31ST TERM ANNUAL REPORT

(FOR FISCAL YEAR 1998)

From April 1, 1998

To March 31, 1999

JAPAN DRILLING CO., LTD.

Nishi Azabu Annex
3-20-16, Nishi Azabu
Minato-ku, Tokyo 106-0031
Japan
Telephone 81-3-5411-9870
BUSINESS REPORT (April 1, 1998 to March 31, 1999)

I. GENERAL OUTLOOK

1. BUSINESS ACTIVITIES AND RESULTS

The offshore drilling rig market had continued to be brisk in the first half
of this fiscal year. Lingering low crude oil prices, however, began to
force oil companies to cut exploration and production budgets and the
trend of the market declined rapidly in the latter half of this fiscal year.
The worldwide rig utilization rate has fallen from 95% to 75% during this
one year.
Following this trend, the number of idle rigs has quickly increased and
competitions to secure future drilling contracts among contractors have
been intensified.

JDC, under such severe business environment, has exerted itself to win
new drilling contracts and has also accomplished installation of a top-
drive system on the HAKURYU-Ⅲ and extension of the legs on the
HAKURYU-Ⅶ. As a result, JDC has achieved 89% of the average
utilization rate through this fiscal year.

In the field of newly developed business other than offshore drilling, JDC
has continued to promote engineering services, onshore drilling services
and horizontal land-drilling services targeted at civil works and achieved
noteworthy increase in domestic revenue in this term.

JDC has earlier implemented an emergency cost-saving plan in order to

cope with the aggravated offshore rig market. Such actions include
enhancement of marketing activities, reduction in repair and
maintenance expenses as well as in personnel, local operation and
general administrative expenses.

The operating revenue of this fiscal year has reached \11,066 million (an
increase of \1,846 million or 20.0% over the previous fiscal year). The
main reasons for this increase are that all rigs have been operated
nearly as planned except HAKURYU-Ⅴ’s stand-by around end of the fiscal
year and that average exchange rate of Japanese Yen fell to \128.76
against US $ by \5.37 compared with the previous year. The operating
expense has increased to \8,962 million (an increase of \1,664 million or
22.8% over the previous fiscal year). The ordinary earnings has
increased to \2,024 million (an increase of \100 million over the previous
year). The earnings before tax is \1,886 million. As a result, the net
profit for the fiscal year 1998 has reached \1,052 million after
deductions of ¥834 million for corporate and other taxes.

Rig activities for this fiscal year were as follows:

－The semi-submersible rig "HAKURYU-Ⅲ" continued to operate offshore

Taiwan until late May and then drilled two wells offshore Niigata, Japan
from early July to early November. After moving to Singapore for
 maintenance and refurbishment, the rig operated offshore Indonesia
from mid January 1999 to early March.

－The semi-submersible rig "HAKURYU-Ⅴ" continued to operate offshore

Angola, West Africa until the end of May and then operated offshore
Namibia from mid June to mid January, 1999. Thereafter, the rig has
been standing by offshore Walvis Bay, Namibia until the end of this
fiscal year.
－The jack-up rig "HAKURYU-Ⅶ" continued to operate offshore Vietnam
until early November and then moved to Singapore for maintenance
and refurbishment. Thereafter, the rig has been operating in South Pars
gas field offshore Iran from early February, 1999 until the end of this
fiscal year under a bare-boat charter contract with Sagadril, Inc., 100%
Panamanian subsidiary of JDC.
In November, 1998 prior to the long-term bare-boat charter to Sagadril,
Inc., the rig was renamed "SAGADRIL-2".
－The jack-up rig "HAKURYU-8" has continued to operate offshore Qatar
in the Arabian Gulf through this fiscal year.
－The jack-up rig "SAGADRIL-1" (ex. the "HAKURYU-9"), which is owned
by Sagadril, Inc., 100% Panamanian subsidiary, has continued to
operate in Sirri oil field offshore Iran through this fiscal year.

2. COMPANY OBJECTIVES

The offshore drilling rig market is expected to remain shrunk for some
time though some forecasts suggest upward swing in the comparatively
near future as crude oil prices are improving gradually following OPEC’s
new agreement on quotas of oil production. Under such market
environment, JDC is determined to strengthen marketing activities to
keep its rigs busy and continue to carry out the cost-saving measures
steadily in accordance with the said action plans. JDC also aims to exert
more efforts to materialize the businesses other than offshore drilling
business in order to increase domestic revenue and to make the most
efficient use of its human resources.

JDC is proud of the international reputation for the quality of

performance and will continue its commitment to develop and maintain
the most advanced technology and equipment in offshore drilling.
JDC will also extend the market for its new business relating to drilling
technology, with the aim of fulfilling the requirement of its customers
around the world.
3. TRANSITION OF BUSINESS RESULTS AND ASSETS

Fiscal Year
(Year ended March 31 1995 1996 1997 1998
following year)
Revenues from
Operations 7,128 6,575 9,219 11,066
Revenues from
Domestic Operations 2,865 1,857 1,887 2,730
(40.2%) (28.2%) (20.5%) (24.7%)
Revenues from
Overseas Operations 4,263 4,718 7,332 8,336
(59.8%) (71.8%) (79.5%) (75.3%)
Net Profit/Loss 505 298 434 1,052

Net Profit/Loss per Share 63.15 37.35 54.31 131.51

Total Assets 9,222 8,958 11,407 12,918

Net Assets 5,109 5,408 5,842 6,894

(Japanese Yen in Millions, except for "Net Profit/Loss per Share" in Japanese Yen)

4. INVESTMENT IN EQUIPMENT AND FUND RAISING

Total investment in equipment during this fiscal year reached ¥1,864

million. Such investments include installation of a top-drive system and
fair leaders on the HAKURYU-Ⅲ, replacement of deck crane turn tables of
the HAKURYU-Ⅴand extension of the legs and related reinforcement of
the SAGADRIL-2 (ex. the HAKURYU-Ⅶ).

The loan of \600 million was obtained during this fiscal year as short-
term fund to allocate for the above investments.
II. GENERAL OUTLINE OF THE COMPANY (as of March 31, 1999)

1. MAIN BUSINESS (prescribed in the Articles of Association)

Contract drilling and construction work relating to exploration and

development of petroleum and natural gas, and other contract work
applying drilling techniques.

2. MAIN OFFICES

Head Office 3-20-16, Nishi Azabu, Minato-ku, Tokyo,

Japan
Hakuryu-3 Operations Office Singapore
Hakuryu-5 Operations Office Walvis Bay, Namibia
Qatar Operations Office Doha, Qatar
Dubai Operations Office Dubai, United Arab Emirates
Singapore Office Singapore

3. SHARES

(1) Number of Shares to be issued : 20,000,000

(2) Number of Issued Shares : 8,000,000
(3) Number of Shareholders : 21
(4) List of Main Shareholders (big 13 shareholders)

Name of Main Shareholders Number of Percentage

Shares
Japan Petroleum Exploration Co., Ltd. 2,660,000 33.25
Mitsubishi Materials Corporation 986,000 12.32
Mitsubishi Heavy Industries, Ltd. 703,750 8.80
Teikoku Oil Co., Ltd. 576,000 7.20
Mitsubishi Corporation 563,000 7.04
Ishikawajima-Harima Heavy Industries 280,000 3.50
Co., Ltd.
Mitsui & Co., Ltd. 182,400 2.28
Mitsui Engineering & Shipbuilding Co., 182,400 2.28
Ltd.
Marubeni Corporation 182,400 2.28
NKK Corporation 182,400 2.28
Itochu Corporation 182,400 2.28
Kawasaki Heavy Industries, Ltd. 182,400 2.28
Nissho-Iwai Corporation 182,400 2.28
4. EMPLOYEES

Number of From last Average Average

Years
Employees Term Age of Service
Men 168 + 10 40.6 15.2
Women 15 +2 28.8 6.9
Total/Average 183 + 12 39.6 14.5

(Part-time employees and locally-hired employees are excluded)

5. MAIN CREDITORS

(1) The Japan Development Bank

(2) The Long-term Credit Bank of Japan, Ltd.
(3) The Mitsubishi Trust & Banking Corporation
(4) The Bank of Tokyo-Mitsubishi, Ltd.
(5) The Industrial Bank of Japan, Limited.

6. DIRECTORS AND AUDITORS

Representative Director & President Tatsuo Yoshii

Representative Director & Senior Managing Director Takuo Sasaki
Representative Director & Senior Managing Director Hiroichi Hayashi
Managing Director Masayoshi Sano
Managing Director (Mgr., Business Dept. & Mgr., Singapore Office)
Minoru Murata
Director (President, Japan Petroleum Exploration Co., Ltd.) Kazuo
Wakasugi
Director (Chairman, Mitsubishi Materials Corporation) Masaya Fujimura
Director (Senior Managing Director, Japan Petroleum Exploration Co.,
Ltd.)
Susumu Nakayama
Director (Managing Director, Mitsubishi Materials Corporation) Hideo
Suzuki
Director (President, Teikoku Oil Co., Ltd.) Akira Isono
Director (Managing Director, Ishikawajima-Harima Heavy Industries,
Ltd.)
Masahiro Miyazaki
Director (Director, Kawasaki Heavy Industries, Ltd.) Hironobu Hashiguchi
Director (Managing Director, Mitsui & Co., Ltd.) Jun Tashiro
Full-time Auditor Jiro Muraoka
Auditor (Senior Managing Director, Japan Petroleum Exploration Co.,
Ltd.)
Sugio Hatanaka
Auditor (Managing Director, The Tokio Marine and Fire Insurance Co.,
Ltd.) Makoto Akutsu
 BALANCE SHEET FOR FISCAL 1998 (31ST TERM)
(as of March 31, 1999)
Figures in Yen (\)

<ASSETS>
Current Assets 5,713,763,398
Cash/Bank Deposits 1,708,032,776
Accounts Receivable 1,764,145,524
Securities 371,880,772
Works in process-construction 20,462,573
Inventories 1,321,581,158
Prepaid Expenses 131,655,840
Short-term Loans 3,528,600
Sundry Receivables 217,445,394
Other Current Assets 215,653,761
Reserve for Bad Debts (-) 40,623,000
Fixed Assets 7,204,975,922
(Tangible Fixed Assets) (6,305,332,795)
Buildings 12,084,352
Machinery & Equipment 1,546,924,209
Vessels 3,862,297,133
Vehicles 1,955,634
Tools & Fixtures 51,604,281
Construction in Progress 830,467,186
(Intangible Fixed Assets) (717,183)
Telephone Rights 717,183
(Investments) (898,925,944)
Securities Investments 122,910,918
Stocks of Subsidiaries 29,314,075
Long-term Loans 86,116,200
Long-term Prepaid Expenses 67,248,792
Long-term Sundry Receivables 413,336,366
Other Investments 448,435,593
Reserve for Bad Debts (-) 268,436,000
Total Assets 12,918,739,320
<LIABILITIES>
Current Liabilities 5,443,123,728
Accounts Payable-Trade 819,620,939
Short-term Debts (Bank Loans) 2,459,768,000
Accounts Payable for Fixed Assets 739,584,056
Accrued Liabilities for Corporate Tax, etc. 520,260,000
Accrued Liabilities for Consumption Tax, etc. 16,778,796
Accrued Expenses 575,587,152
Deposit Received 54,142,785
Reserve for Bonus 257,382,000
Fixed Liabilities 580,748,000
Long-term Debts (Bank Loans) 308,232,000
Reserve for Retirement Allowances 126,675,000
Reserve for Legal Periodic Repairs 145,841,000
Total Liabilities 6,023,871,728
<CAPITAL>
Capital 4,000,000,000
Capital Stock 4,000,000,000
Surplus 2,894,867,592
Profit Unsettled for the Term 2,894,867,592
(Profit for the Term) (1,052,109,343)
Total Capital 6,894,867,592
Total Liabilities and Capital 12,918,739,320
 STATEMENT OF PROFIT AND LOSS
FOR
FISCAL 1998 (31ST TERM)
(April 1, 1998 - March 31, 1999)
Figures in Yen (\)

<ORDINARY PROFIT & LOSS>

(OPERATING PROFIT & LOSS)

Operating Income 11,066,340,002
Operating Income 11,066,340,002
Operating Expenses 8,962,374,815
Operating Expenses 7,700,654,184
General & Administrative Expenses 1,261,720,631
Operating Profit 2,103,965,187

(NON-OPERATING PROFIT & LOSS)

Non-Operating Income 259,343,177
Interest & Dividends 259,343,177
Non-Operating Expenses 338,609,865
Interest 90,023,714
Loss on Foreign Exchange 222,308,526
Loss on Compensation for Lost Drill Pipes etc. 26,277,625
Ordinary Profit 2,024,698,499

<EXTRAORDINARY PROFIT & LOSS>

Extraordinary Loss 138,183,389
Loss on Disposal of Fixed Assets 41,508,591
Loss from Valuation of Securities Investments 75,646,952
Loss from Valuation of Stocks of Subsidiaries 21,027,846

Profit before Taxes 1,886,515,110

Corporate Tax, Residential Tax and Enterprise Tax 834,405,767
Net Profit for the Term 1,052,109,343
Retained Profit Brought Forward 1,842,758,249
Profit Unappropriated at the end of the Term 2,894,867,592
 STATEMENT OF APPROPRIATION OF PROFIT
FOR
FISCAL 1998 (31ST TERM)

Figures in Yen (\)

Profit Unappropriated at the end of the Term 2,894,867,592

The above has been appropriated as follows:

Profit to be Carried Forward 2,894,867,592

 AUDIT REPORT

May 28, 1999

Mr. Tatsuo Yoshii
President
Japan Drilling Co., Ltd.
ASAHI & CO.
Masayuki Takase, C.P.A.
Representative Partner seal
Akio Minawa, C.P.A.
Representative Partner seal
Teruhiko Tanaka, C.P.A.
Partner seal
1. Outline of Audit Method
We have examined the Balance Sheet, Statement of Profit and Loss, Business
Report (limited to its sections related to accounting) and proposed Statement
of Appropriation of Profit together with the Schedules of Financial Statements
(limited to its sections related to accounting) for the 31st Fiscal Year of Japan
Drilling Co., Ltd., started on April 1, 1998 and ended on March 31, 1999 in
accordance with the provision of Article 2 in the "Law concerning Exceptions to
the Commercial Law with regard to Auditing of Joint Stock Companies".
Sections related to accounting in the Business Report and the Schedules of
Financial Statements that have been audited are those descriptions that were
made based on records of accounting books.
Our examinations were made in accordance with generally accepted auditing
standards and accordingly, included such auditing procedures as are usually
considered necessary.
2. Results of Audit
Our opinion, as a result of the audit, is as follows:
(1)The Balance Sheet and Statement of the Profit and Loss present correctly
the financial situation of the Company, being drawn up in conformity with
the applicable laws and regulations and with the Articles of Association of
the Company.
(2)The Accounting Policy on Reserve for Legal Periodic Repairs was changed in
this fiscal year from the manner to represent the maximum amount
permitted by the Corporation Tax Law to the manner to represent the
amount to be accounted in this fiscal year out of the estimated repair
expenses in future and such change is appropriate.
(3) The Business Report (limited to its sections related to accounting) presents
correctly the situation of the Company, being drawn up in conformity with
the applicable laws and regulations and with the Articles of Association of
the Company.
(4) The proposed Statement of Appropriation of Profit is in conformity with the
applicable laws and regulations and with the Articles of Association of the
Company.
(5) There is nothing in the Schedules of Financial Statements (limited to its
sections related to accounting) needing to be pointed out under the
provisions of the Commercial Law.
3. Interests
There are no interests between the Company and our firm and/or its partners
engaged in this audit to be specifically noted herein, under the provisions of
the Certified Public Accountants Law.
Concluded
 AUDIT REPORT

The Board of Auditors has received reports from each member of the Board of
Auditors regarding the manner and the results of their audit on the performance of
duties of the Directors during the 31st fiscal year started on April 1, 1998 and
ended on March 31, 1999, held conference, made this report and given an account
as follows:

1. Outline of Audit Method

Each Auditor, in accordance with the policy and the work responsibility
schedule etc. resolved by the Board of Auditors, attended meetings of the
Board of Directors and other important meetings, inquired the business
activities of the Directors and others, reviewed important documents used in
decision making, surveyed business transactions and financial situation of the
head office and other main offices and inquired of the subsidiaries concerning
its business activities as it required. The Auditors also received reports and
explanations from the appointed auditing firm, and examined the Financial
Statements and the Schedules thereof.
As regards to the transactions of the Directors with the Company, its
subsidiaries or shareholders etc. if any, in addition to the above audit method
as it required, obtained facts from the Directors and investigated into the
details of such transactions.

2. Results of Audit
(1) The method and the results of audit done by the appointed auditing firm,
ASAHI & CO. are appropriate.
(2) The Business Report presents correctly the situation of the Company in
conformity with the applicable laws and regulations and the Articles of
Association of the Company.
(3) There is nothing in the proposed Statement of Appropriation of Profit
needing to be pointed out in view of the Company’s asset situation and
other circumstances.
(4) The Schedules of Financial Statements present correctly items to be noted,
and there is nothing needing to be pointed out.
(5) There has not been found any grave fact to indicate any malpractice in the
performance of duties by the Directors as well as any violation of the
applicable laws and regulations and the Articles of Association of the
Company.
It is also acknowledged that there has not been found any violation of duties
by the Directors with regard to the transactions of the Directors with the
Company, its subsidiaries or shareholders etc.

June 3, 1999
Japan Drilling Co., Ltd.,
Board of Auditors
Full-time Auditor: Jiro Muraoka seal
Auditor: Sugio Hatanaka seal
Auditor: Makoto Akutsu seal
(Notes) The Auditors, Jiro Muraoka, Sugio Hatanaka and Makoto Akutsu are all the
external Auditors provided by Clause 1, Article 18 in the "Law concerning
Exceptions to the Commercial Law with regard to Auditing of Joint Stock
Companies".

Concluded