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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
     Washington, D.C. 20549     

2005 FORM 10-K/A
(Amendment No. 1)

(Mark One)

OR

Commission File Number 1-8097

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

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

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.  Yes ý        No  o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o        No ý

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act:
          Large accelerated filer ý         Accelerated filer o            Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o         No ý

The aggregate market value of the common stock (based upon the closing price on the New York Stock Exchange on June 30, 2005, of $35.75) of ENSCO International Incorporated held by nonaffiliates of the registrant at that date was approximately $4,758,575,000.

As of February 22, 2006, there were 153,492,688 shares of the registrant's common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Company's definitive proxy statement to be filed under the Securities Exchange Act of 1934 within 120 days of the end of the Company's fiscal year ended December 31, 2005, are incorporated by reference into Part III hereof. Except for those portions specifically incorporated by reference herein, such document shall not be deemed to be filed with the Commission as part of this Form 10-K/A.

EXPLANATORY NOTE

       In response to a comment received from the Securities and Exchange Commission, this Form 10-K/A ("Amendment No. 1") is being filed by ENSCO International Incorporated (the "Company") solely to correct a typographical error in Exhibits 32.1 and 32.2, which were filed as exhibits to the Company's Form 10-K for the fiscal year ended December 31, 2005 originally filed with the Securities and Exchange Commission on February 23, 2006, (the "Original Filing"). Specifically, Exhibits 32.1 and 32.2 incorrectly made a reference to the Company's "Quarterly Report" and have been amended to refer to the "Annual Report" of the Company.

       Except for the specific change referred to above and other than to change the references to "Form 10-K" throughout this annual report to "Form 10-K/A" where appropriate, no other changes have been made to the Original Filing. This Amendment No. 1 continues to speak as of the date of the Original Filing, and the Company has not updated the disclosure in this Amendment No. 1 to speak to any later date. Accordingly, this Amendment No. 1 should be read in conjunction with the Company's subsequent filings with the Securities and Exchange Commission.

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FORWARD-LOOKING STATEMENTS

       This report contains forward-looking statements by management and the Company that are subject to a number of risks and uncertainties. The forward-looking statements contained in the report are based on information as of the date of this report. The Company assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking statements include words or phrases such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "projects," "could," "may," "might," "should," "will" and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment; statements regarding future levels of, or trends in, day rates, utilization, revenues, operating expenses, capital expenditures, insurance, financing and funding; and statements regarding future construction, enhancement or upgrade of rigs, future mobilization, relocation or other movement of rigs, and future availability or suitability of rigs. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including those described under "Item 1A. Risk Factors" below and elsewhere herein.

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PART I

Item 1.  Business

Overview and Operating Strategy

       ENSCO International Incorporated and subsidiaries ("ENSCO" or the "Company") is an international offshore contract drilling company. As of February 15, 2006, the Company's complement of offshore drilling rigs includes 43 jackup rigs, one ultra-deepwater semisubmersible rig, one platform rig and one barge rig. Additionally, the Company has two ultra-deepwater semisubmersible rigs and one ultra-high specification jackup rig under construction. The Company's offshore contract drilling operations are integral to the exploration, development and production of oil and natural gas and the Company is one of the leading providers of offshore contract drilling services to the international oil and gas industry. The Company's operations are concentrated in the geographic regions of North America, Europe/Africa, Asia Pacific (which includes Asia, the Middle East, Australia, and New Zealand) and South America/Caribbean.

       Since 1987, the Company has pursued a strategy of building its fleet of offshore drilling rigs through corporate acquisitions, rig acquisitions and new rig construction. The Company acquired Penrod Holding Corporation in 1993, Dual Drilling Company in 1996 and Chiles Offshore Inc. in 2002, which added 18, 10 and 5 rigs, respectively, to the Company's current 46-rig fleet. From 1994 to 1999, the Company acquired five jackup rigs and completed construction of seven barge rigs. In 2000, the Company completed construction of ENSCO 101, a harsh environment jackup rig, and ENSCO 7500, a dynamically positioned ultra-deepwater semisubmersible rig capable of drilling in water depths up to 8,000 feet.

       During 2004 and 2005, the Company purchased a harsh environment jackup rig, ENSCO 102, and an ultra-high specification jackup rig, ENSCO 106. Both rigs were constructed through joint ventures with Keppel FELS Limited ("KFELS"), a major international shipyard. In January 2006, the Company accepted delivery of ENSCO 107, an ultra-high specification jackup rig that is scheduled to commence drilling operations in March 2006. The Company also entered into agreements with KFELS for the construction of ENSCO 108, ENSCO 8500 and ENSCO 8501. ENSCO 108, an ultra-high specification jackup rig, is scheduled for delivery in the second quarter of 2007. ENSCO 8500 and ENSCO 8501, dynamically positioned ultra-deepwater semisubmersible rigs capable of drilling in up to 8,500 feet of water which can be readily upgraded to 10,000 feet water-depth capability if required, are scheduled for delivery during the second quarters of 2008 and 2009, respectively. The ENSCO 8500 and ENSCO 8501 are subject to long-term drilling contracts of four years and three and one half years, respectively.

       With the Company's primary focus on its jackup rig and ultra-deepwater semisubmersible rig operations, it has de-emphasized those operations and assets which it considers to be non-core or that do not meet the Company's standards for financial performance. Accordingly, the Company sold its marine transportation fleet, two platform rigs and two barge rigs in 2003, sold one jackup rig and two platform rigs to KFELS in 2004 in connection with the execution of the ENSCO 107 construction agreement, and sold five barge rigs and one platform rig in 2005.

       The Company was formed as a Texas corporation in 1975 and was reincorporated in Delaware in 1987. The Company's principal office is located at 500 North Akard Street, Suite 4300, Dallas, Texas, 75201-3331, and its telephone number is (214) 397-3000. The Company's website is www.enscous.com.

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Contract Drilling Operations

       The Company's operations consist of one reportable segment: contract drilling services. Drilling operations are conducted by a number of subsidiaries (the "Subsidiaries"), substantially all of which are wholly-owned. The Subsidiaries engage in the drilling of offshore oil and gas wells in domestic and international markets under contracts with major international, government-owned and independent oil and gas companies. As used herein, the term "Company" includes the Subsidiaries when and as the context requires.

       As of February 15, 2006, the Company owns and operates 43 jackup rigs, one ultra-deepwater semisubmersible rig, one platform rig and one barge rig. Of the 43 jackup rigs, presently 17 are located in the Gulf of Mexico, 17 are located in the Asia Pacific region, eight are located in the North Sea and one is located offshore Africa. The barge rig is located in Indonesia and the platform and ultra-deepwater semisubmersible rigs are located in the Gulf of Mexico.

       The Company's contract drilling services and equipment are used to drill and complete oil and gas wells. Demand for the Company's drilling services is based upon many factors which are beyond the control of the Company, including:
 

       The drilling services provided by the Company are conducted on a "day rate" contract basis. Under day rate contracts, the Company provides the drilling rig and rig crews and receives a fixed amount per day for drilling the well, and the customer bears substantially all of the ancillary costs of constructing the well and supporting drilling operations, as well as the economic risk relative to the success of the well. The customer may pay all or a portion of the cost of moving the Company's equipment and personnel to the well site and, in the case of platform rigs, the cost of assembling and dismantling the equipment. The Company does not provide "turnkey" or other risk-based drilling services.

       Financial information regarding the Company's operating segment and geographic regions is presented in Note 12 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data." Additional financial information regarding the Company's operating segment is presented in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

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Backlog Information

       Durations of the Company's drilling contracts depend on several factors, including customer requirements, current and expected future market conditions, location of rigs and contract operations, and type and availability of rigs. Historically, jackup rig drilling contracts in the Gulf of Mexico and the North Sea have typically been short-term while the Company entered a majority of its remaining rig fleet into longer-term contracts with terms typically of one year duration or longer. Recently executed contracts in the Company's major geographical markets are generally of greater duration than the historical averages. In addition, many customers have begun to contract rigs well in advance of the dates rigs are needed, which has resulted in a substantial increase in the Company's backlog.

       The current and historic backlog of business for the Company's contract drilling services as of February 1, 2006 and 2005 were $2,477.9 million and $814.4 million, respectively. The increase in backlog from the prior year is due primarily to increased day rates, long-term contracts associated with rigs under construction, increased contract durations and the aforementioned advance contracting by many of the Company's customers. Approximately $1,418.6 million of the backlog for contract drilling services as of February 1, 2006, is expected to be realized after December 31, 2006, including $853.4 million associated with rigs under construction. The majority of the backlog associated with rigs under construction is expected to be realized in 2008 through 2012. The backlog for contract drilling services associated with the Company's existing rig fleet to be realized after December 31, 2006 includes $390.9 million associated with the rigs in the Asia Pacific Region, $74.0 million associated with rigs in the Europe/Africa region and $100.3 million associated with rigs in North and South America.

Major Customers

       The Company provides its services to major international, government-owned and independent oil and gas companies. The number of customers served by the Company has decreased in recent years as a result of mergers among the major international oil companies and large independent oil companies. ExxonMobil provided approximately 12% of consolidated revenues in 2005. The next four largest customers for 2005, none of which individually represented more than 10% of revenues, accounted in the aggregate for approximately 30% of 2005 consolidated revenues. In 2004, no customer represented more than 10% of revenues and the five largest customers for 2004 accounted in the aggregate for approximately 40% of 2004 consolidated revenues.

Industry Conditions

       Operations in the offshore contract drilling industry have historically been highly cyclical and are primarily related to the demand for drilling rigs and the available supply of rigs. Demand for rigs is directly related to the regional and worldwide levels of offshore exploration and development spending by oil and gas companies, which is beyond the control of the Company. Such levels of spending may be influenced significantly by oil and natural gas prices and expected changes in or instability of such prices, as well as other factors, including:
 

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       Events causing reductions in exploration and development spending by oil and gas companies may decrease demand for the Company's services and adversely impact revenues through lower day rates and reduced utilization of the Company's equipment. The supply of drilling rigs is limited and new rigs require a substantial capital investment and a long period of time to construct. In addition, it is time consuming and costly to move rigs between markets. Accordingly, as demand changes in a particular market, the supply of rigs may not adjust quickly, and therefore the utilization and day rates of rigs could fluctuate significantly.

       Industry conditions fluctuate in response to supply and demand forces. During industry upturns, the Company usually experiences higher utilization and day rates, and generally is able to negotiate more favorable contract terms. During industry downturns, the Company competes more aggressively for contracts at lower day rates and may accept less favorable commercial terms and contractual liability and indemnity provisions that do not offer the same level of protection against potential losses as can be obtained during industry upturns. Increased contractual liabilities may have an adverse effect on results of operations in connection with risks for which the Company is uninsured or underinsured, or in relation to increased cost of insurance.

       Additional information regarding industry conditions is presented in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

Competition

       The offshore contract drilling industry is highly competitive with numerous industry participants. Drilling contracts are, for the most part, awarded on a competitive bid basis. Price competition is often the primary factor in determining which qualified contractor is awarded a contract, although quality of service, operational and safety performance, equipment suitability and availability, reputation and technical expertise are also factors. The Company has numerous competitors in the offshore contract drilling industry, several of which are larger and have greater resources than the Company.

Governmental Regulation

       The Company's operations are affected by political developments and by local, state, federal and foreign laws and regulations that relate directly to the oil and gas industry. The offshore contract drilling industry is dependent on demand for services from the oil and natural gas exploration industry. Accordingly, the Company will be directly affected by the approval and adoption of laws and regulations curtailing exploration and development drilling for oil and natural gas for economic, environmental, safety and other policy reasons. It is also possible that these laws and regulations could adversely affect the Company's operations in the future by significantly increasing operating costs.

Environmental Matters

       The Company's operations are subject to local, state, federal and foreign laws and regulations controlling the discharge of materials into the environment, contamination, and hazardous waste disposal or otherwise relating to the protection of the environment. Laws and regulations specifically applicable to the Company's business activities could impose significant liability on the Company for damages, clean-up costs, fines and penalties in the event of the occurrence of oil spills or similar discharges of pollutants or contaminants into the environment or improper disposal of hazardous waste in the course of the Company's operations. To date, such laws and regulations have not had a material adverse effect on the Company's results of operations, and the Company has not experienced an accident that has exposed it to material liability for discharges of pollutants into the environment. However, events in recent years have heightened environmental concerns about the oil and gas industry generally. From time to time, legislative proposals have been introduced that would materially limit or prohibit offshore drilling in certain areas. To date, no proposals which would materially limit or prohibit offshore drilling in the Company's principal areas of operation have been enacted into law. If laws are enacted or other governmental action is taken that restrict or prohibit offshore drilling in the Company's principal areas of operation or impose environmental protection requirements that materially increase the cost of offshore drilling, exploration, development or production of oil and gas, the Company could be materially adversely affected.

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       The United States Oil Pollution Act of 1990 ("OPA 90"), as amended, and other federal statutes applicable to the Company and its operations, as well as similar state statutes in Texas, Louisiana and other coastal states, address oil spill prevention and control and significantly expand liability, fine and penalty exposure across many segments of the oil and gas industry. These statutes and related regulations, both federal and state, impose a variety of obligations on the Company related to the prevention of oil spills and liability for resulting damages. For instance, OPA 90 imposes strict and, with limited exceptions, joint and several liability upon each responsible party for oil removal costs and a variety of fines, penalties and damages. A failure to comply with these statutes, including without limitation, OPA 90, may subject the Company to civil or criminal enforcement action, which may not be covered by contractual indemnification or insurance, and could have a material adverse effect on our financial position, results of operations and cash flows.

International Operations

       A significant portion of the Company's contract drilling operations is conducted in foreign countries. Revenues from international operations as a percentage of the Company's total revenues were 59% and 63% in 2005 and 2004, respectively. The Company's international operations are subject to political, economic and other uncertainties, such as the risks of foreign terrorist acts, expropriation or nationalization of the Company's equipment, expropriation or nationalization of a customer's property or drilling rights, repudiation of contracts, adverse tax policies, general hazards associated with international sovereignty over certain areas in which the Company operates and fluctuations in international economies and currencies.

       The Company has historically maintained insurance coverage and contractual indemnities that protect it from some, but not all, of the risks associated with its foreign operations. However, there can be no assurance that any particular type of insurance coverage will be available in the future or that the Company will be able to purchase its desired level of insurance coverage at commercially feasible rates. Accordingly, a significant event for which the Company is uninsured or underinsured, or for which the Company fails to recover a contractual indemnity from a customer, could cause a material adverse effect on the Company's financial position, results of operations and cash flows.

       The Company is subject to various tax laws and regulations in substantially all of the foreign countries in which it operates. The Company evaluates applicable tax laws and employs various business structures and operating strategies in foreign countries to obtain the optimal level of taxation on its revenues, income and assets. Actions by foreign tax authorities that impact the Company's business structures and operating strategies, such as changes to tax treaties, laws and regulations, or repeal of same, adverse rulings in connection with audits, or other challenges, may result in substantially increased tax expense.

       The Company's international operations also face the risk of fluctuating currency values, which can impact revenues and operating costs denominated in foreign currencies. In addition, some of the countries in which the Company operates have occasionally enacted exchange controls. Historically, the Company has been able to limit these risks by invoicing and receiving payment in U.S. dollars or freely convertible international currency and, to the extent possible, by limiting acceptance of foreign currency to amounts which approximate its expenditure requirements in such currencies. However, there is no assurance that the Company will be able to renegotiate such terms in the future. The Company also uses foreign currency purchase options or futures contracts to reduce its exposure to foreign currency risk.

       The Company currently conducts contract drilling operations in certain countries that have experienced substantial devaluations of their currency compared to the U.S. dollar. However, since the Company's drilling contracts generally stipulate payment wholly or substantially in U.S. dollars, the Company has experienced no significant losses due to the devaluation of such currencies.

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Executive Officers of the Registrant

The following table sets forth certain information regarding the current executive officers of the Company:

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       Set forth below is certain additional information concerning the executive officers of the Company, including the business experience of each executive officer for at least the last five years.

       Carl F. Thorne has been a Director of the Company since December 1986. He was elected President and Chief Executive Officer of the Company in May 1987, and served as President until January 2002. He was first elected Chairman of the Board of Directors in November 1987. Mr. Thorne holds a Bachelor of Science Degree in Petroleum Engineering from The University of Texas at Austin and a Juris Doctorate Degree from Baylor University College of Law.

       William S. Chadwick, Jr. joined the Company in June 1987 and was elected to his present position of Executive Vice President and Chief Operating Officer effective January 2, 2006. Prior to his current position, Mr. Chadwick served the Company as Senior Vice President - Operations, Senior Vice President, Member - Office of the President and Chief Operating Officer and as Vice President - Administration and Secretary. Mr. Chadwick holds a Bachelor of Science Degree in Economics from the Wharton School of the University of Pennsylvania.

       J. W. Swent joined the Company in July 2003 and was elected to his present position of Senior Vice President and Chief Financial Officer effective July 28, 2003. Mr. Swent previously held various financial executive positions in the information technology, telecommunications and manufacturing industries, including Memorex Corporation and Nortel Networks. He served as Chief Financial Officer and Chief Executive Officer of Cyrix Corporation from 1996 to 1997 and Chief Financial Officer and Chief Executive Officer of American Pad and Paper Company from 1998 to 2000. Prior to joining the Company, Mr. Swent had served as Co-Founder and Managing Director of Amrita Holdings, LLC since 2001. He is a graduate of the University of California at Berkeley, where he received a Bachelor of Science Degree in Finance and Masters Degree in Business Administration.

       P. J. Saile joined the Company in August 1987 and was elected Senior Vice President - Business Development and SHE in August 2005. In addition, he serves as the Senior Executive having oversight responsibility for Engineering. Prior to assuming his current position, Mr. Saile served the Company as Senior Vice President, Member - Office of the President and Chief Operating Officer, and as Vice President - Operations until June 2002 when he became President and Chief Operating Officer of ENSCO Offshore International Company, a subsidiary of the parent company, a position he held until July 2005. Mr. Saile holds a Bachelor of Business Administration Degree from the University of Mississippi.

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       Richard A. LeBlanc joined the Company in July 1989 as Manager of Finance. He assumed responsibilities for the investor relations function in March 1993. Prior to his current position, he was elected Treasurer in May 1995 and Vice President - Corporate Finance, Investor Relations and Treasurer in May 2002. Mr. LeBlanc holds a Bachelor of Science Degree in Finance and a Master of Business Administration Degree, both from Louisiana State University.

       H. E. Malone, Jr. joined the Company in August 1987 and was elected Vice President - Finance effective May 2004. Prior to his current position, Mr. Malone served the Company as Vice President - Accounting, Tax and Information Systems, Vice President - Finance and Vice President - Controller. Mr. Malone holds Bachelor of Business Administration Degrees from The University of Texas at Austin and Southern Methodist University and a Master of Business Administration Degree from the University of North Texas.

       Paul Mars joined the Company in June 1998 and served as Vice President - Engineering from May 2003 until July 2005, when he was elected to his current position. Mr. Mars previously served the Company as General Manager for the Europe and Africa Business Unit. Prior to joining the Company, Mr. Mars served in various capacities as an employee of Smedvig Offshore Limited and Transworld North Sea Drilling Services Limited. Mr. Mars holds a Bachelor of Science Honors Degree in Naval Architecture from the University of Newcastle upon Tyne, England.

       Charles A. Mills joined the Company in June 2004 as Vice President - Human Resources and Security. He has over 27 years oil and gas industry experience in human resources and managerial positions most recently from 1989 to 2002 with Hunt Oil Company where he was Senior Vice President Human Resources and Corporate Services. Prior to 1989, Mr. Mills held a number of executive and management positions with Tenneco Oil E & P and Shell Oil Company. Mr. Mills holds a Bachelor of Science degree in Management from the University of West Florida.

       Cary A. Moomjian, Jr. joined the Company in January 2002 and thereupon was elected Vice President, General Counsel and Secretary. Mr. Moomjian has over thirty years of experience in the oil and gas industry. From 1976 to 2001, Mr. Moomjian served in various management and executive capacities as an employee of Santa Fe International Corporation, including Vice President, General Counsel and Secretary from 1993 to 2001. Mr. Moomjian holds a Bachelor of Arts Degree from Occidental College and a Juris Doctorate Degree from Duke University School of Law.

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       David A. Armour joined the Company in October 1990 as Assistant Controller and was elected Controller effective January 2002. From 1981 to 1990, Mr. Armour served in various capacities as an employee of the public accounting firm Deloitte & Touche LLP, and its predecessor firm, Touche Ross & Co. Mr. Armour holds a Bachelor of Business Administration Degree from The University of Texas at Austin.

       Ramon Yi joined the Company in August 2004 as Treasurer. Mr. Yi has over thirty years of business experience in a variety of industries, most recently as Corporate Treasurer in the manufacturing and high tech sectors, including Sunrise Medical and Fresenius Medical Care, global manufacturers of durable medical equipment, and Symbios, Inc., a manufacturer of semiconductor chips. He was also Vice President for George E. Warren Corporation and Assistant Treasurer for Northeast Petroleum Corporation, both in the petroleum trading and marketing industry. Mr. Yi earned a Bachelor of Arts degree from Harvard University in 1975 and a Master of Business Administration in Finance and Accounting from Boston University.

       Officers each serve for a one-year term or until their successors are elected and qualified to serve. Mr. Thorne and Mr. Malone are brothers-in-law.

       On February 6, 2006, Daniel W. Rabun, age 51, was named by ENSCO's Board of Directors to serve as President of the Company and as a member of the Board of Directors, effective on or before March 31, 2006. Mr. Rabun has been a partner at the international law firm of Baker & McKenzie where he has practiced law since 1986. He left the firm from October 2000 to August 2001, to serve as vice president, general counsel and secretary of Chorum Technologies Inc. Mr. Rabun has provided legal advice and counsel to ENSCO for over fifteen years, and served as a Director of the Company during 2001. He holds a B.B.A. in Accounting from the University of Houston and a Juris Doctorate Degree from Southern Methodist University. He has been a Certified Public Accountant since 1976 and was admitted to the Texas Bar in 1983. Mr. Rabun will report to Carl F. Thorne who will continue to serve as ENSCO's Chairman and Chief Executive Officer. It is currently contemplated that Mr. Thorne will step down as Chief Executive Officer within the next year, at which time Mr. Rabun will be appointed to serve as ENSCO's Chief Executive Officer. Mr. Thorne will thereupon continue to serve as Chairman of the Board.

Employees

       The Company had approximately 3,700 full-time employees worldwide as of February 1, 2006.

Available Information

       The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act and reports pertaining to the Company filed under Section 16 of the Securities Exchange Act are available on the Company's website at www.enscous.com as soon as reasonably practicable after the Company electronically files the information with, or furnishes it to, the Securities and Exchange Commission.

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Item 1A.  Risk Factors

       There are many factors that affect our business and the results of our operations, many of which are beyond our control. The following is a description of significant factors that might cause the actual results of operations in future periods to differ materially from those currently expected or desired.

THE SUCCESS OF OUR BUSINESS WILL DEPEND ON THE LEVEL OF ACTIVITY IN THE OIL AND NATURAL GAS INDUSTRY, WHICH IS SIGNIFICANTLY AFFECTED BY VOLATILE OIL AND GAS PRICES.

       The success of our business will largely depend on the level of activity in offshore oil and natural gas exploration, development and production in markets worldwide. Oil and natural gas prices, and market expectations of potential changes in these prices, significantly affect the level of activity. An actual decline, or the perceived risk of a decline, in oil or natural gas prices could cause oil and gas companies to reduce their overall level of spending, in which case demand for our equipment and services may decrease and revenues may be adversely affected through lower rig utilization and lower average day rates. Worldwide military, political, environmental and economic events have also contributed to oil and natural gas price volatility and are likely to continue to do so in the future. Numerous other factors may affect oil and natural gas prices and the level of demand for our services, including:
 

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THE OFFSHORE CONTRACT DRILLING INDUSTRY IS CYCLICAL, WITH PERIODS OF LOW DEMAND AND EXCESS RIG AVAILABILITY THAT COULD RESULT IN ADVERSE EFFECTS ON OUR BUSINESS.

       Financial operating results in the offshore contract drilling industry have historically been very cyclical and primarily are related to the demand for drilling rigs and the available supply of rigs. Demand for rigs is directly related to the regional and worldwide levels of offshore exploration and development spending by oil and gas companies, which is beyond our control. Offshore exploration and development spending may fluctuate substantially from year to year and from region to region as noted in "THE SUCCESS OF OUR BUSINESS WILL DEPEND ON THE LEVEL OF ACTIVITY IN THE OIL AND NATURAL GAS INDUSTRY, WHICH IS SIGNIFICANTLY AFFECTED BY VOLATILE OIL AND GAS PRICES" above.

       The supply of drilling rigs is limited and new rigs require a substantial capital investment and a long period of time to construct. Currently, there are over seventy new rigs, primarily jackup rigs, reported to be on order for delivery by the end of 2009. There are no assurances that the market will be able to fully absorb the supply of new rigs scheduled to enter the market in future periods.

       It is time consuming and costly to move rigs between geographic areas. Accordingly, as demand changes in a particular market, the supply of rigs may not adjust quickly, and therefore the utilization and day rates of rigs could fluctuate significantly. Certain events, such as hurricanes, craterings, punchthrough and blowouts may impact the supply of rigs in a particular market and cause rapid fluctuations in rig demand, utilization and day rates.

       Periods of decreased demand and excess rig supply may require us to idle rigs or to enter into lower rate contracts. There can be no assurance that the current demand for drilling rigs will not decline in future periods, nor can there be any assurance concerning any adverse effect resulting from such decrease in activity.

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THE OFFSHORE CONTRACT DRILLING INDUSTRY IS HIGHLY COMPETITIVE WHICH COULD LEAD US TO ACCEPT LOWER DAY RATES AND LESS FAVORABLE CONTRACT TERMS DURING INDUSTRY DOWNTURNS.

       The offshore contract drilling industry is highly competitive with numerous industry participants. The industry has experienced consolidation in recent years and may experience additional consolidation. Furthermore, recent mergers among oil and natural gas exploration and production companies have reduced the number of available customers.

       Drilling contracts are, for the most part, awarded on a competitive bid basis. Price competition is often the primary factor in determining which qualified contractor is awarded a contract, although quality of service, operational and safety performance, equipment suitability and availability, reputation and technical expertise are also factors. We will compete with numerous offshore drilling contractors, several of which are larger and have greater resources than us.

       During good industry market cycles we experience higher utilization, receive relatively high average day rates, and also generally are able to negotiate more favorable contract terms. During adverse industry market cycles, we compete more aggressively for contracts at lower day rates and may have to accept contractual liability and indemnity provisions that do not offer the same level of protection against potential losses as can be obtained during good industry market cycles. Lower day rates and/or utilization will adversely affect our results of operations. Increased contractual liabilities may also have an adverse effect on results of operations, especially in respect of risks for which we are uninsured or underinsured, or in relation to increased cost of insurance.

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WE MAY SUFFER LOSSES IF OUR CUSTOMERS TERMINATE OR SEEK TO RENEGOTIATE OUR CONTRACTS.

       Our drilling contracts often are cancelable upon specific notice by the customer. Although contracts may require the customer to pay an early termination payment upon cancellation, such payment may not fully compensate for the loss of the contract. In periods of rapid market downturn, our customers may not honor the terms of existing contracts, may terminate contracts or may seek to renegotiate contract rates and terms to conform with depressed market conditions. Furthermore, contracts customarily specify automatic termination or termination at the option of the customer in the event of a total loss of the drilling rig and often include provisions addressing termination rights or cessation of day rates if operations are suspended for extended periods by reason of excessive downtime for repairs, acts of God or other specified conditions. Our operating results may be adversely affected by early termination of contracts, contract renegotiations or cessation of day rates while operations are suspended.

OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED IF CERTAIN CUSTOMERS CEASE TO DO BUSINESS WITH US.

       We provide our services to major international, government-owned and independent oil and gas companies. However, the number of customers served by us has decreased in recent years as a result of mergers among the major international oil companies and large independent oil companies. ExxonMobil provided approximately 12% of our consolidated revenues in 2005. The next four largest customers for 2005 accounted in the aggregate for approximately 30% of our 2005 consolidated revenues. Our results of operations may be materially adversely affected if any major customer terminates its contracts with us, fails to renew its existing contracts with us, or declines to award new contracts to us.

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OUR BUSINESS INVOLVES NUMEROUS OPERATING HAZARDS AND WE ARE NOT FULLY INSURED AGAINST ALL OF THESE HAZARDS.

       Contract drilling and offshore oil and gas operations in general are subject to numerous risks, including the following:
 

       In addition, many of the hazards and risks associated with our operations, and accidents or other events resulting from such hazards and risks, expose our personnel, as well as personnel of our customers, subcontractors, vendors and other third parties, to risk of personal injury or death.

       We currently maintain broad insurance coverage, subject to certain significant deductibles and levels of self-insurance, but it does not cover all types of losses and in some situations it may not provide full coverage of losses or liabilities resulting from our operations. We have historically maintained insurance coverage for damage to our drilling rigs for amounts not less than the estimated fair market value thereof. However, in the event of total loss, such coverage is unlikely to be sufficient to recover the cost of a newly constructed replacement rig. Additionally, we do not generally maintain business interruption or loss of hire insurance.

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       We obtain contractual indemnification from our customers whereby such customers generally agree to protect and indemnify us for liabilities resulting from pollution and damage to the environment, damage to wells, reservoirs and other customer property, control of wild wells, drilling of relief wells and certain personnel injuries. The failure of a customer to meet indemnification obligations, the failure of one or more of our insurance providers to meet claim obligations, or losses or liabilities resulting from uninsured or underinsured events could have a material adverse effect on our financial position, results of operations and cash flows.

       Our contracts generally protect us from certain losses sustained as a result of our negligence. However, losses resulting from contracts that do not contain such protection could have a material adverse affect on our financial position, results of operations and cash flows. Losses resulting from our gross negligence or willful misconduct may not be protected contractually by specific provision or by application of law, and our insurance may not provide adequate protection for such losses.

       Moreover, the cost of many of the types of insurance coverage maintained by us has increased significantly during recent years. In addition, insurance market conditions have resulted in retention of additional risk by us, primarily through higher insurance deductibles. Very few insurance underwriters offer certain types of insurance coverage maintained by us, and there can be no assurance that any particular type of insurance coverage will continue to be available in the future, that we will not accept retention of additional risk through higher insurance deductibles or otherwise, or that we will be able to purchase our desired level of insurance coverage at commercially feasible rates. Further, due to the losses sustained by us and the offshore drilling industry as a consequence of hurricanes that occurred in the Gulf of Mexico in 2005 and 2004, we may not be able to obtain future insurance coverage comparable with that of prior years, thus putting us at a greater risk of loss due to severe weather conditions which could have a material adverse effect on our financial position, results of operations and cash flows. In addition, we are likely to experience increased cost for available insurance coverage which may impose higher deductibles and limit maximum aggregate recoveries for certain perils such as hurricane related windstorm damage or loss. Our primary insurance policies renew annually effective July 1, and we may modify our risk management program in response to changes in the insurance market, including possible implementation of a captive insurance program or increased risk retention.

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OUR INTERNATIONAL OPERATIONS INVOLVE ADDITIONAL RISKS NOT ASSOCIATED WITH DOMESTIC OPERATIONS.

       A significant portion of our contract drilling operations are conducted in foreign countries. Revenues from international operations as a percentage of our total revenues were 59% and 63% in 2005 and 2004, respectively. Our international operations and our international shipyard rig construction and enhancement projects are subject to political, economic and other uncertainties, such as the risks of:
 

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       We have historically maintained insurance coverage and contractual indemnities that protect us from some, but not all, of the risks associated with our foreign operations. However, there can be no assurance that any particular type of insurance coverage will be available in the future or that we will be able to purchase our desired level of insurance coverage at commercially feasible rates. Accordingly, a significant international event for which we are uninsured or underinsured, or for which we fail to recover a contractual indemnity from a customer, could cause a material adverse effect on our financial position, results of operations and cash flows.

       We are subject to various tax laws and regulations in substantially all of the foreign countries in which we operate. We evaluate applicable tax laws and employ various business structures and operating strategies in foreign countries to obtain the optimal level of taxation on our revenues, income, assets and personnel. Actions by foreign tax authorities that impact our business structures and operating strategies, such as changes to tax treaties, laws and regulations, or repeal of same, adverse rulings in connection with audits, or other challenges, may result in substantially increased tax expense.

       Our international operations also face the risk of fluctuating currency values, which can impact revenues and operating costs denominated in foreign currencies. In addition, some of the countries in which we operate have occasionally enacted exchange controls. Historically, we have been able to limit these risks by invoicing and receiving payment in U.S. dollars or freely convertible international currency and, to the extent possible, by limiting acceptance of foreign currency to amounts which approximate our expenditure requirements in such currencies. However, there is no assurance that we will be able to renegotiate such terms in the future. We also use foreign currency purchase options or futures contracts to reduce our exposure to foreign currency risk.

       We currently conduct contract drilling operations in certain countries that have experienced substantial devaluations of their currency compared to the U.S. dollar. However, since our drilling contracts generally stipulate payment wholly or substantially in U.S. dollars, we have experienced no significant losses due to the devaluation of such currencies. However, there is no assurance that we will be able to negotiate such payment terms in the future.

       Our international operations are also subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the equipment and operation of drilling rigs. Governments in some foreign countries have become increasingly active in regulating and controlling the ownership of concessions and companies holding concessions, the exploration of oil and gas and other aspects of the oil and gas industries in their countries. In addition, government action, including initiatives by OPEC, may continue to cause oil or gas price volatility. In some areas of the world, this government activity has adversely affected the amount of exploration and development work done by major oil companies and may continue to do so. There can be no assurance that these laws and regulations or activities will not have a material adverse effect on our operations in the future.

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COMPLIANCE WITH OR BREACH OF ENVIRONMENTAL LAWS CAN BE COSTLY AND COULD LIMIT OUR OPERATIONS.

       Our operations are subject to local, state, federal and foreign laws and regulations controlling the discharge of materials into the environment, contamination and hazardous waste disposal or otherwise relating to the protection of the environment. Laws and regulations specifically applicable to our business activities could impose significant liability on us for damages, clean-up costs, fines and penalties in the event of the occurrence of oil spills or similar discharges of pollutants or contaminants into the environment or improper disposal of hazardous waste in the course of our operations. To date, such laws and regulations have not had a material adverse effect on our results of operations and we have not experienced an accident that has exposed us to material liability for discharges of pollutants into the environment. However, there can be no assurance that such laws and regulations or accidents will not expose us to material liability in the future.

       Moreover events in recent years have heightened environmental concerns about the oil and gas industry generally. From time to time, legislative proposals have been introduced that would materially limit or prohibit offshore drilling in certain areas. To date, no proposals which would materially limit or prohibit offshore drilling in our principal areas of operation have been enacted into law. If laws are enacted or other governmental action is taken that restrict or prohibit offshore drilling in our principal areas of operation or impose environmental protection requirements that materially increase the cost of offshore drilling, exploration, development or production of oil and gas, we could be materially adversely affected.

       The United States Oil Pollution Act of 1990 ("OPA 90"), as amended, and other federal statutes applicable to us and our operations, as well as similar state statutes in Texas, Louisiana and other coastal states, address oil spill prevention and control and significantly expand liability, fine and penalty exposure across many segments of the oil and gas industry. These statutes and related regulations, both federal and state, impose a variety of obligations on us related to the prevention of oil spills and liability for resulting damages. For instance, OPA 90 imposes strict and, with limited exceptions, joint and several liability upon each responsible party for oil removal costs and a variety of fines, penalties and damages. A failure to comply with these statutes, including without limitation, OPA 90, may subject us to civil or criminal enforcement action, which may not be covered by contractual indemnification or insurance, and could have a material adverse effect on our financial position, results of operations and cash flows.

LAWS AND GOVERNMENTAL REGULATIONS MAY ADD TO COSTS OR LIMIT OUR DRILLING ACTIVITY.

       Our operations are affected by political developments and by local, state, federal and foreign laws and regulations that relate directly to the oil and gas industry. The offshore contract drilling industry is dependent on demand for services from the oil and natural gas exploration industry. Accordingly, we will be directly affected by the approval and adoption of laws and regulations curtailing exploration and development drilling for oil and natural gas for economic, environmental, safety and other policy reasons. Furthermore, we may be required to make significant capital expenditures to comply with governmental laws and regulations. It is also possible that these laws and regulations could adversely affect our operations in the future by limiting drilling opportunities or significantly increasing operating costs.

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OUR DRILLING RIG FLEET IS HEAVILY CONCENTRATED IN PREMIUM JACKUP RIGS, WHICH LEAVES US VULNERABLE TO RISKS RELATED TO LACK OF DIVERSIFICATION.

       The offshore contract drilling industry is generally divided into two broad markets: deepwater and shallow water drilling. Broad markets are generally divided into smaller sub-markets based upon various factors, including type of drilling rig. The primary types of drilling rigs include: jackup rigs, semisubmersible rigs, drill ships, platform rigs, barge rigs and submersible rigs. While these market segments are affected by common characteristics, they each have separate market conditions that affect the demand and rates for drilling equipment in that segment. Our current complement of offshore drilling rigs is comprised of 43 premium jackup rigs, one ultra-deepwater semisubmersible rig, one platform rig and one barge rig. Additionally, we have two ultra-deepwater semisubmersible rigs and one ultra-high specification jackup rig under construction.

       Accordingly, our drilling fleet is heavily concentrated in the premium jackup rig market. If the market for premium jackup rigs should decline relative to the markets for other drilling rig types, our results of operations could be more adversely affected relative to our competitors which may have drilling fleets that are not concentrated in premium jackup rigs.

NEW TECHNOLOGIES MAY CAUSE OUR CURRENT DRILLING METHODS TO BECOME OBSOLETE, RESULTING IN AND ADVERSE EFFECT ON OUR BUSINESS.

       The offshore contract drilling industry is subject to the introduction of new drilling techniques and services using new technologies, some of which may be subject to patent protection. As competitors and others use or develop new technologies, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost. In addition, competitors may have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can. We cannot be certain that we will be able to implement technologies on a timely basis or at a cost that is acceptable to us. One or more of the technologies that we currently use or that we may implement in the future may become obsolete, and we may be adversely affected.

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OUR DRILLING RIGS ARE SUSCEPTIBLE TO DAMAGE OR DESTRUCTION BY SEVERE WEATHER.

       Certain areas in and near the Gulf of Mexico experience hurricanes and other extreme weather conditions on a relatively frequent basis. Some of our drilling rigs in the Gulf Coast Region are located in areas that could cause them to be susceptible to damage and/or total loss by these storms and we have a larger concentration of rigs in the Gulf Coast Region than most of our competitors. Damage caused by high winds and turbulent seas could potentially cause us to curtail operations on such drilling rigs for significant periods of time until damage can be repaired. Moreover, even if our drilling rigs are not directly damaged by such storms, we may experience disruptions in our operations due to damage to our customer's platforms and other related facilities in the area. To date, our drilling operations in the Gulf of Mexico have not been materially impacted by hurricanes, although we sustained the total loss of one jackup rig in 2004 and one platform rig in 2005 by reason of hurricane damage.

       Due to the losses sustained by us and the offshore drilling industry as a consequence of hurricanes that occurred in the Gulf of Mexico in 2005 and 2004, we may not be able to obtain future insurance coverage comparable with that of prior years, thus putting us at a greater risk of loss due to severe weather conditions which could have a material adverse effect on our financial position, results of operations and cash flows. In addition, we are likely to experience increased cost for available insurance coverage which may impose higher deductibles and limit maximum aggregate recoveries for certain perils such as hurricane related windstorm damage or loss. Our primary insurance policies renew annually effective July 1, and we may modify our risk management program in response to changes in the insurance market, including possible implementation of a captive insurance program or increased risk retention.

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CHANGES IN LAWS, EFFECTIVE TAX RATES OR ADVERSE OUTCOMES RESULTING FROM EXAMINATION OF OUR TAX RETURNS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS.

       Our future effective tax rates could be adversely affected by changes in tax laws both domestically and internationally. Our future effective tax rates could also be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax treaties, regulations, accounting principles or interpretations thereof in one or more countries in which we operate. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.

       In July 2005, the FASB issued an Exposure Draft of a proposed Interpretation "Accounting for Uncertain Tax Positions - an interpretation of FASB Statement No. 109." The proposed Interpretation proposes changes to the current accounting for uncertain tax positions. While we cannot predict with certainty the rules in the final Interpretation, there is risk that the final Interpretation could result in a cumulative effect charge to earnings upon adoption, increases in future effective tax rates, and/or increases in future effective tax rate volatility.

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RIG UPGRADE, ENHANCEMENT AND CONSTRUCTION PROJECTS ARE SUBJECT TO RISKS WHICH COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR RESULTS OF OPERATIONS.

       We currently have two ultra-deepwater semisubmersible rigs and one ultra-high specification jackup rig under construction at a shipyard in Singapore. In addition, we may construct additional rigs and continue to upgrade the capability and extend the service lives of other rigs. Rig upgrade, life extension and construction projects are subject to the risks of delay or cost overruns inherent in any large construction project, including the following:
 

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FAILURE TO OBTAIN AND RETAIN SKILLED PERSONNEL COULD IMPEDE OUR OPERATIONS.

       We require highly skilled personnel to operate and provide technical services and support for our business. Competition for the skilled and other labor required for drilling operations has intensified as the number of rigs activated or added to worldwide fleets or under construction has increased in the last few years. Specfically, there are over seventy new rigs, primarily jackup rigs, reported to be on order for delivery by the end of 2009, which will require new skilled and other personnel to operate. Although competition for skilled and other labor has not materially affected us to date, the possibility exists that competition for skilled and other labor for operations could limit our results of operations in the future.

       In 2001, we entered into a voluntary agreement with a labor union in the North Sea and have not experienced any significant work stoppages or strikes as a result of labor disputes. Although none of our domestic employees are currently represented by unions, there may be continued labor union efforts to organize offshore employees in the Gulf of Mexico. Unionization or similar collective actions by our employees, domestically and internationally, may adversely impact our cost of labor.

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TERRORIST ATTACKS AND MILITARY ACTION COULD RESULT IN A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

       Terrorist acts or acts of war may cause damage to or disruption of our United States or international operations, employees, property and equipment, or customers, suppliers and subcontractors, which could significantly impact our financial position, results of operations and cash flows. Terrorist acts often create many economic and political uncertainties and the potential for future terrorist acts, the national and international responses to terrorism, and other acts of war or hostility could create many economic and political uncertainties, including an impact upon oil and gas drilling, exploration and development, which could adversely affect our business in ways that cannot readily be determined.

Item 1B.  Unresolved Staff Comments

       The Company has no unresolved Securities and Exchange Commission staff comments.

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Item 2.  Properties

Contract Drilling

       The following table provides certain information about the Company's drilling rig fleet as of February 15, 2006:

JACKUP RIGS

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       The equipment on the Company's drilling rigs includes engines, drawworks, derricks, pumps to circulate the drilling fluid, blowout preventers, drill string and related equipment. The engines power a drive mechanism that turns the drill string and drill bit so that the hole is drilled by grinding subsurface materials, which are then carried to the surface by the drilling fluid. The intended well depth, water depth and drilling conditions are the principal factors that determine the size and type of rig most suitable for a particular drilling job.

       Jackup rigs stand on the ocean floor with their hull and drilling equipment elevated above the water on connected leg supports. Jackup rigs are generally preferred over other rig types in water depths of 400 feet or less, primarily because jackup rigs provide a more stable drilling platform with above water blowout prevention equipment. All of the Company's jackup rigs are of the independent leg design. All but one of the Company's jackup rigs are equipped with cantilevers, which allow the drilling equipment to extend outward from their hulls over fixed platforms enabling drilling of both exploratory and development wells. The jackup rig hull supports the drilling equipment, jacking system, crew quarters, storage and loading facilities, helicopter landing pad and related equipment.

       A semisubmersible rig is a floating offshore drilling unit with pontoons and columns that, when flooded with water, cause the unit to be partially submerged to a predetermined depth. Semisubmersible rigs can be held in a fixed location over the ocean floor by being either anchored to the sea bottom with mooring chains or dynamically positioned by computer-controlled propellers, or "thrusters." ENSCO 7500, which is capable of drilling in water depths up to 8,000 feet, is a dynamically positioned rig, but it also can be adapted for moored operations. ENSCO 8500 and ENSCO 8501 will be enhanced versions of the ENSCO 7500. The ENSCO 8500 Series^TM rigs will be capable of drilling in up to 8,500 feet of water, and can readily be upgraded to 10,000 feet water-depth capability if required. Enhancements over ENSCO 7500 include a two million pound quad derrick, offline pipe handling capability, increased drilling capacity, greater variable deck load, and improved automatic station keeping ability. With these features, the ENSCO 8500 Series^TM rigs will be especially well-suited for deepwater development drilling.

       Barge rigs are towed to the drilling location and are held in place by anchors while drilling activities are conducted. The Company's barge rig has all of the crew quarters, storage facilities and related equipment mounted on the floating barge, with the drilling equipment cantilevered from the stern of the barge.

       Platform rigs are designed to be temporarily installed on permanently constructed customer offshore platforms. The platform rig sections are lifted onto the offshore platforms with heavy lift cranes. A platform rig typically remains at a location for a longer period of time than a jackup rig, because several wells can be drilled from a single offshore platform.

       Over the life of a typical rig, several of the major components are replaced due to normal wear and tear or due to technological advancements in drilling equipment. All of the Company's rigs are in good condition. As of February 15, 2006, the Company owns all of the rigs in its fleet.

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Discontinued Operations

       During September 2005, the ENSCO 29 platform rig sustained substantial damage as a consequence of Hurricane Katrina. On January 5, 2006, beneficial ownership of ENSCO 29 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss ("CTL") under the terms of the Company's insurance policies. During 2005, the Company sold the ENSCO 26 platform rig and six South America/Caribbean barge rigs. In April 2005, beneficial ownership of ENSCO 64 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a CTL due to damage sustained by the rig during Hurricane Ivan in September 2004. The aforementioned rigs are not included in the Company's drilling fleet noted in the table above and their operating results have been reclassified as discontinued operations. See Note 10 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information concerning the Company's discontinued operations.

Other Property

       The Company leases its executive offices in Dallas, Texas. The Company owns offices and other facilities in Louisiana and Scotland. In addition to its executive offices, the Company currently rents office space domestically in Houston, Texas, and internationally in Australia, Brunei, Denmark, Dubai, India, Indonesia, Malaysia, Nigeria, Qatar, Saudi Arabia, Singapore, Thailand and Venezuela.

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Item 3.  Legal Proceedings

       In September 2005, the Company received summonses from the Lancaster Magistrates' Court charging violations of the U.K. Health and Safety at Work Act in connection with a fatal injury sustained by an employee on one of its rigs during May 2003. Should criminal liability be established, the Company is subject to a monetary fine. The Company currently believes it has established a sufficient reserve in relation to this matter, and does not believe the resolution of these charges to have a material adverse effect on its financial position, results of operations or cash flows.

       In August 2004, the Company and certain subsidiaries were named as defendants in three multi-party lawsuits filed in the Circuit Courts of Jones County (Second Judicial District) and Jasper County (First Judicial District), Mississippi, involving numerous other companies as co-defendants. The lawsuits seek an unspecified amount of monetary damages on behalf of individuals alleging personal injury or death, including claims under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the period 1965 through 1986. The lawsuits are at a very preliminary stage during which the plaintiffs are required to submit "Fact Sheets", which presumably would establish if they have a cause of action which merits review by the courts and, if so, whether the courts in question have jurisdiction to hear their claims. Inasmuch as not all plaintiffs have filed their "Fact Sheets" and others who have are the focus of motions to either transfer, sever and/or dismiss their claims, the Company has not been able to determine the number of plaintiffs with claims that may have been employed by the Company or its subsidiaries or otherwise associated with its drilling operations during the relevant period. The Company has filed responsive pleadings preserving all defenses and challenges to jurisdiction or venue, and intends to vigorously defend against the litigation. Based on information currently available or, more appropriately, the lack thereof, the Company cannot reasonably estimate a range of potential liability exposure, if any. While the Company does not expect the resolution of these lawsuits to have a material adverse effect on its financial position, results of operations or cash flows, there can be no assurance as to the ultimate outcome of these lawsuits.

       The Company and its subsidiaries are named defendants in certain lawsuits and are involved from time to time as parties to governmental proceedings, including matters related to taxation, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material effect on the financial position, results of operations or cash flows of the Company

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

       There were no matters submitted to a vote of security holders in the fourth quarter of 2005.

PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
              of Equity Securities

       The following table sets forth the high and low sales prices for each period indicated for the Company's common stock, $.10 par value, for each of the last two fiscal years:

       The Company's common stock (Symbol: ESV) is traded on the New York Stock Exchange. At February 1, 2006, there were 1,143 stockholders of record of the Company's common stock.

       The Company initiated the payment of a $.025 per share quarterly cash dividend on its common stock during the third quarter of 1997 and has continued to pay such quarterly dividends through December 31, 2005. Cash dividends totaling $.10 per share were paid in both 2005 and 2004. The Company currently intends to continue paying quarterly dividends for the foreseeable future. However, the final determination of the timing, amount and payment of dividends on the common stock is at the discretion of the Board of Directors and will depend on, among other things, the Company's profitability, liquidity, financial condition, reinvestment opportunities and capital requirements.

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       For information concerning common stock to be issued in connection with the Company's equity compensation plans, see "Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."

       Following is a summary of all repurchases by the Company of its common stock during the three month period ended December 31, 2005:

Item 6.  Selected Financial Data

       The selected financial data set forth below for each of the years in the five-year period ended December 31, 2005 has been derived from the Company's audited consolidated financial statements. The Company acquired Chiles Offshore Inc. ("Chiles"), on August 7, 2002 and the selected financial data includes the results of Chiles from the acquisition date. The selected financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data."

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Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

       ENSCO International Incorporated and subsidiaries ("ENSCO" or the "Company") is an international offshore contract drilling company with a current operating fleet of 46 drilling rigs, including 43 jackup rigs, one ultra-deepwater semisubmersible rig, one platform rig and one barge rig. Additionally, the Company has two ultra-deepwater semisubmersible rigs and one ultra-high specification jackup rig under construction. The Company's offshore contract drilling operations are integral to the exploration, development and production of oil and natural gas and the Company is one of the leading providers of offshore drilling services to the international oil and gas industry.

       The Company drills and completes oil and gas wells under contracts with major international, government-owned and independent oil and gas companies. The drilling services provided by the Company are conducted on a "day rate" contract basis, under which the Company provides its drilling rigs and rig crews and receives a fixed amount per day for drilling wells. The customer bears substantially all of the ancillary costs of constructing the wells and supporting drilling operations, as well as the economic risk relative to the success of the wells.

       Financial operating results in the offshore contract drilling industry have historically been very cyclical and are primarily related to the demand for drilling rigs and the available supply of rigs. Demand for rigs is directly related to the regional and worldwide levels of offshore exploration and development spending by oil and gas companies, which is beyond the control of the Company. Offshore exploration and development spending may fluctuate substantially from year to year and from region to region. Such spending fluctuations result from many factors, including:
 

       The supply of drilling rigs is limited and new rigs require a substantial capital investment and a long period of time to construct. In addition, it is time consuming and costly to move rigs between markets. Accordingly, as demand changes in a particular market, the supply of rigs may not adjust quickly, and therefore the utilization and day rates of rigs could fluctuate significantly. Certain events, such as hurricanes, may impact the supply of rigs in a particular market and cause rapid fluctuations in rig demand, utilization and day rates.

       Since factors that affect offshore exploration and development spending are beyond the control of the Company and rig demand can change quickly, it is difficult for the Company to predict industry conditions or trends in operating results. Periods of low demand result in excess rig supply, which generally reduces rig utilization levels and day rates; periods of high demand tighten rig supply, generally resulting in increased rig utilization levels and day rates.

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

BUSINESS ENVIRONMENT

       The Company's North America offshore drilling operations are conducted in the Gulf of Mexico. The U.S. natural gas market and trends in oil and gas company spending largely determine offshore drilling industry conditions in this region. During the first half of 2003, the supply of jackup rigs in the Gulf of Mexico was in excess of a declining demand as oil and gas companies focused more of their spending on international projects. This imbalance led to a further reduction of day rates from already-reduced historical levels. During the second half of 2003, day rates for Gulf of Mexico jackup rigs began to improve as the supply of jackup rigs declined after some of the Company's competitors mobilized rigs to international markets in response to contract opportunities.

       In 2004, the supply of jackup rigs in the Gulf of Mexico declined further as the Company and some of its competitors mobilized additional rigs to international markets. Additionally, demand improved significantly during the second half of 2004 due to increased spending by oil and gas companies. Even though day rate trends were mixed during the first six months of 2004, with day rates for the larger premium jackup rigs decreasing slightly from year-end 2003 levels due to a modest oversupply of larger rigs, average day rates for jackup rigs in the Gulf of Mexico improved significantly during the second half of 2004, due to both the reduced supply of rigs and increased spending by oil and gas companies.

       During 2005, day rates of Gulf of Mexico jackup rigs continued to increase as a result of a further reduction in the supply of available rigs in the region and increased demand. The supply of jackup rigs began to tighten in mid 2005 as several of the Company's competitors announced the planned departure of rigs contracted outside the region. These rigs became unavailable during the latter half of 2005 to prepare for mobilization outside the region. Additionally, Hurricane Katrina and Hurricane Rita disrupted drilling operations and severely damaged or destroyed several rigs operating in the region thereby reducing the number of available rigs even further. The demand for Gulf of Mexico jackup rigs continued to strengthen during 2005 as oil and gas companies increased spending due to an increasing global demand for oil coupled with record level oil and natural gas prices.

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       The Company's Europe/Africa offshore drilling operations are mainly conducted in northern Europe where jackup rig demand and day rates remained fairly stable over the first half of 2003, as the impact of reduced spending by oil and gas companies was offset by a reduction in the supply of rigs after some of the Company's competitors mobilized rigs to stronger markets. During the second half of 2003, reduced oil and gas company spending resulted in limited term work opportunities and jackup day rates in Europe declined. During 2004, demand and day rates for jackup rigs in this region generally remained at reduced levels until the fourth quarter when demand and day rates began to improve. During 2005, day rates continued to improve as high oil and natural gas prices as well as an increasing global demand for oil have resulted in increased spending by oil and gas companies.

       Demand for jackup rigs in most Asia Pacific region markets was strong during 2003 and 2004, as many of the major international and government-owned oil companies increased spending in those markets. However, Asia Pacific region day rates remained relatively stable during this period as the Company and some of its competitors mobilized additional rigs to the region in response to the increased demand. Demand continued to strengthen during 2005 and increased activity levels absorbed the additional rigs mobilized to the region and improved day rates.

RESULTS OF OPERATIONS

       In recent years, the Company has disposed of several assets, including the sale of its 27-vessel marine transportations fleet in 2003, the exchange of three rigs in connection with a construction agreement in 2004, the sale of six barge rigs and a platform rig in 2005, and the loss of two rigs as a result of damage caused by hurricanes, one in 2004 and the other in 2005. The operating results of these assets have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three year-period ended December 31, 2005. (See "Discontinued Operations" below for further information regarding the operating results and disposal of these assets.)

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       The Company's consolidated operating results for each of the years in the three-year period ended December 31, 2005, are as follows (in millions):

       In 2005, net income increased by $191.4 million, or 186%, and operating income increased by $238.4 million, or 137%, as compared to 2004. The increases are primarily due to improved average day rates for the Company's jackup rigs and ENSCO 7500 and improved utilization of the Europe/Africa jackup rigs and ENSCO 7500, as compared to the prior year period.

       In 2004, net income for the Company decreased by $5.5 million, or 5%, and operating income decreased by $6.5 million, or 4%, as compared to 2003. These decreases are due primarily to reduced utilization and average day rates for the Europe/Africa jackup rigs and ENSCO 7500, partially offset by increased average day rates for the North America jackup rigs and increased operating days for the Asia Pacific jackup rigs.

       Detailed explanations of the Company's operating results for each of the years in the three-year period ended December 31, 2005, including discussions of revenues and contract drilling expense based on geographical location and type of rig, are set forth below.

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Revenues and Contract Drilling Expense

       The following is an analysis of the Company's revenues, contract drilling expense, rig utilization and average day rates from continuing operations for each of the years in the three-year period ended December 31, 2005 (in millions, except utilization and day rates):

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       The following is a summary of the Company's offshore drilling rigs at December 31, 2005, 2004 and 2003:

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   North America Jackup Rigs

       In 2005, revenues for the North America jackup rigs increased by $119.0 million, or 49%, and contract drilling expense decreased by $400,000, as compared to 2004. The increase in revenues is due primarily to a 62% increase in average day rates, partially offset by decreased revenue attributable to the reduced size of the Company's North America jackup rig fleet resulting from the relocation of three jackup rigs from the Gulf of Mexico in 2004. The significant increase in average day rates is primarily attributable to a reduction in the supply of available rigs in the region and increased demand. The decrease in the supply of jackup rigs was partially due to several of the Company's competitors' rigs being taken out of operation in the second half of 2005 to prepare for international contract commitments. Additionally, Hurricane Katrina and Hurricane Rita disrupted drilling operations and severely damaged or destroyed several rigs operating in the region thereby reducing the number of available rigs even further. Demand increased due to higher levels of spending by oil and gas companies resulting from an increasing global demand for oil coupled with record level oil and natural gas prices. The slight decrease in contract drilling expense is primarily attributable to $4.0 million of costs incurred during the second quarter of 2004 relating to the termination of a rig transportation contract associated with the delayed relocation of two jackup rigs from the Gulf of Mexico to the Middle East and to the reduced size of the fleet in 2005, partially offset by an increase in repair costs and the receipt of a $500,000 insurance premium rebate in the prior year third quarter, which resulted from the low level of claims experienced during the Company's prior policy year.

       In 2004, revenues for the North America jackup rigs increased by $41.4 million, or 21%, and contract drilling expense decreased by $6.4 million, or 5%, as compared to 2003. The increase in revenues is due primarily to a 33% increase in the average day rates, partially offset by decreased revenue attributable to the reduced size of the Company's North America jackup rig fleet in 2004 as noted above. The significant increase in average day rates is primarily attributable to a reduction in supply of Gulf of Mexico jackup rigs resulting from the relocation of several rigs by the Company and its competitors to international markets in the latter half of 2003 and in 2004. The decrease in contract drilling expense is primarily attributable to the reduced size of the fleet in 2004 and reduced insurance costs, partially offset by $4.0 million of costs incurred in 2004 in connection with the termination of a rig transportation contract as noted above and increased personnel costs.

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   Europe/Africa Jackup Rigs

       In 2005, revenues for the Europe/Africa jackup rigs increased by $95.5 million, or 65%, and contract drilling expense increased by $16.7 million, or 17%, as compared to 2004. The increase in revenues is primarily attributable to a 39% increase in average day rates and an increase in utilization to 96% in 2005 from 82% in 2004. The improvement in day rates and utilization is attributable to increased spending by oil and gas companies. Contract drilling expense increased due to increased utilization and an increase in reimbursable expenses.

       In 2004, revenues for the Europe/Africa jackup rigs decreased by $33.7 million, or 19%, and contract drilling expense decreased by $3.4 million, or 3%, as compared to 2003. The decrease in revenues is primarily attributable to a 6% decrease in the average day rates and a reduction in utilization to 82% in 2004 from 93% in 2003. The decrease in average day rates and utilization is due to market weakness in the North Sea that began during the latter part of 2003 and continued throughout 2004. Contract drilling expense decreased from the prior year period primarily due to reduced repair and insurance costs as well as $900,000 of expenses associated with a crane failure during the prior year, partially offset by increased personnel costs.

   Asia Pacific Jackup Rigs

       In 2005, revenues for the Asia Pacific jackup rigs increased by $86.1 million, or 32%, and contract drilling expense increased by $34.2 million, or 25%, as compared to 2004. The increase in revenues is primarily due to the increased size of the Asia Pacific jackup rig fleet. The Company relocated three rigs to the Asia Pacific region during the second and third quarters of 2004, which commenced operations after completing enhancement and contract preparation procedures. Additionally, the Company acquired ENSCO 106 in February 2005, which commenced operations shortly thereafter. Contract drilling expense increased primarily due to the increased size of the Asia Pacific jackup rig fleet in 2005.

       In 2004, revenues for the Asia Pacific jackup rigs increased by $35.5 million, or 15%, and contract drilling expense increased by $2.1 million, or 2%, as compared to 2003. The increase in revenues is primarily due to improved utilization and increased revenues associated with reimbursed costs. The Company relocated three rigs to the Asia Pacific region during 2004, including two rigs that underwent enhancement procedures until year-end 2004, and a third rig that commenced operations in November 2004 after completing enhancement procedures. Excluding the impact of these three rigs, utilization of the remaining 12 rigs in the Asia Pacific jackup rig fleet increased to 93% in 2004 from 82% in 2003. The improved utilization resulted from a reduction in the amount of time rigs spent in shipyards undergoing enhancements and contract preparation during 2004 compared to 2003. The increase in contract drilling expense is primarily attributable to $6.7 million of costs associated with the three rigs added to the Asia Pacific fleet in 2004, the impact of increased utilization of the remaining rigs in the fleet and increased mobilization and reimbursable expenses, partially offset by a $13.4 million decrease in costs associated with the ENSCO 102 joint venture charter operations, which ceased effective January 31, 2004 upon ENSCO's acquisition of the rig from the joint venture, and a decrease in insurance expense. (See "Off-Balance Sheet Arrangements" for further information on the Company's joint venture arrangements.)

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   South America/Caribbean Jackup Rig

       In 2005, revenues for the South American/Caribbean jackup rig decreased by $27.5 million, or 87%, and contract drilling expense decreased by $9.7 million, or 78%, as compared to 2004. The decrease in revenues and contract drilling expense is due to the completion of a long-term contract in February 2005 and the subsequent mobilization of ENSCO 76 from Trinidad and Tobago, compared to operating at near full utilization during the prior year period.

       In 2004, revenues for the South American/Caribbean jackup rig decreased by $900,000, or 3%, and contract drilling expenses decreased by $800,000, or 6%, as compared to 2003. The decrease in revenues is primarily due to a decrease in revenue associated with reimbursed costs. The decrease in contract drilling expense is due primarily to minor decreases in personnel, repair and maintenance, insurance and reimbursable expenses.

   North America Semisubmersible Rig

       In 2005, revenues for ENSCO 7500 increased by $28.2 million, or 118%, and contract drilling expense increased by $5.5 million, or 35%, as compared to 2004. The increase in revenues and contract drilling expense is attributable to the rig being idle while undergoing minor improvements, regulatory inspection and maintenance procedures during approximately six months of 2004.

       In 2004, revenues for ENSCO 7500 decreased by $42.4 million, or 64%, and contract drilling expense decreased by $3.6 million, or 19%, as compared to 2003, as the rig completed an approximate three-year contract in the first quarter of 2004 and was idle approximately six months as discussed above.

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   Asia Pacific Barge Rig

       In 2005, revenues for the Asia Pacific barge rig, which is currently located in Indonesia, increased by $1.7 million, or 9%, and contract drilling expense increased by $500,000, or 6%, as compared to 2004. The increase in revenues is primarily due to a 9% increase in the average day rate of ENSCO I. The increase in contract drilling expense is primarily due to increased repair, maintenance and supply costs.

       In 2004, revenues for the Asia Pacific barge rig decreased by $1.5 million, or 8%, and contract drilling expense decreased by $2.5 million, or 22%, as compared to 2003. The decrease in revenues is primarily due to a $4.0 million decrease in revenues associated with mobilization and other customer reimbursements relating to costs associated with initial contract operations in 2003, partially offset by a 17% increase in the average day rate of ENSCO I. The decrease in contract drilling expense is due primarily to a reduction in the aforementioned reimbursed costs.

   North America Platform Rig

       In 2005, revenues for the North America platform rig increased by $3.3 million, or 35%, and contract drilling expense increased by $1.5 million, or 27%, as compared to 2004. The increase in revenues is primarily due to a 22% increase in the average day rate of ENSCO 25. The increase in contract drilling expense is primarily due to an increase in personnel, repair and maintenance, and reimbursable expenses. In 2004, revenues and contract drilling expense for the North America platform rig were comparable to 2003.

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Depreciation and Amortization

       Depreciation and amortization expense for 2005 increased by $20.1 million, or 15%, as compared to 2004. The increase is primarily attributable to depreciation on capital enhancement projects completed in 2005 and 2004 and depreciation on ENSCO 106, which was acquired in February 2005.

       Depreciation and amortization expense for 2004 increased by $15.2 million, or 13%, as compared to 2003. The increase is primarily attributable to depreciation on capital enhancement projects completed in 2004 and 2003 and depreciation on ENSCO 102, which was acquired in January 2004.

General and Administrative

       General and administrative expense for 2005 decreased by $500,000, or 2%, as compared to 2004. The decrease is primarily attributable to non-recurring costs incurred in 2004 related to information systems consulting services, Sarbanes-Oxley Act compliance initiatives and other projects, partially offset by an increase in personnel costs in 2005.

       General and administrative expense for 2004 increased by $4.3 million, or 20%, as compared to 2003. The increase is primarily attributable to increased personnel costs, audit fees and consulting services related to information systems, the Sarbanes-Oxley Act and other projects, offset in part by a decrease resulting from a $1.1 million payment of one-time severance costs during the first quarter of 2003 under an employment contract assumed in connection with a prior acquisition.

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Other Income (Expense)

       The components of other income (expense) for each of the years in the three-year period ended December 31, 2005, is as follows (in millions):

       Interest income increased by $3.3 million in 2005, as compared to 2004, due to higher average interest rates. Interest income increased by $300,000 in 2004, as compared to 2003, due to higher average cash balances invested.

       Interest expense decreased by $2.8 million in 2005, as compared to 2004, due primarily to a decrease in outstanding debt. Interest expense increased by $1.8 million in 2004, as compared to 2003, due primarily to a minor increase in average effective interest rates.

       Capitalized interest increased by $5.0 million in 2005, as compared to 2004 due to an increase in the amount invested in rig construction and enhancement projects, primarily the ENSCO 107, ENSCO 108 and ENSCO 8500 construction projects and the enhancement projects associated with ENSCO 67 and ENSCO 87. Capitalized interest increased by $1.9 million in 2004, as compared to 2003, due to an increase in the amount invested in rig construction and enhancement projects, primarily the ENSCO 107 construction project and the enhancement projects associated with ENSCO 68, ENSCO 88 and ENSCO 67.

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       Other, net for 2005 includes a $3.1 million net gain related to the resolution of insurance claims associated with the damage sustained on ENSCO 64 and ENSCO 25 in the Gulf of Mexico during Hurricane Ivan in September 2004 and foreign currency translation gains of $700,000, partially offset by a $2.4 million expense for the unamortized discount and redemption premium incurred upon the redemption of the Company's 5.63% bonds on June 15, 2005 (See Note 4 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data"), and a $500,000 loss for the insurance deductible related to damage sustained on the Company's rigs located in the Gulf of Mexico during Hurricane Katrina in September 2005. (See Note 11 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding hurricane insurance claims.)

       Other, net for 2004 consists primarily of a $5.5 million loss for the insurance deductible related to damages sustained on ENSCO 64 and ENSCO 25 during Hurricane Ivan in the Gulf of Mexico, partially offset by a $3.9 million gain resulting from the settlement of an insurance claim related to ENSCO 7500 hull repairs and lost revenue in the first quarter of 2002 and net foreign currency translation gains of $900,000.

       Other, net for 2003 consists primarily of a $3.0 million gain related to the receipt and sale of shares of common stock of Prudential Financial, Inc. The shares were issued to the Company as a result of the Company's previous purchase of a Group Annuity Contract upon termination of a predecessor consolidated pension plan and the conversion of Prudential Financial, Inc. from a mutual company to a stock company. Other net for 2003 also includes $1.9 million of foreign currency translation losses and a loss of $300,000 related to the decline in fair value of certain treasury rate lock agreements obtained in connection with a prior acquisition. (See "Market Risk" for further information on the treasury rate lock agreements.)

Provision for Income Taxes

       The Company recorded income tax expense of $107.3 million and $35.2 million in the years ended December 31, 2005 and 2004, respectively. The $72.1 million increase in the income tax provision from 2004 to 2005 is primarily attributable to increased profitability and an increase in the effective income tax rate, partially offset by the impact of a $6.5 million net benefit included in the income tax provision for the year ended December 31, 2005 that results primarily from the resolution of various issues in connection with an audit by tax authorities of the Company's 2002 and 2003 U.S. tax returns and release of certain tax liabilities recognized in prior years that are determined to no longer be necessary.

       The Company's effective income tax rate increased to 27.4% in 2005 from 25.2% in 2004. The income tax rates imposed in the tax jurisdictions in which the Company's foreign subsidiaries conduct operations vary, as does the tax base to which the rates are applied. In some cases, tax rates may be applicable to gross revenue, statutory or negotiated deemed profits, or other bases utilized under local tax laws, rather than to net income. In addition, the Company's drilling rigs are frequently moved from one tax jurisdiction to another. As a result, the Company's consolidated effective income tax rate may vary substantially from one reporting period to another, depending on the relative components of the Company's earnings generated in tax jurisdictions with higher tax rates and lower tax rates.

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       The Company recorded income tax expense of $35.2 million and $43.3 million in the years ended December 31, 2004 and 2003, respectively. The $8.1 million decrease in the income tax provision from 2003 to 2004 is primarily attributable to reduced profitability of the Company in addition to a decrease in effective tax rate to 25.2% in 2004 from 29.4% in 2003. The decrease in effective tax rate is due primarily to an increase in the relative portion of the Company's earnings generated by foreign subsidiaries whose earnings are being permanently reinvested and taxed at lower rates.

Discontinued Operations

       The ENSCO 29 platform rig sustained substantial damage as a consequence of Hurricane Katrina in September 2005. On January 5, 2006, beneficial ownership of ENSCO 29 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company will receive the rig's net insured value of $10.0 million. The $7.5 million carrying value of the rig remains classified in "Property and equipment, net" on the December 31, 2005 consolidated balance sheet. The Company expects to record the disposal of the rig in the first quarter of 2006 and recognize a pre-tax gain equivalent to the excess of the insurance proceeds received over the carrying value of the rig. The operating results of ENSCO 29 have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005.

       On October 20, 2005, the Company sold the ENSCO 26 platform rig for $12.0 million and recognized a minimal gain. The operating results of ENSCO 26 have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005.

       On June 30, 2005, the Company sold its six South America/Caribbean barge rigs for $59.6 million and recognized a pre-tax gain of $9.6 million, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for the year ended December 31, 2005. The net book value of the rigs was $45.1 million on the date of sale. The operating results of the six South America/Caribbean barge rigs have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005.

       The ENSCO 64 jackup rig sustained substantial damage during Hurricane Ivan in September 2004. On April 15, 2005, beneficial ownership of ENSCO 64 effectively transferred to the Company's insurance underwriters following their acknowledgement that the rig was a constructive total loss under the terms of the Company's insurance policies. Accordingly, the Company received the rig's full insured value of $65.0 million. On the date of transfer, the net book value of the rig was $52.8 million. The Company recognized a pre-tax gain of $11.7 million upon receipt of the insurance proceeds, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for year ended December 31, 2005. The operating results of ENSCO 64 have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the three-year period ended December 31, 2005.

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       In February 2004, the Company entered into an agreement with KFELS to exchange three rigs (ENSCO 23, ENSCO 24 and ENSCO 55) and $55.0 million for the construction of a new ultra-high specification jackup rig to be named ENSCO 107. The exchange of the three rigs occurred in May 2004 and was treated as a sale with no significant gain or loss recognized, as the fair value of the rigs approximated their aggregate net book value of $39.9 million. The results of operations of ENSCO 23, ENSCO 24 and ENSCO 55 have been reclassified as discontinued operations in the consolidated statements of income for each of the years in the two-year period ended December 31, 2004.

       In February 2003, the Company reached an agreement to sell its 27-vessel marine transportation fleet. After receipt of various regulatory consents, the transaction was finalized in April 2003 for approximately $79.0 million. The Company recognized a pre-tax gain of approximately $6.4 million related to the transaction, which is included in "Gain on disposal of discontinued operations, net" in the consolidated statement of income for year ended December 31, 2003. The operating results of the marine transportation fleet, which represent the entire marine transportation services segment previously reported by the Company, have been reclassified as discontinued operations in the consolidated statement of income for the year ended December 31, 2003.

       Following is a summary of income (loss) from discontinued operations for each of the years in the three-year period ended December 31, 2005 (in millions):

       There is no debt or interest expense allocated to the Company's discontinued operations.

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LIQUIDITY AND CAPITAL RESOURCES

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

       During the three-year period ended December 31, 2005, the Company's primary sources of cash included an aggregate $876.7 million generated from continuing drilling operations, an aggregate $226.2 million from the disposition of assets, including $132.9 million from the disposal or insurance recovery related to various discontinued operations in 2005 and $78.8 million from the sale of its marine transportation fleet in 2003, and $87.4 million from the exercise of stock options. During the three-year period ended December 31, 2005, the Company's primary uses of cash included an aggregate $997.1 million for the acquisition, construction, enhancement and other improvement of drilling rigs and an aggregate $112.6 million for repayment of loans.

       Detailed explanations of the Company's liquidity and capital resources for each of the years in the three-year period ended December 31, 2005 are set forth below.

Cash Flow from Continuing Operations and Capital Expenditures

       The Company's cash flow from continuing operations and capital expenditures on continuing operations for each of the years in the three-year period ended December 31, 2005 are as follows (in millions):

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       Cash flow from continuing operations in 2005 increased by $107.9 million, or 44%, from 2004. The increase resulted primarily from a $253.9 million increase in cash receipts from drilling services partially offset by a $23.7 million increase in cash payments for contract drilling expenses and a $129.2 million increase in cash payments related to income taxes.

       Cash flow from continuing operations in 2004 decreased by $25.4 million, or 9%, from 2003. The decrease resulted primarily from a $18.8 million decrease in cash receipts from drilling services, a $7.1 million increase in income tax payments and $5.1 million of cash payments in 2004 related to the recovery and damage analysis of ENSCO 64, partially offset by a $3.7 million decrease in cash payments associated with contract drilling expenses and a $4.9 million decrease in interest payments. ENSCO 64 was severely damaged by Hurricane Ivan in September 2004 and the payments made in connection with its recovery and damage analysis were substantially recovered from insurance proceeds received after the rig was declared a constructive total loss in 2005.

       The Company continues to expand the size and quality of its fleet of drilling rigs. During the past three years, the Company has invested $509.4 million upgrading the capability and extending the service lives of its drilling rigs as part of its enhancement program and an additional $141.9 million related to the construction of ENSCO 107, ENSCO 108 and ENSCO 8500. During 2004 and 2005, the Company purchased a harsh environment jackup rig, ENSCO 102, for $94.6 million and a ultra-high specification jackup rig, ENSCO 106, for $79.6 million. Both rigs were constructed through joint ventures with KFELS. (See Note 3 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information concerning the Company's investments in joint ventures.)

       On January 23, 2006, the Company accepted delivery of ENSCO 107 and made the final installment payment of $27.5 million. In addition to the final payment on ENSCO 107, management anticipates that capital expenditures in 2006 will include approximately $85.0 million for rig enhancement projects, approximately $290.0 million for construction of ENSCO 108, ENSCO 8500 and ENSCO 8501, and approximately $60.0 million for minor upgrades and improvements. (See "Outlook" for information concerning the acquisition of ENSCO 107 and the construction of ENSCO 108, ENSCO 8500 and ENSCO 8501.) Depending on market conditions and opportunities, the Company may also make capital expenditures to construct or acquire additional rigs.

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Financing and Capital Resources

       The Company's long-term debt, total capital and long-term debt to total capital ratios at December 31, 2005, 2004 and 2003 are summarized below (in millions, except percentages):

       On June 15, 2005, the Company redeemed its 5.63% bonds for $40.9 million, including $900,000 of accrued interest and a $1.8 million redemption premium. The bonds were guaranteed by MARAD and were assumed by the Company in connection with a prior acquisition to provide long-term financing for ENSCO 76. There were no other significant changes in the Company's long-term debt or total capital during 2005. At December 31, 2005, the Company has an aggregate $194.2 million outstanding under its remaining two separate MARAD guaranteed bond issues that require semiannual principal and interest payments. The Company also makes semiannual interest payments on $150.0 million of notes and $150.0 million of debentures, due in 2007 and 2027, respectively.

       On June 23, 2005, the Company amended and restated its existing $250.0 million unsecured revolving credit agreement (the "Credit Agreement"). The amended and restated agreement (the "2005 Credit Facility") provides for a $350.0 million unsecured revolving credit facility with a syndicate of lenders for general corporate purposes. The 2005 Credit Facility has a five-year term, expiring June 23, 2010, and replaces the Company's $250.0 million five-year Credit Agreement that was scheduled to mature on July 26, 2007. The Company is in compliance with the financial covenants under the 2005 Credit Facility, which among other things require the maintenance of a specified level of interest coverage and debt to total capitalization ratio. The Company had no amounts outstanding under the 2005 Credit Facility or the Credit Agreement at December 31, 2005 and 2004, respectively.

       The Company maintains investment grade credit ratings of Baa1 from Moody's and BBB+ from Standard & Poor's.

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Off-Balance Sheet Arrangements

       During recent years the Company entered into two separate joint venture arrangements with KFELS in connection with the construction and ownership of two jackup rigs. ENSCO Enterprises Limited ("EEL") was established by the Company (with an initial 25% ownership interest) and KFELS (with an initial 75% ownership interest) to own and charter ENSCO 102. Construction of ENSCO 102 commenced in 2000 and was completed in May 2002, after which the Company chartered ENSCO 102 from EEL. In January 2004, the Company exercised a purchase option and acquired ENSCO 102 from EEL and EEL was liquidated. ENSCO Enterprises Limited II ("EEL II") was established by the Company (25% ownership interest) and KFELS (75% ownership interest) in March 2003 to construct and own ENSCO 106. Upon completion of rig construction in February 2005, the Company exercised a purchase option and acquired ENSCO 106 from EEL II and EEL II was effectively liquidated.

       The Company's equity interests in EEL and EEL II constituted variable interests in variable interest entities, as defined in the Financial Accounting Standards Board's Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46R"). However, the Company did not absorb a majority of the expected losses or receive a majority of the expected residual returns of EEL and EEL II, as defined by FIN 46R, and accordingly was not required to consolidate EEL or EEL II.

       Further information regarding the Company's off-balance arrangements is presented in Note 3 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data."

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Contractual Obligations

       The Company's significant contractual obligations as of December 31, 2005, and the periods in which such obligations are due, are as follows (in millions):

       The above table does not reflect the ENSCO 8501 contractual obligation as the Company entered into the agreement with KFELS in Singapore to construct ENSCO 8501 in January 2006. The aggregate contractual obligation of ENSCO 8501 is $313.7 million, of which, $125.5 million is due in 2006. Furthermore, "New rig construction agreements" represents the contractually fixed purchase obligation of the Company and comprises a majority of a new rig's total construction cost as provided in the "Outlook" section below.

Liquidity

       The Company's liquidity position at December 31, 2005, 2004 and 2003 is summarized in the table below (in millions, except ratios):

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       Management expects to fund the Company's short-term liquidity needs, including an aggregate $516.5 million of contractual obligations and anticipated capital expenditures during 2006, as well as any working capital requirements, from its cash and cash equivalents and operating cash flow.

       Management expects to fund the Company's long-term liquidity needs, including contractual obligations and anticipated capital expenditures, from its cash and cash equivalents, investments, operating cash flow and, if necessary, funds drawn under the 2005 Credit Facility or other future financing arrangements.

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

MARKET RISK

       The Company has net assets and liabilities denominated in numerous foreign currencies and uses various methods to manage its exposure to foreign currency exchange risk. The Company predominantly structures its drilling contracts in U.S. dollars, which significantly reduces the portion of the Company's cash flows and assets denominated in foreign currencies. The Company also employs various strategies, including the use of derivative instruments, to match foreign currency denominated assets with equal or near equal amounts of foreign currency denominated liabilities, thereby minimizing exposure to earnings fluctuations caused by changes in foreign currency exchange rates. The Company occasionally utilizes derivative instruments to hedge forecasted foreign currency denominated transactions. At December 31, 2005, the Company had contracts outstanding to exchange an aggregate $81.7 million U.S. dollars for various foreign currencies, all of which mature during the next twelve months. Based on a hypothetical 10% adverse change in foreign currency exchange rates, the net unrealized loss associated with the Company's foreign currency denominated assets and liabilities and related foreign currency exchange contracts as of December 31, 2005 would approximate $3.9 million.

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       The Company uses various derivative financial instruments to manage its exposure to interest rate risk. The Company occasionally uses interest rate swap agreements to effectively convert the variable interest rate on debt to a fixed rate or the fixed rate on debt to a variable rate, and interest rate lock agreements to hedge against increases in interest rates on pending financing. At December 31, 2005, the Company had no outstanding interest rate swap agreements or interest rate lock agreements.

       In connection with a prior acquisition, the Company obtained $80.0 million notional amount of outstanding treasury rate lock agreements that were scheduled to mature in October 2003. Upon completion of the acquisition, the Company designated approximately $65.0 million notional amount of the treasury rate lock agreements as an effective hedge against the variability in cash flows of $76.5 million of MARAD guaranteed bonds the Company intended to issue in October 2003. The Company deemed the remaining $15.0 million notional amount of treasury rate lock agreements obtained in the acquisition to be speculative in nature and settled $10.0 million notional amount in 2002 and $5.0 million notional amount in 2003. The Company settled the $65.0 million notional amount of treasury rate lock agreements designated as an effective hedge in October 2003 in connection with the pricing and subsequent issuance of the MARAD bonds. (See Note 5 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data").

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

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OUTLOOK

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

    Rig Construction

       On January 23, 2006, the Company accepted delivery of ENSCO 107, an ultra-high specification jackup rig that is scheduled to commence drilling operations in March 2006 in Malaysia. The Company also has two ultra-deepwater semisubmersible rigs and one ultra-high specification jackup rig currently under construction by KFELS in Singapore. ENSCO 108 will be an enhanced KFELS MOD V (B) design jackup rig modified to ENSCO specifications and nearly identical to the recently delivered ENSCO 107. ENSCO 108 commenced construction in April 2005 and is expected to be delivered during the second quarter of 2007.

       In September 2005, the Company entered into an agreement with KFELS in Singapore to construct ENSCO 8500, with delivery anticipated in the second quarter of 2008. The total construction cost of the rig is currently expected to be approximately $312.0 million. In January 2006, the Company entered into an agreement with KFELS in Singapore to construct ENSCO 8501 for a total construction cost of approximately $338.0 million. Delivery of ENSCO 8501 is expected during the second quarter of 2009. The ENSCO 8500 Series^TM ultra-deepwater semisubmersibles are an enhanced version of the ENSCO 7500 and will be capable of drilling in up to 8,500 feet of water, and can readily be upgraded to 10,000 feet water-depth capability if required. Enhancements over ENSCO 7500, the Company's existing ultra-deepwater semisubmersible rig, include a two million pound quad derrick, offline pipe handling capability, increased drilling capacity, greater variable deck load, and improved automatic station keeping ability. With these features, the ENSCO 8500 Series^TM rigs will be especially well-suited for deepwater development drilling. The ENSCO 8500 and ENSCO 8501 are subject to long term drilling contracts of four years and three and one half years, respectively.

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    Rig Enhancements and Relocations

       ENSCO 69 entered a shipyard in November 2005 for enhancement and contract preparation work. In March 2006, the rig is expected to mobilize to offshore Venezuela to commence a long-term contract.

       ENSCO 86 entered a shipyard in October 2005 for enhancement procedures and is projected to return to service in the Gulf of Mexico during April 2006. ENSCO 87 entered a shipyard in May 2005 for enhancement procedures and is expected to return to service in the Gulf of Mexico during March 2006.

       Enhancement procedures were recently completed on ENSCO 56 and it is currently en route to New Zealand where it is expected to commence a long term contract in March 2006.

       ENSCO 105 is scheduled to continue its commitment for work in the Gulf of Mexico through early 2007 when it is expected to mobilize to Tunisia for an estimated two year contract, plus options.

    Industry Conditions

       Demand for offshore drilling rigs is strong, and utilization and day rates are generally improving, in all of the major geographical markets in which the Company currently operates. The Company has substantial contract backlog and the durations of recently executed contracts are generally greater than historical average contract durations in all of the Company's major geographical markets. While it is not possible to project the period of time for which current industry conditions will be sustained or predict long-term trends in industry conditions, the Company does not anticipate significant changes in current industry conditions in the near-term.

    Hurricane Damage

       During the third quarter 2005, ENSCO 7500 sustained minor damage during Hurricane Katrina. The rig was repaired in early 2006 in conjunction with minor enhancement and preparatory work for its pending two year contract. The Company believes the insurance claim for the ENSCO 7500 hull repairs will be finalized by the end of the second quarter of 2006 with no significant gain or loss realized. Additional information regarding the resolution of insurance claims relating to hurricane damage is included in Note 11 to the Company's Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data."

       Although several of the Company's jackup rigs were in the paths of Hurricane Katrina and/or Huricane Rita, the Company has detected only minor damage to those rigs and the associated repair costs incurred, or expected to be incurred, are not significant. In addition, none of the Company's jackup rigs experienced, or is expected to experience, significant downtime in order to complete damage repairs as a result of these hurricanes.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES