusted operating expenses and others. These allocations resulted in charges of$88 million, $49 million and$37 million being recorded in Sedco Forex's

F-17
168
SEDCO FOREX HOLDINGS LIMITED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)

results of operations for 1998, 1997 and 1996, respectively, and $38 million (unaudited) for the six months ended June 30, 1999 and$40 million (unaudited)
for the six months ended June 30, 1998 as follows:

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,         JUNE 30,
---------------------------   -----------------
1998      1997      1996      1999      1998
-------   -------   -------   -------   -------

Cost of services.....................  $75,085$42,689   $31,490$32,349   $33,893 Research and engineering.............$ 3,265   $1,850$ 1,790   $2,232$ 1,635
General and administrative...........  $9,433$ 4,416   $3,832$ 3,090   $4,686 At December 31, 1998 and 1997 Sedco Forex had long-term debt from related parties of$407 million and $179 million, respectively. These loans bear interest at rates based on fifty basis points over the LIBOR. These loans have been used to finance both Sedco Forex's existing fleet of rigs and ongoing major construction projects. The loans are repayable in fixed annual amounts over agreement terms ranging from eight to fourteen years, commencing from the date of drawdown or, in the case of the construction projects, on commencement of operating activities by the relevant rig. Sedco Forex has the option to repay the debt in full at any time, subject to an agreed notice period. Interest expense on these loans aggregated$11 million, $10 million and$4 million for
1998, 1997 and 1996, respectively.

The related party receivables and payables balances included in the
combined balance sheets represent amounts arising from intercompany transactions
entered into by Sedco Forex, to settle outstanding customer and trade
receivables and payables with other Schlumberger entities.

There are no formal tax sharing arrangements between Sedco Forex and any
entity of Schlumberger. In certain countries, Sedco Forex is a division of the
Schlumberger legal entity that is the ultimate tax payer in that jurisdiction.

12. INVESTMENTS IN ASSOCIATED COMPANIES

Sedco Forex has a 25% interest in Sea Wolf Drilling Limited. In September
1997, Sedco Forex sold two semisubmersible rigs, Drillstar and Sedco Explorer,
to Sea Wolf Drilling Limited. The rigs are being operated by Sedco Forex under
bareboat charters. The sale resulted in a deferred gain of $157 million which is being amortized to cost of services over the 6 year life of the bareboat charter. Sedco Forex also has a 50% interest in Overseas Drilling Limited ("ODL") which owns the drillship Joides Resolution. The drill-ship is contracted to perform drilling and coring operations in deep waters worldwide for the purposes of scientific research. Sedco Forex manages and operates the vessel on behalf of ODL. 13. COMMITMENTS AND CONTINGENCIES A claim for approximately$85 million has been filed against Sedco Forex
for an alleged late return of a chartered rig and for breach of maintenance
obligations under the charter.

In addition, a claim has been filed against Sedco Forex for certain
management contracts entered into by Sedco Forex in connection with two rigs
operated by Sedco Forex. The claim alleges breach of contract, negligence and
fraud and seeks damages of approximately $51 million. Sedco Forex is also party to various other legal proceedings and claims which arise in the ordinary course of business and for certain of these proceedings has been indemnified by Schlumberger. As of December 31, 1998 there are no such matters pending that Sedco Forex expects to be material in relation to its business, financial condition, results of operations or cash flows. F-18 169 SEDCO FOREX HOLDINGS LIMITED NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED) Commitments required to complete currently authorized capital expenditures on rig newbuilds and major conversion projects were approximately$608 million
and $410 million (unaudited) as of December 31, 1998 and June 30, 1999, respectively. 14. SUPPLEMENTARY INFORMATION Cash paid for interest and income taxes was as follows: YEAR ENDED DECEMBER 31, --------------------------- 1998 1997 1996 ------- ------- ------- Interest................................................$21,436   $19,237$ 6,061
Income taxes............................................   30,018    26,181    10,791

Accounts payable and accrued liabilities are summarized as follows:

DECEMBER 31,
-------------------
1998       1997
--------   --------

Payroll, vacation and employee benefits.....................  $93,203$ 70,800
--------   --------
$180,628$139,922
========   ========

Other current assets are summarized as follows:

DECEMBER 31,
-----------------
1998      1997
-------   -------

Value added tax receivable..................................  $17,972$22,369
Other.......................................................    7,435     4,151
-------   -------
$25,407$26,520
=======   =======

15. SUBSEQUENT EVENT

An after-tax charge of $32.5 million was recorded in March 1999. This charge consisted primarily of severance costs of$13.2 million (600 employees)
and provisions for potential legal claims of $19.3 million. During March 1999, Sedco Forex obtained two additional loans aggregating$158 million from a related party. These loans are being used to finance Sedco
Forex's existing fleet of rigs. Both loans bear interest at rates based on a
fixed spread over the LIBOR. Both loans have a repayment term of ten years.

16. INCOME PER COMMON SHARE (UNAUDITED)

Income per common share is calculated in accordance with FASB Statement No.
128, Earnings per Share ("SFAS 128"). Basic income per common share is computed
by dividing the net income applicable to common shares by the weighted average
common shares outstanding during the period. Diluted earnings per common share
would adjust basic income per common share for the effects of any convertible
securities, stock options and other potentially dilutive financial instruments,
only in the periods in which such effort is dilutive.

The pro forma income per common share was calculated based on net income of
Sedco Forex using the number of shares expected to be issued to the shareholders
of Sedco Forex upon the consummation of the merger (Note 1). The pro forma
average common shares outstanding were calculated based on approximately 100.8
million diluted Transocean Offshore Inc. ordinary shares issued on the date the
merger was announced. Upon consummation of the merger Schlumberger shareholders
will own approximately 52% of the diluted Transocean Sedco Forex ordinary shares
and the existing holders of Transocean ordinary shares will own the remaining
48%. Accordingly, the shareholders of Schlumberger will own approximately 109.2
million diluted Transocean Sedco Forex ordinary shares.

Historical earnings per share has not been presented because Sedco Forex
did not have a capital structure as of December 31, 1998.

F-19
170

SEDCO FOREX HOLDINGS LIMITED

QUARTERLY RESULTS (UNAUDITED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)

The following table summarizes the results for each of the four quarters
for the years ended December 31, 1998 and 1997 and for the six month period
ended June 30, 1999. Gross profit equals operating revenue less cost of
services.

OPERATING
--------------------------      NET
REVENUE      GROSS PROFIT     INCOME
----------    ------------    --------

Quarters -- 1999
First...............................................  $189,158$ 15,298      $11,336(1) Second.............................................. 162,432 39,174 27,358 ---------- -------- --------$  351,590      $54,472$ 38,694
==========      ========      ========
Quarters -- 1998
First...............................................  $257,935$ 89,777      $67,264 Second.............................................. 276,453 115,272 91,001 Third............................................... 290,093 115,548 92,199(2) Fourth.............................................. 266,042 95,241 91,114(3) ---------- -------- --------$1,090,523      $415,838$341,578
==========      ========      ========
Quarters -- 1997
First...............................................  $192,332$ 60,867      $46,220 Second.............................................. 217,452 73,476 56,024 Third............................................... 235,201 93,881 76,330 Fourth.............................................. 246,349 101,326 81,881 ---------- -------- --------$  891,334      $329,550$260,455
==========      ========      ========

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

(1) Includes after-tax charge of $32.5 million. (2) Includes after-tax charge of$13.4 million.

(3) Includes after-tax credit of $7.5 million. F-20 171 ANNEX A AGREEMENT AND PLAN OF MERGER AMONG SCHLUMBERGER LIMITED, SEDCO FOREX HOLDINGS LIMITED AND TRANSOCEAN OFFSHORE INC. DATED AS OF JULY 12, 1999 172 TABLE OF CONTENTS ARTICLE 1 THE DISTRIBUTION AND THE MERGER............................. A-1 Section 1.1 The Distribution............................................ A-1 Section 1.2 The Merger.................................................. A-1 Section 1.3 The Closing................................................. A-2 Section 1.4 Effective Time.............................................. A-2 ARTICLE 2 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION AND TRANSOCEAN.................................. A-2 Section 2.1 Surviving Corporation Memorandum of Association............. A-2 Section 2.2 Surviving Corporation Articles of Association............... A-2 Section 2.3 Transocean Increase of Authorized Capital and Change of Name........................................................ A-2 ARTICLE 3 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION AND TRANSOCEAN.................................................. A-2 Section 3.1 Board of Directors of Surviving Corporation................. A-2 Section 3.2 Officers of Surviving Corporation........................... A-2 Section 3.3 Board of Directors of Transocean............................ A-3 Section 3.4 Certain Executive Officers of Transocean.................... A-3 ARTICLE 4 CONVERSION OF SEDCO FOREX COMMON STOCK...................... A-3 Section 4.1 Merger Ratio................................................ A-3 Section 4.2 Conversion of Capital Stock of Merger Sub and Sedco Forex... A-4 Section 4.3 Issuance of Certificates Representing Transocean Ordinary Shares Pursuant to the Merger............................... A-4 Section 4.4 Adjustment of Merger Ratio.................................. A-5 Section 4.5 Rule 16b-3 Approval......................................... A-5 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SCHLUMBERGER.............. A-6 Section 5.1 Existence; Good Standing.................................... A-6 Section 5.2 Authorization, Validity and Effect of Agreements............ A-6 Section 5.3 Capitalization.............................................. A-6 Section 5.4 No Conflict................................................. A-6 Section 5.5 No Brokers.................................................. A-6 Section 5.6 Opinion of Financial Advisor................................ A-7 ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SEDCO FOREX AND SCHLUMBERGER................................................ A-7 Section 6.1 Existence; Good Standing; Corporate Authority............... A-7 Section 6.2 Authorization, Validity and Effect of Agreements............ A-7 Section 6.3 Capitalization.............................................. A-7 Section 6.4 Significant Subsidiaries.................................... A-7 Section 6.5 Compliance with Laws; Permits............................... A-8 Section 6.6 No Conflict................................................. A-9 Section 6.7 Sedco Forex Financial Statements............................ A-9 Section 6.8 Litigation.................................................. A-10 Section 6.9 Absence of Certain Changes.................................. A-10 Section Taxes....................................................... 6.10 A-10 Section Employee Benefit Plans...................................... 6.11 A-11 Section Labor Matters............................................... 6.12 A-12 Section Environmental Matters....................................... 6.13 A-12 Section Intellectual Property....................................... 6.14 A-13 Section Year 2000 Readiness......................................... 6.15 A-13 Section Insurance................................................... 6.16 A-13 Section No Brokers.................................................. 6.17 A-14 A-i 173 Section 6.18 Transocean Share Ownership.................................. A-14 Section Reorganization.............................................. 6.19 A-14 Section Vote Required............................................... 6.20 A-14 Section Ownership of Drilling Rigs and Drillships................... 6.21 A-14 Section Undisclosed Liabilities..................................... 6.22 A-14 Section Certain Contracts........................................... 6.23 A-15 Section Capital Expenditure Program................................. 6.24 A-15 Section Decrees, Etc................................................ 6.25 A-15 Section Improper Payments........................................... 6.26 A-15 ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF TRANSOCEAN AND MERGER SUB......................................................... A-16 Section 7.1 Existence; Good Standing; Corporate Authority............... A-16 Section 7.2 Authorization, Validity and Effect of Agreements............ A-16 Section 7.3 Capitalization.............................................. A-16 Section 7.4 Significant Subsidiaries.................................... A-17 Section 7.5 Compliance with Laws; Permits............................... A-17 Section 7.6 No Conflict................................................. A-18 Section 7.7 SEC Documents............................................... A-18 Section 7.8 Litigation.................................................. A-19 Section 7.9 Absence of Certain Changes.................................. A-19 Section Taxes....................................................... 7.10 A-19 Section Employee Benefit Plans...................................... 7.11 A-19 Section Labor Matters............................................... 7.12 A-20 Section Environmental Matters....................................... 7.13 A-21 Section Intellectual Property....................................... 7.14 A-21 Section Year 2000 Readiness......................................... 7.15 A-21 Section Insurance................................................... 7.16 A-22 Section No Brokers.................................................. 7.17 A-22 Section Opinion of Financial Advisor................................ 7.18 A-22 Section Sedco Forex Stock Ownership................................. 7.19 A-22 Section Reorganization.............................................. 7.20 A-22 Section Vote Required............................................... 7.21 A-22 Section Ownership of Drilling Rigs and Drillships................... 7.22 A-22 Section Undisclosed Liabilities..................................... 7.23 A-23 Section Certain Contracts........................................... 7.24 A-23 Section Capital Expenditure Program................................. 7.25 A-23 Section Decrees, Etc................................................ 7.26 A-24 Section Improper Payments........................................... 7.27 A-24 ARTICLE 8 COVENANTS................................................... A-24 Section 8.1 Conduct of Businesses....................................... A-24 Section 8.2 No Solicitation by Sedco Forex or Schlumberger.............. A-26 Section 8.3 No Solicitation by Transocean............................... A-27 Section 8.4 Meetings of Stockholders.................................... A-28 Section 8.5 Filings; Best Efforts....................................... A-28 Section 8.6 Inspection.................................................. A-29 Section 8.7 Publicity................................................... A-29 Section 8.8 Registration Statement...................................... A-29 Section 8.9 Listing Application......................................... A-30 Section Letters of Accountants...................................... 8.10 A-30 Section Agreements of Rule 145 Affiliates........................... 8.11 A-30 Section Expenses.................................................... 8.12 A-31 Section Indemnification and Insurance............................... 8.13 A-31 A-ii 174 Section 8.14 Employee Benefits........................................... A-31 Section Transocean Structuring...................................... 8.15 A-32 Section Strategic Alliance.......................................... 8.16 A-32 Section Newbuild Contract Renegotiations............................ 8.17 A-32 ARTICLE 9 CONDITIONS.................................................. A-32 Section 9.1 Conditions to Each Party's Obligation to Effect the Merger...................................................... A-32 Section 9.2 Conditions to Obligation of Schlumberger and Sedco Forex to Effect the Merger........................................... A-33 Section 9.3 Conditions to Obligation of Transocean and Merger Sub to Effect the Merger........................................... A-33 ARTICLE 10 TERMINATION................................................. A-34 Section Termination by Mutual Consent............................... 10.1 A-34 Section Termination by Transocean or Schlumberger................... 10.2 A-34 Section Termination by Sedco Forex or Schlumberger.................. 10.3 A-34 Section Termination by Transocean................................... 10.4 A-35 Section Effect of Termination....................................... 10.5 A-36 Section Extension; Waiver........................................... 10.6 A-36 ARTICLE 11 GENERAL PROVISIONS.......................................... A-37 Section Nonsurvival of Representations, Warranties and Agreements... 11.1 A-37 Section Notices..................................................... 11.2 A-37 Section Assignment; Binding Effect; Benefit......................... 11.3 A-37 Section Entire Agreement............................................ 11.4 A-38 Section Amendments.................................................. 11.5 A-38 Section Governing Law............................................... 11.6 A-38 Section Counterparts................................................ 11.7 A-38 Section Headings.................................................... 11.8 A-38 Section Interpretation.............................................. 11.9 A-38 Section Waivers..................................................... 11.10 A-38 Section Incorporation of Exhibits................................... 11.11 A-39 Section Severability................................................ 11.12 A-39 Section Enforcement of Agreement.................................... 11.13 A-39 Section Subsidiaries................................................ 11.14 A-39 Section Transocean Guarantee........................................ 11.15 A-39 Exhibits Exhibit A -- Certain Executive Officers Exhibit B -- Form of Transocean Officer's Certificate A-iii 175 GLOSSARY OF DEFINED TERMS DEFINED TERM WHERE DEFINED - ------------ ------------- 1998 Pro Forma Statement of Operations...................... Section 6.7(a) Action...................................................... Section 8.13(a) Agreement................................................... Preamble Applicable Laws............................................. Section 6.5(a) Audited Financial Statements................................ Section 6.7 BVI Law..................................................... Section 1.2 Certificate of Merger....................................... Section 1.4 Closing..................................................... Section 1.3 Closing Date................................................ Section 1.3 Code........................................................ Recitals Cutoff Date................................................. Section 8.2(d) Distribution................................................ Recitals Distribution Agreement...................................... Recitals Effective Time.............................................. Section 1.4 Environmental Law........................................... Section 6.13(a) ERISA....................................................... Section 6.11(a) Exchange Act................................................ Section 4.5 Exchange Agent.............................................. Section 4.3(a) Exchange Fund............................................... Section 4.3(a) Form 10..................................................... Section 6.7 Form S-4.................................................... Section 8.8 Hazardous Materials......................................... Section 6.13(b) HSR Act..................................................... Section 5.4(b) Indemnified Parties......................................... Section 8.13(a) Liens....................................................... Section 6.21 Material Adverse Effect..................................... Section 11.9(c) knowledge................................................... Section 11.9(b) Merger...................................................... Recitals Merger Ratio................................................ Section 4.1(a) Merger Sub.................................................. Preamble NYSE........................................................ Section 4.3(d) Objection Notice............................................ Section 8.15 Pension Plan................................................ Section 6.11(d)(ii) Permitted Liens............................................. Section 6.21 Pre-Closing Balance Sheet................................... Distribution Agreement Pro Forma Financial Statements.............................. Section 6.7(b) Proxy Statement/Prospectus.................................. Section 8.8 Record Date................................................. Distribution Agreement Regulatory Filings.......................................... Section 5.4(b) Returns..................................................... Section 6.10 Rule 145 Affiliates......................................... Section 8.11 Rule 16b-3.................................................. Section 4.5 Schlumberger................................................ Preamble Schlumberger Business....................................... Distribution Agreement Schlumberger Common Stock................................... Recitals Schlumberger Disclosure Letter.............................. Article 5 Preface Schlumberger Funded Plans................................... Employee Matters Agreement Schlumberger Material Adverse Effect........................ Section 11.9(c) Schlumberger Plans.......................................... Employee Matters Agreement A-iv 176 DEFINED TERM WHERE DEFINED - ------------ ------------- Schlumberger Stock Option Plans............................. Employee Matters Agreement Schlumberger Subsidiaries................................... Distribution Agreement SEC......................................................... Section 4.2(e)(ii) Sedco Forex................................................. Preamble Sedco Forex Acquisition Proposal............................ Section 8.2(a) Sedco Forex Assets.......................................... Distribution Agreement Sedco Forex Benefit Plans................................... Section 6.11(a) Sedco Forex Business........................................ Distribution Agreement Sedco Forex Common Stock.................................... Recitals Sedco Forex Disclosure Letter............................... Article 6 preface Sedco Forex Employee........................................ Employee Matters Agreement Sedco Forex Financial Statements............................ Section 6.7 Sedco Forex Material Adverse Effect......................... Section 11.9(c) Sedco Forex Material Contracts.............................. Section 6.23 Sedco Forex Permits......................................... Section 6.5(b) Sedco Forex Permitted Liens................................. Section 6.21 Sedco Forex Real Property................................... Section 6.5(d) Sedco Forex Reports......................................... Section 6.7 Sedco Forex Rigs............................................ Section 6.5(c) Sedco Forex Subsidiaries.................................... Distribution Agreement Sedco Forex Superior Proposal............................... Section 8.2(a) Significant Subsidiaries.................................... Section 6.4 Strategic Alliance Agreement................................ Section 8.16 Structuring Plan............................................ Section 8.15 Subsidiary.................................................. Section 11.14 Surviving Corporation....................................... Section 1.2 Tax or Taxes................................................ Section 6.10 Third-Party Provisions...................................... Section 11.3 Transaction Agreements...................................... Recitals Transocean.................................................. Preamble Transocean Acquisition Proposal............................. Section 8.3(a) Transocean Benefit Plans.................................... Section 7.11(a) Transocean Ordinary Shares.................................. Section 2.3 Transocean Confidentiality Agreement........................ Section 8.2(a) Transocean Disclosure Letter................................ Article 7 Preface Transocean Material Adverse Effect.......................... Section 11.9(c) Transocean Permits.......................................... Section 7.5 Transocean Permitted Liens.................................. Section 7.22 Transocean Preferred Stock.................................. Section 7.3 Transocean Reports.......................................... Section 7.7 Transocean Superior Proposal................................ Section 8.3(a) Unaudited Financial Statements.............................. Section 6.7(a) Unaudited Interim Period Financial Statements............... Section 6.7(b) A-v 177 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of July 12, 1999, is among Schlumberger Limited, a company organized under the laws of the Netherlands Antilles ("Schlumberger"), Sedco Forex Holdings Limited, a company organized under the laws of the British Virgin Islands ("Sedco Forex"), and Transocean Offshore, Inc., a company organized under the laws of the Cayman Islands ("Transocean"). Transocean will cause a company to be organized under the laws of the British Virgin Islands as a wholly owned subsidiary of Transocean ("Merger Sub") and will cause Merger Sub to execute and deliver a counterpart of this Agreement within 10 days following the date hereof. RECITALS A. Business Separation. Schlumberger and Sedco Forex have entered into a Distribution Agreement of even date herewith (the "Distribution Agreement"). Pursuant to the Distribution Agreement, Schlumberger and Sedco Forex intend to take the steps set forth in the Distribution Agreement to separate the Schlumberger Business (as defined in the Distribution Agreement) from the Sedco Forex Business (as defined in the Distribution Agreement), prior to the Distribution (as defined below). B. The Distribution. Pursuant to the terms of the Distribution Agreement, on the Distribution Date, Schlumberger intends to distribute all of the issued and outstanding shares of capital stock, par value U.S.$.01 per share, of Sedco
Forex ("Sedco Forex Common Stock") on a pro rata basis of one share of Sedco
Forex Common Stock for each outstanding share of common stock, par value U.S.
$.01 per share, of Schlumberger ("Schlumberger Common Stock") outstanding on the Record Date (as defined in the Distribution Agreement) to the holders of the Schlumberger Common Stock (the "Distribution"). C. The Merger. At the Effective Time (as defined herein), the parties intend to effect a merger of Merger Sub with and into Sedco Forex, with Sedco Forex being the surviving corporation (the "Merger") and Sedco Forex becoming a wholly owned subsidiary of Transocean. D. Intended U.S. Tax Consequences. The parties to this Agreement intend that, for U.S. federal income tax purposes, (1) the Distribution qualify as a distribution described in Section 355 of the U.S. Internal Revenue Code of 1986, as amended, and (2) the Merger qualify as a reorganization under Section 368(a)(1)(B) of the Code. E. Intended U.S. Accounting Treatment. The parties to this Agreement intend that the Merger be treated as the purchase of Transocean by Sedco Forex for U.S. generally accepted accounting principles. F. Transaction Agreements. As used herein, the term "Transaction Agreements" shall mean the following agreements: (i) the Distribution Agreement; (ii) the Tax Separation Agreement contemplated by the Distribution Agreement; (iii) the Transition Services Agreement contemplated by the Distribution Agreement; and (iv) the Employee Matters Agreement contemplated by the Distribution Agreement. NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE 1 THE DISTRIBUTION AND THE MERGER SECTION 1.1 The Distribution. Subject to the terms and conditions of the Distribution Agreement, the parties thereto shall effect the Distribution and the other transactions contemplated thereby on a day preceding the Effective Time (as defined in Section 1.4). SECTION 1.2 The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time, Merger Sub shall be merged with and into Sedco Forex in accordance with this Agreement, and the separate corporate existence of Merger Sub shall thereupon cease. Sedco Forex shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the "Surviving Corporation"). The Merger A-1 178 shall have the effects specified herein and in the International Business Companies Ordinance, 1984, of the British Virgin Islands (the "BVI Law"). SECTION 1.3 The Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") shall take place (a) at the offices of Baker & Botts, L.L.P., One Shell Plaza, 910 Louisiana, Houston, Texas, at 9:00 a.m., local time, on the first business day immediately following the day on which the last to be fulfilled or waived of the conditions set forth in Article 9 shall be fulfilled or waived in accordance herewith or (b) at such other time, date or place as Schlumberger, Sedco Forex and Transocean may agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." SECTION 1.4 Effective Time. If all the conditions to the Merger set forth in Article 9 shall have been fulfilled or waived in accordance herewith and this Agreement shall not have been terminated as provided in Article 10, Schlumberger, Sedco Forex, Transocean and Merger Sub shall cause articles of merger (the "Certificate of Merger") meeting the requirements of the BVI Law to be properly executed and filed in accordance with the BVI Law on the Closing Date. The Merger shall become effective at the time of filing of the Certificate of Merger with the Registrar of the British Virgin Islands in accordance with the BVI Law or at such later time that the parties hereto shall have agreed upon and designated in such filing as the effective time of the Merger (the "Effective Time"). The Effective Time will occur, if at all, no earlier than the day after the date on which the Distribution occurs. ARTICLE 2 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION AND TRANSOCEAN SECTION 2.1 Surviving Corporation Memorandum of Association. The memorandum of association of Sedco Forex, as amended pursuant to the Distribution Agreement, shall be amended at the Effective Time to change Sedco Forex's authorized shares of capital stock to 1,000 shares, par value U.S.$0.01
per share, and, as so amended, shall be the memorandum of association of the
Surviving Corporation, until duly amended in accordance with applicable law.

SECTION 2.2  Surviving Corporation Articles of Association. The articles of
association of Sedco Forex, as amended pursuant to the Distribution Agreement,
shall be amended at the Effective Time to change Sedco Forex's authorized shares
of capital stock to 1,000 shares, par value U.S. $1.00 per share, and, as so amended, shall be the articles of association of the Surviving Corporation, until duly amended in accordance with applicable law. SECTION 2.3 Transocean Increase of Authorized Capital and Change of Name. In accordance with Cayman Islands law, as of the Effective Time: (a) The authorized ordinary share capital of Transocean shall be increased to a number of ordinary shares of US$.01 per share in excess of
that required to consummate the Merger.

(b) The name of Transocean shall be changed to "Transocean Sedco Forex
Inc."

ARTICLE 3

DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION AND TRANSOCEAN

SECTION 3.1  Board of Directors of Surviving Corporation. The directors of
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation as of the Effective Time, until their successors shall be
elected and qualified or their earlier death, resignation or removal in
accordance with the memorandum of association and articles of association of the
Surviving Corporation.

SECTION 3.2  Officers of Surviving Corporation. The officers of Merger Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation as of the Effective Time, until their

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successors shall be appointed or their earlier death, resignation or removal in
accordance with the memorandum of association and articles of association of the
Surviving Corporation.

SECTION 3.3  Board of Directors of Transocean. (a) The Board of Directors
of Transocean as of the Effective Time shall consist of 10 members, 50% of whom
shall be designated by the Board of Directors of Schlumberger in consultation
with Transocean and 50% of whom shall be designated by the Board of Directors of
Transocean in consultation with Schlumberger, with such persons being allocated
by Transocean or Schlumberger as applicable as nearly as practicable on a
proportionate basis to each of the three classes into which the Board of
Directors is divided in accordance with Transocean's articles of association.

(b) At the Effective Time, the membership of each of the Audit Committee,
the Executive Compensation Committee, the Finance and Benefits Committee, the
Corporate Governance Committee and any other committee of the Board of Directors
of Transocean shall consist of an equal number of persons designated by
Transocean and Schlumberger. The directors designated by Transocean shall
designate the Chairman of the Executive Compensation Committee and the Finance
and Benefits Committee and the directors designated by Schlumberger shall
designate the Chairman of the Audit Committee and the Corporate Governance
Committee. The Chairman of any other committees shall be designated as equally
as practicable by the directors designated by Transocean and the directors
designated by Schlumberger.

(c) Directors of Transocean not continuing as directors after the Effective
Time shall resign from the Board of Directors of Transocean as of the Effective
Time.

(d) Prior to the Effective Time, the Board of Directors of Transocean shall
take such action as may be necessary to cause the Transocean designees who shall
be changing classes to be elected to the appropriate class of the Transocean
Board of Directors as of the Effective Time.

(e) Prior to the Effective Time, the Board of Directors of Transocean shall
take such action as may be necessary to cause the Schlumberger designees to be
elected to the Transocean Board of Directors as of the Effective Time.

(f) Transocean shall use all reasonable efforts to maintain the foregoing
allocations and appointments for a period of three years from the Effective
Time. Transocean shall not nominate or fail to nominate any person contrary to
the above allocations or take any other action designed to or which would
reasonably be expected to alter the above allocations; provided, however, that
nothing herein shall constrain the directors from taking any action they
reasonably believe their fiduciary duties require them to take. In the event
that a director initially designated by Transocean or a director initially
designated by Schlumberger shall die, resign or be removed from the Board of
Directors before the expiration of such three-year period, the remaining
Transocean directors (if he was designated by Transocean) or Schlumberger
directors (if he was designated by Schlumberger) shall nominate his replacement
for action by the full Board as soon as practicable.

SECTION 3.4  Certain Executive Officers of Transocean. As of the Effective
Time, (i) Victor E. Grijalva, the present Vice Chairman of Schlumberger, shall
be the Chairman of the Board of Directors of Transocean Sedco Forex Inc. to
serve until he reaches age 65, provided that as a condition to such appointment
he shall have entered into a consulting agreement with Transocean with respect
to his services as Chairman of the Board as described in this clause (i); and
(ii) J. Michael Talbert, the present Chairman of the Board and Chief Executive
Officer of Transocean, shall be the President and the Chief Executive Officer of
Transocean Sedco Forex Inc. Transocean agrees to enter into such consulting
agreement in the form previously provided by Transocean to Schlumberger. Exhibit
A sets forth certain other executive officers of Transocean as of the Effective
Time.

ARTICLE 4

CONVERSION OF SEDCO FOREX COMMON STOCK

SECTION 4.1  Merger Ratio. For purposes of this Agreement, the "Merger
Ratio" shall equal fifty-two forty-eighths times the number of fully diluted
Transocean Ordinary Shares (calculated according to the treasury method under
U.S. generally accepted accounting principles) immediately prior to the
Effective
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Time divided by the number of fully diluted shares of Sedco Forex Common Stock
(calculated according to the treasury method under U.S. generally accepted
accounting principles) immediately prior to the Effective Time. The Merger Ratio
shall be rounded to the nearest ten-thousandth of a Transocean Ordinary share.

SECTION 4.2  Conversion of Capital Stock of Merger Sub and Sedco Forex.

(a) At the Effective Time, each share of capital stock of Merger Sub
outstanding immediately prior to the Effective Time shall be converted into and
become one fully paid and nonassessable share of capital stock, par value U.S.
$1.00 per share, of the Surviving Corporation. At the Effective Time, each share of Sedco Forex Common Stock issued and outstanding immediately prior to the Effective Time (other than shares of Sedco Forex Common Stock to be canceled without payment of any consideration therefor pursuant to Section 4.2(d)), which shares shall have been distributed pursuant to the Distribution to holders of Schlumberger Common Stock as of the Record Date, shall, by virtue of the Merger and without any action on the part of the holder thereof, be exchanged for and converted into a number of Transocean Ordinary Shares equal to the Merger Ratio. (b) At the Effective Time, as a result of the Merger and without any action on the part of the holder thereof, each share of Sedco Forex Common Stock shall cease to be outstanding and shall be canceled and retired and shall cease to exist, and each holder of shares of Sedco Forex Common Stock shall thereafter cease to have any rights with respect to such shares of Sedco Forex Common Stock, except the right to receive, without interest, a certificate for Transocean Ordinary Shares and cash for fractional shares in accordance with Sections 4.3(b) and 4.3(d) upon the surrender of such Certificate. (c) Each share of Sedco Forex Common Stock issued and held in Sedco Forex's treasury and each share of Sedco Forex Common Stock owned by Schlumberger or Transocean, or any wholly owned Subsidiary of Schlumberger, Sedco Forex or Transocean, shall, at the Effective Time and by virtue of the Merger, cease to be outstanding and shall be canceled and retired without payment of any consideration therefor, and no capital shares of Transocean or other consideration shall be delivered in exchange therefor. (d) (i) All options under the Schlumberger Stock Option Plans (as defined in the Employee Matters Agreement) held by persons who are employees of Sedco Forex and its Subsidiaries, and not of Schlumberger or its Subsidiaries, immediately after the Distribution shall be treated as described in the Employee Matters Agreement. (ii) Transocean shall take all corporate action necessary to reserve for issuance a number of Transocean Ordinary Shares equal to the number of Transocean Ordinary Shares issuable upon the exercise of options to purchase Transocean Ordinary Shares issued pursuant to the Employee Matters Agreement. At the Effective Time or as soon as practicable, but in no event more than six business days thereafter, Transocean shall file with the U.S. Securities and Exchange Commission (the "SEC") a Registration Statement on Form S-8 (or a post-effective amendment on Form S-8 with respect to the Form S-4 (as defined in Section 8.8)) covering all such Transocean Ordinary Shares and shall cause such registration statement to remain effective for as long as there are outstanding any options to purchase such shares. SECTION 4.3 Issuance of Certificates Representing Transocean Ordinary Shares Pursuant to the Merger. (a) As of the Effective Time, Transocean shall deposit, or shall cause to be deposited, with an exchange agent selected by Transocean, which shall be Transocean's transfer agent for Transocean Ordinary Shares or such other party reasonably satisfactory to Sedco Forex and Schlumberger (the "Exchange Agent"), for the benefit of the holders of shares of Sedco Forex Common Stock, for delivery in accordance with this Article 4, certificates representing the Transocean Ordinary Shares (or authorize the related book-entry transfer) (such Transocean Ordinary Shares being hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 4.2 in exchange for outstanding shares of Sedco Forex Common Stock. (b) Promptly after the Effective Time, Transocean shall cause the Exchange Agent to mail to each holder of record of Sedco Forex Common Stock (other than to holders of Sedco Forex Common Stock that, pursuant to Section 4.2(d), are canceled without payment of any consideration therefor) (i) a certificate representing that number of whole Transocean Ordinary Shares and (ii) a check representing the amount of A-4 181 cash in lieu of fractional shares, if any, that such holder has the right to receive in respect of the holder's Sedco Forex Common Stock pursuant to the provisions of this Article 4, after giving effect to any required withholding tax. No interest will be paid or accrued on the cash in lieu of fractional shares, if any, payable to holders of Sedco Forex Common Stock. In the event of a transfer of ownership of Sedco Forex Common Stock that is not registered in the transfer records of Sedco Forex, a certificate representing the proper number of Transocean Ordinary Shares, together with a check for the cash to be paid in lieu of fractional shares, shall be issued to such a transferee if the documents presented to the Exchange Agent to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid are acceptable to the Exchange Agent. (c) At or after the Effective Time, there shall be no transfers on the stock transfer books of Sedco Forex of the shares of Sedco Forex Common Stock which were outstanding immediately prior to the Effective Time. (d) No fractional Transocean Ordinary Shares shall be issued pursuant hereto. In lieu of the issuance of any fractional Transocean Ordinary Shares pursuant to Section 4.2(b), cash adjustments will be paid to holders in respect of any fractional Transocean Ordinary Share that would otherwise be issuable, and the amount of such cash adjustment shall be equal to the proportionate interest in the net proceeds from the sale or sales by the Exchange Agent in accordance with the provisions of this Section 4.3(d), on behalf of all such holders, of the aggregate fractional Transocean Ordinary Shares that would otherwise be issuable. As soon as practicable following the Effective Time, the Exchange Agent shall determine the excess of (x) the number of full Transocean Ordinary Shares delivered to the Exchange Agent by Transocean pursuant to Section 4.3(a) over (y) the aggregate number of Transocean Ordinary Shares to be distributed to holders of Sedco Forex Common Stock pursuant to Section 4.3(b) (such excess being herein called the "Excess Securities"), and the Exchange Agent, as agent for the former holders of Sedco Forex Common Stock, shall sell the Excess Securities at the prevailing prices on the New York Stock Exchange, Inc. (the "NYSE"). The sale of the Excess Securities by the Exchange Agent shall be executed on the NYSE through one or more member firms of the NYSE and shall be executed in round lots to the extent practicable. All commissions, transfer taxes and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent, incurred in connection with such sale of Excess Securities shall be paid from the proceeds of such sale. Until the net proceeds of such sale of Excess Securities have been distributed to the former stockholders of Sedco Forex, the Exchange Agent will hold such proceeds in trust for such former stockholders. As soon as practicable after the determination of the amount of cash to be paid to former stockholders of Sedco Forex in lieu of any fractional interests, the Exchange Agent shall make available in accordance with this Agreement such amounts to such former stockholders. (e) Any portion of the Exchange Fund that remains undistributed to the former stockholders of Sedco Forex one year after the Effective Time shall be delivered to Transocean. Any former stockholders of Sedco Forex who have not theretofore received such portion of the Exchange Fund shall thereafter look only to Transocean for payment of their shares of Transocean Ordinary Shares and cash in lieu of fractional shares deliverable to such former stockholders pursuant to this Agreement. (f) None of Transocean, Schlumberger, the Surviving Corporation, the Exchange Agent or any other person shall be liable to any former holder of shares of Sedco Forex Common Stock for any shares of Transocean Ordinary Shares or cash in lieu of fractional shares properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. SECTION 4.4 Adjustment of Merger Ratio. In the event that, subsequent to the date of this Agreement but prior to the Effective Time, Transocean changes the number of Transocean Ordinary Shares, or Sedco Forex changes the number of shares of Sedco Forex Common Stock, other than pursuant to the Distribution Agreement, issued and outstanding as a result of a stock split, reverse stock split, stock dividend, recapitalization or other similar transaction, the Merger Ratio and other items dependent thereon shall be appropriately adjusted. SECTION 4.5 Rule 16b-3 Approval. Transocean agrees that the Transocean Board of Directors or the Compensation Committee of the Transocean Board of Directors shall, at or prior to the Effective Time, adopt resolutions specifically approving, for purposes of Rule 16b-3 ("Rule 16b-3") under the Securities Exchange A-5 182 Act of 1934, as amended (the "Exchange Act"), the receipt, pursuant to Section 4.2, of Transocean Ordinary Shares and, pursuant to the Employee Matters Agreement, of options to acquire Transocean Ordinary Shares by employees of Sedco Forex and directors designated by Schlumberger who become executive officers or directors of Transocean subject to Rule 16b-3. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SCHLUMBERGER Except as set forth in the disclosure letter delivered to Transocean by Schlumberger at or prior to the execution hereof (the "Schlumberger Disclosure Letter") or as contemplated by the Transaction Agreements, Schlumberger represents and warrants to Transocean that: SECTION 5.1 Existence; Good Standing. Schlumberger is a corporation duly incorporated and validly existing under the laws of its jurisdiction of incorporation. SECTION 5.2 Authorization, Validity and Effect of Agreements. Schlumberger has the requisite corporate power and authority to execute and deliver this Agreement, each "Transaction Agreement" to which it is a party and all other agreements and documents contemplated hereby or thereby to which it is a party. The consummation by Schlumberger of the transactions contemplated hereby and by the Transaction Agreements to which it is a party has been duly authorized by all requisite corporate action on behalf of Schlumberger, other than, with respect to the Distribution, the approval of the Distribution by Schlumberger's stockholders. This Agreement and each of the other Transaction Agreements to which it is a party constitute or will constitute when executed the valid and legally binding obligations of Schlumberger, enforceable against Schlumberger in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights and general principles of equity. SECTION 5.3 Capitalization. As of the date of this Agreement, the authorized common stock of Schlumberger consists of 1,000,000,000 shares of Schlumberger Common Stock and, as of June 30, 1999, there were 665,716,058 shares of Schlumberger Common Stock issued, including 118,317,366 shares held in treasury, and 57,642,247 shares of Schlumberger Common Stock reserved for issuance upon exercise of outstanding options exercisable for shares of Schlumberger Common Stock. SECTION 5.4 No Conflict. (a) Neither the execution and delivery by Schlumberger of this Agreement or any of the Transaction Agreements to which it is a party, nor the consummation by Schlumberger of the transactions contemplated hereby or thereby in accordance with the terms hereof or thereof will (i) conflict with or result in a breach of any provisions of the deed of incorporation or bylaws of Schlumberger, or (ii) contravene or conflict with or constitute a violation of any provision of any law, rule, regulation, judgment, order or decree binding upon or applicable to Schlumberger or any of its Subsidiaries, except for such matters described in clause (ii) as do not and are not likely to have, individually or in the aggregate, a Schlumberger Material Adverse Effect (as defined in Section 11.9). (b) Neither the execution and delivery by Schlumberger of this Agreement or any of the Transaction Agreements to which it is a party, nor the consummation by Schlumberger of the transactions contemplated hereby or thereby in accordance with the terms hereof or thereof will require any consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, other than (i) the filing of the Certificate of Merger provided for in Section 1.4 and (ii) filings required under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Exchange Act, the Securities Act or applicable state securities and "Blue Sky" laws and applicable non-U.S. competition, antitrust or premerger notification laws ((i) and (ii) collectively, the "Regulatory Filings"), except for any consent, approval or authorization the failure of which to obtain or for any filing or registration the failure of which to make does not and is not likely to have a Schlumberger Material Adverse Effect. SECTION 5.5 No Brokers. Schlumberger has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Transocean to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this A-6 183 Agreement or the consummation of the transactions contemplated hereby, except that Schlumberger has retained Goldman, Sachs & Co. as its financial advisor, the arrangements with which have been disclosed in writing to Transocean prior to the date hereof. SECTION 5.6 Opinion of Financial Advisor. The Board of Directors of Schlumberger has received the opinion of Goldman, Sachs & Co. to the effect that, as of the date of this Agreement, the Merger Ratio is fair, from a financial point of view, to the holders of Sedco Forex Common Stock. ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SEDCO FOREX AND SCHLUMBERGER Except as set forth in the disclosure letter delivered to Transocean by Sedco Forex at or prior to the execution hereof (the "Sedco Forex Disclosure Letter") or as contemplated by the Transaction Agreements, Sedco Forex and Schlumberger, jointly and severally, represent and warrant to Transocean and Merger Sub, in each case after giving effect to the transactions contemplated by the Distribution Agreement (unless otherwise expressly stated), that: SECTION 6.1 Existence; Good Standing; Corporate Authority. Sedco Forex is a corporation duly incorporated and validly existing under the laws of its jurisdiction of incorporation. Sedco Forex is duly qualified to do business and is in good standing under the laws of any jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified does not and is not likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect (as defined in Section 11.9). Sedco Forex has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted. The copies of Sedco Forex's memorandum of association and articles of association previously made available to Transocean are true and correct and contain all amendments as of the date hereof. SECTION 6.2 Authorization, Validity and Effect of Agreements. Sedco Forex has the requisite corporate power and authority to execute and deliver this Agreement, each Transaction Agreement to which it is a party and all other agreements and documents contemplated hereby or thereby to which it is a party. The consummation by Sedco Forex of the transactions contemplated hereby and by the Transaction Agreements to which it is a party has been duly authorized by all requisite corporate action on behalf of Sedco Forex. This Agreement and each Transaction Agreement to which it is a party constitute or will constitute when executed the valid and legally binding obligations of Sedco Forex, enforceable against Sedco Forex in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights and general principles of equity. SECTION 6.3 Capitalization. As of the date of this Agreement, the authorized capital stock of Sedco Forex consists of 50,000 shares of Sedco Forex Common Stock. Immediately after the Distribution, there will be issued and outstanding such number of shares of Sedco Forex Common Stock as is determined pursuant to the terms of the Distribution Agreement. All such issued and outstanding shares of Sedco Forex Common Stock are or will be when issued duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Except as set forth in this Section 6.3 or in the Employee Matters Agreement, there are no outstanding shares of capital stock and there are no options, warrants, calls, subscriptions, convertible securities or other rights, agreements or commitments which obligate Sedco Forex or any Sedco Forex Subsidiary to issue, transfer or sell any shares of capital stock or other voting securities of Sedco Forex or any Sedco Forex Subsidiary. Sedco Forex has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of Sedco Forex on any matter. SECTION 6.4 Significant Subsidiaries. For purposes of this Agreement, "Significant Subsidiary" shall mean significant subsidiary as defined in Rule 1-02 of Regulation S-X of the Exchange Act. Each of Sedco Forex's Significant Subsidiaries is a corporation or other legal entity duly organized, validly existing and, to the extent such concept or similar concept exists in the relevant jurisdiction, in good standing under the laws of its jurisdiction of incorporation or organization, has the corporate or other entity power and authority to own, A-7 184 operate and lease its properties and to carry on its business as it is now being conducted (and as will be conducted after giving effect to the transfers to such Significant Subsidiary as contemplated by the Distribution Agreement), and is duly qualified to do business and is in good standing (where applicable) in each jurisdiction in which the ownership, operation or lease of its property or the conduct of its business requires such qualification (or will require such qualification after giving effect to the transfers to the Significant Subsidiary contemplated by the Distribution Agreement), except for jurisdictions in which such failure to be so qualified or to be in good standing would not have a Sedco Forex Material Adverse Effect. All of the outstanding shares of capital stock of, or other ownership interests in, each of Sedco Forex's Significant Subsidiaries are duly authorized, validly issued, fully paid and nonassessable and are owned, directly or indirectly, by Sedco Forex free and clear of all Liens. SECTION 6.5 Compliance with Laws; Permits. Except for such matters as, individually or in the aggregate, do not or are not likely to have a Sedco Forex Material Adverse Effect: (a) None of Schlumberger, any Schlumberger Subsidiary, Sedco Forex, any Sedco Forex Subsidiary, the Sedco Forex Business or the Sedco Forex Assets are in violation of any applicable law, rule, regulation, code, governmental determination, order, treaty, convention, governmental certification requirement or other public limitation, U.S. or non-U.S. (collectively, "Applicable Laws"), relating to the ownership or operation of the Sedco Forex Assets, and no claim is pending or, to the knowledge of Sedco Forex, threatened with respect to any such matters. No condition exists that is not disclosed in the Sedco Forex Disclosure Letter and which does or is likely to constitute a violation of or deficiency under any Applicable Law relating to the ownership or operation of the Sedco Forex Assets. (b) Sedco Forex, the Sedco Forex Business and the Sedco Forex Subsidiaries hold all permits, licenses, certifications, variations, exemptions, orders, franchises and approvals of all governmental authorities necessary for the lawful conduct of their respective businesses (the "Sedco Forex Permits"). All Sedco Forex Permits are in full force and effect and there exists no default thereunder or breach thereof, and Sedco Forex or Schlumberger has no notice or actual knowledge that (i) where such Sedco Forex Permit is held by Schlumberger or a Schlumberger Subsidiary, such Sedco Forex Permit would not be transferable to, or renewable by, Sedco Forex or a Sedco Forex Subsidiary pursuant to the Distribution Agreement and (ii) such Sedco Forex Permits will not otherwise be renewed in the ordinary course after the Effective Time. No governmental authority has given, or to the knowledge of Schlumberger or Sedco Forex threatened to give, any action to terminate, cancel or reform any Sedco Forex Permit. (c) Each drilling rig, drillship or other drilling unit forming a part of the Sedco Forex Business (the "Sedco Forex Rigs") which is subject to classification is in class according to the rules and regulations of the applicable classifying body and is duly and lawfully documented under the laws of its flag jurisdiction. Schlumberger, a Schlumberger Subsidiary, Sedco Forex or a Sedco Forex Subsidiary has obtained and maintained, or caused to be obtained and maintained, in full force and effect all permits, licenses, certificates, operating authorities, orders, exceptions, franchises, variances, consents, approvals, documentations or other authorizations required with respect to the operation of the Sedco Forex Rigs in the areas in which they operate, except where the failure to have obtained any of the same does not and is not likely to have a Sedco Forex Material Adverse Effect. (d) Schlumberger, a Schlumberger Subsidiary, Sedco Forex or a Sedco Forex Subsidiary possesses all permits, licenses, operating authorities, orders, exemptions, franchises, variances, consents, approvals or other authorizations required for the present ownership and operation of the real property or leaseholds included in the Sedco Forex Assets ("Sedco Forex Real Property") except where the failure to possess any of the same does not and is not likely to have a Sedco Forex Material Adverse Effect. There exists no material default or breach with respect to, and no party or governmental authority has taken or, to the knowledge of Sedco Forex, threatened to take, any action to terminate, cancel or reform any such permit, license, operating authority, order, exemption, franchise, variance, consent, approval or other authorization pertaining to the Sedco Forex Real Property where such termination, cancellation or reformation does not or is not likely to have a Sedco Forex Material Adverse Effect. A-8 185 SECTION 6.6 No Conflict. (a) Neither the execution and delivery by Sedco Forex of this Agreement or any of the Transaction Agreements to which it is a party nor the consummation by Sedco Forex of the transactions contemplated hereby or thereby in accordance with the terms hereof or thereof will (i) conflict with or result in a breach of any provisions of the memorandum of association or articles of association of Sedco Forex, (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or give rise to a right of purchase under, or accelerate the performance required by, or result in the creation of any Lien upon any of the properties of Sedco Forex or the Sedco Forex Subsidiaries under, or result in being declared void, voidable, or without further binding effect, or otherwise result in a detriment to Sedco Forex or any of the Sedco Forex Subsidiaries under, any of the terms, conditions or provisions of, any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, lease, contract, agreement, joint venture or other instrument or obligation to which Sedco Forex or any of the Sedco Forex Subsidiaries is a party, or by which Sedco Forex or any of the Sedco Forex Subsidiaries or any of their properties is bound or affected or (iii) contravene or conflict with or constitute a violation of any provision of any law, rule, regulation, judgment, order or decree binding upon or applicable to Sedco Forex or any of the Sedco Forex Subsidiaries, except, for such matters described in clause (ii) or (iii) as do not and are not likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect. (b) Neither the execution and delivery by Sedco Forex of this Agreement or any of the Transaction Agreements to which it is a party nor the consummation by Sedco Forex of the transactions contemplated hereby or thereby in accordance with the terms hereof or thereof will require any consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, other than the Regulatory Filings, except for any consent, approval or authorization the failure of which to obtain and for any filing or registration the failure of which to make does not and is not likely to have a Sedco Forex Material Adverse Effect. SECTION 6.7 Sedco Forex Financial Statements. (a) Schlumberger has previously delivered to Transocean an unaudited balance sheet and combined statement of operations of the Sedco Forex Business as of and for the period ended December 31, 1998 (the "Unaudited Financial Statements") and a pro forma combined statement of operations of the Sedco Forex Business for the year ended on December 31, 1998 (the "1998 Pro Forma Statement of Operations") based on the statement of operations from the Unaudited Financial Statements adjusted to reflect the reversal of the effect of certain non-recurring events and provide for the elimination of shared costs and certain intercompany insurance costs. The Unaudited Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles consistently applied throughout the periods presented and fairly present; in all material respects, the combined assets, liabilities (whether accrued, absolute, or contingent), financial position and results of operations of the Sedco Forex Business as of the date and for the period indicated. The adjustments reflected in the 1998 Pro Forma Statement of Operations (i) as related to shared costs, have been determined by Schlumberger in good faith and upon a reasonable basis, and (ii) as to all other adjustments, represent the actual adjustment amounts included of such adjustment item in the Unaudited Financial Statements as to be verified by PricewaterhouseCoopers LLP. (b) Sedco Forex will provide to Transocean within 45 days after the date hereof (i) audited combined financial statements of the Sedco Forex Business as of and for the periods ended December 31, 1996, 1997 and 1998 (the "Audited Financial Statements"), (ii) pro forma combined statements of operations for the periods ended December 31, 1997 and 1998 (the "Pro Forma Statements of Operations") based on the Statements of Operations from the Audited Financial Statements, (iii) unaudited financial statements and pro forma statements of operations for any interim periods (the "Unaudited Interim Period Financial Statements" and "Interim Period Pro Forma Statements of Operations"), each prepared on a basis consistent with the Audited Financial Statements and Pro Forma Statements of Operations and (iv) any and all other financial statements and financial information required to be included by Regulation S-X of the Exchange Act in (x) the Registration Statement on Form 10 (or, if such form is not appropriate, the appropriate form pursuant to the Exchange Act) to be filed by Sedco Forex with the SEC to effect the registration of the Sedco Forex Common Stock pursuant to the Exchange Act in connection with the Distribution ("Form 10") and (y) the Proxy A-9 186 Statement/Prospectus (as defined in Section 8.8). The Audited Financial Statements and Unaudited Interim Period Financial Statements will (i) be prepared in accordance with U.S. generally accepted accounting principles consistently applied throughout the periods presented and consistent with those used in the Unaudited Financial Statements and (ii) fairly present in all material respects the combined assets, liabilities, financial position, results of operations and cash flows of the Sedco Forex Business as of the dates and for the periods indicated; provided, however, that any unaudited interim financial statements will be subject to normal year-end adjustments (all of which are of a recurring nature and none of which, individually or in the aggregate, would have or would be likely to have a Sedco Forex Material Adverse Effect and the absence of none of which adjustments would render such financial statements to be materially misleading). The Pro Forma Statements of Operations and Interim Period Pro Forma Statements of Operations will be prepared in all material respects in accordance with the same procedures used in the 1998 Pro Forma Statement of Operations. The adjustments reflected in the Pro Forma Statements of Operations and the Interim Period Pro Forma Statement of Operations (i) as related to shared costs, will be determined by Schlumberger in good faith and upon reasonable basis and (ii) as to all other adjustments, will represent the actual amounts included in the Audited Financial Statements and the Unaudited Interim Period Financial Statements, for the related periods, as verified by PricewaterhouseCoopers LLP. (c) The Pre-Closing Financial Statements (as defined in the Distribution Agreement) will be prepared in accordance with U.S. generally accepted accounting principles consistently applied throughout the periods presented and will fairly present, in all material respects, the consolidated financial position, results of operations and cash flows of the Sedco Forex Business as of the date and for the periods indicated. The Audited Financial Statements are referred to herein as the "Sedco Forex Reports." SECTION 6.8 Litigation. There are no actions, suits or proceedings pending against Sedco Forex or any of the Sedco Forex Subsidiaries or, to Sedco Forex's knowledge, threatened against Sedco Forex or any of the Sedco Forex Subsidiaries, at law or in equity, or before or by any U.S. federal, state or non-U.S. court, commission, board, bureau, agency or instrumentality, that are likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect. There are no outstanding judgments, decrees, injunctions, awards or orders against Sedco Forex or any of the Sedco Forex Subsidiaries that have had or are likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect. SECTION 6.9 Absence of Certain Changes. Since December 31, 1998, other than the transactions effected pursuant to the Transaction Agreements, there has not been (i) any event or occurrence that has had or is likely to have a Sedco Forex Material Adverse Effect, (ii) any material change by Sedco Forex or any of the Sedco Forex Subsidiaries, when taken as a whole, in any of its accounting methods, principles or practices or any of its tax methods, practices or elections, (iii) any declaration, setting aside or payment of any dividend or distribution in respect of any capital stock of Sedco Forex or any redemption, purchase or other acquisition of any of its securities or (iv) any increase in or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option, stock purchase or other employee benefit plan, except in the ordinary course of business. SECTION 6.10 Taxes. (a) Each of Sedco Forex, the Sedco Forex Subsidiaries and each affiliated, consolidated, combined, unitary or similar group of which any such corporation is or was a member has (i) duly filed (or there has been filed on its behalf) on a timely basis with appropriate governmental authorities all tax returns, statements, reports, declarations, estimates and forms ("Returns") required to be filed by or with respect to it on or prior to the date hereof, except to the extent that any failure to file does not and is not likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect, and (ii) duly paid or deposited in full on a timely basis or made adequate provision in accordance with generally accepted accounting principles (or there has been paid or deposited or adequate provision has been made on its behalf) for the payment of all taxes required to be paid by it, except to the extent that any failure to pay or deposit or make adequate provision for the payment of such taxes does not and is not likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect. (b) No audits or other administrative proceedings or court proceedings are presently pending with regard to any taxes or Returns of Sedco Forex or any of the Sedco Forex Subsidiaries as to which any taxing authority A-10 187 has asserted in writing any claim which, if adversely determined, is likely to have a Sedco Forex Material Adverse Effect; (ii) no governmental authority is now asserting in writing any deficiency or claim for taxes or any adjustment to taxes with respect to which Sedco Forex or any of the Sedco Forex Subsidiaries may be liable with respect to income and other material taxes which have not been fully paid or finally settled, which, if adversely determined, is likely to have a Sedco Forex Material Adverse Effect; (iii) as of the execution of this Agreement, neither Sedco Forex nor any of the Sedco Forex Subsidiaries has granted any requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any taxes with respect to any Returns of Sedco Forex or any of the Sedco Forex Subsidiaries; and (iv) neither Sedco Forex nor any of the Sedco Forex Subsidiaries is a party to, is bound by or has any obligation under any tax sharing, allocation or indemnity agreement or any similar agreement or arrangement that is likely to have a Sedco Forex Material Adverse Effect. For purposes of this Agreement, "tax" or "taxes" means all net income, gross income, gross receipts, sales, use, ad valorem, transfer, accumulated earnings, personal holding company, excess profits, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, disability, capital stock, or windfall profits taxes, customs duties or other taxes, fees, assessments or governmental charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (U.S. or non-U.S.). SECTION 6.11 Employee Benefit Plans. (a) Schedule 6.11 of the Sedco Forex Disclosure Letter contains a list of all Sedco Forex Benefit Plans. The term "Sedco Forex Benefit Plans" means all material employee benefit plans and other material benefit arrangements, including all "employee benefit plans" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not U.S. based plans, and all other employee benefit, bonus, incentive, deferred compensation, stock option (or other equity-based), severance, employment, change in control, welfare (including post-retirement medical and life insurance) and fringe benefit plans or agreements, whether or not subject to ERISA and whether written or oral, sponsored, maintained or contributed to or required to be contributed to by Sedco Forex or any of the Sedco Forex Subsidiaries, to which Sedco Forex or any of the Sedco Forex Subsidiaries is a party or in which any Person who is currently, has been or, prior to the Effective Time, is a party or in which any Person who is currently, has been or, prior to the Effective Time, is expected to become a Sedco Forex Employee is a participant. Schlumberger will provide Transocean within 30 days after the date hereof, true and complete copies of the Sedco Forex Benefit Plans and, if applicable, the most recent Form 5500, summary plan descriptions, annual reports and actuarial reports, if applicable, for each such plan. (b) Except as would not have, individually or in the aggregate, a Sedco Forex Material Adverse Effect, all applicable reporting and disclosure requirements have been met with respect to Sedco Forex Benefit Plans; there has been no "reportable event," as that term is defined in section 4043 of ERISA, with respect to Sedco Forex Benefit Plans subject to Title IV of ERISA; to the extent applicable, Sedco Forex Benefit Plans comply, in all material respects, with the requirements of ERISA and the Code or regulations of any applicable jurisdiction, and any Sedco Forex Benefit Plan intended to be qualified under section 401(a) of the Code has been determined by the IRS to be so qualified; Sedco Forex Benefit Plans have been maintained and operated, in all material respects, in accordance with their terms, and there are no breaches of fiduciary duty in connection with Sedco Forex Benefit Plans; there are no pending or, to Sedco Forex's knowledge, threatened claims against or otherwise involving any Sedco Forex Benefit Plan and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Sedco Forex Benefit Plan activities) has been brought against or with respect to any such Sedco Forex Benefit Plan; all material contributions required to be made as of the date hereof to Sedco Forex Benefit Plans have been made or provided for; with respect to Sedco Forex Benefit Plans or any "employee pension benefit plans," as defined in section 3(2) of ERISA, that are subject to Title IV of ERISA and have been maintained or contributed to within six years prior to the Effective Time by Sedco Forex, the Sedco Forex Subsidiaries or any trade or business (whether or not incorporated) which is under common control, or which is treated as a single employer, with Sedco Forex or any of the Sedco Forex Subsidiaries under section 414(b), (c), (m) or (o) of the Code, (i) neither Sedco Forex nor any of the Sedco Forex Subsidiaries has incurred any direct or indirect liability under title IV of ERISA in connection with any termination thereof or withdrawal therefrom; and (ii) there does not exist any A-11 188 accumulated funding deficiency within the meaning of section 412 of the Code or section 302 of ERISA, whether or not waived. (c) Neither Sedco Forex nor any of the Sedco Forex Subsidiaries nor any trade or business (whether or not incorporated) which is under common control, or which is treated as a single employer, with Sedco Forex or any of the Sedco Forex Subsidiaries under section 414(b), (c), (m) or (o) of the Code, contributes to, or has an obligation to contribute to, and has not within six years prior to the Effective Time contributed to, or had an obligation to contribute to, a "multiemployer plan" within the meaning of section 3(37) of ERISA, and the execution of, and performance of the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any benefit plan, policy, arrangement or agreement or any trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligations to fund benefits with respect to any employee of Sedco Forex or any Sedco Forex Subsidiary. (d) No Sedco Forex Benefit Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees or former employees of Sedco Forex or any Sedco Forex Subsidiary for periods extending beyond their retirement or other termination of service other than (i) coverage mandated by applicable law, (ii) death benefits under any "pension plan" or (iii) benefits the full cost of which is borne by the current or former employee (or his beneficiary). (e) Each Schlumberger Plan in which a Sedco Forex Employee participates, which provides for a deferred defined benefit obligation to such an employee, is a funded plan and constitutes a Schlumberger Funded Plan within the meaning of the Employee Matters Agreement, the terms of which are attached as Exhibit A to the Distribution Agreement. SECTION 6.12 Labor Matters. (a) (i) Neither Sedco Forex nor any of the Sedco Forex Subsidiaries is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization (A) covering any U.S. employees or (B) covering, in any single instance, 10% or more of the employees of the Sedco Forex Business, and (ii) to Sedco Forex's knowledge, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened (x) involving any U.S. employees or (y) involving, in any single instance, 10% or more of the employees of the Sedco Forex Business. (b) Except for such matters as do not and are not likely to have a Sedco Forex Material Adverse Effect (i) none of Schlumberger, any Schlumberger Subsidiary, Sedco Forex or any Sedco Forex Subsidiary has received any written complaint of any unfair labor practice or other unlawful employment practice or any written notice of any material violation of any federal, state or local statutes, laws, ordinances, rules, regulations, orders or directives with respect to the employment of individuals by, or the employment practices of Schlumberger, any Schlumberger Subsidiary, Sedco Forex or any Sedco Forex Subsidiary in connection with, the Sedco Forex Business or the work conditions with respect to the Sedco Forex Assets or the terms and conditions of employment and wages and hours in connection with the Sedco Forex Business; and (ii) there are no unfair labor practice charges or other employee related complaints against Schlumberger, any Schlumberger Subsidiary, Sedco Forex or any Sedco Forex Subsidiary pending or, to the knowledge of Sedco Forex threatened, before any governmental authority by or concerning the employees working in the Sedco Forex Business. SECTION 6.13 Environmental Matters. (a) The Sedco Forex Business has been and is in compliance with all orders of any court, governmental authority or arbitration board or tribunal or any law, ordinance, rule, regulation or other legal requirement (including common law) related to human health and the environment ("Environmental Laws") except for such matters as do not and are not likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect. There are no past or present facts, conditions or circumstances that interfere with the conduct of the Sedco Forex Business in the manner now conducted or which interfere with continued compliance with any Environmental Law except for such matters as do not and are not likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect. A-12 189 (b) No judicial or administrative proceedings or governmental investigations are pending or, to the knowledge of Sedco Forex, threatened against the Sedco Forex Business, Sedco Forex or the Sedco Forex Subsidiaries that allege the violation of or seek to impose liability pursuant to any Environmental Law, and there are no past or present facts, conditions or circumstances at, on or arising out of, or otherwise associated with, any current or former businesses, assets or properties of the Sedco Forex Business, Sedco Forex or any Sedco Forex Subsidiary, including but not limited to on-site or off-site disposal, release or spill of any material, substance or waste classified, characterized or otherwise regulated as hazardous, toxic, pollutant, contaminant or words of similar meaning under Environmental Laws, including petroleum or petroleum products or byproducts ("Hazardous Materials") which violate Environmental Law or are likely to give rise to (i) costs, expenses, liabilities or obligations for any cleanup, remediation, disposal or corrective action under any Environmental Law or (ii) claims arising for personal injury, property damage or damage to natural resources, except for such matters as do not and are not likely to have a Sedco Forex Material Adverse Effect. (c) Neither Sedco Forex nor any of the Sedco Forex Subsidiaries has (i) received any notice of noncompliance with, violation of, or liability or potential liability under any Environmental Law or (ii) entered into any consent decree or order or is subject to any order of any court or governmental authority or tribunal under any Environmental Law or relating to the cleanup of any Hazardous Materials, except for such matters as do not and are not likely to have a Sedco Forex Material Adverse Effect. SECTION 6.14 Intellectual Property. Sedco Forex, the Sedco Forex Business and the Sedco Forex Subsidiaries own or possess adequate licenses or other valid rights to use all patents, patent rights, trademarks, trademark rights and proprietary information used or held for use in connection with their respective businesses as currently being conducted, except where the failure to own or possess such licenses and other rights does not and is not likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect, and there are no assertions or claims challenging the validity of any of the foregoing that are likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect. The conduct of the Sedco Forex Business', Sedco Forex's and the Sedco Forex Subsidiaries' respective businesses as currently conducted does not conflict with any patents, patent rights, licenses, trademarks, trademark rights, trade names, trade name rights or copyrights of others that are likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect. There is no material infringement of any proprietary right owned by or licensed by or to Sedco Forex or any of the Sedco Forex Subsidiaries that is likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect. SECTION 6.15 Year 2000 Readiness. The computer software operated, sold or licensed by Sedco Forex and the Sedco Forex Subsidiaries that is material to their respective businesses or internal operations is capable of providing or is being or will be adapted, or is capable of being replaced, to provide uninterrupted millennium functionality to record, store, process and present calendar dates falling on or after January 1, 2000, in substantially the same manner and with substantially the same functionality as such software records, stores, processes and presents such calendar dates falling on or before December 31, 1999, except matters as do not and is not likely to have a Sedco Forex Material Adverse Effect. The costs of the adaptations and replacements referred to in the prior sentence are not likely to have a Sedco Forex Material Adverse Effect. The foregoing statements constitute "year 2000 readiness disclosure" within the meaning of the Year 2000 Information Readiness and Disclosure Act of 1998. SECTION 6.16 Insurance. (a) Except for such matters as do not and are not likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect, Sedco Forex, the Sedco Forex Business and the Sedco Forex Subsidiaries maintain insurance coverage with financially responsible insurance companies in such amounts and against such losses as are customary in the international offshore drilling business prior to the date hereof. (b) Except for such matters as do not and are not likely to have, individually or in the aggregate, a Sedco Forex Material Adverse Effect, no event relating to Sedco Forex, the Sedco Forex Subsidiaries or the Sedco Forex Business has occurred that is likely to result in an upward adjustment in premiums under any insurance policies maintained with respect to the Sedco Forex Business. Excluding insurance policies that have expired and been replaced in the ordinary course of business, no insurance policy has been canceled within the two A-13 190 years prior to the date hereof, and to Schlumberger's knowledge, no threat has been made to cancel any insurance policy of Sedco Forex or any Sedco Forex Subsidiary during such period. All such insurance will remain in full force and effect with respect to periods before the Closing or replaced with similar policies. No event has occurred, including the failure by Sedco Forex or any Sedco Forex Subsidiary to give any notice or information or by giving any inaccurate or erroneous notice or information, which materially limits or impairs the rights of Sedco Forex or any Sedco Forex Subsidiary under any such insurance policies. (c) Insurance policies are in effect and coverage thereunder will be available to Sedco Forex for all personal injury claims disclosed in the Sedco Forex Disclosure Letter or otherwise included in Sedco Forex Liabilities (as defined in the Distribution Agreement), with deductibles not exceeding$100,000
per claim for claims in the U.S. and $25,000 per claim for claims elsewhere. SECTION 6.17 No Brokers. Sedco Forex has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Sedco Forex or Transocean to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. SECTION 6.18 Transocean Share Ownership. Neither Sedco Forex nor any of the Sedco Forex Subsidiaries owns any capital shares of Transocean or any other securities convertible into or otherwise exercisable to acquire capital shares of Transocean. SECTION 6.19 Reorganization. Neither Sedco Forex nor any of the Sedco Forex Subsidiaries has taken or failed to take any action, as a result of which (a) the Merger would not qualify as a reorganization under Section 368(a)(1)(B) of the Code or (b) the Distribution would not qualify as a distribution described in Section 355 of the Code. SECTION 6.20 Vote Required. The affirmative vote of the holders of at least a majority of the shares of Schlumberger Common Stock voting at the meeting to be held in accordance with Section 8.4 is the only vote of the holders of any class or series of Schlumberger capital stock necessary to approve any transaction contemplated by this Agreement or the other Transaction Agreements. The vote of the holder of Sedco Forex Common Stock required in connection with this Agreement and the transactions contemplated hereby has been obtained. SECTION 6.21 Ownership of Drilling Rigs and Drillships. As of the date hereof, Sedco Forex, a Sedco Forex Subsidiary, Schlumberger or a Schlumberger Subsidiary has, and as of the Effective Time, Sedco Forex or a Sedco Forex Subsidiary will have, good and marketable title to the assets listed on Schedule 1.01(b) to the Distribution Agreement in each case free and clear of all mortgages, deeds of trust, liens, security interests, pledges, leases, conditional sale contracts, claims, charges, liabilities, obligations, agreements, privileges, easements, rights of way, limitations, reservations, restrictions, options, rights of first refusal and other encumbrances of every kind ("Liens") except for (i) defects or irregularities of title or encumbrances of a nature that do not materially impair the ownership or operation of these assets and which have not had and are not likely to have a Sedco Forex Material Adverse Effect, (ii) Liens that secure obligations not yet due and payable or, if such obligations are due and have not been paid, Liens securing such obligations that are being diligently contested in good faith and by appropriate proceedings (any such contests involving an amount in excess of$10 million
being described in the Sedco Forex Disclosure Letter) and (iii) other Liens
disclosed in the Sedco Forex Disclosure Letter (the Liens described in clauses
(i), (ii) and (iii), collectively, "Sedco Forex Permitted Liens"). Sedco Forex
has no notice or actual knowledge that where any such Sedco Forex Asset is held
by Schlumberger or a Schlumberger Subsidiary such Sedco Forex Asset will not be
transferable to Sedco Forex or a Sedco Forex Subsidiary pursuant to the
Distribution Agreement. No such Sedco Forex Asset is leased under an operating
lease from a lessor that, to Schlumberger's knowledge, has incurred non-
recourse Indebtedness to finance the acquisition or construction of such asset.

SECTION 6.22  Undisclosed Liabilities. Neither Sedco Forex, the Sedco Forex
Subsidiaries or the Sedco Forex Business has any liabilities or obligations of
any nature, whether or not fixed, accrued, contingent or otherwise, except
liabilities and obligations that (i) are reflected with reasonable specificity
in the Sedco

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Forex Reports, (ii) are contained in the Sedco Forex Disclosure Schedule or
(iii) do not and are not likely to have, individually or in the aggregate, a

SECTION 6.23  Certain Contracts. (a) As of the date of this Agreement,
neither Schlumberger, any Schlumberger Subsidiary, Sedco Forex or any Sedco
Forex Subsidiary is a party to or bound by (i) any non-competition agreement or
any other agreement or obligation that purports to limit in any material respect
the manner in which, or the localities in which, all or any material portion of
the current Sedco Forex Business is conducted, (ii) any drilling rig
construction or conversion contract included or to be included in the Sedco
Forex Assets, (iii) any drilling contracts of 150 days or greater remaining
duration included or to be included in the Sedco Forex Assets or (iv) any
contract or agreement for the borrowing of money containing covenants or
provisions that would be violated or that would result in a default under such
contract or agreement in the event the Merger or the transactions contemplated
by this Agreement were consummated (all contracts or agreements of the types
described in clauses (i) through (iv) being referred to herein as "Sedco Forex
Material Contracts"). Within 30 days after the date of this Agreement, Sedco
Forex will deliver to Transocean, or make reasonably available to Transocean for
review, complete and correct copies of all Sedco Forex Material Contracts.

(b) Each Sedco Forex Material Contract is valid and binding on (i)
Schlumberger, any Schlumberger Subsidiary, Sedco Forex or any Sedco Forex
Subsidiary that is a party thereto and (ii) to the knowledge of Schlumberger and
Sedco Forex, the other parties thereto and is in full force and effect, and each
of Schlumberger, each Schlumberger Subsidiary, Sedco Forex or each Sedco Forex
Subsidiary, have in all material respects performed all obligations required to
be performed by them to date under each Sedco Forex Material Contract to which
it is a party, except where such failure to be binding or in full force and
effect or such failure to perform does not and is not likely to create,
individually or in the aggregate, a Sedco Forex Material Adverse Effect. Except
for such matters as do not and are not likely to have a Sedco Forex Material
Adverse Effect, none of Schlumberger, any Schlumberger Subsidiary, Sedco Forex
nor any Sedco Forex Subsidiary (x) knows of, or has received written notice of,
any breach of or violation or default under (nor, to the knowledge of Sedco
Forex, does there exist any condition which with the passage of time or the
giving of notice or both would result in such a violation or default under) any
Sedco Forex Material Contract or (y) has received written notice of the desire
of the other party or parties to any such Sedco Forex Material Contract to
exercise any rights such party has to cancel, terminate or repudiate such
contract or exercise remedies thereunder. At the Effective Time, each such Sedco
Forex Material Contract included in the Sedco Forex Assets will be enforceable
by Sedco Forex or a Sedco Forex Subsidiary in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights and general principles of equity.

SECTION 6.24  Capital Expenditure Program. The Sedco Forex Disclosure
Letter accurately sets forth in all material respects, for each of Sedco Forex's
sustaining, life extension and newbuild capital expenditure programs, the
capital expenditures for all such programs that were forecasted to be incurred
in 1999 and 2000, as previously provided to Transocean. The construction in
progress attributable to the newbuilds and included in Sedco Forex's 1998
Audited Financial Statements (excluding capitalized interest on such newbuilds)
and the projected newbuild capital expenditures to be incurred in 1999 and 2000
equal the projected total construction costs to complete such newbuilds, as at
the time of such forecast.

SECTION 6.25  Decrees, Etc. Except for such matters as do not and are not
likely to have a Sedco Forex Material Adverse Effect, (i) no order, writ, fine,
injunction, decree, judgment, award or determination of any court or
governmental authority has been issued or entered against Schlumberger, any
Schlumberger Subsidiary, Sedco Forex or any Sedco Forex Subsidiary that
continues to be in effect that affects the ownership or operation of any of the
Sedco Forex Assets, and (ii) no criminal order, writ, fine, injunction, decree,
judgment or determination of any court or governmental authority has been issued
against Sedco Forex or any Sedco Forex Subsidiary.

SECTION 6.26  Improper Payments. No bribes, kickbacks or other improper
payments have been made by Schlumberger, any Schlumberger Subsidiary, Sedco
Forex or any Sedco Forex Subsidiary or agent of any of them in connection with
the conduct of the Sedco Forex Business or the operation of the Sedco Forex

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Assets, and neither Schlumberger, any Schlumberger Subsidiary, Sedco Forex or
any Sedco Forex Subsidiary nor any agent of any of them has received any such
payments from vendors, suppliers or other persons, where any such payment made

ARTICLE 7

REPRESENTATIONS AND WARRANTIES OF TRANSOCEAN
AND MERGER SUB

Except as set forth in the disclosure letter delivered to Sedco Forex and
Schlumberger by Transocean at or prior to the execution hereof (the "Transocean
Disclosure Letter"), Transocean and Merger Sub, jointly and severally, represent
and warrant to Sedco Forex and Schlumberger that:

SECTION 7.1  Existence; Good Standing; Corporate Authority. Transocean is
and Merger Sub, at the time of its execution of this Agreement, will be a
corporation duly incorporated and validly existing under the laws of its
jurisdiction of incorporation. Transocean is duly qualified to do business and
is in good standing under the laws of any jurisdiction in which the character of
the properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified does not and is not likely to have, individually or in the aggregate,
a Transocean Material Adverse Effect (as defined in Section 11.9). Transocean
has all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted. The copies of
Transocean's memorandum of association and articles of association previously
made available to Sedco Forex are true and correct and contain all amendments as
of the date hereof.

SECTION 7.2  Authorization, Validity and Effect of Agreements. Transocean
has and Merger Sub, at the time of its execution of this Agreement, will have
the requisite corporate power and authority to execute and deliver this
Agreement, each Transaction Agreement to which it is a party and all other
agreements and documents contemplated hereby or thereby to which it is a party.
The consummation by each of Transocean and Merger Sub of the transactions
contemplated hereby, including the issuance and delivery by Transocean of
Transocean ordinary shares pursuant to the Merger, and the consummation by
Transocean of the transactions contemplated by each Transaction Agreement to
which it is a party has been duly authorized by all requisite corporate action
on behalf of Transocean, other than approval of the issuance of Transocean
ordinary shares pursuant to the Merger contemplated hereby by the holders of a
majority of the issued and outstanding Transocean Ordinary Shares as required by
the rules of the NYSE and the approval of the increase in authorized ordinary
share capital and the change of name of Transocean as set forth in Section 2.3,
as required by Cayman Islands law. This Agreement and each Transaction Agreement
to which it is a party constitute or will constitute when executed the valid and
legally binding obligations of each of Transocean and Merger Sub, enforceable
against Transocean or Merger Sub, as applicable, in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.

SECTION 7.3  Capitalization. As of the date of this Agreement, the
authorized share capital of Transocean consists of 150,000,000 Transocean
Ordinary Shares and 50,000,000 undesignated shares, par value $0.10 per share, of Transocean ("Transocean Preferred Shares"), and as of June 30, 1999, there were 100,563,304 Transocean Ordinary Shares issued, 1,388,779 Transocean Ordinary Shares reserved for issuance upon exercise of outstanding Transocean options and no Transocean Preferred Shares issued. All such issued Transocean Ordinary Shares are or will be when issued duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. The Transocean Ordinary Shares to be issued in connection with the Merger or pursuant to options issued pursuant to the Employee Matters Agreement, when issued in accordance with this Agreement, will be validly issued and fully paid. Except as set forth in this Section 7.3 or in the Employee Matters Agreement, there are no outstanding shares or shares of capital stock, and there are no options, warrants, calls, subscriptions, convertible securities or other rights, agreements or commitments which obligate Transocean or any of its Subsidiaries to issue, transfer or sell any shares or shares of capital stock or other voting securities of Transocean or any of its Subsidiaries. Transocean has no outstanding bonds, A-16 193 debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of Transocean on any matter. SECTION 7.4 Significant Subsidiaries. (a) Each of Transocean's Significant Subsidiaries is a corporation or other legal entity duly organized, validly existing and, to the extent such concept or similar concept exists in the relevant jurisdiction, in good standing under the laws of its jurisdiction of incorporation or organization, has the corporate or other entity power and authority to own, operate and lease its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing (where applicable) in each jurisdiction in which the ownership, operation or lease of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not have a Transocean Material Adverse Effect. All of the outstanding shares of capital stock of, or other ownership interests in, each of Transocean's Significant Subsidiaries are duly authorized, validly issued, fully paid and nonassessable, and are owned, directly or indirectly, by Transocean free and clear of all Liens. (b) As of the Effective Time, all of the outstanding shares of capital stock of Merger Sub will be owned directly by Transocean. Merger Sub will be formed solely for the purpose of engaging in the transactions contemplated hereby and, as of the Effective Time, will have not engaged in any activities other than in connection with the transactions contemplated by this Agreement. SECTION 7.5 Compliance with Laws; Permits. Except for such matters as, individually or in the aggregate, do not or are not likely to have a Transocean Material Adverse Effect: (a) None of Transocean, any Subsidiary of Transocean, or Merger Sub are in violation of any Applicable Laws relating to the ownership or operation of any of their respective Assets, and no claim is pending or, to the knowledge of Transocean, threatened with respect to any such matters. No condition exists that is not disclosed in the Transocean Disclosure Letter and which does or is likely to constitute a violation of or deficiency under any Applicable Law relating to the ownership or operation of the Assets of Transocean, any Subsidiary of Transocean or Merger Sub. (b) Transocean, each Subsidiary of Transocean and Merger Sub hold all permits, licenses, certifications, variations, exemptions, orders, franchises and approvals of all governmental authorities necessary for the lawful conduct of their respective businesses (the "Transocean Permits"). All Transocean Permits are in full force and effect and there exists no default thereunder or breach thereof, and Transocean has no notice or actual knowledge that such Transocean Permits will not be renewed in the ordinary course after the Effective Time. No governmental authority has given, or to the knowledge of Transocean threatened to give, any action to terminate, cancel or reform any Transocean Permit. (c) Each drilling rig, drillship or other drilling unit owned by Transocean or a subsidiary of Transocean (the "Transocean Rigs") which is subject to classification is in class according to the rules and regulations of the applicable classifying body and is duly and lawfully documented under the laws of its flag jurisdiction. Transocean or a Subsidiary of Transocean has obtained and maintained, or caused to be obtained and maintained, in full force and effect all permits, licenses, certificates, operating authorities, orders, exceptions, franchises, variances, consents, approvals, documentations or other authorizations required with respect to the operation of the Transocean Rigs in the areas in which they operate, except where the failure to have obtained any of the same does not and is not likely to have a Transocean Material Adverse Effect. (d) Transocean and each Subsidiary of Transocean possesses all permits, licenses, operating authorities, orders, exemptions, franchises, variances, consents, approvals or other authorizations required for the present ownership and operation of all its real property or leaseholds ("Transocean Real Property") except where the failure to possess any of the same does not and is not likely to have a Transocean Material Adverse Effect. There exists no material default or breach with respect to, and no party or governmental authority has taken or, to the knowledge of Transocean, threatened to take, any action to terminate, cancel or reform any such permit, license, operating authority, order, exemption, franchise, variance, consent, approval or other authorization pertaining to the Transocean Real Property A-17 194 where such termination, cancellation or reformation does not or is not likely to have a Transocean Material Adverse Effect. SECTION 7.6 No Conflict. (a) Neither the execution and delivery by Transocean and Merger Sub of this Agreement or any of the Transaction Agreements to which Transocean or Merger Sub, as applicable, is a party nor the consummation by Transocean and Merger Sub of the transactions contemplated hereby or thereby in accordance with the terms hereof or thereof will (i) conflict with or result in a breach of any provisions of the memorandum of association or articles of association of Transocean or the memorandum of association or articles of association of Merger Sub; (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or give rise to a right of purchase under or accelerate the performance required by, or result in the creation of any Lien upon any of the properties of Transocean or its Subsidiaries under, or result in being declared void, voidable, or without further binding effect, or otherwise result in a detriment to Transocean or any of its Subsidiaries under any of the terms, conditions or provisions of, any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, lease, contract, agreement, joint venture or other instrument or obligation to which Transocean or any of its Subsidiaries is a party, or by which Transocean or any of its Subsidiaries or any of their properties is bound or affected; or (iii) contravene or conflict with or constitute a violation of any provision of any law, rule, regulation, judgment, order or decree binding upon or applicable to Transocean or any of its Subsidiaries, except for such matters described in clause (ii) or (iii) as do not and are not likely to have, individually or in the aggregate, a Transocean Material Adverse Effect. (b) Neither the execution and delivery by Transocean or Merger Sub of this Agreement or any of the Transaction Agreements to which Transocean or Merger Sub, as applicable, is a party nor the consummation by Transocean or Merger Sub of the transactions contemplated hereby or thereby in accordance with the terms hereof or thereof will require any consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, other than the Regulatory Filings, and listing of Transocean Ordinary Shares to be issued in the Merger under the rules of the NYSE, except for any consent, approval or authorization the failure of which to obtain and for any filing or registration the failure of which to make does not and is not likely to have a Transocean Material Adverse Effect. SECTION 7.7 SEC Documents. Transocean has filed with the SEC all documents required to be so filed by it since January 1, 1998, and has made available to Sedco Forex and Schlumberger each registration statement, report, proxy statement or information statement (other than preliminary materials) it has so filed since January 1, 1998, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "Transocean Reports"). As of their respective dates, each of the Transocean Reports (i) was prepared in all material respects in accordance with the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations thereunder and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading except for such statements, if any, as have been modified by subsequent filings with the SEC prior to the date hereof. Each of the consolidated balance sheets included in or incorporated by reference into the Transocean Reports (including the related notes and schedules) fairly presents in all material respects the consolidated financial position of Transocean and its Subsidiaries as of its date, and each of the consolidated statements of income, cash flows and changes in stockholders' equity included in or incorporated by reference into the Transocean Reports (including any related notes and schedules) fairly presents in all material respects the results of operations, cash flows or changes in stockholders' equity, as the case may be, of Transocean and its Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to (x) such exceptions as may be permitted by Form 10-Q of the SEC and (y) normal year-end audit adjustments), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. Except as and to the extent set forth on the consolidated balance sheet of Transocean and its Subsidiaries at December 31, 1998, including all notes thereto, as of such date, neither Transocean nor any of its Subsidiaries had any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a A-18 195 balance sheet of Transocean or in the notes thereto prepared in accordance with generally accepted accounting principles consistently applied, other than liabilities or obligations which would not have, individually or in the aggregate, a Transocean Material Adverse Effect. SECTION 7.8 Litigation. There are no actions, suits or proceedings pending against Transocean or any of its Subsidiaries or, to Transocean's knowledge, threatened against Transocean or any of its Subsidiaries, at law or in equity, or before or by any U.S. federal, state or non-U.S. court, commission, board, bureau, agency or instrumentality, that are likely to have, individually or in the aggregate, a Transocean Material Adverse Effect. There are no outstanding judgments, decrees, injunctions, awards or orders against Transocean or any of its Subsidiaries that have had or are likely to have, individually or in the aggregate, a Transocean Material Adverse Effect. SECTION 7.9 Absence of Certain Changes. Since December 31, 1998, there has not been (i) any event or occurrence that has had or is likely to have a Transocean Material Adverse Effect, (ii) any material change by Transocean or any of its Subsidiaries, when taken as a whole, in any of its accounting methods, principles or practices or any of its tax methods, practices or elections, (iii) any declaration, setting aside or payment of any dividend or distribution in respect of any share capital of Transocean or any redemption, purchase or other acquisition of any of its securities, except dividends on Transocean Ordinary Shares at a rate of not more than$0.03 per share per
quarter or (iv) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option, stock purchase or other employee benefit plan, except in the ordinary

SECTION 7.10  Taxes. (a) Each of Transocean, its Subsidiaries and each
affiliated, consolidated, combined, unitary or similar group of which any such
corporation is or was a member has (i) duly filed (or there has been filed on
its behalf) on a timely basis with appropriate governmental authorities all
Returns required to be filed by or with respect to it on or prior to the date
hereof, except to the extent that any failure to file does not and is not likely
to have, individually or in the aggregate, a Transocean Material Adverse Effect,
and (ii) duly paid or deposited in full on a timely basis or made adequate
provision in accordance with generally accepted accounting principles (or there
has been paid or deposited or adequate provision has been made on its behalf)
for the payment of all taxes required to be paid by it, including, without
limitation, taxes incurred by Transocean in the corporate reorganization
described in the Proxy Statement of Transocean Offshore Inc. (a Delaware
corporation) and Prospectus for Transocean Offshore Inc. (a Cayman Islands
exempted company limited by shares) dated April 12, 1999, and transactions
associated with such reorganization, except to the extent that any failure to
pay or deposit or make adequate provision for the payment of such taxes does not
and is not likely to have, individually or in the aggregate, a Transocean

(b) (i) No audits or other administrative proceedings or court proceedings
are presently pending with regard to any taxes or Returns of Transocean or any
of its Subsidiaries as to which any taxing authority has asserted in writing any
claim which, if adversely determined, is likely to have a Transocean Material
Adverse Effect; (ii) no governmental authority is now asserting in writing any
deficiency or claim for taxes or any adjustment to taxes with respect to which
Transocean or any of its Subsidiaries may be liable with respect to income and
other material taxes which have not been fully paid or finally settled, which,
if adversely determined, is likely to have a Transocean Material Adverse Effect;
(iii) as of the execution of this Agreement, neither Transocean nor any of its
Subsidiaries has granted any requests, agreements, consents or waivers to extend
the statutory period of limitations applicable to the assessment of any taxes
with respect to any Returns of Transocean or any of its Subsidiaries; and (iv)
neither Transocean nor any of its Subsidiaries is a party to, is bound by or has
any obligation under any tax sharing, allocation or indemnity agreement or any
similar agreement or arrangement that is likely to have a Transocean Material

SECTION 7.11  Employee Benefit Plans. (a) Schedule 7.11 of the Transocean
Disclosure Letter contains a list of all Transocean Benefit Plans. The term
"Transocean Benefit Plans" means all material employee benefit plans and other
material benefit arrangements, including all "employee benefit plans" as defined
in Section 3(3) of ERISA, whether or not U.S. based plans, and all other
employee benefit, bonus, incentive, deferred compensation, stock option (or
other equity-based), severance, employment, change in

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control, welfare (including post-retirement medical and life insurance) and
fringe benefit plans or agreements, whether or not subject to ERISA and whether
written or oral, sponsored, maintained or contributed to or required to be
contributed to by Sedco Forex or any of its Subsidiaries, to which Sedco Forex
or any of its Subsidiaries is a party or in which any Person who is currently,
has been or, prior to the Effective Time, is a party or in which any person who
is currently, has been or, prior to the Effective Time, is expected to become an
employee of Transocean is a participant. Transocean will provide Schlumberger,
within 30 days after the date hereof, true and complete copies of the Transocean
Benefit Plans and, if applicable, the most recent Form 5500, summary plan
descriptions, annual reports and actuarial reports, if applicable, for each such
plan.

(b) Except as would not have, individually or in the aggregate, a
Transocean Material Adverse Effect: all applicable reporting and disclosure
requirements have been met with respect to Transocean Benefit Plans; there has
been no "reportable event," as that term is defined in section 4043 of ERISA,
with respect to Transocean Benefit Plans subject to Title IV of ERISA; to the
extent applicable, Transocean Benefit Plans comply, in all material respects,
with the requirements of ERISA and the Code or regulations of any applicable
jurisdiction, and any Transocean Benefit Plan intended to be qualified under
section 401(a) of the Code has been determined by the IRS to be so qualified;
Transocean Benefit Plans have been maintained and operated, in all material
respects, in accordance with their terms, and there are no breaches of fiduciary
duty in connection with Transocean Benefit Plans; there are no pending, or to
Transocean's knowledge threatened, claims against or otherwise involving any
Transocean Benefit Plan, and no suit, action or other litigation (excluding
claims for benefits incurred in the ordinary course of Transocean Benefit Plan
activities) has been brought against or with respect to any such Transocean
Benefit Plan; all material contributions required to be made as of the date
hereof to Transocean Benefit Plans have been made or provided for; with respect
to Transocean Benefit Plans or any "employee pension benefit plans," as defined
in section 3(2) of ERISA, that are subject to title IV of ERISA and have been
maintained or contributed to within six years prior to the Effective Time by
incorporated) which is under common control, or which is treated as a single
employer, with Transocean or any of its Subsidiaries under section 414(b), (c),
(m) or (o) of the Code, (i) neither Transocean nor any of its Subsidiaries has
incurred any direct or indirect liability under Title IV of ERISA in connection
with any termination thereof or withdrawal therefrom; and (ii) there does not
exist any accumulated funding deficiency within the meaning of section 412 of
the Code or section 302 of ERISA, whether or not waived.

(c) Neither Transocean nor any of its Subsidiaries nor any trade or
business (whether or not incorporated) which is under common control, or which
is treated as a single employer, with Transocean or any of its Subsidiaries
under section 414(b), (c), (m) or (o) of the Code, contributes to, or has an
obligation to contribute to, and has not within six years prior to the Effective
Time contributed to, or had an obligation to contribute to, a "multiemployer
plan" within the meaning of section 3(37) of ERISA, and the execution of, and
performance of the transactions contemplated in, this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) constitute
an event under any benefit plan, policy, arrangement or agreement or any trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligations to fund benefits with respect to any
employee of Transocean or any Subsidiary thereof.

(d) No Transocean Benefit Plan provides medical, surgical, hospitalization,
death or similar benefits (whether or not insured) for employees or former
employees of Transocean or any Subsidiaries of Transocean for periods extending
beyond their retirement or other termination of service other than (i) coverage
mandated by applicable law, (ii) death benefits under any "pension plan" or
(iii) benefits the full cost of which is borne by the current or former employee
(or his beneficiary).

SECTION 7.12  Labor Matters. (a) (i) Neither Transocean nor any of its
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization (A) covering any U.S. employees or (B) covering, in any single
instance, 10% or more of the employees of Transocean and its Subsidiaries taken
as a whole, and (ii) to Transocean's knowledge, there are no organizational
efforts with respect to the formation of a collective bargaining unit presently
being made or threatened (x) involving any U.S. employees or (y) involving, in
any single instance, 10% or more of the employees of Transocean and its
Subsidiaries taken as a whole.
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(b) Except for such matters as do not and are not likely to have a
Transocean Material Adverse Effect (i) neither Transocean nor any Subsidiary of
Transocean has received any written complaint of any unfair labor practice or
other unlawful employment practice or any written notice of any material
violation of any federal, state or local statutes, laws, ordinances, rules,
regulations, orders or directives with respect to the employment of individuals
by, or the employment practices of, Transocean or any Subsidiary of Transocean
or the work conditions or the terms and conditions of employment and wages and
hours of their respective businesses and (ii) there are no unfair labor practice
charges or other employee related complaints against Transocean or any
subsidiary of Transocean pending or, to the knowledge of Transocean, threatened,
before any governmental authority by or concerning the employees working in

SECTION 7.13  Environmental Matters. (a) Transocean and each Transocean
Subsidiary has been and is in compliance with all Environmental Laws except for
such matters as do not and are not likely to have, individually or in the
aggregate, a Transocean Material Adverse Effect. There are no past or present
facts, conditions or circumstances that interfere with the conduct of any of
their respective businesses in the manner now conducted or which interfere with
continued compliance with any Environmental Law, except for such matters as do
not and are not likely to have, individually or in the aggregate, a Transocean

(b) No judicial or administrative proceedings or governmental
investigations are pending or, to the knowledge of Transocean, threatened
against Transocean or its Subsidiaries that allege the violation of or seek to
impose liability pursuant to any Environmental Law, and there are no past or
present facts, conditions or circumstances at, on or arising out of, or
otherwise associated with any, current or former businesses, assets or
properties of Transocean or any Subsidiary of Transocean, including but not
limited to on-site or off-site disposal, release or spill of any Hazardous
Materials which violate Environmental Law or are likely to give rise to (i)
costs, expenses, liabilities or obligations for any cleanup, remediation,
disposal or corrective action under any Environmental Law or (ii) claims arising
for personal injury, property damage or damage to natural resources, except for
such matters as do not and are not likely to have a Transocean Material Adverse
Effect.

(c) Neither Transocean nor any of its Subsidiaries has (i) received any
notice of noncompliance with, violation of, or liability or potential liability
under any Environmental Law or (ii) entered into any consent decree or order or
is subject to any order of any court or governmental authority or tribunal under
any Environmental Law or relating to the cleanup of any Hazardous Materials,
except for such matters as do not and are not likely to have a Transocean

SECTION 7.14  Intellectual Property. Transocean and its Subsidiaries own or
possess adequate licenses or other valid rights to use all patents, patent
for use in connection with their respective businesses as currently being
conducted, except where the failure to own or possess such licenses and other
rights does not and is not likely to have, individually or in the aggregate, a
Transocean Material Adverse Effect, and there are no assertions or claims
challenging the validity of any of the foregoing that are likely to have,
individually or in the aggregate, a Transocean Material Adverse Effect. The
conduct of the Transocean's and its Subsidiaries respective businesses as
currently conducted does not conflict with any patents, patent rights, licenses,
others that are likely to have, individually or in the aggregate, a Transocean
Material Adverse Effect. There is no material infringement of any proprietary
right owned by or licensed by or to Transocean or any of its Subsidiaries that
is likely to have, individually or in the aggregate, a Transocean Material

SECTION 7.15  Year 2000 Readiness. The computer software operated, sold or
licensed by Transocean and its Subsidiaries that is material to their respective
businesses or internal operations is capable of providing or is being or will be
adapted, or is capable of being replaced, to provide uninterrupted millennium
functionality to record, store, process and present calendar dates falling on or
after January 1, 2000 in substantially the same manner and with substantially
the same functionality as such software records, stores, processes and presents
such calendar dates falling on or before December 31, 1999, except matters as do
not and are not likely to have a Transocean Material Adverse Effect. The costs
of the adaptations and replacements referred to in the prior sentence are not
likely to have a Transocean Material Adverse Effect.

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The foregoing statements constitute "year 2000 readiness disclosure" within the
meaning of the Year 2000 Information Readiness and Disclosure Act of 1998.

SECTION 7.16  Insurance. (a) Except for such matters as do not and are not
likely to have, individually or in the aggregate, a Transocean Material Adverse
Effect, Transocean and its Subsidiaries maintain insurance coverage with
financially responsible insurance companies in such amounts and against such
losses as are customary in the international offshore drilling business prior to
the date hereof.

(b) Except for such matters as do not and are not likely to have,
individually or in the aggregate, a Transocean Material Adverse Effect, no event
relating to Transocean and its Subsidiaries has occurred that is likely to
result in an upward adjustment in premiums under any insurance policies they
maintain. Excluding insurance policies that have expired and been replaced in
the ordinary course of business, no insurance policy has been canceled within
the two years prior to the date hereof, and to Transocean's knowledge, no threat
has been made to cancel any insurance policy of Transocean or any Subsidiary of
Transocean during such period. All such insurance will remain in full force and
effect with respect to periods before the Closing or replaced with similar
policies. No event has occurred, including the failure by Transocean or any
Transocean Subsidiary to give any notice or information or by giving any
inaccurate or erroneous notice or information, which materially limits or
impairs the rights of Transocean or any Subsidiary of Transocean under any such
insurance policies.

(c) Insurance policies are in effect and coverage thereunder will be
available to Transocean for all personal injury claims disclosed in the
Transocean Disclosure Letter or otherwise, with deductibles not exceeding
$100,000 per claim for claims in the U.S. or involving U.S. nationals and$10,000 per claim for other claims.

SECTION 7.17  No Brokers. Transocean has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Sedco Forex, Schlumberger or Transocean to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that Transocean has retained Simmons & Company
International as its financial advisor, the arrangements with which have been
disclosed in writing to Sedco Forex prior to the date hereof.

SECTION 7.18  Opinion of Financial Advisor. The Board of Directors of
Transocean has received the opinion of Simmons & Company International to the
effect that, as of the date thereof, the Merger Ratio is fair to Transocean from
a financial point of view.

SECTION 7.19  Sedco Forex Stock Ownership. Neither Transocean nor any of
its Subsidiaries owns any shares of capital stock of Sedco Forex or Schlumberger
or any other securities convertible into or otherwise exercisable to acquire
capital stock of Sedco Forex or Schlumberger.

SECTION 7.20  Reorganization. Neither Transocean nor any of its
Subsidiaries has taken or failed to take any action, as a result of which (a)
the Merger would not qualify as a reorganization under Section 368(a)(1)(B) of
the Code or (b) the Distribution would not qualify as a distribution described
in Section 355 of the Code.

SECTION 7.21  Vote Required. The affirmative vote of the holders of at
least a majority of the issued Transocean Ordinary Shares to approve the
increase in authorized ordinary share capital and the affirmative vote of at
least two-thirds of the holders of the issued Transocean Ordinary Shares present
in person or by proxy to approve the change of Transocean's name at the meeting
to be held in accordance with Section 8.4 is the only vote of the holders of any
class or series of Transocean share capital necessary to approve such actions
and the transactions contemplated hereby.

SECTION 7.22  Ownership of Drilling Rigs and Drillships. As of the date
hereof, Transocean or a Subsidiary of Transocean has, and as of the Effective
Time, Transocean or a Subsidiary of Transocean will have, good and marketable
title to the drilling rigs and drill ships listed in Transocean's most recent
annual report on Form 10-K, together with any machinery, engines, equipment,
anchors, cable, drilling machinery, drilling equipment (including but not
limited to drill pipe, riser, stabilizers and bottom-hole assemblies),

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pumps, electrical, mechanical, chemical, hydraulic and other systems actually
located on any such rig or drillship, incorporated therein or attached thereto,
in each case, to the extent owned by Transocean or a Subsidiary of Transocean,
or under construction or acquired or purchased therefor (including items in
transit), or for which commitments to purchase have been issued in connection
therewith, and any and all permits, licenses, authorizations and approvals
granted or issued by any regulatory or governing authority pertaining to the
ownership, operation or construction of any such rig or drillship, in each case
free and clear of all Liens except for (i) defects or irregularities of title or
encumbrances of a nature that do not materially impair the ownership or
operation of these assets and which have not had and are not likely to have a
Transocean Material Adverse Effect, (ii) Liens that secure obligations not yet
due and payable or, if such obligations are due and have not been paid, Liens
securing such obligations that are being diligently contested in good faith and
by appropriate proceedings (any such contests involving an amount in excess of
$10 million being described in the Transocean Disclosure Letter) and (iii) other Liens disclosed in the Transocean Disclosure Letter (the Liens described in clauses (i), (ii) and (iii), collectively, "Transocean Permitted Liens"). No such asset is leased under an operating lease from a lessor that, to Transocean's knowledge, has incurred non-recourse Indebtedness to finance the acquisition or construction of such asset. SECTION 7.23 Undisclosed Liabilities. Neither Transocean nor any of its Subsidiaries has any liabilities or obligations of any nature, whether or not fixed, accrued, contingent or otherwise, except liabilities and obligations that (i) are reflected with reasonable specificity in the Transocean Reports, (ii) are contained in the Transocean Disclosure Schedule or (iii) do not and are not likely to have, individually or in the aggregate, a Transocean Material Adverse Effect. SECTION 7.24 Certain Contracts. (a) As of the date of this Agreement, neither Transocean nor any Subsidiary of Transocean is a party to or bound by (i) any non-competition agreement or any other agreement or obligation that purports to limit in any material respect the manner in which, or the localities in which, all or any material portion of their respective businesses are conducted, (ii) any drilling rig construction or conversion contract, (iii) any drilling contracts of 150 days or greater remaining duration or (iv) any contract or agreement for the borrowing of money containing covenants or provisions that would be violated or that would result in a default under such contract or agreement in the event the Merger or the transactions contemplated by this Agreement were consummated (all contracts or agreements of the types described in clauses (i) through (iv) being referred to herein as "Transocean Material Contracts"). Within 30 days after the date of this Agreement, Transocean will deliver to Schlumberger, or make reasonably available to Schlumberger for review, complete and correct copies of all Transocean Material Contracts. (b) Each Transocean Material Contract is valid and binding on (i) Transocean and any Subsidiary of Transocean that are parties thereto and (ii) to the knowledge of Transocean, the other parties thereto and is in full force and effect, and Transocean and each of its Subsidiaries have in all material respects performed all obligations required to be performed by them to date under each Transocean Material Contract to which it is a party, except where such failure to be binding or in full force and effect or such failure to perform does not and is not likely to create, individually or in the aggregate, a Transocean Material Adverse Effect. Except for such matters as do not and are not likely to have a Transocean Material Adverse Effect, none of Transocean or its Subsidiaries (x) knows of, or has received written notice of, any breach of or violation or default under (nor, to the knowledge of Transocean, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation or default under) any Transocean Material Contract or (y) has received written notice of the desire of the other party or parties to any such Transocean Material Contract to exercise any rights such party has to cancel, terminate or repudiate such contract or exercise remedies thereunder. At the Effective Time, each such Transocean Material Contract then in effect will be enforceable by Transocean or a Subsidiary of Transocean in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights and general principles of equity. SECTION 7.25 Capital Expenditure Program. The Transocean Disclosure Letter accurately sets forth in all material respects, for each of Transocean's sustaining, life extension and newbuild capital expenditure programs, the capital expenditures for all such programs that were forecasted to be incurred in 1999 and 2000, as previously provided to Schlumberger. The construction in progress attributable to the newbuilds and A-23 200 included in the consolidated balance sheet of Transocean at December 31, 1998 included in the Transocean Reports (excluding capitalized interest on such new, builds) and the projected newbuild capital expenditures to be incurred in 1999 and 2000 equal the projected total construction costs to complete such newbuilds, as at the time of such forecast. SECTION 7.26 Decrees, Etc. Except for such matters as do not and are not likely to have a Transocean Material Adverse Effect (i) no order, writ, fine, injunction, decree, judgment, award or determination of any court or governmental authority has been issued or entered against Transocean or any Subsidiary of Transocean that continues to be in effect that affects the ownership or operation of any of their respective assets, and (ii) no criminal order, writ, fine, injunction, decree, judgment or determination of any court or governmental authority has been issued against Transocean or any Subsidiary of Transocean. SECTION 7.27 Improper Payments. No bribes, kickbacks or other improper payments have been made by Transocean or any Subsidiary of Transocean or agent of any of them in connection with the conduct of their respective businesses or the operation of their respective assets, and neither Transocean, any Subsidiary of Transocean, nor any agent of any of them has received any such payments from vendors, suppliers or other persons, where any such payment made or received would create a Transocean Material Adverse Effect. ARTICLE 8 COVENANTS SECTION 8.1 Conduct of Businesses. Prior to the Effective Time, except as set forth in the Transocean Disclosure Letter or the Sedco Forex Disclosure Letter or as expressly contemplated by any other provision of this Agreement or any of the Transaction Agreements to which Transocean or Sedco Forex, as applicable, is a party, unless Transocean or Sedco Forex, as applicable, has consented in writing thereto, each of Transocean and Sedco Forex: (a) shall, and shall cause each of its Subsidiaries (as used in this Article 8, when referring to (i) Sedco Forex, Sedco Forex shall include the Sedco Forex Business, and (ii) Subsidiaries of Sedco Forex, Subsidiaries shall mean the Sedco Forex Subsidiaries) to, conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) shall use its commercially reasonable best efforts, and shall cause each of its Subsidiaries to use its commercially reasonable best efforts, to preserve intact their business organizations and goodwill, keep available the services of their respective officers and employees and maintain satisfactory relationships with those persons having business relationships with them; (c) shall not amend its memorandum of association or articles of association; (d) shall promptly notify the other of any material change in its condition (financial or otherwise) or business or any material litigation or material governmental complaints, investigations or hearings (or communications in writing indicating that such litigation, complaints, investigations or hearings may be contemplated), or the breach in any material respect of any representation or warranty contained herein; (e) shall promptly deliver to the other true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement; (f) shall not (i) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof, or referred to in clause (ii) below and disclosed pursuant to this Agreement or in connection with transactions permitted by Section 8.1(i), issue any shares of its capital stock, effect any stock split or otherwise change its capitalization as it existed on the date hereof, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any shares of its capital stock except the automatic awards to nonemployee directors pursuant to the Transocean Long-Term Incentive Plan, (iii) increase any compensation or benefits, except in the ordinary course of business consistent with past practice, or enter into or amend any employment agreement with any of its present or future officers or directors, except with new employees A-24 201 consistent with past practice or (iv) adopt any new employee benefit plan (including any stock option, stock benefit or stock purchase plan) or amend (except as required by law) any existing employee benefit plan in any material respect, except for changes which are less favorable to participants in such plans; (g) shall not (i) declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock or (ii) redeem, purchase or otherwise acquire any shares of its capital stock or capital stock of any of its Subsidiaries, or make any commitment for any such action, except (x) in the case of Transocean, for (A) the declaration and payment of regular, quarterly dividends, consistent with past practice, not to exceed$0.03 per Transocean Ordinary Share per
quarter and (B) transfers between Subsidiaries in the ordinary course of
business and (y) in the case of Sedco Forex and the Sedco Forex
Subsidiaries, those entities may distribute any cash or cash equivalents
held by them to their respective parent entities, but may not distribute
any other material assets except as set forth in the Distribution
Agreement;

(h) shall not, and shall not permit any of its Subsidiaries to, sell,
lease or otherwise dispose of any of its assets (including capital stock of
Subsidiaries) which are material to Sedco Forex or Transocean, as the case
may be, individually or in the aggregate, except in the ordinary course of

(i) shall not, and shall not permit any of its Subsidiaries to, except
pursuant to contractual commitments in effect on the date hereof and
disclosed in the Transocean Disclosure Letter or the Sedco Forex Disclosure
Letter, as the case may be, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any assets or
securities, in each case (i) for an aggregate consideration for all such
acquisitions in excess of $10 million (excluding acquisitions approved in writing by Transocean and Sedco Forex) or (ii) where a filing under the HSR Act or any non-U.S. competition, antitrust or premerger notification laws is required; (j) shall not, except as may be required as a result of a change in law or in generally accepted accounting principles, change any of the accounting principles or practices used by it; (k) shall, and shall cause any of its Subsidiaries to, use reasonable efforts to maintain with financially responsible insurance companies insurance in such amounts and against such risks and losses as are customary for such party; (l) shall not, and shall not permit any of its Subsidiaries to, (i) make or rescind any material express or deemed election relating to taxes that does or is likely to materially and adversely affect it, including elections for any and all joint ventures, partnerships, limited liability companies, working interests or other investments where it has the capacity to make such binding election, (ii) settle or compromise any material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to taxes, that does or is likely to materially and adversely affect it or (iii) change in any material respect any of its methods of reporting any item for tax purposes from those employed in the preparation of its tax returns for the most recent taxable year for which a return has been filed, that does or is likely to materially and adversely affect it; (m) shall not, and shall not permit any of its Subsidiaries to, (i) incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of such party or any of its Subsidiaries or guarantee any debt securities of others, (ii) except in the ordinary course of business, enter into any material lease (whether such lease is an operating or capital lease) or create any material mortgages, Liens, security interests or other encumbrances on its property in connection with any Indebtedness thereof (other than Sedco Forex Permitted Liens with respect to Sedco Forex and the Sedco Forex Subsidiaries and Transocean Permitted Liens with respect to Transocean and its Subsidiaries) or (iii) make or commit to make aggregate capital expenditures in excess of$10
million over the capital expenditures forecast previously disclosed to the
other; provided, however, that in the case of item (i), Sedco Forex,
Transocean or any of their respective Subsidiaries may incur indebtedness
for borrowed money for (w) general corporate

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purposes, (x) refinancings of existing debt, (y) financing existing
projects set forth in the applicable Disclosure Letter and (z) other
immaterial borrowings so long as any such debt incurred may be prepaid
without material prepayment penalties;

(n) shall diligently carry out the covenants and agreements set forth
in the Distribution Agreement with respect to separation of the Sedco Forex

(o) shall not, and shall cause its Subsidiaries not to, purchase or
otherwise acquire any Transocean Ordinary Shares, Schlumberger Common Stock
or Sedco Forex Common Stock;

(p) subject to Section 8.5, shall not take any action that is likely
to delay materially or adversely affect the ability of any of the parties
hereto to obtain any consent, authorization, order or approval of any
governmental commission, board or other regulatory body or the expiration
of any applicable waiting period required to consummate the Merger;

(q) shall not (i) agree in writing or otherwise to take any of the
foregoing actions or (ii) permit any of its Subsidiaries to agree in
writing or otherwise to take any of the foregoing actions that refer to
Subsidiaries; and

(r) shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its
respective Subsidiaries is a party; and during such period shall enforce,
to the fullest extent permitted under applicable law, the provisions of
such agreement, including by obtaining injunctions to prevent any breaches
of such agreements and to enforce specifically the terms and provisions
thereof in any court of the United States of America or any state having
jurisdiction.

With respect to all of the matters covered by this Section 8.1,
Schlumberger shall cause Sedco Forex to take or refrain from taking all of the
actions required or prohibited to be taken hereunder.

SECTION 8.2  No Solicitation by Sedco Forex or Schlumberger. (a) Each of
Sedco Forex and Schlumberger agree that (i) neither it nor any of its
Subsidiaries shall, and shall not authorize or permit any of its officers,
directors, employees, agents or representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
Subsidiaries) to, and on becoming aware of it will stop such person from
continuing to, directly or indirectly solicit, initiate or encourage (including
by way of furnishing nonpublic information), or take any action designed to
facilitate, directly or indirectly, any inquiry, proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with respect to a
tender or exchange offer, merger, consolidation, business combination, purchase
or similar transaction or series of transactions involving, individually or in
the aggregate, (A) 15% or more of the assets of Sedco Forex or the Sedco Forex
Assets (including any ownership interest in any Subsidiary) on a consolidated
basis, (B) 15% or more of any class of capital stock of Sedco Forex, (C) any
Subsidiary of Schlumberger in which 15% or more of the Assets of the Sedco Forex
Business on a consolidated basis are located or (D) capital stock of
Schlumberger, in the case of (D) the consummation of which is conditioned on the
termination of this Agreement (any such proposal, offer or transaction being
hereinafter referred to as a "Sedco Forex Acquisition Proposal") or cooperate
with or assist, participate or engage in any discussions or negotiations
concerning a Sedco Forex Acquisition Proposal; and (ii) it will immediately
cease and cause to be terminated any existing negotiations with any parties
conducted heretofore with respect to any of the foregoing; provided that nothing
contained in this Agreement shall prevent Sedco Forex, Schlumberger or either of
their Boards of Directors from (A) complying with Rule 14e-2 promulgated under
the Exchange Act with regard to a Sedco Forex Acquisition Proposal or (B) prior
to the Cutoff Date, providing information (pursuant to a confidentiality
agreement at least as favorable to Sedco Forex and Schlumberger as the
Confidentiality Agreement dated May 17, 1999, between Transocean and
Schlumberger (the "Transocean Confidentiality Agreement")) to or engaging in any
negotiations or discussions with any person or entity who has made an
unsolicited bona fide Sedco Forex Acquisition Proposal with respect to all the
outstanding Sedco Forex Common Stock or all or substantially all the assets of
Sedco Forex or other unsolicited bona fide Sedco Forex Acquisition Proposal
that, in the good faith judgment of a committee composed solely of the outside
directors of Schlumberger, taking into account the likelihood of financing and
consummation, and based on the written advice of a financial advisor of
recognized national reputation, a copy of which shall be provided to Transocean,
is superior
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to the Merger (a "Sedco Forex Superior Proposal"), if that committee of the
Board of Directors of Schlumberger, after consultation with its outside legal
counsel, determines that the failure to do so would be inconsistent with its
fiduciary obligations.

(b) Prior to taking any action referred to in Section 8.2(a), if Sedco
Forex or Schlumberger intends to participate in any such discussions or
negotiations or provide any such information to any such third party, Sedco
Forex or Schlumberger shall give prompt prior written notice to Transocean of
each such action. Sedco Forex or Schlumberger will immediately notify Transocean
in writing of any such requests for such information or the receipt of any Sedco
Forex Acquisition Proposal, including the identity of the person or group
engaging in such discussions or negotiations, requesting such information or
making such Sedco Forex Acquisition Proposal, and the material terms and
conditions of any Sedco Forex Acquisition Proposal. Sedco Forex or Schlumberger
will keep Transocean fully informed of the status and details (including any
amendments or proposed amendments) on a timely basis of any such requests, Sedco
Forex Acquisition Proposals or inquiries. Any notice under this Section 8.2
shall be given by facsimile with receipt confirmed or personal delivery.

(c) Nothing in this Section 8.2 shall permit Sedco Forex or Schlumberger to
enter into any agreement with respect to a Sedco Forex Acquisition Proposal
during the term of this Agreement, it being agreed that during the term of this
Agreement, Sedco Forex or Schlumberger shall not enter into any agreement with
any person that provides for, or in any way facilitates, a Sedco Forex
Acquisition Proposal, other than a confidentiality agreement at least as
favorable to Sedco Forex and Schlumberger as the Transocean Confidentiality
Agreement.

(d) For purposes hereof, the "Cutoff Date," when used with respect to
Schlumberger, means the date the condition set forth in Section 9.1(a)(i) is
satisfied and, when used with respect to Transocean, means the date the
condition set forth in Section 9.1(a)(ii) is satisfied.

SECTION 8.3  No Solicitation by Transocean. (a) Transocean agrees that (i)
neither it nor any of its Subsidiaries shall, and shall not authorize or permit
any of its officers, directors, employees, agents or representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
or any of its Subsidiaries) to, and on becoming aware of it will stop such
person from continuing to, directly or indirectly solicit, initiate or encourage
(including by way of furnishing nonpublic information), or take any action
designed to facilitate, directly or indirectly, any inquiry, proposal or offer
(including, without limitation, any proposal or offer to its stockholders) with
respect to a tender or exchange offer, merger, consolidation, business
combination, purchase or similar transaction or series of transactions
involving, individually or in the aggregate, 15% or more of the assets
(including any ownership interest in any Subsidiary) on a consolidated basis or
15% or more of any class of share capital of, Transocean (any such proposal,
offer or transaction being hereinafter referred to as a "Transocean Acquisition
Proposal") or cooperate with or assist, participate or engage in any discussions
or negotiations concerning a Transocean Acquisition Proposal; and (ii) it will
immediately cease and cause to be terminated any existing negotiations with any
parties conducted heretofore with respect to any of the foregoing; provided that
nothing contained in this Agreement shall prevent Transocean or its Board of
Directors from (A) complying with Rule 14e-2 promulgated under the Exchange Act
with regard to a Transocean Acquisition Proposal or (B) prior to the Cutoff
Date, providing information (pursuant to a confidentiality agreement at least as
favorable to Transocean as the Transocean Confidentiality Agreement) to or
engaging in any negotiations or discussions with any person or entity who has
made an unsolicited bona fide Transocean Acquisition Proposal with respect to
all the outstanding Transocean Ordinary Shares or all or substantially all the
assets of Transocean that, in the good faith judgment of a committee composed
solely of the outside directors of Transocean, taking into account the
likelihood of financing and consummation, and based on the written advice of a
financial advisor of recognized national reputation, a copy of which shall be
provided to Schlumberger, is superior to the Merger (a "Transocean Superior
Proposal"), if that committee of the Board of Directors of Transocean, after
consultation with its outside legal counsel, determines that the failure to do
so would be inconsistent with its fiduciary obligations.

(b) Prior to taking any action referred to in Section 8.3(a), if Transocean
intends to participate in any such discussions or negotiations or provide any
such information to any such third party, Transocean shall give

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prompt prior written notice to Sedco Forex and Schlumberger of each such action.
Transocean will immediately notify Sedco Forex and Schlumberger in writing of
any such requests for such information or the receipt of any Transocean
Acquisition Proposal, including the identity of the person or group engaging in
such discussions or negotiations, requesting such information or making such
Transocean Acquisition Proposal, and the material terms and conditions of any
Transocean Acquisition Proposal. Transocean will keep Sedco Forex and
Schlumberger fully informed of the status and details (including any amendments
or proposed amendments) on a timely basis of any such requests, Sedco Forex
Acquisition Proposals or inquiries. Any notice under this Section 8.3 shall be
given by facsimile with receipt confirmed or personal delivery.

(c) Nothing in this Section 8.3 shall permit Transocean to enter into any
agreement with respect to a Transocean Acquisition Proposal during the term of
this Agreement, it being agreed that during the term of this Agreement,
Transocean shall not enter into any agreement with any person that provides for,
or in any way facilitates, a Transocean Acquisition Proposal, other than a
confidentiality agreement at least as favorable to Transocean as the Transocean
Confidentiality Agreement.

SECTION 8.4  Meetings of Stockholders. (a) Each of Transocean and
Schlumberger will take all action necessary, in accordance with applicable law
and its memorandum of association and articles of association (Transocean) or
deed of incorporation and bylaws (Schlumberger), to convene a meeting of its
shareholders as promptly as practicable to consider and vote upon (i) in the
case of Transocean (x) to increase its authorized ordinary share capital to
authorize sufficient Transocean Ordinary Shares to consummate the transactions
contemplated hereby, (y) to approve the issuance of Transocean Ordinary Shares
pursuant to the Merger contemplated hereby and (z) to approve the change of name
of Transocean to "Transocean Sedco Forex Inc." and (ii) in the case of
Schlumberger, the approval of the Distribution. Transocean and Schlumberger
shall coordinate and cooperate with respect to the timing of such meetings and
shall use their best efforts to hold such meetings on the same day.

(b) Each of Transocean and Schlumberger, through its Board of Directors,
shall recommend approval of such matters and use its best efforts to solicit
from its shareholders proxies in favor of such matters unless its Board of
Directors determines, after consultation with its counsel, that such actions
would not be consistent with its fiduciary obligations. Additionally, the Board
of Directors of Transocean or the Board of Directors of Schlumberger may at any
time prior to the Effective Time withdraw, modify or change any recommendation
and declaration regarding such matters or recommend and declare advisable any
other offer or proposal, if in the opinion of such Board of Directors after
consultation with its counsel the failure to so withdraw, modify or change its
recommendation and declaration would be inconsistent with its fiduciary
obligations.

SECTION 8.5  Filings; Best Efforts. (a) Subject to the terms and conditions
herein provided, Sedco Forex, Schlumberger and Transocean shall:

(i) promptly (but in not more than 20 business days from the date
hereof) make their respective required filings under the HSR Act and any
applicable non-U.S. competition, antitrust or premerger notification laws
to be made pursuant to Section 9.1(b) of this Agreement and thereafter
shall promptly make any other required submissions under the HSR Act or
such laws;

(ii) use their best efforts to cooperate with one another in (a)
determining which filings are required to be made prior to the Effective
Time with, and which consents, approvals, permits or authorizations are
required to be obtained prior to the Effective Time from governmental or
regulatory authorities of the United States, the several states, and
non-U.S. jurisdictions in connection with the execution and delivery of
this Agreement and the consummation of the Merger and the transactions
contemplated hereby; and (b) obtaining in a timely manner all such filings
and timely seeking all such consents, approvals, permits or authorizations
without causing a Transocean Material Adverse Effect or a Sedco Forex

(iii) furnish the other party with such necessary information and
reasonable assistance as such other parties and their respective affiliates
may reasonably request in connection with their preparation of necessary
filings, registrations or submissions of information to any governmental or
regulatory authori-

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ties, including, without limitation, any filings necessary or appropriate
under the provisions of the HSR Act or any applicable non-U.S. competition,

(b) Without limiting Section 8.5(a), Transocean, Schlumberger and Sedco
Forex shall:

(i) each use its best efforts to avoid the entry of, or to have
vacated or terminated, any decree, order or judgment that would restrain,
prevent or delay the Closing; and

(ii) each use its best efforts to take any and all steps necessary to
obtain any consents or eliminate any impediments to the Merger.

(c) Nothing in this Agreement shall require a party to dispose of any
material amount of assets to obtain any consents, approvals, permits or
authorizations or to remove any impediments to the Merger.

SECTION 8.6  Inspection. From the date hereof to the Effective Time, each
of Sedco Forex, Schlumberger and Transocean shall allow all designated officers,
attorneys, accountants and other representatives of Transocean, Schlumberger or
Sedco Forex, as the case may be, access, at all reasonable times, upon
reasonable notice, to the records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs of Transocean and Sedco Forex and their respective Subsidiaries,
including inspection of such properties; provided that no investigation pursuant
to this Section 8.6 shall affect any representation or warranty given by any
party hereunder, and provided further that notwithstanding the provision of
information or investigation by any party, no party shall be deemed to make any
representation or warranty except as expressly set forth in this Agreement.
Notwithstanding the foregoing, no party shall be required to provide any
information which it reasonably believes it may not provide to the other party
by reason of applicable law, rules or regulations, which constitutes information
protected by attorney/client privilege, or which it is required to keep
confidential by reason of contract or agreement with third parties. The parties
hereto will make reasonable and appropriate substitute disclosure arrangements
under circumstances in which the restrictions of the preceding sentence apply.
Each of Transocean, Schlumberger and Sedco Forex agrees that it will not, and
will cause its respective representatives not to, use any information obtained
pursuant to this Section 8.6 for any purpose unrelated to the consummation of
the transactions contemplated by this Agreement.

SECTION 8.7  Publicity. The parties will consult with each other and will
mutually agree upon any press releases or public announcements pertaining to
this Agreement or the transactions contemplated hereby and shall not issue any
such press releases or make any such public announcements prior to such
consultation and agreement, except as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange, in which case the party proposing to issue such press release or make
such public announcement shall use its best efforts to consult in good faith
with the other party before issuing any such press releases or making any such
public announcements.

SECTION 8.8  Registration Statement. (a) Each of Transocean, Schlumberger
and Sedco Forex shall cooperate and promptly prepare and Transocean shall file
with the SEC as soon as practicable a Registration Statement on Form S-4 (the
"Form S-4") under the Securities Act, with respect to Transocean Ordinary Shares
issuable in the Merger, a portion of which Registration Statement shall also
serve as the joint proxy statement with respect to the meetings of the
stockholders of Transocean and of Schlumberger in connection with the Merger and
the Distribution, respectively (the "Proxy Statement/Prospectus"). Schlumberger
and Sedco Forex shall promptly prepare and Sedco Forex shall file with the SEC
as soon as practicable the Form 10. The respective parties will cause the Proxy
Statement/Prospectus, the Form S-4 and the Form 10 to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Transocean shall use its
best efforts, and Sedco Forex and Schlumberger will cooperate with Transocean,
to have the Form S-4 declared effective by the SEC as promptly as practicable.
Transocean shall use its reasonable best efforts to obtain, prior to the
effective date of the Form S-4, all necessary non-U.S., state securities law or
"Blue Sky" permits or approvals required to carry out the transactions
contemplated by this Agreement and will pay all expenses incident thereto.
Transocean

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thereof, of the time when the Form S-4 has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of Transocean Ordinary Shares issuable in connection with the
Merger for offering or sale in any jurisdiction or any request by the SEC for
amendment of the Proxy Statement/Prospectus or the Form S-4 or comments thereon
and responses thereto or requests by the SEC for additional information. Each of
the parties shall also promptly provide each other party copies of all written
from the SEC in connection with the transactions contemplated by this Agreement
or any Transaction Agreement. Each of the parties shall promptly provide each
other party with drafts of all correspondence intended to be sent to the SEC in
connection with the transactions contemplated by this Agreement or any
Transaction Agreement and allow each such party a chance to comment thereon
prior to delivery to the SEC.

(b) Transocean and Schlumberger will each use its best efforts to cause the
Proxy Statement/Prospectus to be mailed to its stockholders as promptly as
practicable after the date hereof.

(c) Each of Transocean, Sedco Forex and Schlumberger agrees to ensure that
the information provided by it for inclusion in the Proxy Statement/Prospectus
and each amendment or supplement thereto, at the time of mailing thereof and at
the time of the respective meetings of stockholders of Transocean and of
Schlumberger, or, in the case of information provided by it for inclusion in the
Form S-4 or any amendment or supplement thereto, at the time it is filed or
becomes effective, (i) will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (ii) will comply as to form in all material respects
with the provisions of the Securities Act and the Exchange Act.

SECTION 8.9  Listing Application. Transocean shall promptly prepare and
submit to the NYSE a listing application covering the shares of Transocean
Ordinary Shares issuable in the Merger and shall use its best efforts to obtain,
prior to the Effective Time, approval for the listing of such Transocean
Ordinary Shares, subject to official notice of issuance.

SECTION 8.10  Letters of Accountants. (a) Each of Sedco Forex and
Schlumberger shall use its reasonable best efforts to cause to be delivered to
Transocean "comfort" letters of PricewaterhouseCoopers LLP, Sedco Forex's and
Schlumberger's independent public accountants, dated the effective date of the
Form S-4 and the Closing Date, respectively, and addressed to Transocean with
regard to certain financial information regarding Sedco Forex and Schlumberger
included in the Form S-4, in form reasonably satisfactory to Transocean and
customary in scope and substance for "comfort" letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.

(b) Transocean shall use its reasonable best efforts to cause to be
delivered to Sedco Forex and Schlumberger "comfort" letters of Ernst & Young
LLP, Transocean's independent public accountants, dated the effective date of
the Form S-4 and the Closing Date, respectively, and addressed to Sedco Forex
and Schlumberger, with regard to certain financial information regarding
Transocean included in the Form S-4, in form reasonably satisfactory to Sedco
Forex and Schlumberger and customary in scope and substance for "comfort"
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.

SECTION 8.11  Agreements of Rule 145 Affiliates. Prior to the Effective
Time, Sedco Forex shall cause to be prepared and delivered to Transocean a list
identifying all persons who Sedco Forex believes may be deemed to be
"affiliates" of Sedco Forex, as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act (the "Rule 145 Affiliates"). Sedco Forex shall
use its best efforts to cause each person who is identified as a Rule 145
Affiliate in such list to deliver to Transocean, at or prior to the Effective
Time, a written agreement, in the form to be approved by the parties hereto,
that such Rule 145 Affiliate will not sell, pledge, transfer or otherwise
dispose of any shares of Transocean Ordinary Shares issued to such Rule 145
Affiliate pursuant to the Merger, except pursuant to an effective registration
statement or in compliance with Rule 145 or an exemption from the registration
requirements of the Securities Act.

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SECTION 8.12  Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
as expressly provided herein or as otherwise agreed by the parties.

SECTION 8.13  Indemnification and Insurance. (a) From and after the
Effective Time, Transocean and the Surviving Corporation shall indemnify, defend
and hold harmless to the fullest extent permitted under applicable law each
person who is, or has been at any time prior to the Effective Time, an officer
or director of Sedco Forex (or any Subsidiary or division thereof) and each
person who served at the request of Sedco Forex as a director, officer, trustee
or fiduciary of another corporation, partnership, joint venture, trust, pension
or other employee benefit plan or enterprise (individually, an "Indemnified
Party" and, collectively, the "Indemnified Parties") against all losses, claims,
damages, liabilities, costs or expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation arising out of or pertaining to acts
or omissions, or alleged acts or omissions, by them in their capacities as such,
whether commenced, asserted or claimed before or after the Effective Time. In
the event of any such claim, action, suit, proceeding or investigation (an
"Action"), (i) Transocean and the Surviving Corporation shall pay, as incurred,
the fees and expenses of counsel selected by the Indemnified Party, which
counsel shall be reasonably acceptable to the Surviving Corporation, in advance
of the final disposition of any such Action to the fullest extent permitted by
applicable law and, if required, upon receipt of any undertaking required by
applicable law, and (ii) Transocean and the Surviving Corporation will cooperate
in the defense of any such matter; provided, however, the Surviving Corporation
shall not be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld or delayed), and provided
further, that Transocean and the Surviving Corporation shall not be obligated
pursuant to this Section 8.13 to pay the fees and disbursements of more than one
counsel for all Indemnified Parties in any single Action, unless, in the good
faith judgment of any of the Indemnified Parties, there is or may be a conflict
of interests between two or more of such Indemnified Parties, in which case
there may be separate counsel for each similarly situated group.

(b) The parties agree that the rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any action or
suit, in the certificate of incorporation and bylaws of Sedco Forex and its
Subsidiaries with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect for a period of
six years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Action pending or asserted or claim made
within such period shall continue until the disposition of such Action or
resolution of such claim.

(c) For a period of six years after the Effective Time, Transocean and the
Surviving Corporation shall cause to be maintained officers' and directors'
liability insurance covering the Indemnified Parties who are, or at any time
prior to the Effective Time, covered by Sedco Forex's existing officers' and
directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance, provided
that such insurance is available at a reasonable cost.

(d) The rights of each Indemnified Party hereunder shall be in addition to
any other rights such Indemnified Party may have under the certificate of
incorporation or bylaws of Sedco Forex or any of its Subsidiaries, under
applicable law or otherwise. The provisions of this Section 8.13 shall survive
the consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties.

(e) In the event Transocean, the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity in
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in either such case, proper
provision shall be made so that the successors and assigns of Transocean or the
Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 8.13.

SECTION 8.14  Employee Benefits. Employee benefits and related matters
shall be handled as set forth in the Employee Matters Agreement.

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SECTION 8.15  Transocean Structuring. In the event that prior to the
Effective Time, Transocean proposes to, or to cause any of its Subsidiaries to,
transfer any material assets or capital stock of any Subsidiary to any other
Subsidiary or to Transocean (a "Structuring Plan"), Transocean shall give at
least ten (10) business days prior written notice of such Structuring Plan to
Schlumberger setting forth, in reasonable detail, the actions to be taken
pursuant to such Structuring Plan. Within ten (10) business days of receipt of
such notice, Schlumberger may notify Transocean in writing of any objection to
such Structuring Plan (an "Objection Notice") and of its then intention to
exercise its termination right pursuant to Section 10.3(d) of this Agreement in
the event Transocean proceeds with the Structuring Plan. Any failure by
Schlumberger to provide an Objection Notice to Transocean as provided for herein
shall be deemed a waiver of its right under Section 10.3(d) of this Agreement
with respect to such Structuring Plan.

SECTION 8.16  Strategic Alliance. Sedco Forex, Schlumberger and Transocean
shall use all commercially reasonable efforts to establish a non-exclusive
strategic alliance on mutually agreed terms to address integrated services
opportunities (the "Strategic Alliance Agreement").

SECTION 8.17  Newbuild Contract Renegotiations. Sedco Forex shall, and
Schlumberger shall cause Sedco Forex to, use all commercially reasonable best
efforts to renegotiate the Offshore Drilling Contract For the Dynamic Positioned
Drilling Semi-Submersible Sedco Express between Elf Exploration Angola and
Services Petroliers Schlumberger to, among other things, remove the provisions
giving Elf Exploration Angola the right to cancel such contract as a penalty for
late delivery.

ARTICLE 9

CONDITIONS

SECTION 9.1  Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:

(a) (i) The Distribution shall have been adopted and approved by the
affirmative vote of holders of a majority of the shares of Schlumberger
Common Stock voting thereon; and

(i) The increase in the authorized ordinary share capital of
Transocean and the issuance of Transocean Ordinary Shares pursuant to this
Agreement shall have been approved by the holders of issued Transocean
Ordinary Shares as and to the extent required by the laws of the Cayman
Islands, Transocean's memorandum of association and articles of association
and the rules of the NYSE.

(b) (i) Any waiting period applicable to consummation of the Merger
under the HSR Act and any voluntary agreement not to consummate the Merger
without prior notice to the U.S. Department of Justice or U.S. Federal
Trade Commission shall have expired or been terminated, (ii) in the event
of any review by the U.K. Office of Fair Trading or, if applicable, the
U.K. Secretary of State for Trade and Industry, indications reasonably
satisfactory to each of Schlumberger and Transocean that the Merger will
not be referred to the Competition Commission shall have been received, and
(iii) any mandatory waiting period under any applicable non-U.S.
competition, antitrust, or premerger notification law or regulation (where
the failure to observe such waiting period referred to in this clause (iii)
would have a Transocean Material Adverse Effect or a Sedco Forex Material
Adverse Effect) shall have expired or been terminated without intervention
by a reviewing agency and without the commencement of proceedings in any
court of competent jurisdiction challenging all or part of the Merger,
which intervention or commencement of proceedings would have a Transocean

(c) None of the parties hereto shall be subject to any decree, order
or injunction of a court of competent jurisdiction, U.S. or non-U.S., which
prohibits the consummation of the Merger; provided, however, that, prior to
invoking this condition, each party agrees to comply with Section 8.5, and
with respect to other matters not covered by Section 8.5, to use its
commercially reasonable best efforts to have any such decree, order or
injunction lifted or vacated; and no statute, rule or regulation shall have

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been enacted by any governmental authority which prohibits or makes
unlawful the consummation of the Merger.

(d) The Form S-4 shall have become effective and no stop order with
respect thereto shall be in effect.

(e) The Transocean Ordinary Shares to be issued pursuant to the Merger
shall have been authorized for listing on the NYSE, subject to official
notice of issuance.

(f) The Distribution shall have been consummated in accordance with
the Distribution Agreement on a day preceding the Closing Date.

(g) The Pre-Closing Financial Statements contemplated by the
Distribution Agreement shall have been delivered and Sedco Forex or a Sedco
Forex Subsidiary shall have good and valid title unconditionally and of
record to substantially all of the Sedco Forex Assets, subject to Sedco
Forex Permitted Liens.

(h) There shall not be pending or threatened in writing any
governmental claim, proceeding or action seeking to restrain or prohibit
the transactions contemplated by this Agreement or any Transaction
Agreement.

(i) The Transaction Agreements shall have been executed and delivered
on or prior to the Distribution Date or the Closing Date, as the case may
be.

SECTION 9.2  Conditions to Obligation of Schlumberger and Sedco Forex to
Effect the Merger. The obligation of Schlumberger and Sedco Forex to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:

(a) Transocean and Merger Sub shall have performed, in all material
respects, their covenants and agreements contained in this Agreement
required to be performed on or prior to the Closing Date, and the
representations and warranties of Transocean and Merger Sub contained in
this Agreement and in any document delivered in connection herewith shall
be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date (except for representations and
warranties made as of a specified date, which need be true and correct in
all material respects only as of the specified date), and Sedco Forex shall
have received a certificate of each of Transocean and Merger Sub, executed
on its behalf by its President or one of its Vice Presidents, dated the
Closing Date, certifying to such effect.

(b) Schlumberger and Sedco Forex shall have received the opinion of
Baker & Botts, L.L.P., counsel to Sedco Forex, which is required by Section
8.01(f) of the Distribution Agreement. In rendering such opinion, such
counsel shall be entitled to receive and rely upon representations of
officers of Sedco Forex and Schlumberger as to such matters as such counsel
may reasonably request and a certificate of Transocean in substantially the
form of Exhibit B hereto.

(c) At any time after the date of this Agreement, there shall not have
been any event or occurrence, or series of events or occurrences, that has
had or is likely to have, individually or in the aggregate with all other
events or occurrences since the date of this Agreement, a Transocean

SECTION 9.3  Conditions to Obligation of Transocean and Merger Sub to
Effect the Merger. The obligations of Transocean and Merger Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:

(a) Sedco Forex and Schlumberger shall have performed, in all material
respects their covenants and agreements contained in this Agreement and the
Distribution Agreement required to be performed on or prior to the Closing
Date, and the representations and warranties of Sedco Forex and
Schlumberger contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date (except for
representations and warranties made as of a specified date, which need be
true and correct in all material respects only as of the specified date),
and Transocean shall have received a certificate of each of Sedco Forex and
Schlumberger, executed on its behalf by its President or one of its Vice
Presidents, dated the Closing Date, certifying to such effect.
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(b) Transocean shall have received the opinion of Weil, Gotshal &
Manges LLP, counsel to Transocean, in form and substance reasonably
satisfactory to Transocean and dated the Closing Date to the effect that,
for United States federal income tax purposes, the Merger should qualify as
a reorganization under Section 368(a)(1)(B) of the Code. In rendering such
opinion, such counsel shall be entitled to receive and rely upon
representations of officers of Sedco Forex and Transocean as to such
matters as such counsel may reasonably request.

(c) At any time after the date of this Agreement, there shall not have
been any event or occurrence, or series of events or occurrences, that has
had or is likely to have, individually or in the aggregate with all other
events or occurrences since the date of this Agreement, a Sedco Forex

(d) Transocean shall have received from each Rule 145 Affiliate an
agreement to the effect set forth in Section 8.11.

ARTICLE 10

TERMINATION

SECTION 10.1  Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Effective Time by the mutual written consent
of Schlumberger, Sedco Forex and Transocean.

SECTION 10.2  Termination by Transocean or Schlumberger. This Agreement may
be terminated at any time prior to the Effective Time by action of the Board of
Directors of Transocean, Schlumberger or Sedco Forex if:

(a) the Merger shall not have been consummated by April 30, 2000;
provided, however, that the right to terminate this Agreement pursuant to
this clause (a) shall not be available to any party whose failure to
perform or observe in any material respect any of its obligations under
this Agreement in any manner shall have been the cause of, or resulted in,
the failure of the Merger to occur on or before such date;

(b) a meeting (including adjournments and postponements) of
Schlumberger's stockholders for the purpose of obtaining the approval
required by Section 9.1(a)(i) shall have been held and such stockholder
approval shall not have been obtained;

(c) a meeting (including adjournments and postponements) of
Transocean's stockholders for the purpose of obtaining the approval
required by Section 9.1(a)(ii) shall have been held and such stockholder
approval shall not have been obtained; or

(d) a U.S. federal, state or non-U.S. court of competent jurisdiction
or federal, state or non-U.S. governmental, regulatory or administrative
agency or commission shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this clause (d) shall have
complied with Section 8.5 and, with respect to other matters not covered by
Section 8.5, shall have used its commercially reasonable best efforts to
remove such injunction, order or decree.

SECTION 10.3  Termination by Sedco Forex or Schlumberger. This Agreement
may be terminated at any time prior to the Effective Time by action of the Board
of Directors of Sedco Forex or of Schlumberger if

(a) Sedco Forex or Schlumberger concurrently enters into a binding
written agreement concerning a transaction that constitutes a Sedco Forex
Superior Proposal after the Board of Directors of Sedco Forex or
Schlumberger determines that proceeding with the Merger would be
inconsistent with its fiduciary obligations by reason of a Sedco Forex
Superior Proposal and elects to terminate this Agreement effective prior to
the Cutoff Date; provided that Sedco Forex or Schlumberger may not effect
such termination pursuant to this Section 10.3(a) unless and until (i)
Transocean receives at least one week's prior written notice from Sedco
Forex or Schlumberger of its intention to effect such termination

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pursuant to this Section 10.3(a); and (ii) during such week, Sedco Forex
and Schlumberger shall, and shall cause their respective financial and
legal advisors to, consider any adjustment in the terms and conditions of
this Agreement that Transocean may propose; and provided, further, that any
termination of this Agreement pursuant to this Section 10.3(a) shall not be
effective until Schlumberger has made the payment required by Section
10.5(a)(i);

(b) (i) there has been a breach by Transocean or Merger Sub of any
representation, warranty, covenant or agreement set forth in this Agreement
or if any representation or warranty of Transocean or Merger Sub shall have
become untrue, in either case such that the conditions set forth in Section
9.2(a) would not be satisfied and (ii) such breach is not curable, or, if
curable, is not cured within 30 days after written notice of such breach is
given to Transocean by Sedco Forex; provided, however, that the right to
terminate this Agreement pursuant to Section 10.3(b) shall not be available
to Sedco Forex if it, at such time, is in material breach of any
representation, warranty, covenant or agreement set forth in this Agreement
such that the condition set forth in Section 9.3(a) shall not be satisfied;

(c) the Board of Directors of Transocean shall have withdrawn or
materially modified, in a manner adverse to Sedco Forex, its approval or
recommendation of the Merger or recommended a Transocean Acquisition
Proposal, or resolved to do so; or

(d) Schlumberger provides a timely Objection Notice to Transocean
pursuant to Section 8.15 of this Agreement in respect of a Transocean
Structuring Plan (which Objection Notice shall not be waived or withdrawn)
and following receipt of such Objection Notice Transocean or any of its
Subsidiaries consummates any of the asset or capital stock transfers
provided for in such Structuring Plan; provided, however, that Schlumberger
shall have the right to terminate this Agreement under this Section 10.3(d)
if, and only if, Schlumberger reasonably believes the consummation of the
Structuring Plan would create a significant risk of causing a Transocean

SECTION 10.4  Termination by Transocean. This Agreement may be terminated
at any time prior to the Effective Time by action of the Board of Directors of
Transocean if:

(a) Transocean concurrently enters into a binding written agreement
concerning a transaction that constitutes a Transocean Superior Proposal
after the Board of Directors of Transocean determines that proceeding with
the Merger would be inconsistent with its fiduciary obligations by reason
of a Transocean Superior Proposal and elects to terminate this Agreement
effective prior to the Cutoff Date; provided that Transocean may not effect
such termination pursuant to this Section 10.4(a) unless and until (i)
Sedco Forex receives at least one week's prior written notice from
Transocean of its intention to effect such termination pursuant to this
Section 10.4(a); (ii) during such week, Transocean shall, and shall cause
the terms and conditions of this Agreement that Sedco Forex may propose;
and provided, further, that any termination of this Agreement pursuant to
this Section 10.4(a) shall not be effective until Transocean has made the
payment required by Section 10.5(b)(i);

(b) (i) there has been a breach by Sedco Forex or Schlumberger of any
representation, warranty, covenant or agreement set forth in this Agreement
or if any representation or warranty of Sedco Forex or Schlumberger shall
have become untrue, in either case such that the conditions set forth in
Section 9.3(a) would not be satisfied and (ii) such breach is not curable,
or, if curable, is not cured within 30 days after written notice of such
breach is given by Transocean to Sedco Forex or Schlumberger, as
applicable; provided, however, that the right to terminate this Agreement
pursuant to Section 10.4(b) shall not be available to Transocean if it, at
such time, is in material breach of any representation, warranty, covenant
or agreement set forth in this Agreement such that the conditions set forth
in Section 9.2(a) shall not be satisfied; or

(c) the Board of Directors of Schlumberger shall have withdrawn or
materially modified, in a manner adverse to Transocean, its approval or
recommendation of the Distribution or recommended a Sedco Forex Acquisition
Proposal, or resolved to do so.

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SECTION 10.5  Effect of Termination. (a) If this Agreement is terminated --

(i) by Schlumberger or Sedco Forex pursuant to Section 10.3(a)
[fiduciary out];

(ii) by Schlumberger, Sedco Forex or Transocean pursuant to Section
10.2(b) [failure to obtain Schlumberger stockholder approval] after the
public announcement of a Sedco Forex Acquisition Proposal; or

(iii) by Transocean pursuant to Section 10.4(c) [withdrawal of
Schlumberger recommendation to stockholders] after the public announcement
or receipt by Schlumberger's or Sedco Forex's Board of Directors of a Sedco
Forex Acquisition Proposal, whether or not the Sedco Forex Acquisition
Proposal is still pending or has been consummated;

then Schlumberger shall pay Transocean a fee of $100 million at the time of such termination in cash by wire transfer to an account designated by Transocean. (b) If this Agreement is terminated -- (i) by Transocean pursuant to Section 10.4(a) [fiduciary out]; (ii) by Schlumberger, Sedco Forex or Transocean pursuant to Section 10.2(c) after the public announcement of a Transocean Acquisition Proposal [failure to obtain Transocean stockholder approval]; or (iii) by Schlumberger or Sedco Forex pursuant to Section 10.3(c) after the public announcement or receipt by Transocean's Board of Directors of a Transocean Acquisition Proposal, whether or not the Transocean Acquisition Proposal is still pending or has been consummated [withdrawal of Transocean recommendation to stockholders]; then Transocean shall pay Schlumberger a fee of$100 million at the time of such
termination in cash by wire transfer to an account designated by Schlumberger.

(c) If this Agreement is terminated by Schlumberger, Sedco Forex or
Transocean pursuant to Section 10.2(b) other than in circumstances covered by
Section 10.5(a), then Schlumberger shall pay Transocean a fee of $10 million to reimburse it for its costs and expenses incurred in connection with this transaction. If this Agreement is terminated by Schlumberger, Sedco Forex or Transocean pursuant to Section 10.2(c), other than in circumstances covered by Section 10.5(b), then Transocean shall pay Schlumberger a fee of$10 million to
reimburse it for its costs and expenses incurred in connection with this
transaction.

(d) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article 10, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section
10.5 and Section 8.12 and except for the provisions of Sections 11.3, 11.4,
11.6, 11.8, 11.9, 11.12, 11.13 and 11.14, provided that nothing herein shall
relieve any party from any liability for any willful and material breach by such
party of any of its covenants or agreements set forth in this Agreement and all
rights and remedies of such nonbreaching party under this Agreement in the case
of such a willful and material breach, at law or in equity, shall be preserved.

SECTION 10.6  Extension; Waiver. At any time prior to the Effective Time,
each party may by action taken by its Board of Directors, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.

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ARTICLE 11

GENERAL PROVISIONS

SECTION 11.1  Nonsurvival of Representations, Warranties and
Agreements. All representations, warranties and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall not survive the
Merger; provided, however, that the agreements contained in Article 4 and in
Sections 3.3, 8.11, 8.12, 8.13, 8.14, 8.15, 8.16 and this Article 11 and the
agreements delivered pursuant to this Agreement shall survive the Merger.

SECTION 11.2  Notices. Except as otherwise provided herein, any notice
required to be given hereunder shall be sufficient if in writing, and sent by
facsimile transmission or by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:

(a) if to Schlumberger or Sedco Forex:

Schlumberger Limited
277 Park Avenue, 41st Floor
New York, New York 10172
Attention: Corporate Secretary
Facsimile: (212) 350-8127

with a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Attention: J. David Kirkland, Jr., Esq.
Facsimile: (713) 229-1522

(b) if to Transocean or Merger Sub:

Transocean Offshore Inc.
4 Greenway Plaza
Houston, Texas 77046
Attention: Corporate Secretary
Facsimile: (713) 232-7600

with a copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: James L. Rice III, Esq.
Facsimile: (713) 224-9511

or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.

SECTION 11.3  Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Article 4 and Sections 3.4, 8.13 and 8.14 and except as provided in any
agreements delivered pursuant hereto (collectively, the "Third-Party
Provisions"), nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors,

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executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement. The Third-Party Provisions may
be enforced by the beneficiaries thereof.

SECTION 11.4  Entire Agreement. This Agreement, the exhibits to this
Agreement, the other Transaction Agreements, Sedco Forex Disclosure Letter,
Transocean Disclosure Letter and any documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto, except that the
Transocean Confidentiality Agreement shall continue in effect. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.

SECTION 11.5  Amendments. This Agreement may be amended by the parties
hereto, by action taken or authorized by their Boards of Directors, at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of Sedco Forex or Transocean, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.

SECTION 11.6  Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its rules of conflict of laws.

SECTION 11.7  Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.

Agreement are for the convenience of the parties only and shall be given no
substantive or interpretative effect whatsoever.

SECTION 11.9  Interpretation. In this Agreement:

(a) Unless the context otherwise requires, words describing the
singular number shall include the plural and vice versa, words denoting any
gender shall include all genders, and words denoting natural persons shall
include corporations and partnerships and vice versa.

(b) The phrase "to the knowledge of" and similar phrases relating to
knowledge of Schlumberger, Sedco Forex or Transocean, as the case may be,
shall mean the actual knowledge of its senior management.

(c) "Material Adverse Effect" with respect to Sedco Forex, Transocean
or Schlumberger shall mean a material adverse effect or change on (a) the
business, operations, financial condition or prospects of a party and its
Subsidiaries on a consolidated basis, except for such changes or effects in
general economic, capital market, regulatory or political conditions or
changes that affect generally the offshore drilling services industry or
(b) the ability of the party to consummate the transactions contemplated by
this Agreement or fulfill the conditions to closing. "Sedco Forex Material
Sedco Forex and the Sedco Forex Business, Schlumberger and Transocean,
respectively.

SECTION 11.10  Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.

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SECTION 11.11  Incorporation of Exhibits. The Sedco Forex Disclosure
Letter, Transocean Disclosure Letter and all exhibits attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.

SECTION 11.12  Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.

SECTION 11.13  Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.

SECTION 11.14  Subsidiaries. As used in this Agreement, the word
"Subsidiary," when used with respect to any party, means any corporation or
other organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization or any organization of which such party
is a general partner. When referring to the Subsidiaries of Sedco Forex or
Schlumberger, it is assumed that the Distribution and other transactions
contemplated by Distribution Agreement have already occurred.

SECTION 11.15  Transocean Guarantee. Transocean hereby unconditionally and
irrevocably guarantees to Schlumberger the payment and performance in full of
all obligations of Sedco Forex and the Sedco Forex Subsidiaries that exist as of
the Effective Time under this Agreement and the Transaction Agreements, when and
as such obligations become due and payable or are otherwise required to be
performed. Transocean shall be entitled, however, to exercise all rights and
defenses available to Sedco Forex and Sedco Forex Subsidiaries under applicable
law or under the terms of this Agreement and/or the Transaction Agreements,
except to the extent such defenses stem from the insolvency, bankruptcy or
receivership of Sedco Forex or the Sedco Forex Subsidiaries.

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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.

SCHLUMBERGER LIMITED

By:       /s/ D.E. BAIRD
----------------------------------
Name: D.E. Baird
Title: Chairman, President and CEO

SEDCO FOREX HOLDINGS LIMITED

By:     /s/ JEAN CHEVALLIER
----------------------------------
Name: Jean Chevallier
Title: Attorney-in-Fact

TRANSOCEAN OFFSHORE INC.

By:   /s/ J. MICHAEL TALBERT
----------------------------------
Name: J. Michael Talbert
Title: Chairman of the Board and
Chief Executive Officer

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ANNEX B

DISTRIBUTION AGREEMENT

DATED AS OF JULY 12, 1999

BETWEEN

SCHLUMBERGER LIMITED

AND

SEDCO FOREX HOLDINGS LIMITED
218

ARTICLE I     DEFINITIONS...........................................................    B-1
Section 1.01   General................................................    B-1
ARTICLE II    PRELIMINARY TRANSACTIONS..............................................    B-7
Section 2.02   Certain Financial Matters..............................    B-8
Section 2.03   Memorandum of Association; Articles of Association.....    B-9
Section 2.04   Issuance of Stock......................................    B-9
Section 2.05   Other Agreements.......................................   B-10
Section 2.06   Registration...........................................   B-10
Section 2.07   Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Distribution
Date...................................................   B-10
ARTICLE III   THE DISTRIBUTION......................................................   B-11
Section 3.01   Record Date and Distribution Date......................   B-11
Section 3.02   The Agent..............................................   B-11
Section 3.03   Delivery of Share Certificate to the Agent.............   B-11
Section 3.04   The Distribution.......................................   B-11
Section 3.05   Stock Options..........................................   B-11
ARTICLE IV    SURVIVAL AND INDEMNIFICATION..........................................   B-11
Section 4.01   Survival of Agreements.................................   B-11
Section 4.02   Indemnification........................................   B-11
Section 4.03   Procedures for Indemnification for Third-Party
Claims.................................................   B-12
Section 4.04   Reductions for Insurance Proceeds and Other
Recoveries.............................................   B-13
Section 4.05   Remedies Cumulative....................................   B-13
ARTICLE V     CERTAIN ADDITIONAL COVENANTS..........................................   B-13
Section 5.01   Notices to Third Parties...............................   B-13
Section 5.02   Licenses and Permits...................................   B-13
Section 5.03   Intercompany Agreements................................   B-14
Section 5.04   Further Assurances.....................................   B-14
Section 5.05   Guarantee Obligations and Liens........................   B-14
Section 5.06   Use of Names...........................................   B-15
Section 5.07   Restrictions on Hiring Other Party's Employees.........   B-15
Section 6.01   Provision of Corporate Records.........................   B-15
Section 6.03   Production of Witnesses................................   B-16
Section 6.04   Retention of Records...................................   B-17
Section 6.05   Confidentiality........................................   B-17
Section 6.06   Cooperation with Respect to Government Reports and
Filings................................................   B-17
ARTICLE VII   NO REPRESENTATIONS OR WARRANTIES......................................   B-18
Section 7.01   No Representations or Warranties.......................   B-18
ARTICLE VIII  CONDITIONS............................................................   B-18
Section 8.01   Conditions to the Distribution.........................   B-18

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ARTICLE IX    MISCELLANEOUS.........................................................   B-19
Section 9.01   Assignment; Binding Effect; Benefit....................   B-19
Section 9.02   Entire Agreement.......................................   B-19
Section 9.03   Amendment..............................................   B-19
Section 9.04   Governing Law..........................................   B-19
Section 9.05   Counterparts...........................................   B-19
Section 9.07   Waivers................................................   B-20
Section 9.08   Incorporation of Exhibits..............................   B-20
Section 9.09   Severability...........................................   B-20
Section 9.10   Enforcement of Agreement...............................   B-20
Section 9.11   Expenses...............................................   B-20
Section 9.12   Notices................................................   B-20
Section 9.13   References; Construction...............................   B-21
Section 9.14   Termination............................................   B-21

EXHIBITS
Exhibit A   Terms to be contained in Employee Matters Agreement
Exhibit B   Form of Tax Separation Agreement

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DISTRIBUTION AGREEMENT

This DISTRIBUTION AGREEMENT ("this Agreement"), dated as of July 12, 1999,
is by and between Schlumberger Limited, a company organized under the laws of
the Netherlands Antilles ("Schlumberger"), and Sedco Forex Holdings Limited, a
company organized under the laws of the British Virgin Islands ("Sedco Forex").

RECITALS

The Merger Agreement. Schlumberger, Sedco Forex and Transocean Offshore
Inc., a company organized under the laws of the Cayman Islands ("Transocean"),
have entered into an Agreement and Plan of Merger, dated as of July 12, 1999
(the "Merger Agreement"), pursuant to which, at the Effective Time (as defined
therein), a wholly owned subsidiary of Transocean to be organized under the laws
of the British Virgin Islands ("Merger Sub") will merge with and into Sedco
Forex, with Sedco Forex being the surviving corporation (the "Merger"), and
Sedco Forex will become a wholly owned subsidiary of Transocean.

The Transaction Agreements. This Agreement and the other Transaction
Agreements (as defined herein) set forth certain transactions that are
conditions to consummation of the Merger.

Business Separation. Prior to the Distribution (as defined herein), and
subject to the terms and conditions set forth in this Agreement, Sedco Forex
intends to distribute or cause to be distributed to Schlumberger Subsidiaries
(as defined herein) certain assets that are currently being used in the
Schlumberger Business (as defined herein), and Schlumberger intends to cause to
be transferred to Sedco Forex or, at the direction of Sedco Forex, Sedco Forex
Subsidiaries (as defined herein), certain assets that are currently used in the
Sedco Forex Business (as defined herein); and Schlumberger and Sedco Forex shall
take the further steps set forth in Section 2.01 intended to separate more
completely the Sedco Forex Business from the Schlumberger Business and to ensure
that the active business requirement of Section 355(b)(2) of the Code (as
defined herein) is satisfied.

The Distribution. Subject to the conditions set forth in this Agreement,
all of the issued and outstanding shares of common stock of Sedco Forex, par
value U.S. $.01 per share ("Sedco Forex Common Stock"), will be distributed on a pro rata basis (the "Distribution") to the holders as of the Record Date (as defined herein) of the outstanding common stock of Schlumberger, par value U.S.$.01 per share ("Schlumberger Common Stock").

Intended U.S. Tax Consequences. The parties to this Agreement intend that,
for U.S. federal income tax purposes, (1) the Distribution qualify as a
distribution described in Section 355 of the Code and (2) the Merger qualify as
a reorganization under Section 368(a)(1)(B) of the Code.

Intended U.S. GAAP Consequences. The parties to this Agreement intend that,
for purposes of U.S. generally accepted accounting principles, the Business
Separation be treated as a restructuring of entities under common control with
the result that the net book value of any asset, liability or equity account
that is transferred to or from a member of the Sedco Forex Group from or to,
respectively, a member of the Schlumberger Group shall not be affected.

NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01  GENERAL. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):

Affiliate: with respect to any specified Person, any other Person that,
directly or indirectly, controls, is controlled by, or is under common control
with, such specified Person. For purposes of this definition,

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"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by contract or otherwise; provided, however,
that, for purposes of this Agreement, no member of either Group shall be deemed
to be an Affiliate of any member of the other Group.

Agent: the distribution agent to be appointed by Schlumberger to distribute
the shares of Sedco Forex Common Stock pursuant to the Distribution.

Agreement: as defined in the preamble to this Agreement.

Asset: any and all assets and properties, tangible or intangible,
including, without limitation, the following: (i) drilling rigs, drillships and
other equipment relating to the drilling or servicing of oil and gas wells, and
all related equipment and supplies, together with any machinery, engines,
equipment, anchors, cable, drilling machinery, drilling equipment (including but
not limited to drill pipe, riser, stabilizers and bottom-hole assemblies),
pumps, electrical, mechanical, chemical, hydraulic and other systems actually
located on any such rig or drillship, incorporated therein or attached thereto,
or under construction or acquired or purchased therefor (including items in
transit), or for which commitments to purchase have been issued in connection
therewith, and any and all permits, licenses, authorizations and approvals
granted or issued by any regulatory or governing authority pertaining to the
ownership, operation or construction of any such rig or drillship; (ii) rights
under leases, contracts, licenses, permits, distribution arrangements, sales and
purchase agreements, insurance policies, other agreements and business
arrangements; (iii) intangible property rights, inventions, discoveries,
know-how, U.S. and non-U.S. patents and patent applications, trade secrets,
confidential information, registered and unregistered trademarks, service marks,
common law and registered copyrights; applications for any of the foregoing,
rights to use the foregoing and other rights in, to and under the foregoing;
(iv) cash, notes and accounts and notes receivable (whether current or
noncurrent); (v) certificates of deposit, banker's acceptances, stock,
partnership interests, limited liability company interests, joint venture
interests, debentures, evidences of indebtedness, certificates of interest or
participation in profit-sharing agreements, collateral-trust certificates,
preorganization certificates or subscriptions, transferable shares, investment
contracts, voting-trust certificates, puts, calls, straddles, options and other
securities of any kind; (vi) real estate and buildings and other improvements
thereon; (vii) leasehold improvements, fixtures, trade fixtures, machinery,
equipment (including transportation and office equipment), tools, dies and
furniture; (viii) office supplies, production supplies, spare parts, other
miscellaneous supplies and other tangible property of any kind; (ix) computer
equipment and software; (x) raw materials, work-in-progress, finished goods,
consigned goods and other inventories; (xi) prepayments or prepaid expenses;
(xii) claims, causes of action, choses in action, rights under express or
implied warranties, rights of recovery under insurance policies or otherwise and
rights of setoff of any kind; (xiii) the right to receive mail, payments on
accounts receivable and other communications; (xiv) lists of customers, records
pertaining to customers and accounts, personnel records, lists and records
pertaining to customers, suppliers and agents, and books, ledgers, files and
business records of every kind; (xv) advertising materials and other printed or
written materials; (xvi) goodwill as a going concern and other intangible
properties; (xvii) employee contracts, including any rights thereunder to
restrict an employee from competing in certain respects; and (xviii) licenses
and authorizations issued by any governmental authority.

case may be.

Business Separation: the transactions contemplated by Section 2.01 of this
Agreement.

Capex Shortfall: as defined in Section 2.02(f).

Code: the U.S. Internal Revenue Code of 1986, as amended.

Distribution: as defined in the Recitals to this Agreement.

B-2
222

Distribution Date: the date and time as of which the Distribution shall be
effected, to be determined by, or under the authority of, the Board of Directors
of Schlumberger consistent with this Agreement and as provided for in the Merger
Agreement.

Distribution Ratio: as defined in Section 2.04 of this Agreement.

Effective Time: as defined in the Merger Agreement.

Employee Matters Agreement: the Employee Matters Agreement to be entered
into prior to the Distribution between Schlumberger and Sedco Forex based on the
terms set forth in Exhibit A hereto, with such changes as are mutually agreed
upon by Schlumberger, Sedco Forex and Transocean.

Excess Employee and Other Payables Balance: as defined in Exhibit C.

Excess Suppliers Payable and Accruals Balance: as defined in Exhibit C.

Exchange Act: the U.S. Securities Exchange Act of 1934, as amended,
together with the rules and regulations of the SEC promulgated thereunder.

Form S-4: as defined in the Merger Agreement.

Group: the Schlumberger Group or the Sedco Forex Group, as the case may be.

HSR Act: the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

Indebtedness: of any Person shall mean, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services (excluding trade payables in the ordinary course of business), (iv) the
principal amount for financial reporting purposes of all lease obligations of
such Person that are required to be capitalized for financial reporting
purposes, (v) all unconditional obligations of such Person to purchase, redeem,
retire, defease or otherwise acquire for value any capital stock or other equity
interests of such Person or any warrants, rights or options to acquire such
capital stock or other equity interests and (vi) all Indebtedness of any other
Person of the type referred to in clauses (i) through (vi) guaranteed by such
Person. For purposes of Section 2.02 of this Agreement, "Indebtedness" includes
accrued and unpaid interest on the items described in the preceding sentence.

Indemnifiable Losses: all Losses, Liabilities, damages, claims, demands,
judgments or settlements of any nature or kind, including all reasonable costs
and expenses (legal, accounting or otherwise as such costs are incurred)
relating thereto, suffered (and not actually reimbursed by insurance proceeds)
by an Indemnitee, including any reasonable costs or expenses of enforcing any
indemnity hereunder.

Indemnifying Party: a Person that is obligated under this Agreement to
provide indemnification.

Indemnitee: a Person that may seek indemnification under this Agreement.

Indemnity Payment: an amount that an Indemnifying Party is required to pay
to or in respect of an Indemnitee pursuant to Article IV.

Information: all records, books, contracts, instruments, computer data and
other data and information.

Inventories Differential: as defined in Exhibit C.

Liabilities: all debts, liabilities and obligations, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and whether or not the same would
properly be reflected on a balance sheet.

Liens: as defined in the Merger Agreement.

Litigation Matters: actual, threatened or future litigation,
investigations, claims or other legal matters that have been or may be asserted
against, or otherwise adversely affect, Schlumberger and/or Sedco Forex (or
members of either Group).

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223

Losses: all losses, claims, damages, liabilities, lawsuits, actions, costs
and expenses, joint and several, including reasonable attorneys' fees.

Material Adverse Effect: as defined in the Merger Agreement.

Merger: as defined in the Recitals to this Agreement.

Merger Agreement: as defined in the Recitals to this Agreement.

Merger Sub: as defined in the Recitals of this Agreement.

Order: any decree, judgment, injunction or other order, whether temporary,
preliminary or permanent.

Other Current Assets Differential: as defined in Exhibit C.

Other Receivables Differential: as defined in Exhibit C.

Permitted Indebtedness: as defined in Section 2.02(b) of this Agreement.

Person: an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization or any other
entity or a government or any department or agency thereof.

Pre-Closing Balance Sheet Date: the last day of the month in which
Schlumberger advises Sedco Forex (with a copy to Transocean) that substantially
all of the Sedco Forex Assets are owned by members of the Sedco Forex Group
unconditionally and of record, subject to Sedco Forex Permitted Liens; provided,
however, that if Schlumberger and Sedco Forex agree that the Distribution Date
will likely not occur within 75 days of such date, then Schlumberger and Sedco
Forex shall agree, with a Transocean Consent, to a later date within 60 days of
the expected Distribution Date to be the Pre-Closing Balance Sheet Date.

Pre-Closing Financial Statements: shall mean the combined balance sheet of
the Sedco Forex Business as at the Pre-Closing Balance Sheet Date and the
related combined statements of operations and cash flows for the period from
January 1, 1999 through the Pre-Closing Balance Sheet Date, as audited by
PricewaterhouseCoopers LLP; provided, however that if the Pre-Closing Balance
Sheet Date is to occur after December 31, 1999, such financial statements must
separately cover the year ended December 31, 1999 and the period from January 1,
2000 through the Pre-Closing Balance Sheet Date.

Privileged Information: with respect to either Group, Information regarding
a member of such Group, or any of its operations, Assets or Liabilities (whether
in documents or stored in any other form or known to its employees or agents)
that is or may be protected from disclosure pursuant to the attorney-client
privilege, the work product doctrine or other applicable privileges, that a
member of the other Group may come into possession of or obtain access to
pursuant to this Agreement or otherwise.

Proxy Statement/Prospectus: as defined in the Merger Agreement.

Receivables Differential: as defined in Exhibit C.

Record Date: the close of business on the date to be determined by the
Board of Directors of Schlumberger as the record date for determining
stockholders of Schlumberger entitled to receive the Distribution.

Registration Statements: a Registration Statement on Form 10 (or, if such
form is not appropriate, the appropriate form pursuant to the Exchange Act) to
be filed by Sedco Forex with the SEC to effect the registration of the Sedco
Forex Common Stock pursuant to the Exchange Act in connection with the
Distribution (and, if applicable, pursuant to the Securities Act) and the
registration statement to be filed by Transocean with the SEC in connection with
the Merger pursuant to the Securities Act.

Representative: with respect to any Person, any of such Person's directors,
officers, employees, agents, consultants, advisors, accountants, attorneys and
representatives.

Required Minimum Cash Balance: $35,000,000. B-4 224 Requisite Approval: the approval of the holders of Schlumberger Common Stock and Transocean Ordinary Shares as provided for in the Merger Agreement. Restructuring Liabilities: Losses or Liabilities directly arising out of or directly resulting from the transactions contemplated by Section 2.01 or Section 2.07(a) to accomplish the Business Separation, or directly arising out of or directly resulting from the Distribution, but excluding (i) any Taxes (which are dealt with in the Tax Separation Agreement), (ii) any Losses or Liabilities to the extent that they would have directly arisen out of or directly resulted from the Merger, (iii) any items covered by the Transition Services Agreements and (iv) any costs of Shared Facilities allocated to a member of the Sedco Forex Group pursuant to Section 2.01(d). Schlumberger: as defined in the preamble to this Agreement. Schlumberger Assets: collectively, all Assets of Schlumberger and its Subsidiaries other than the Sedco Forex Assets. Schlumberger Business: all of the businesses and operations conducted by Schlumberger and its Subsidiaries (other than the Sedco Forex Business) at any time, whether prior to, on or after the Distribution Date. Schlumberger Common Stock: as defined in the Recitals to this Agreement. Schlumberger Group: Schlumberger and the Schlumberger Subsidiaries immediately after the Distribution Date. Schlumberger Indemnitees: Schlumberger, each Affiliate of Schlumberger immediately after the Distribution Date and each of their respective present and former Representatives, and each of the heirs, executors, successors and assigns of any of the foregoing. Schlumberger Liabilities: collectively, (i) all Liabilities of Schlumberger or any Schlumberger Subsidiary or arising out of the Schlumberger Business, or arising out of or related to any Schlumberger Asset, whether incurred or occurring before, on or after the Distribution Date, including the Liabilities of the Schlumberger Group under the Transaction Agreements; (ii) all Liabilities allocated to Schlumberger pursuant to this Agreement; (iii) all Liabilities set forth on Schedule 1.01(a) hereto; (iv) all expenses allocated to Schlumberger under Section 9.11 hereto; and (v) all Restructuring Liabilities. Schlumberger Material Adverse Effect: as defined in the Merger Agreement. Schlumberger Subsidiaries: all direct and indirect Subsidiaries of Schlumberger immediately after the Distribution Date. SEC: the U.S. Securities and Exchange Commission. Securities Act: the Securities Act of 1933, as amended, together with the rules and regulations of the SEC promulgated thereunder. Sedco Forex: as defined in the preamble to this Agreement. Sedco Forex Assets: collectively, as of immediately after the Distribution, all Assets of the Sedco Forex Group, including (i) the rights to use shared Assets as provided in Article II hereof, (ii) the capital stock of each Sedco Forex Subsidiary, (iii) all rights of the Sedco Forex Group under the Transaction Agreements, (iv) the drilling rigs and drillships listed on Schedule 1.01(b) hereto, (v) the Assets listed on Schedule 2.01(c)-1 and (vi) any additional Assets transferred to Sedco Forex after the Distribution pursuant to Article II. Sedco Forex Business: all of the businesses and operations conducted (i) by Sedco Forex, (ii) by the Subsidiaries of Sedco Forex as of the date of this Agreement (other than those listed in Schedule 2.01(b)), (iii) by the entities listed on Schedule 2.01(a), (iv) with the Assets listed on Schedule 2.01(c)-1 (which will be transferred to a member of the Sedco Forex Group) and (v) with any other Assets allocated to the Sedco Forex Group pursuant to Article II; provided, however, that the Sedco Forex Business shall not include any B-5 225 business or operations conducted with (x) the Assets listed on Schedule 2.01(c)-2 (which will be transferred to a member of the Schlumberger Group) or (y) any other Assets allocated to the Schlumberger Group pursuant to Article II. The Sedco Forex Business specifically includes the operation of all of the drilling rigs and drillships listed on Schedule 1.01(b). Sedco Forex Common Stock: as defined in the Recitals to this Agreement. Sedco Forex Group: Sedco Forex and the Sedco Forex Subsidiaries. Sedco Forex Indemnitees: Sedco Forex, each Affiliate of Sedco Forex immediately after the Distribution Date and each of their respective present and former Representatives, and each of the heirs, executors, successors and assigns of any of the foregoing. Sedco Forex Liabilities: collectively, (i) except for those Liabilities described in the definition of Schlumberger Liabilities, all Liabilities arising out of the Sedco Forex Business, or arising out of or related to any Sedco Forex Asset, whether incurred or occurring before, on or after the Distribution Date, including the Liabilities of the Sedco Forex Group under the Transaction Agreements, (ii) all Liabilities allocated to Sedco Forex pursuant this Agreement and (iii) all expenses allocated to Sedco Forex under Section 9.11 hereto. Sedco Forex Material Adverse Effect: as defined in the Merger Agreement. Sedco Forex Permitted Liens: as defined in the Merger Agreement. Sedco Forex Subsidiaries: all direct and indirect Subsidiaries of Sedco Forex immediately after the Distribution Date. Shared Facilities: any office or other facility (whether owned or leased) of Schlumberger, Sedco Forex or any of their respective Subsidiaries in which operations of both the Schlumberger Business and the Sedco Forex Business are conducted as of the Distribution Date, all of which are listed on Schedule 1.01(c) hereto. Specified Reserve: as defined in Exhibit C. Subsidiary: when used with respect to any party means any corporation or other organization, whether incorporated or unincorporated, of which such party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization, or any organization of which such party is a general partner. Tax Separation Agreement: the Tax Separation Agreement to be entered into prior to the Distribution between Schlumberger and Sedco Forex, substantially in the form of Exhibit B hereto, with such changes as are mutually agreed upon by Schlumberger, Sedco Forex and Transocean. Taxes: as defined in the Tax Separation Agreement. Third-Party Claim: any claim, suit, derivative suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal asserted by a Person who or which is neither a party hereto nor an Affiliate of a party hereto. Third-Party Provisions: as defined in Section 9.01 of this Agreement. Transaction Agreements: this Agreement, the Employee Matters Agreement, the Merger Agreement, the Tax Separation Agreement, the Transition Services Agreement and the other agreements, if any, entered into or to be entered into in connection with the Distribution as contemplated by Article II of this Agreement. Transition Services Agreement: the Transition Services Agreement to be entered into between Schlumberger and Sedco Forex pursuant to Section 2.01(g) hereto. Transocean: as defined in the Recitals in this Agreement. Transocean Consent: the consent of Transocean, which consent shall not be unreasonably delayed or withheld. B-6 226 Year 1999 Cash Flow Adjustment: if the Pre-Closing Balance Sheet Date is prior to January 1, 2000, the amount of the estimated cash flow, calculated as the Sedco Forex Business's forecasted net income plus depreciation and less deferred gain amortizations, for the period from the Pre-Closing Balance Sheet Date through December 31, 1999, as agreed by Schlumberger and Transocean. Year 2000 Capex Adjustment: if the Pre-Closing Balance Sheet Date is after December 31, 1999, those amounts expended by the Sedco Forex Business after December 31, 1999 related to the newbuilds through the Pre-Closing Balance Sheet Date, but not in excess of$100 million.

Year 2000 Cash Flow Adjustment: if the Pre-Closing Balance Sheet Date is
after December 31, 1999, the amount of the actual cash flow of the Sedco Forex
and less deferred gain amortizations, for the period from January 1, 2000
through the Pre-Closing Balance Sheet Date.

ARTICLE II

PRELIMINARY TRANSACTIONS

SECTION 2.01  BUSINESS SEPARATION. (a) Schlumberger Transfers. On or prior
to the Distribution Date, Schlumberger shall transfer or cause to be transferred
to Sedco Forex or a Sedco Forex Subsidiary designated by Sedco Forex all of the
capital stock of or other equity interests in the entities listed on Schedule
2.01(a).

(a) Sedco Forex Transfers. On or prior to the Distribution Date, Sedco
Forex shall transfer or cause to be transferred to Schlumberger or a
Schlumberger Subsidiary designated by Schlumberger all of the capital stock of
or other equity interests in the entities listed on Schedule 2.01(b).

(b) Separation of Assets. On or prior to the Distribution Date, (i) the
Assets of the Schlumberger Group listed on Schedule 2.01(c)-1 shall be
transferred to a member of the Sedco Forex Group and (ii) the Assets of the
Sedco Forex Group listed on Schedule 2.01(c)-2 shall be transferred to a member
of the Schlumberger Group.

(c) Shared Facilities. On or prior to the Pre-Closing Balance Sheet Date,
Sedco Forex and Schlumberger shall negotiate and the appropriate members of the
Sedco Forex Group and the Schlumberger Group shall execute agreements necessary
to provide for the shared use of the Shared Facilities by the Sedco Forex Group
and the Schlumberger Group (including allocation of costs for permits, licenses,
waste disposal, insurance, taxes, utilities, security and other matters) on an
arm's-length, fair market value basis for some period of time after the
Pre-Closing Balance Sheet Date. Any such agreements shall be subject to a
Transocean Consent and shall be included in the definition of Transaction
Agreements.

(d) Separation of Contractual Arrangements. On or prior to the Pre-Closing
Balance Sheet Date, Schlumberger and Sedco Forex will use their best efforts to
amend, in form and substance reasonably satisfactory to Schlumberger and Sedco
Forex, and subject to a Transocean Consent, all contractual arrangements between
or among Schlumberger, Sedco Forex, their respective Affiliates and any other
Person (other than the contractual arrangements relating to the Distribution and
the Merger) that relate (i) to both the Schlumberger Business and the Sedco
Forex Business, (ii) solely to the Sedco Forex Business, but, by their terms,
contain provisions relating to a member of the Schlumberger Group, so that,
after the Distribution Date, such contractual arrangements (A) will relate
solely to the Sedco Forex Business and (B) will eliminate any provisions
relating to a member of the Schlumberger Group and, in either event, will inure
to the benefit of the Sedco Forex Group on substantially the same economic terms
as such arrangements exist as of the date hereof, or (iii) solely to the
Schlumberger Business, but, by their terms, contain provisions relating to a
member of the Sedco Forex Group, so that after the Pre-Closing Balance Sheet
Date, such contractual arrangements (x) will relate solely to the Schlumberger
Business and (y) will eliminate any provisions relating to a member of the Sedco
Forex Group, and, in either event, will inure to the benefit of the Schlumberger
Group on substantially the same economic terms as such arrangements exist as of
the date hereof. If such amendments cannot be obtained, or if an attempted
amendment thereof would be ineffective or

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would adversely affect the rights of Sedco Forex or Schlumberger thereunder,
Schlumberger and Sedco Forex will cooperate in negotiating a mutually agreeable
arrangement under which the appropriate party will obtain the benefits and
assume the obligations thereunder, including sub-contracting, sub-licensing or
sub-leasing to the intended party, or under which the transferring party will
enforce for the benefit of the transferee party, with the transferee party
assuming the transferring party's obligations, any and all rights of the
transferring party against a third party thereto.

(e) Separation of Employees. The employees of the Sedco Forex Group and the
Schlumberger Group shall be determined as of the Pre-Closing Balance Sheet Date
as provided for under the Employee Matters Agreement.

(f) Transition Services. On or prior to the Pre-Closing Balance Sheet Date,
Sedco Forex and Schlumberger shall negotiate and execute an agreement necessary
to provide for the provision of certain transition services by the Schlumberger
Group to the Sedco Forex Group and by the Sedco Forex Group to the Schlumberger
Group on an arm's-length, fair market value basis for a two-year period after
the Pre-Closing Balance Sheet Date (unless a shorter period is agreed with
regard to particular services). In addition, Schlumberger and Sedco Forex will
enter into a technical support services agreement to support the operations of
Schlumberger's jackup drilling fleet in the Middle East, which is being retained
by Schlumberger, and a marine and maintenance services agreement to support
Schlumberger's workover rig, the "Bima." Such agreement shall be for a minimum
period of three years after the Closing Date and shall be on arm's-length terms
and conditions. Any such agreements shall be subject to a Transocean Consent and
shall be included in the definition of Transaction Agreements.

(g) Costs. Except as otherwise provided in the Transaction Agreements, the
costs (and other out-of-pocket losses) attributable to the separation of the
Assets, including, without limitation, the Shared Facilities, shall be allocated
pursuant to Section 9.11 hereof.

SECTION 2.02  CERTAIN FINANCIAL MATTERS.

(a) General. Prior to the Distribution, Sedco Forex and the Sedco Forex
Subsidiaries shall, except for the transactions described in this Agreement and
in the Transaction Agreements, continue to operate their respective businesses
in the usual, regular and ordinary course, in substantially the same manner as
heretofore conducted.

(b) Permitted Indebtedness: Permitted Indebtedness shall equal U.S. $435.0 million, plus or minus the following adjustments: (i) minus an amount equal to any Capex Shortfall; (ii) plus an absolute amount equal to any Receivables Differential, if positive, or minus an absolute amount equal to any Receivables Differential, if negative; (iii) plus an absolute amount equal to any Other Receivables Differential, if positive, or minus an absolute amount equal to any Other Receivables Differential, if negative; (iv) plus an absolute amount equal to any Inventories Differential, if positive, or minus an absolute amount equal to any Inventories Differential, if negative; (v) plus an absolute amount equal to any Other Current Assets Differential, if positive, or minus an absolute amount equal to any Other Current Assets Differential, if negative; (vi) minus an amount equal to any Excess Suppliers Payable and Accruals Balance; (vii) minus an amount equal to any Excess Employee and Other Payable Balance; (viii) minus an amount equal to any increase in the Specified Reserve; (ix) plus an amount equal to the Year 1999 Cash Flow Adjustment, if any; (x) plus an amount equal to the Year 2000 Capex Adjustment, if any; and (xi) minus an amount equal to the Year 2000 Cash Flow Adjustment, if any. B-8 228 (c) Satisfaction of Intercompany Amounts. Immediately following delivery of the Pre-Closing Financial Statements, each member of the Sedco Forex Group and each member of the Schlumberger Group shall repay, contribute or otherwise satisfy all intercompany borrowings, payables or receivables, however arising, owed by those Persons to a member of the other Group; provided, however, that the net effect of such satisfaction shall result in the Sedco Forex Business having, based on amounts reflected in the Pre-Closing Balance Sheet, after giving effect to the satisfaction of intercompany borrowings, payables and receivables described above, (i) total combined Indebtedness equal to the Permitted Indebtedness (calculated according to Section 2.02(b) above) and (ii) the Required Minimum Cash Balance. Any amount of cash in excess of the Required Minimum Cash Balance shall be distributed to Schlumberger or its designee. If any intercompany amount owed by a member of the Sedco Forex Group that is to be so satisfied cannot be satisfied in accordance with the procedure described in this paragraph, Schlumberger may elect either to defer the payment or other settlement of the amount, with a corresponding reduction to Permitted Indebtedness, or increase the general amounts due from the Schlumberger Group, in which case, when such amount can be paid, a member of the Schlumberger Group will furnish Sedco Forex cash equal to the amount to be paid and the appropriate member of the Sedco Forex Group will then pay the intercompany amount (and any remaining balances will be canceled). All Indebtedness of the Sedco Forex Group to the Schlumberger Group shall be paid by the applicable members of the Sedco Forex Group to the applicable members of the Schlumberger Group no later than the close of business on the next business day after the Distribution. (d) Required Cash Contribution. If (x) the net aggregate amount of all adjustments in clauses (i) through (xi) of Section 2.02(b) and the penultimate sentence of Section 2.02(c) is a negative number and the absolute value thereof exceeds (y) the difference between (A)$435.0 million minus (B) total Sedco
Forex Group Indebtedness to non-Affiliates, then the Schlumberger Group shall
(I) make a capital contribution in the form of cash to the Sedco Forex Group in
an absolute amount equal to the difference of (x) minus (y), and (II) the
Schlumberger Group shall contribute additional cash to the Sedco Forex Group in
an amount equal to the amount of all intercompany Indebtedness owed to the
Schlumberger Group by the Sedco Forex Group, which shall then repay all such
intercompany Indebtedness.

(e) Operations After the Pre-Closing Balance Sheet Date. After the
Pre-Closing Balance Sheet Date, except as contemplated by this Agreement or by
the Transaction Agreements, the Sedco Forex Group (i) shall not dividend,
distribute or otherwise transfer to the Schlumberger Group any cash or cash
equivalents; (ii) shall not incur any additional Indebtedness except in the
ordinary course of business; and (iii) shall not engage in any transaction or
conduct any business with the Schlumberger Group except on an arm's-length basis
on terms no less favorable to the Sedco Forex Group than could be obtained from
a third party or on the terms set forth in the Transition Services Agreement. If
Schlumberger contributes any amount of cash to Sedco Forex in order to assist in
the Business Separation after the Pre-Closing Balance Sheet Date, the Sedco
Forex Group may dividend, distribute or otherwise transfer an equivalent amount
of cash to the Schlumberger Group.

(f) Capex Shortfall. As used in this Agreement, "Capex Shortfall" means the
amount, if any, by which aggregate actual expenditures from January 1, 1999
through the Pre-Closing Balance Sheet Date or December 31, 1999, if earlier, for
Sedco Forex's sustaining, life extension and newbuild capital expenditure
programs are less than the forecasted expenditures for those programs for 1999
as reflected in the Sedco Forex Disclosure Letter delivered pursuant to the
Merger Agreement.

SECTION 2.03  MEMORANDUM OF ASSOCIATION; ARTICLES OF ASSOCIATION. Prior to
the Distribution Date, the memorandum of association and articles of association
of Sedco Forex will be amended to increase its authorized shares of capital
stock to a sufficient number of shares in order to consummate the transactions
contemplated hereby and by the Merger Agreement, and to eliminate the
authorization of bearer stock.

SECTION 2.04  ISSUANCE OF STOCK. Prior to the Distribution Date, the
parties hereto shall take all steps necessary so that the number of shares of
Sedco Forex Common Stock outstanding and held by Schlumberger shall equal one
(the "Distribution Ratio") times the number of shares of Schlumberger Common
Stock outstanding on the Record Date.

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SECTION 2.05  OTHER AGREEMENTS. Each of Schlumberger and Sedco Forex shall,
prior to the Distribution Date (and, in the case of the Transition Services
Agreement, prior to the Pre-Closing Balance Sheet Date), enter into, or cause
the appropriate members of the Group of which it is a member to enter into, the
other Transaction Agreements.

SECTION 2.06  REGISTRATION. Prior to the Distribution Date:

(a) The parties shall take such efforts regarding the Registration
Statements and the Proxy Statement/Prospectus as provided in the Merger
Agreement.

(b) The parties hereto shall use reasonable efforts to take all such
action as may be necessary or appropriate under state securities and blue
sky laws or similar requirements of other governmental authorities in
connection with the transactions contemplated by this Agreement.

SECTION 2.07  TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION; TRANSFERS
DEEMED EFFECTIVE AS OF THE DISTRIBUTION DATE.

(a) To the extent that any transfers contemplated by this Article II shall
not have been consummated on or prior to the Distribution Date, the parties
shall cooperate to effect such transfers as promptly following the Distribution
Date as shall be practicable. Nothing herein shall be deemed to require the
transfer of any Assets or the assumption of any Liabilities that by their terms
or operation of law cannot be transferred or assumed; provided, however, that
the Schlumberger Group and the Sedco Forex Group shall cooperate to obtain any
necessary consents or approvals for the transfer of all Assets and the
assumption of all Liabilities contemplated to be transferred or assumed pursuant
to this Article II and shall, even in the absence of any necessary consents or
approvals, transfer the equitable ownership of Assets when such a transfer is
permitted. In the event that any such transfer of Assets or assumption of
Liabilities has not been consummated, effective as of and after the Distribution
Date, the party retaining such Asset or Liability shall thereafter hold such
Asset in trust for the use and benefit of the party entitled thereto (at the
expense of the party entitled thereto) and retain such Liability for the account
of the party by whom such Liability is to be assumed pursuant hereto, and take
such other action as may be reasonably requested by the party to which such
Asset is to be transferred, or by whom such Liability is to be assumed, as the
case may be, in order to place such party, insofar as reasonably possible, in
the same position as would have existed had such Asset or Liability been
transferred or assumed as contemplated hereby. As and when any such Asset
becomes transferable or such Liability can be assumed, such transfer or
assumption shall be effected forthwith. Subject to the foregoing, the parties
agree that, as of the Distribution Date (or such earlier time as any such Asset
may have been acquired or Liabilities assumed), each party hereto shall be
deemed to have acquired complete and sole beneficial ownership over all of the
Assets, together with all rights, powers and privileges incident thereto, and
shall be deemed to have assumed in accordance with the terms of this Agreement
all of the Liabilities, and all duties, obligations and responsibilities
incident thereto, which such party is entitled to acquire or required to assume
pursuant to the terms of this Agreement.

(b) If after two years from the Distribution Date, any Asset remains
subject to an arrangement described in Section 2.07(a), unless the parties elect
to continue such arrangement on such terms as they may mutually agree, such
arrangement shall terminate. In the event of a termination, the beneficial owner
may (i) direct the party acting as trustee to transfer the Asset to the
beneficial owner, at the sole risk of such owner (which will thereafter
indemnify the trustee/transferor from all Losses or Liabilities arising as a
result of such transfer), (ii) direct the party acting as trustee to sell or
liquidate the subject Asset for the account of, and at the sole risk and expense
of, such owner, which shall be entitled to receive all of the net proceeds of
such sale or liquidation or (iii) direct the party acting as trustee to purchase
the affected Asset at a price mutually agreed or, if no such agreement is
reached, at the fair market value thereof as determined by a neutral third-party
appraisal process.

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ARTICLE III

THE DISTRIBUTION

SECTION 3.01  RECORD DATE AND DISTRIBUTION DATE. Subject to the
satisfaction of the conditions set forth in Section 8.01, the Board of Directors
of Schlumberger, consistent with and as provided for in the Merger Agreement and
applicable law, shall, in consultation with Transocean, declare the Distribution
and establish the Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution.

SECTION 3.02  THE AGENT. Prior to the Distribution Date, Schlumberger shall
enter into an agreement with the Agent providing for, among other things, the
Distribution to the holders of Schlumberger Common Stock in accordance with this
Article III.

SECTION 3.03  DELIVERY OF SHARE CERTIFICATE TO THE AGENT. Prior to the
Distribution Date, Schlumberger shall deliver to the Agent a share certificate
representing, or authorize the related book-entry transfer of, all of the
outstanding shares of Sedco Forex Common Stock to be distributed in connection
with the Distribution, which shall constitute all such shares outstanding. After
the Distribution Date, upon the request of the Agent, Sedco Forex shall provide
all certificates for shares, or authorize any book-entry transfers, of Sedco
Forex Common Stock that the Agent shall require in order to effect the
Distribution.

SECTION 3.04  THE DISTRIBUTION. Subject to the terms and conditions of this
Agreement, Schlumberger shall instruct the Agent to distribute, as of the
Distribution Date, to each holder of record of Schlumberger Common Stock on the
Record Date, a number of shares of Sedco Forex Common Stock equal to the
Distribution Ratio multiplied by the number of shares of Schlumberger Common
Stock held by that Person on the Record Date. Such distribution will be effected
by the book-entry transfer of such shares of Sedco Forex Common Stock to such
holders of record of Schlumberger Common Stock or by the mailing of stock
certificates to such holders. The shares of Sedco Forex Common Stock represented
by such certificates shall constitute all of the outstanding stock of Sedco
Forex.

SECTION 3.05  STOCK OPTIONS. Options to purchase Schlumberger Common Stock
will be treated as set forth in the Employee Matters Agreement.

ARTICLE IV

SURVIVAL AND INDEMNIFICATION

SECTION 4.01  SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of the parties hereto contained in this Agreement shall
survive the Distribution Date, except that the indemnification contained in
Section 4.02 with respect to Restructuring Liabilities shall expire three years
after the transfer or other event giving rise to such Restructuring Liability,
unless a specific claim with respect to such item has been delivered pursuant to

SECTION 4.02  INDEMNIFICATION.

(a) Except as specifically otherwise provided in the other Transaction
Agreements, the Sedco Forex Group shall indemnify, defend and hold harmless the
Schlumberger Indemnitees from and against (i) all Indemnifiable Losses arising
out of or due to the failure or alleged failure of any member of the Sedco Forex
Group to pay or satisfy any Sedco Forex Liabilities, whether such Indemnifiable
Losses relate to events, occurrences or circumstances occurring or existing, or
whether such Indemnifiable Losses are asserted, before, on or after the
Distribution Date, or to perform any of its obligations under this Agreement and
(ii) all Indemnifiable Losses arising out of or due to the failure after the
Distribution Date of Sedco Forex or Sedco Forex Subsidiaries to transfer to
Schlumberger or Schlumberger Subsidiaries all of the Sedco Forex Group's right,
title and interest to all Assets transferred or to be transferred to the
Schlumberger Group pursuant to Section 2.01 hereof.

(b) Except as specifically otherwise provided in the other Transaction
Agreements, the Schlumberger Group shall indemnify, defend and hold harmless the
Sedco Forex Indemnitees from and against (i) all
B-11
231

Indemnifiable Losses arising out of or due to the failure or alleged failure of
any member of the Schlumberger Group to pay or satisfy any Schlumberger
Liabilities, whether such Indemnifiable Losses relate to events, occurrences or
circumstances occurring or existing, or whether such Indemnifiable Losses are
asserted, before, on or after the Distribution Date, or to perform any of its
obligations under this Agreement, and (ii) all Indemnifiable Losses arising out
of or due to the failure of Schlumberger or Schlumberger Subsidiaries to
transfer to Sedco Forex or Sedco Forex Subsidiaries all of the Schlumberger
Group's right, title and interest to all Assets transferred or to be transferred
to the Sedco Forex Group pursuant to Section 2.01 hereof.

(c) Notwithstanding anything to the contrary set forth herein,
indemnification relating to any arrangements between any member of the
Schlumberger Group and any member of the Sedco Forex Group for the provision
after the Pre-Closing Balance Sheet Date of goods and services in the ordinary
course shall be governed by the terms of such arrangements and not by this
Section or as otherwise set forth in this Agreement or the Transaction
Agreements.

(d) Indemnification for matters subject to the Tax Separation Agreement are
governed by the terms, provisions and procedures of that agreement and not this
Article IV.

SECTION 4.03  PROCEDURES FOR INDEMNIFICATION FOR THIRD-PARTY CLAIMS.

(a) Schlumberger shall, and shall cause the other Schlumberger Indemnitees
to, notify Sedco Forex in writing promptly after learning of any Third-Party
Claim for which any Schlumberger Indemnitee intends to seek indemnification from
Sedco Forex under this Agreement. Sedco Forex shall, and shall cause the other
Sedco Forex Indemnitees to, notify Schlumberger in writing promptly after
learning of any Third-Party Claim for which any Sedco Forex Indemnitee intends
to seek indemnification from Schlumberger under this Agreement. The failure of
any Indemnitee to give such notice shall not relieve any Indemnifying Party of
its obligations under this Article except to the extent that such Indemnifying
Party or its Affiliate is actually prejudiced by such failure to give notice.
Such notice shall describe such Third-Party Claim in reasonable detail,
considering the Information provided to the Indemnitee.

(b) Except as otherwise provided in paragraph (c) of this Section, an
Indemnifying Party may, by notice to the Indemnitee and to Schlumberger, if
Sedco Forex is the Indemnifying Party, or to the Indemnitee and Sedco Forex, if
Schlumberger is the Indemnifying Party, at any time after receipt by such
Indemnifying Party of such Indemnitee's notice of a Third-Party Claim, undertake
(itself or through another member of the Group of which the Indemnifying Party
is a member) the defense or settlement of such Third-Party Claim. If an
Indemnifying Party undertakes the defense of any Third-Party Claim, such
Indemnifying Party shall control the investigation and defense or settlement
thereof, and the Indemnitee may not settle or compromise such Third-Party Claim,
except that such Indemnifying Party shall not (i) require any Indemnitee,
without its prior written consent, to take or refrain from taking any action in
connection with such Third-Party Claim, or make any public statement, which such
Indemnitee reasonably considers to be against its interests, nor (ii) without
the prior written consent of the Indemnitee and of Schlumberger, if the
Indemnitee is a Schlumberger Indemnitee, or of the Indemnitee and of Sedco
Forex, if the Indemnitee is a Sedco Forex Indemnitee, consent to any settlement
that does not include as a part thereof an unconditional release of the
Indemnitees from liability with respect to such Third-Party Claim or that
requires the Indemnitee or any of its Representatives or Affiliates to make any
payment that is not fully indemnified under this Agreement or to be subject to
any nonmonetary remedy; and subject to the Indemnifying Party's control rights,
as specified herein, the Indemnitees may participate in such investigation and
defense at their own expense. Following the provision of notices to the
Indemnifying Party, until such time as an Indemnifying Party has undertaken the
defense of any Third-Party Claim as provided herein, such Indemnitee shall
control the investigation and defense or settlement thereof, without prejudice
to its right to seek indemnification hereunder.

(c) An Indemnifying Party shall not be entitled to assume the defense of
any Third-Party Claim (and shall be liable for the reasonable fees and expenses
of counsel (including legal counsel) incurred by the Indemnitee in defending
such Third-Party Claim) if, in the Indemnitee's reasonable judgment, a conflict
of interest between such Indemnitee and such Indemnifying Party exists in
respect of such Third-Party Claim.

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232

(d) In no event shall an Indemnifying Party be liable for the fees and
expenses of more than one counsel for all Indemnitees (in addition to local
counsel and its own counsel, if any) in connection with any one action, or
separate but similar or related actions, in the same jurisdiction arising out of
the same general allegations or circumstances.

(e) If the Indemnifying Party undertakes the defense or settlement of a
Third-Party Claim, the Indemnitee shall make available to the Indemnifying Party
and its counsel all information and documents reasonably available to it that
relate to any Third-Party Claim, and otherwise cooperate as may reasonably be
required in connection with the investigation, defense and settlement thereof,
subject to the terms and conditions of a mutually acceptable joint defense
agreement. Any joint defense agreement entered into by Sedco Forex or
Schlumberger with any third party relating to any Third-Party Claim shall
provide that Sedco Forex or Schlumberger may, if requested, provide information
obtained through any such agreement to the Sedco Forex Indemnitees and/or the
Schlumberger Indemnitees.

SECTION 4.04  REDUCTIONS FOR INSURANCE PROCEEDS AND OTHER RECOVERIES. The
amount that any Indemnifying Party is or may be required to pay to any
prospectively) by any insurance proceeds or other amounts actually recovered
from third parties by or on behalf of such Indemnitee in respect of the related
Indemnifiable Losses. The existence of a claim by an Indemnitee for insurance or
against a third party in respect of any Indemnifiable Loss shall not, however,
delay any payment pursuant to the indemnification provisions contained herein
and otherwise determined to be due and owing by an Indemnifying Party. Rather
the Indemnifying Party shall make payment in full of such amount so determined
to be due and owing by it against an assignment by the Indemnitee to the
Indemnifying Party of the entire claim of the Indemnitee for such insurance or
against such third party. Notwithstanding any other provisions of this
Agreement, it is the intention of the parties hereto that no insurer or any
other third party shall be (i) entitled to a benefit it would not be entitled to
receive in the absence of the foregoing indemnification provisions or (ii)
relieved of the responsibility to pay any claims for which it is obligated. If
an Indemnitee shall have received the payment required by this Agreement from an
Indemnifying Party in respect of an Indemnifiable Losses and shall subsequently
actually receive insurance proceeds or other amounts in respect of such
Indemnifiable Losses, then such Indemnitee shall hold such insurance proceeds in
trust for the benefit of such Indemnifying Party and shall pay to such
Indemnifying Party a sum equal to the amount of such insurance proceeds or other
amounts actually received, up to the aggregate amount of any payments received
from such Indemnifying Party pursuant to this Agreement in respect of such
Indemnifiable Losses.

shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any other remedies against any Indemnifying
Party. However, the procedures set forth in Section 4.03 shall be the exclusive
procedures governing any indemnity action brought under this Agreement, except
as otherwise specifically provided in any of the other Transaction Agreements.

ARTICLE V

SECTION 5.01  NOTICES TO THIRD PARTIES. In addition to the actions
described in Section 5.02, the members of the Schlumberger Group and the members
of the Sedco Forex Group shall cooperate to make all other filings and to give
notice to and obtain consents from all third parties that may reasonably be
required to consummate the transactions contemplated by this Agreement and the
other Transaction Agreements.

SECTION 5.02  LICENSES AND PERMITS. Each party hereto shall cause the
appropriate members of its Group to prepare and file with the appropriate
licensing and permitting authorities applications for the transfer or issuance,
as may be necessary or advisable in connection with the transactions
contemplated by this Agreement and the other Transaction Agreements, to its
Group of all material governmental licenses and permits required for the members
of its Group to operate their respective Businesses after the Distribution

B-13
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Date. The members of the Sedco Forex Group and the members of the Schlumberger
Group shall cooperate and use all reasonable efforts to secure the transfer or
issuance of the licenses and permits.

SECTION 5.03  INTERCOMPANY AGREEMENTS. All contracts, licenses, agreements,
commitments or other arrangements, formal or informal, between any member of the
Schlumberger Group, on the one hand, and any member of the Sedco Forex Group, on
the other hand, in existence as of the Pre-Closing Balance Sheet Date, pursuant
to which any member of either Group makes payments in respect of taxes to any
member of the other Group or provides to any member of the other Group goods or
services (including, without limitation, management, administrative, legal,
financial, accounting, data processing, insurance or technical support), or the
use of any Assets of any member of the other Group, or the secondment of any
employee, or pursuant to which rights, privileges or benefits are afforded to
members of either Group as Affiliates of the other Group, shall terminate as of
the close of business on the day prior to the Pre-Closing Balance Sheet Date (at
which time the Transition Services Agreement shall take effect), except as
specifically provided herein or in the other Transaction Agreements. From and
after the Pre-Closing Balance Sheet Date, no member of either Group shall have
any rights under any such contract, license, agreement, commitment or
arrangement with any member of the other Group, except as specifically provided
in this Agreement or in the other Transaction Agreements.

SECTION 5.04  FURTHER ASSURANCES. In addition to the actions specifically
provided for elsewhere in this Agreement, each of the parties hereto shall use
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws, regulations and agreements to consummate and make effective the
transactions contemplated by this Agreement and the other Transaction
Agreements. Without limiting the foregoing, each party hereto shall cooperate
with the other party, and execute and deliver, or use reasonable efforts to
cause to be executed and delivered, all instruments, and to make all filings
with, and to obtain all consents, approvals or authorizations of, any
governmental or regulatory authority or any other Person under any permit,
license, agreement, indenture or other instrument, and take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement and the
other Transaction Agreements, in order to effectuate the provisions and purposes
of this Agreement.

SECTION 5.05  GUARANTEE OBLIGATIONS AND LIENS.

(a) Schlumberger and Sedco Forex shall cooperate, and shall cause their
respective Groups to cooperate, (x) to terminate, or to cause a member of the
Sedco Forex Group to be substituted in all respects for any member of the
Schlumberger Group in respect of, all obligations of any member of the
Schlumberger Group under any Sedco Forex Liabilities for which such member of
the Schlumberger Group may be liable, as guarantor, original tenant, primary
obligor or otherwise, and (y) to terminate, or to cause Sedco Forex Assets to be
substituted in all respects for any Schlumberger Assets in respect of, any liens
or encumbrances on Schlumberger Assets that are securing any Sedco Forex
Liabilities. If such a termination or substitution is not effected by the
Pre-Closing Balance Sheet Date, (i) Sedco Forex shall indemnify and hold
harmless the Schlumberger Indemnitees for any Indemnifiable Loss arising from or
relating thereto, and (ii) without the prior written consent of Schlumberger,
from and after the Pre-Closing Balance Sheet Date, Sedco Forex shall not, and
shall not permit any member of the Sedco Forex Group to, renew or extend the
term of, increase its obligations under, or transfer to a third party any loan,
lease, contract or other obligation for which a member of the Schlumberger Group
is or may be liable or for which any Schlumberger Asset is or may be encumbered
unless all obligations of the Schlumberger Group and all liens and encumbrances
on any Schlumberger Asset with respect thereto are thereupon terminated by
documentation reasonably satisfactory in form and substance to Schlumberger.

(b) Schlumberger and Sedco Forex shall cooperate, and shall cause their
respective Groups to cooperate, (x) to terminate, or to cause a member of the
Schlumberger Group to be substituted in all respects for any member of the Sedco
Forex Group in respect of, all obligations of any member of the Sedco Forex
Group under any Schlumberger Liabilities for which such member of the Sedco
Forex Group may be liable, as guarantor, original tenant, primary obligor or
otherwise, and (y) to terminate, or to cause Schlumberger Assets to be
substituted in all respects for any Sedco Forex Assets in respect of, any liens
or encumbrances on

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Sedco Forex Assets that are securing any Schlumberger Liabilities. If such a
termination or substitution is not effected by the Pre-Closing Balance Sheet
Date, (i) Schlumberger shall indemnify and hold harmless the Sedco Forex
Indemnitees for any Indemnifiable Loss arising from or relating thereto, and
(ii) without the prior written consent of Sedco Forex, from and after the
Pre-Closing Balance Sheet Date, Schlumberger shall not, and shall not permit any
member of the Schlumberger Group to, renew or extend the term of, increase its
obligations under, or transfer to a third party, any loan, lease, contract or
other obligation for which a member of the Sedco Forex Group is or may be liable
or for which any Sedco Forex Asset is or may be encumbered unless all
obligations of the Sedco Forex Group and all liens and encumbrances on any Sedco
Forex Asset with respect thereto are thereupon terminated by documentation
reasonably satisfactory in form and substance to Sedco Forex.

SECTION 5.06  USE OF NAMES. Any existing printed material, signs, displays
or other materials showing any affiliation or connection of the Sedco Forex
Group or the Schlumberger Group with the other Group, including any names using
"Schlumberger" or "Sedco Forex," as applicable, or a derivative thereof, or any
tradenames or trademarks of the other Group may be used by the other Group only
for a period ending six months after the Distribution Date. On and after the
Distribution Date, none of the Sedco Forex Group or the Schlumberger Group shall
create any new materials showing any affiliation of connection with the other
Group or represent to third parties that it is presently affiliated with any
member of the other Group.

SECTION 5.07  RESTRICTIONS ON HIRING OTHER PARTY'S EMPLOYEES. For a period
of two years after the Distribution Date, no member of the Sedco Forex Group or
the Schlumberger Group will, without the prior written consent of the other,
solicit (other than general solicitations through newspapers or otherwise not
specifically directed at employees of the other Group) the employment of any
person who is a member of the other Group as of immediately after the
Distribution; provided, however, that either Group may solicit any such person
whose employment was terminated by the other Group.

ARTICLE VI

SECTION 6.01  PROVISION OF CORPORATE RECORDS. Prior to or as promptly as
practicable after the Distribution Date, Schlumberger may retain complete and
accurate copies of, but shall deliver to Sedco Forex, all corporate books and
records of the Sedco Forex Group in its possession and copies of the relevant
portions of all corporate books and records of the Schlumberger Group relating
directly and predominantly to the Sedco Forex Assets, the Sedco Forex Business,
or the Liabilities of the Sedco Forex Group, including, in each case, all active
agreements, active litigation files and government filings. From and after the
Distribution Date, all such books, records and copies shall be the property of
Sedco Forex. Prior to or as promptly as practicable after the Distribution Date,
Sedco Forex may retain complete and accurate copies of, but shall deliver to
Schlumberger, all corporate books and records of the Schlumberger Group in its
possession and copies of the relevant portions of all corporate books and
records of the Sedco Forex Group relating directly and predominantly to the
Schlumberger Assets, the Schlumberger Business, or the Liabilities of the
Schlumberger Group, including, in each case, all active agreements, active
litigation files and government filings. From and after the Distribution Date,
all such books, records and copies shall be the property of Schlumberger.

each of Schlumberger and Sedco Forex shall afford to the other and to the
other's Representatives reasonable access and duplicating rights during normal
business hours to all Information within the possession or control of such
party's Group relating to the other party's Group's pre-Distribution business,
Assets or Liabilities, or relating to or arising in connection with the
relationship between the Groups on or prior to the Distribution Date, insofar as
such access is reasonably required for a reasonable purpose, subject to the
provisions below regarding Privileged Information. Without limiting the
foregoing, Information may be requested under this Section 6.02 for audit,
accounting, claims, litigation and tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations.

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In furtherance of the foregoing:

(a) Each party hereto acknowledges that: (i) each of Schlumberger and
Sedco Forex (and the members of the Schlumberger Group and the Sedco Forex
Group, respectively) has or may obtain Privileged Information; (ii) there
are a number of Litigation Matters affecting each or both of Schlumberger
and Sedco Forex; (iii) both Schlumberger and Sedco Forex have a common
legal interest in Litigation Matters, in the Privileged Information and in
the preservation of the confidential status of the Privileged Information,
in each case relating to the pre-Distribution business of the Schlumberger
Group or the Sedco Forex Group, or relating to or arising in connection
with the relationship between the Groups on or prior to the Distribution
Date; and (iv) both Schlumberger and Sedco Forex intend that the
transactions contemplated hereby and by the Merger Agreement and the other
Transaction Agreements, and any transfer of Privileged Information in
connection therewith shall not operate as a waiver of any potentially
applicable privilege.

(b) Each of Schlumberger and Sedco Forex agrees, on behalf of itself
and each member of the Group of which it is a member, not to disclose or
otherwise waive any privilege attaching to any Privileged Information
relating to the pre-Distribution business of the Sedco Forex Group or the
Schlumberger Group, respectively, or relating to or arising in connection
with the relationship between the Groups on or prior to the Distribution
Date, without providing prompt written notice to and obtaining the prior
written consent of the other, which consent shall not be unreasonably
withheld and shall not be withheld if the other party certifies that such
disclosure is to be made in response to a likely threat of suspension or
debarment or similar action; provided, however, that Schlumberger and Sedco
Forex shall not be required to give any such notice or obtain any such
consent and may make such disclosure or waiver with respect to Privileged
Information if such Privileged Information relates solely to the pre-
Distribution business of the Schlumberger Group, in the case of
Schlumberger, or the Sedco Forex Group, in the case of Sedco Forex. In the
event of a disagreement between any member of the Schlumberger Group and
any member of the Sedco Forex Group, concerning the reasonableness of
withholding such consent, no disclosure shall be made prior to a resolution
of such disagreement by a court of competent jurisdiction, provided that
the limitations in this sentence shall not apply in the case of disclosure
required by law and so certified as provided in the first sentence of this
paragraph.

(c) Upon any member of the Schlumberger Group or any member of the
Sedco Forex Group receiving any subpoena or other compulsory disclosure
notice from a court, other governmental agency or otherwise, which requests
disclosure of Privileged Information, in each case relating to
pre-Distribution business of the Sedco Forex Group or the Schlumberger
Group, respectively, or relating to or arising in connection with the
relationship between the Groups on or prior to the Distribution Date, the
recipient of the notice shall promptly provide to the other Group
(following the notice provisions set forth herein) a copy of such notice,
the intended response, and all materials or information relating to the
other Group that might be disclosed. In the event of a disagreement as to
the intended response or disclosure, unless and until the disagreement is
resolved as provided in paragraph (b) of this Section, the parties shall
cooperate to assert all defenses to disclosure claimed by either party's
Group and shall not disclose any disputed documents or information until
all legal defenses and claims of privilege have been finally determined,
except as otherwise required by a court order requiring such disclosure.

SECTION 6.03  PRODUCTION OF WITNESSES. Subject to Section 6.02 and provided
that there is no conflict of interest between the Sedco Forex Group and the
Schlumberger Group with respect to the matter, after the Distribution Date, each
of Schlumberger and Sedco Forex shall make, and shall cause each member of the
Schlumberger Group and the Sedco Forex Group, respectively, to make, available
to Sedco Forex or Schlumberger or any member of the Sedco Forex Group or of the
Schlumberger Group, as the case may be, upon written request, such Group's
directors, officers, employees and agents as witnesses to the extent that any
such Person may reasonably be required in connection with any Litigation
Matters, administrative or other proceedings in which the requesting party may
from time to time be involved and relating to the pre-Distribution business of
the Schlumberger Group or the Sedco Forex Group, or relating to or in connection

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with the relationship between the Groups on or prior to the Distribution Date.
The costs and expenses incurred in the provision of such witnesses shall be paid
by the party requesting the availability of such persons.

SECTION 6.04  RETENTION OF RECORDS. Except as otherwise agreed in writing,
or as otherwise provided in the other Transaction Agreements, each of
Schlumberger and Sedco Forex shall, and shall cause the members of the Group of
which it is a member to, retain all Information in such party's Group's
possession or under its control relating directly and predominantly to the
pre-Distribution business, Assets or Liabilities of the other party's Group
until such Information is at least ten years old or until such later date as may
be required by law, except that if, prior to the expiration of such period, any
member of either party's Group wishes to destroy or dispose of any such
Information that is at least three years old, prior to destroying or disposing
of any of such Information, (a) the party whose Group is proposing to dispose of
or destroy any such Information shall provide no less than 30 days' prior
written notice to the other party, specifying the Information proposed to be
destroyed or disposed of, and (b) if, prior to the scheduled date for such
destruction or disposal, the other party requests in writing that any of the
Information proposed to be destroyed or disposed of be delivered to such other
party, the party whose Group is proposing to dispose of or destroy such
Information promptly shall arrange for the delivery of the requested Information
to a location specified by, and at the expense of, the requesting party.

SECTION 6.05  CONFIDENTIALITY. Subject to Section 6.02, which shall govern
Privileged Information, from and after the Distribution Date, each of
Schlumberger and Sedco Forex shall hold, and shall use reasonable efforts to
cause its Affiliates and Representatives to hold, in strict confidence all
Information concerning the other party's Group obtained by it prior to the
Distribution Date or furnished to it by such other party's Group pursuant to
this Agreement or the other Transaction Agreements and shall not release or
disclose such Information to any other Person, except its Affiliates and
Representatives, who shall be advised of the provisions of this Section 6.05,
and each party shall be responsible for a breach by any of its Affiliates or
Representatives; provided, however, that any member of the Schlumberger Group or
the Sedco Forex Group may disclose such Information to the extent that (a)
disclosure is compelled by judicial or administrative process or, based on
advice of such Person's counsel, by other requirements of law or (b) such party
can show that such Information was (i) available to such Person on a
nonconfidential basis (other than from a member of the other party's Group)
prior to its disclosure by the other party's Group, (ii) in the public domain
through no fault of such Person or (iii) lawfully acquired by such Person from
another source after the time that it was furnished to such Person by the other
party's Group, and not acquired from such source subject to any confidentiality
obligation on the part of such source known to the acquiror. Notwithstanding the
foregoing, each of Schlumberger and Sedco Forex shall be deemed to have
satisfied its obligations under this Section 6.05 with respect to any
Information (other than Privileged Information) if it exercises the same care
with regard to such Information as it takes to preserve confidentiality for its
own similar Information.

SECTION 6.06  COOPERATION WITH RESPECT TO GOVERNMENT REPORTS AND
FILINGS. Schlumberger, on behalf of itself and each member of the Schlumberger
Group, agrees to provide any member of the Sedco Forex Group, and Sedco Forex,
on behalf of itself and each member of the Sedco Forex Group, agrees to provide
any member of the Schlumberger Group, with such cooperation and Information as
may be reasonably requested by the other in connection with the preparation or
filing of any government report or other government filing contemplated by this
Agreement or in conducting any other government proceeding relating to the
pre-Distribution business of the Schlumberger Group or the Sedco Forex Group,
Assets or Liabilities of either Group, or relating to or in connection with the
relationship between the Groups on or prior to the Distribution Date. Such
cooperation and Information shall include, without limitation, promptly
forwarding copies of appropriate notices and forms or other communications
received from or sent to any government authority which relate to the
Schlumberger Group, in the case of the Sedco Forex Group, or the Sedco Forex
Group, in the case of the Schlumberger Group. Each party shall make its
employees and facilities available during normal business hours and on
reasonable prior notice to provide explanation of any documents or Information
provided hereunder.

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ARTICLE VII

NO REPRESENTATIONS OR WARRANTIES

SECTION 7.01  NO REPRESENTATIONS OR WARRANTIES. Except as expressly set
forth herein or in any other Transaction Agreement, Sedco Forex and Schlumberger
understand and agree that no member of the Schlumberger Group is representing or
warranting to Sedco Forex or any member of the Sedco Forex Group in any way as
to the Sedco Forex Assets, the Sedco Forex Business or the Sedco Forex
Liabilities. Except as expressly set forth herein or in any other Transaction
Agreement, Schlumberger and Sedco Forex understand and agree that no member of
the Sedco Forex Group is representing or warranting to Schlumberger or any
member of the Schlumberger Group in any way as to the Schlumberger Assets, the
Schlumberger Business or the Schlumberger Liabilities.

ARTICLE VIII

CONDITIONS

SECTION 8.01  CONDITIONS TO THE DISTRIBUTION. The obligations of
Schlumberger and Sedco Forex pursuant to this Agreement to effect the
Distribution shall be subject to the fulfillment (or, if permissible under
applicable law, waiver by Schlumberger) at or prior to the Distribution Date of
the following conditions:

(a) All consents, approvals and authorizations of any governmental
authority legally required for the making of the Distribution and the
consummation of the other transactions contemplated hereby and by the
Transaction Agreements, in form and substance reasonably satisfactory to
Schlumberger, shall have been obtained and be in effect at the Distribution
Date.

(b) (i) Any waiting period applicable to consummation of the Merger
under the HSR Act, and any voluntary agreement not to consummate the Merger
without prior notice to the U.S. Department of Justice or U.S. Federal
Trade Commission, shall have expired or been terminated; (ii) in the event
of any review by the U.K. Office of Fair Trading or, if applicable, the
U.K. Secretary of State for Trade and Industry, indications reasonably
satisfactory to each of Schlumberger and Transocean that the Merger will
not be referred to the Competition Commission shall have been received; and
(iii) any mandatory waiting period under any applicable non-U.S.
competition, antitrust, or premerger notification law or regulation (where
the failure to observe such waiting period referred to in this clause (iii)
would have a Transocean Material Adverse Effect or a Sedco Forex Material
Adverse Effect) shall have expired or been terminated without intervention
by a reviewing agency and without the commencement of proceedings in any
court of competent jurisdiction challenging all or part of the Merger,
which intervention or commencement of proceedings would have a Transocean

(c) None of the parties hereto shall be subject to any decree, order
or injunction of a court of competent jurisdiction, U.S. or non-U.S., that
prohibits the consummation of the Distribution or the Merger, and no
statute, rule or regulation shall have been enacted by any governmental
authority that prohibits or makes unlawful the consummation of the
Distribution or the Merger.

(d) The Form S-4 shall have become effective, and no stop order with
respect thereto shall be in effect.

(e) The Requisite Approval shall have been obtained.

(f) Sedco Forex and Schlumberger shall each have received the opinion
of Baker & Botts, L.L.P., counsel to Sedco Forex and Schlumberger, in form
and substance reasonably satisfactory to Sedco Forex and Schlumberger and
dated the Distribution Date to the effect that, for U.S. federal income tax
purposes, (i) the Distribution should qualify as a distribution described
in Section 355 of the Code and (ii) the Merger should qualify as a
reorganization under Section 368(a)(1)(B) of the Code. In rendering such
opinion, such counsel shall be entitled to receive and rely upon
representations of officers of Sedco

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Forex and Schlumberger as to such matters as such counsel may reasonably
request and the certificate of Transocean provided for in Section 9.2(b) of
the Merger Agreement.

(g) There shall not be pending or threatened in writing any (i)
governmental claim, proceeding or action or (ii) any private claim,
proceeding or action, in either case, seeking to restrain, prohibit or seek
damages or other relief in connection with this Agreement, any Transaction
Agreement or any transaction contemplated hereby or thereby that would have
a Schlumberger or Sedco Forex Material Adverse Effect.

(h) Transocean and Merger Sub shall each have performed in all
material respects their respective covenants and agreements contained in
the Merger Agreement required to be performed on or prior to the
Distribution Date and the representations and warranties of Transocean and
Merger Sub contained in the Merger Agreement and in any document delivered
in connection therewith shall be true and correct in all material respects
as of the date of the Merger Agreement and as of the Distribution Date
(except for representations and warranties made as of a specified date,
which need be true and correct in all material respects only as of the
specified date), and Sedco Forex shall have received a certificate of each
of Transocean and Merger Sub, executed on its behalf by its President or
one of its Vice Presidents, dated the Distribution Date, certifying to such
effect.

(i) Sedco Forex and Transocean shall have irrevocably confirmed to
Schlumberger and each other that each condition in Sections 9.1 (other than
9.1(f)), 9.2 and 9.3 of the Merger Agreement to Sedco Forex's and
Transocean's respective obligations to effect the Merger have been
fulfilled or will be fulfilled at the Effective Time or are or have been
waived by Sedco Forex or Transocean, as the case may be.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Section 4.02 and 4.03 and except as provided in any Transaction Agreement or
other agreement delivered pursuant hereto or thereto (collectively, the
"Third-Party Provisions"), nothing in this Agreement, expressed or implied, is
intended to confer on any Person, other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement. The
Third-Party Provisions may be enforced by the beneficiaries thereof.

SECTION 9.02  ENTIRE AGREEMENT. This Agreement, the exhibits to this
Agreement and any documents delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.

SECTION 9.03  AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their Boards of Directors, at any time
before or after approval by the stockholders of Schlumberger. Any such amendment
may only be made by an instrument in writing signed on behalf of each of the
parties hereto and shall be subject to receipt of a Transocean Consent.

SECTION 9.04  GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its rules of conflict of laws.

SECTION 9.05  COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.
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Agreement are for the convenience of the parties only and shall be given no
substantive or interpretative effect whatsoever.

SECTION 9.07  WAIVERS. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.

SECTION 9.08  INCORPORATION OF EXHIBITS. All exhibits attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.

SECTION 9.09  SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms of
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.

SECTION 9.10  ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.

SECTION 9.11  EXPENSES. Except as set forth in Schedule 9.11 hereto,
whether or not the Distribution or the other transactions contemplated by this
Agreement are consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses.

SECTION 9.12  NOTICES. Any notice hereunder shall be sufficient if in
writing, and sent by facsimile transmission or courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first class postage prepaid), addressed as follows:

If to Schlumberger or any member of the Schlumberger Group, to:

Schlumberger Limited
277 Park Avenue, 41st Floor
New York, New York 10172
Attention: Corporate Secretary
Facsimile: (212) 350-8127

with a copy (which shall not constitute effective notice) to:

Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, Texas 77002
Attention: J. David Kirkland, Jr.
Facsimile: (713) 229-1205

If to Sedco Forex or any member of the Sedco Forex Group, to:

Schlumberger Limited
277 Park Avenue, 41st Floor
New York, New York 10172
Attention: Corporate Secretary
Facsimile: (212) 350-8127

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if after the Effective Time, with a copy (which shall not constitute
effective notice) to:

Weil, Gotshal & Manges, LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: James L. Rice III, Esq.
Facsimile: (713) 224-9511

If to Transocean, to:

Transocean Offshore Inc.
4 Greenway Plaza
Houston, Texas 77046
Attention: Corporate Secretary
Facsimile: (713) 232-7600

with a copy (which shall not constitute effective notice) to:

Weil, Gotshal & Manges, LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: James L. Rice III, Esq.
Facsimile: (713) 224-9511

or to such other address as any party hereto shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.

SECTION 9.13  REFERENCES; CONSTRUCTION. Unless otherwise expressly stated,
references to any "Article," "Exhibit," "Schedule" or "Section" are to Articles,
Exhibits, Schedules and Sections to or of this Agreement. Unless otherwise
expressly stated, clauses beginning with the term "including" set forth examples
only and in no way limit the generality of the matters thus exemplified.

SECTION 9.14  TERMINATION. Notwithstanding any provision hereof, following
termination of the Merger Agreement, this Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the Board of Directors of Schlumberger. In the event of such
termination, no party hereto or to any other Transaction Agreement (other than
the Merger Agreement) shall have any Liability to any Person by reason of this
Agreement or any other Transaction Agreement (other than the Merger Agreement).

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.

SCHLUMBERGER LIMITED

By:       /s/ D.E. BAIRD
----------------------------------
D.E. Baird
Chairman, President and CEO

SEDCO FOREX HOLDINGS LIMITED

By:     /s/ JEAN CHEVALLIER
----------------------------------
Jean Chevallier
Attorney-in-fact

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EXHIBIT B

TAX SEPARATION AGREEMENT

This Agreement is entered into this      day of             , 1999, by and
between Schlumberger Limited, a Netherlands Antilles corporation
("Schlumberger") and Sedco Forex Holdings Limited, a British Virgin Islands
corporation ("SFHL").

WHEREAS, pursuant to the Distribution Agreement dated as of             ,
1999 between Schlumberger and SFHL (the "Distribution Agreement"), the stock of
SFHL will be distributed to the shareholders of Schlumberger (the
"Distribution");

WHEREAS, Schlumberger, SFHL and their affiliates have made, or will make,
certain transfers of assets (including stock) pursuant to section 2.01 of the
Distribution Agreement in preparation for the Distribution; and

WHEREAS, in connection with the Distribution, the parties desire to provide
an allocation of liability for Taxes between Schlumberger and SFHL and to agree
to certain related matters;

NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, the receipt and sufficiency of which are hereby acknowledged,
Schlumberger and SFHL agree as follows:

ARTICLE I.

DEFINITIONS

When used herein the following terms shall have the following meanings:

"Closing Date" means the date so defined in Section 1.03 of the Agreement
and Plan of Merger dated as of             , 1999 among Schlumberger, SFHL,
Transocean Offshore Inc. and [Merger Sub].

"Code" means the United States Internal Revenue Code of 1986, as amended.

"Contribution Date" means the date when a Schlumberger Contributed Asset is
transferred by a member of the Schlumberger Group to a member of the Sedco
Group, in accordance with Section 2.01(c) of the Distribution Agreement, or, in
the case of a Schlumberger Contributed Asset which is described in Section 2.07
of the Distribution Agreement, the earlier of the date when beneficial ownership
of such asset has been transferred to the Sedco Group or the Closing Date.

"Distribution" is defined in the preamble.

"Distribution Agreement" is defined in the preamble.

"ICI" means International Chandlers Inc.

"Indemnified Party" means any party which is seeking indemnification from
an Indemnifying Party pursuant to the provisions of this Agreement.

"Indemnifying Party" means any party from which any Indemnified Party is
seeking indemnification pursuant to the provisions of this Agreement.

"Related Costs" means any losses, damages, liabilities, obligations,
deficiencies, costs and expenses (including, without limitation, reasonable
expenses and fees for attorneys and accountants) incurred by the Indemnified
Party in connection with any asserted deficiency, claim, demand, action, suit,
proceeding, judgment or assessment, including the defense or settlement thereof,
relating to the Taxes or Restructuring Taxes, as the case may be, for which the
Indemnifying Party is responsible to indemnify the Indemnified Party pursuant to
the provisions of this Agreement or in connection with the enforcement of the
provisions of this Agreement relating to such Taxes or Restructuring Taxes.

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"Restructuring Taxes" means any Taxes directly incurred upon and
attributable to (a) transactions described in sections 2.01(a), (b) and (c) of
the Distribution Agreement and (b) transfers of assets in anticipation of the
Distribution.

"Schlumberger Contributed Assets" means the Assets of the Schlumberger
Group listed on Schedule 2.01(c)-1 attached to the Distribution Agreement.

"Schlumberger Distributed Assets" means the Assets of the Sedco Group
listed on Schedule 2.01(c)-2 attached to the Distribution Agreement.

"Schlumberger Group" means Schlumberger and each entity in which
Schlumberger, directly or indirectly through one or more intermediaries, will
possess 50% or more of the voting power or value of outstanding equity interests
immediately after the Distribution.

"Sedco Group" means SFHL and each entity in which SFHL, directly or
indirectly through one or more intermediaries, will possess 50% or more of the
voting power or value of outstanding equity interests immediately after the
Distribution.

"Tax" means any federal, state, foreign or local income, gross receipts,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security, unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any

"Tax Return" means any original or amended return, report, estimate,
statement, declaration or other filing relating to, or required to be filed by
any taxpayer in connection with, the payment or receipt of any refund of any
Tax.

"Taxing Authority" means any governmental authority responsible for the

"U.S. Group" means the affiliated group of corporations filing a
consolidated United States federal income tax return of which Schlumberger
Technology Corporation, a Texas corporation, is the common parent.

ARTICLE II.

GENERAL RULE

Except as otherwise provided in Articles III, IV, and V below:

2.1.  Liability of Schlumberger Group. The Schlumberger Group shall be
liable for and shall pay all Taxes imposed upon entities in such group by the
applicable Tax laws, whether such Taxes are attributable to events or periods
before, after or including the Distribution, and shall be entitled to all
refunds with respect to such Taxes.

2.2  Liability of Sedco Group. Except as provided in Section 2.3, the Sedco
Group shall be liable for and shall pay all Taxes imposed upon entities in such
group by the applicable Tax laws, whether such Taxes are attributable to events
or periods before, after or including the Distribution, and shall be entitled to
all refunds with respect to such Taxes.

2.3  Schlumberger Contributed Assets and Schlumberger Distributed
Assets. The members of the Schlumberger Group, jointly and severally, agree to
be liable for and to indemnify and hold harmless the members of the Sedco Group
and their respective affiliates, subsidiaries, officers, directors, employees
and agents (the "Sedco Group Indemnitees") from and against any and all Taxes
and Related Costs that may be imposed upon or assessed in respect of (a) any
Schlumberger Contributed Asset, the ownership, use, operation or leasing
thereof, or any income derived therefrom, for all taxable periods ending on or
prior to the Contribution Date, (b) any Schlumberger Contributed Asset, the
ownership, use, operation or leasing thereof, or any income derived therefrom,
to the extent that such taxes are allocated to the Schlumberger Group pursuant
to Section 2.4, and (c) (except with respect to Taxes and Related Costs
previously paid) any
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Schlumberger Distributed Asset, the ownership, operation or leasing thereof, or
any income derived therefrom, for any taxable period, whether ending before, on
or after the Closing Date.

2.4  Allocation of Taxes Attributable to Schlumberger Contributed
Assets. In any case in which a Tax is assessed with respect to a Schlumberger
Contributed Asset for a taxable period which includes the Contribution Date (but
does not begin or end on that day), then Taxes, if any, attributable to the
taxable period of the Schlumberger Contributed Asset beginning before and ending
after the Contribution Date shall be allocated to and paid by (a) the
Schlumberger Group for the period up to and including the Contribution Date, and
(b) the Sedco Group for the period subsequent to the Contribution Date. Any
allocation of income or deductions required to determine any Taxes attributable
to any period beginning before and ending after the Contribution Date shall be
made by means of a closing of the books and records of the relevant member of
the Sedco Group as of the close of the Contribution Date, provided that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on the Contribution Date and the period
after the Contribution Date in proportion to the number of days in each such
period.

ARTICLE III.

UNITED STATES FEDERAL INCOME TAX

3.1  Liability of SFHL. SFHL shall be liable for and indemnify and hold
harmless the members of the Schlumberger Group and their respective affiliates,
subsidiaries, officers, directors, employees and agents (the "Schlumberger Group
Indemnitees") from any United States federal income Tax liability (including
Related Costs) of the U.S. Group that is attributable to ICI for Tax periods
ending on or before the date of the Distribution, other than (a) the portion of
such Taxes due per the United States federal income Tax Returns for Tax years
prior to 1999 on file at the time of the Distribution and (b) Restructuring
Taxes and Related Costs. The determination of the United States federal income
Taxes attributable to ICI shall be made on the basis of Treasury Regulation
Section 1.1552-1(a)(2)(ii).

3.2  Liability of Schlumberger. Schlumberger shall be liable for and
indemnify and hold the Sedco Group Indemnitees harmless from any United States
federal income Tax liability of the U.S. Group, other than Taxes for which SFHL
is liable pursuant to section 3.1.

3.3  Refunds. ICI shall be entitled to all refunds of United States federal
income Taxes that are attributable to ICI, within the meaning of the second
sentence of Section 3.1, other than refunds of Restructuring Taxes and Related
Costs which have been paid by Schlumberger. Schlumberger shall be entitled to
all refunds of other United States federal income Taxes of the U.S. Group.

3.4  Returns and Proceedings. Schlumberger shall file all Tax Returns
relating to United States federal income Taxes of the U.S. Group and, to the
extent such Tax Return relates to Taxes for which SFHL is liable under Section
3.1, such Tax Returns shall be filed in a manner consistent with prior practice
unless otherwise required by applicable tax laws.

ARTICLE IV.

RESTRUCTURING TAXES

4.1. Liability for Restructuring Taxes. Schlumberger shall be liable for
and shall indemnify and hold the Sedco Group Indemnitees harmless from
Restructuring Taxes and Related Costs, other than (a) any such Taxes first
asserted by a Taxing Authority more than (i) eight years after the Distribution
(or, if later, the date of transfer of the asset to which such Restructuring Tax
relates) in the case of Taxes other than customs Taxes, or (ii) six years after
the Distribution (or, if later, the date of transfer of the asset to which such
Restructuring Tax relates) in the case of customs Taxes, (b) any such Taxes as
to which SFHL fails to materially comply with the procedures set forth in
sections 4.3 and Article VI and (c) Related Costs with respect to Restructuring
Taxes described in clauses (a) and (b) of this sentence.

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4.2. Restructuring Tax Refunds. Any refund with respect to Restructuring
Taxes will be paid, or paid over, (a) first, to SFHL to the extent the aggregate
amount of Restructuring Taxes paid that are described in section 4.1(a) exceeds
the aggregate amount of refunds that it previously received pursuant to this
section 4.2(a), (b) second, to Schlumberger to the extent the aggregate
indemnities that it has paid under section 4.1 exceed the refunds it has
previously received under this section 4.2(b) and (c) finally, to SFHL.

4.3. Restructuring Tax Returns. The Sedco Group will report in its Tax
Returns all items which are required to be reflected in such Tax Returns and
which relate to Restructuring Taxes in a manner which is consistent with the
manner in which the Schlumberger Group has treated such items for Tax purposes,
except that the Sedco Group will not be required so to report an item (a) if a
different reporting is otherwise required by applicable tax laws, or (b) unless
the Schlumberger Group shall have provided to the Sedco Group, no later than
thirty days before the due date of the Tax Return in which such item is required
to be reported, a description of the related item, including a statement of the
position underlying the treatment of such item by the Schlumberger Group.

ARTICLE V.

DERIVATIVE LIABILITY

5.1  Schlumberger Derivative Liability. Notwithstanding anything to the
contrary in this Agreement, Schlumberger shall indemnify and hold harmless the
Sedco Group Indemnitees from and against any Tax liability of the Schlumberger
Group or a member thereof for which a member of the Sedco Group is or becomes
liable solely by reason of having been a member of a consolidated, combined,
unitary or similar group for Tax reporting purposes that includes a member of
the Schlumberger Group (including, without limitation, by reason of the
application of Treasury Regulation Section 1.1502-6 promulgated under the Code,
or any similar provision of state, local or foreign Tax law).

5.2  SFHL Derivative Liability. Notwithstanding anything to the contrary in
this Agreement, SFHL shall indemnify and hold harmless the Schlumberger Group
Indemnitees from and against any Tax liability of the Sedco Group or a member
thereof for which a member of the Schlumberger Group is or becomes liable solely
by reason of having been a member of a consolidated, combined, unitary or
similar group for Tax reporting purposes that includes a member of the Sedco
Group (including, without limitation, by reason of the application of Treasury
Regulation Section 1.1502-6 promulgated under the Code, or any similar provision
of state, local or foreign Tax law).

ARTICLE VI.

TAX RETURNS AND TAX PROCEEDINGS

Schlumberger and SFHL shall prepare and file, or cause to be prepared and
filed, any Tax Return required to be filed by a member of the Schlumberger Group
or the Sedco Group, respectively, and shall be entitled to control any audit or
administrative or judicial proceeding (each a "Proceeding") with respect to any
Tax which is shown or required to be shown or reported on a Tax Return which
such party is required to file, provided, however, that to the extent that the
party required to file such Tax Return is an Indemnified Party, (a) the
Indemnified Party shall promptly provide written notice to the Indemnifying
Party of any notice from or contact with a Taxing Authority that is related to a
Tax for which the Indemnifying Party is or may be liable pursuant to this
Agreement, (b) the Indemnified Party shall provide the Indemnifying Party with
copies of any relevant notices or documents received from a Taxing Authority, or
relevant to a Proceeding, relating to Taxes or Restructuring Taxes, (c) the
Indemnifying Party shall be entitled to participate in and comment upon any
Proceeding relating to such Taxes for which the Indemnifying Party is, or may
be, liable under this Agreement, (d) the Indemnified Party shall keep the
Indemnifying Party informed as to the conduct of such Proceedings and deal with
the Indemnifying Party in good faith regarding such Proceedings, and (e) the
Indemnified Party shall not settle or compromise any tax liability in clause (a)
without the prior written consent of the Indemnifying Party, which consent shall
not unreasonably be withheld or delayed. The failure of the Indemnified Party
timely to forward such notification in accordance with the immediately preceding
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sentence shall not relieve the Indemnifying Party of its obligation to pay the
relevant Tax liability or indemnify the Indemnified Party therefor, except and
to the extent that the failure timely to forward such notification actually
materially prejudices the Indemnifying Party or increases the amount of such Tax
liability. An Indemnifying Party shall have similar rights in respect of
Proceedings relating to refunds of Taxes for which the Indemnifying Party is
liable under this Agreement.

ARTICLE VII.

PAYMENTS

All payments required by this Agreement to be made by an Indemnifying Party
to an Indemnified Party shall be made no later than (a) five days prior to the
date on which the Indemnified Party is required to make a payment of an
indemnified amount or, if later, (b) fifteen days after the Indemnifying Party
has delivered to the Indemnified Party a demand for such payment in accordance
with Section 8.10. Any such payment which is not made by the date specified in
the immediately preceding sentence will bear interest from such date at the
one-year London Interbank Offered Rate.

ARTICLE VIII.

MISCELLANEOUS

8.1.  Assignment; Binding Effect; Benefit. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by either of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.

8.2.  Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings between the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.

8.3.  Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its rules of
conflict of laws.

8.4.  Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.

8.5.  Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretative effect whatsoever.

8.6.  Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.

8.7.  Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms of
provisions of this Agreement in any other jurisdiction. If
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any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.

8.8  Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which they are entitled at law or in equity.

8.9  Expenses. Except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs or expenses.

8.10  Notices. Any notice hereunder shall be sufficient if in writing, and
sent by facsimile transmission or courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and first
class postage prepaid), addressed as provided in section 9.12 of the
Distribution Agreement or to such other address as any party hereto shall
specify by written notice so given, and such notice shall be deemed to have been
delivered as of the date so telecommunicated, personally delivered or mailed.

IN WITNESS WHEREOF, Schlumberger, on behalf of the Schlumberger Group, and
SFHL, on behalf of the Sedco Group, have caused this Agreement to be signed by
their respective duly authorized officers as of the date first above written.

SCHLUMBERGER LIMITED
(on behalf of itself and each
entity in the Schlumberger Group)

By:
----------------------------------
Name:
Title:

SEDCO FOREX HOLDINGS LIMITED
(on behalf of itself and each entity
in the Sedco Group)

By:
----------------------------------
Name:
Title:

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EXHIBIT C

Working Capital of Sedco Forex, as reflected on the Pre-Closing Balance
Sheet, will comprise the following captions:

Cash
Customer Receivables and Allowance for Doubtful Accounts
Other Receivables
Inventories Net of Obsolescence Provision
Other Current Assets
Suppliers Payable and Accruals
Employee and Other Payables

Customer Receivables will comprise billed and unbilled Customer Receivables
and all associated Allowances for Doubtful Accounts. A "Receivables
Differential" means that Customer Receivables represents less than an amount
equal to 60 Days Sales Outstanding (the "Minimum Customer Receivables Amount"),
applying the formula utilized by Sedco Forex in the normal course of business,
in which case there exists a negative differential amount equal to the Minimum
Customer Receivables Amount less the amount of Customer Receivables, or that
Customer Receivables represents more than an amount equal to 70 Days Sales
Outstanding (the "Maximum Customer Receivables Amount"), in which case there
exists a positive differential amount equal to the amount of Customer
Receivables less the Maximum Customer Receivables Amount. "Allowance for
Doubtful Accounts" will comprise reserves covering specific amounts, both billed
and unbilled, and, in accordance with Sedco Forex's normal method for
establishing such reserves, will be excluded from the calculation of Days Sales
Outstanding and will not affect the computation of the Receivables Differential.

Other Receivables will comprise amounts reimbursable by customers, advances
to employees and other sundry amounts due from third parties. An "Other
Receivables Differential" means that Other Receivables are less than
$20,000,000, in which case there exists a negative differential amount equal to the shortfall, or that Other Receivables exceeds$25,000,000, in which case
there exists a positive differential amount equal to the excess. It is expressly
agreed that all items due to or from any member of the Schlumberger Group,
whether billed or unbilled, will be excluded from the balance for the purposes
of this calculation.

Inventories will comprise the cost of materials and supplies, whether
stored on board the rigs, onshore at Sedco Forex, vendor or third-party
facilities, or in transit. An "Inventories Differential" means that inventories,
excluding any amount related to newbuild rigs, stated at cost and before any
reduction for obsolescence reserve, amount to less than $49,000,000, in which case there exists a negative differential amount equal to the shortfall, or that such inventories exceed$53,000,000, in which case there exists a positive
differential amount equal to the excess. This range will be adjusted downward by
the value of the drilling rig Omega's consigned inventory in the event that the
charter for the Omega is terminated and inventory on consignment is returned to
the rig owner. The obsolescence reserve will be fixed at approximately
$10,000,000. Other Current Assets will comprise prepaid expenses, value added taxes recoverable, sundry deposits and deferred operating and financial costs associated with prevailing and future contracts. An "Other Current Assets Differential" means that, excluding all balances related to hedges and related premiums, deferred operating costs and value added taxes recoverable, Other Current Assets is less than$3,000,000, in which case there exists a negative
differential amount equal to the shortfall, or that such Other Current Assets
exceeds $6,000,000, in which case there exists a positive differential amount equal to the excess. Suppliers Payable and Accruals will comprise all amounts due to non-Affiliates, whether invoiced or not, for goods and services rendered on or before the Pre-Closing Balance Sheet Date. An "Excess Suppliers Payable and Accruals Balance" exists when Suppliers Payable and Accruals, excluding those relating to capital expenditures on newbuilds, exceeds$47,000,000.

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Employee and Other Payables will comprise short-term or long-term amounts
payable to or for the benefit of employees, payroll withholdings and deductions,
state and local taxes, value added taxes payable, deferred revenues, specific
reserves for identified liabilities, whether contingent or not, and
miscellaneous accruals associated with operations in the ordinary course. An
"Excess Employee and Other Payables Balance" exists when, excluding liabilities
related to employees and related benefits, state and local taxes, valued added
taxes payable, deferred revenues, and any specific reserves for identified
liabilities, Employee and Other Payables exceeds $10,000,000. The "Specified Reserve" will be the amount reflected in the Pre-Closing Balance Sheet as a reserve for the second item listed under "Pending Claims" on the Sedco Forex Litigation and Claims Report dated 5 July, 1999 attached to Schedule 6.8 of the Sedco Forex Disclosure Letter. Any increase in such reserve from that reflected in Schedule 6.8 to the Sedco Forex Disclosure Letter shall be taken into account as set forth in Section 2.02(b). BC-2 250 ANNEX C [GOLDMAN SACHS LETTERHEAD] PERSONAL AND CONFIDENTIAL - -------------------------------------------------------------------------------- July 12, 1999 Board of Directors Schlumberger Limited 277 Park Avenue New York, NY 10172 Ladies and Gentlemen: You have requested our opinion as to the fairness from a financial point of view to the holders of shares of common stock, par value$0.01 per share (the
"Schlumberger Shares"), of Schlumberger Limited ("Schlumberger"), as if they
were the current holders of the shares of capital stock, par value $0.01 per share (the "Shares"), of Sedco Forex Holdings Limited (the "Company"), of the Merger Ratio (as defined below) pursuant to the Agreement and Plan of Merger (the "Agreement"), dated as of July 12, 1999, among Schlumberger, the Company and Transocean Offshore, Inc. ("Transocean"). Pursuant to the Agreement, a wholly-owned subsidiary of Transocean will be merged with and into the Company (the "Merger") and each outstanding Share will be converted into a number of ordinary shares, par value$0.01 per share, of Transocean (the "Transocean
Ordinary Shares") equal to fifty-two forty-eighths times the number of fully
diluted Transocean Ordinary Shares (calculated according to the treasury method
under U.S. generally accepted accounting principles) immediately prior to the
Effective Time (as defined in the Agreement) divided by the number of fully
diluted Shares (calculated according to the treasury method under U.S. generally
accepted accounting principles) immediately prior to the Effective Time (the
"Merger