The drilling and liftboat service industry is cyclical and typically driven by general economic activity and changes in actual or anticipated oil and natural gas prices. Demand for liftboats historically has been less cyclical than demand for jackup rigs, although demand for liftboats and for jackup rigs generally is affected by the same factors. Currently, oil and natural gas prices are high relative to historical levels. The rolling twelve-month average price of oil has increased from $18.42 per barrel as of January 1, 1996 to $48.90 per barrel as of July 1, 2005, and the rolling twelve-month average price of natural gas has increased from $1.72 per mmbtu to $6.33 per mmbtu over the same period. It is believed that high oil and natural gas prices, if sustained, could result in increased exploration and development drilling activity and higher demand and dayrates for drilling and liftboat service companies. Currently, approximately one-quarter of domestic natural gas production comes from the U.S. Gulf of Mexico. According to the Energy Information Administration, or EIA, from 1988 to 2004 U.S. demand for natural gas grew by 12.0 billion cubic feet per day, equal to an annual rate of 1.4%, while domestic supply grew by 4.7 billion cubic feet per day, equal to an annual rate of 0.6%. Over the next two decades, the EIA projects a need for a 15% growth in domestic natural gas production (from approximately 19 trillion cubic feet to 22 trillion cubic feet per year) and an increase in liquefied natural gas, or LNG, imports from abroad in order to meet growing demand for natural gas.

Increased international demand for jackup rigs has caused some contract drillers to redeploy rigs from the U.S. Gulf of Mexico to international areas, in many cases under multi-year contracts. According to ODS-Petrodata, the number of marketed jackup rigs in the U.S. Gulf of Mexico has declined from 149 rigs in March 2001 to 94 rigs in June 2005, a decline of approximately 37%. This redeployment, together with attrition, has reduced the overall supply of jackup rigs in the U.S. Gulf of Mexico and has created a more favorable operating environment for service companies, with increased utilization and higher dayrates for the remaining rigs.

Liftboats are self-propelled, self-elevating work platforms complete with legs, cranes and living accommodations. The Company’s liftboats are ideal working platforms to support platform and pipeline inspection and maintenance tasks because of their ability to maneuver efficiently and support multiple activities at different working heights. Diving operations may also be performed from the Company’s liftboats in connection with underwater inspections and repair. In addition, the Company’s liftboats provide an effective platform from which to perform well-servicing activities such as mechanical wireline, electrical wireline and coiled tubing operations.

The Company’s liftboats are capable of operating in water depths of up to 180 feet. Five of the Company’s liftboats have leg lengths of 190 feet or greater, which allows service of approximately 83% of the 3,900 existing production platforms in the shallow-water U.S. Gulf of Mexico. In addition, the capability to reposition at a work site or to move to another location within a short time adds to their versatility. Each of the Company’s liftboats is staffed with two full-time crews that work 24 hours per day, seven days per week, and rotate based on a 14 days on and 14 days off schedule. Currently, the Company operates 38 liftboats in the U.S. Gulf of Mexico.

The Company’s contracts to provide services are individually negotiated and vary in their terms and provisions. In general, contracts provide for payment on a dayrate basis, with higher rates while the unit is operating and lower rates for periods of mobilization or when operations are interrupted or restricted by equipment breakdowns, adverse weather conditions or other factors. To date, most of the Company’s contracts have been on a short-term basis. A liftboat contract generally is based on a flat dayrate for the vessel and crew, with variable costs such as catering, fuel and oil charged to the customer at a surcharge. The Company’s liftboat dayrates are determined by prevailing market rates, vessel availability and historical rates paid by the specific customer. Liftboat contracts generally are for shorter terms than are drilling contracts.

Average revenue per liftboat per day for Marine Services segment increased to $6.3 thousand for the three-month period ended March 31, 2005, compared with $5.7 thousand for the five-month period ended December 31, 2004, an increase of 10%.

Average operating expense per rig per day for Contract Drilling Services segment increased to $18.3 thousand for the three-month period ended March 31, 2005, compared with $17.0 thousand for the five-month period ended December 31, 2004, an increase of 7%.

Average operating expense per liftboat per day for Marine Services segment increased to $2.3 thousand for the three-month period ended March 31, 2005, compared with $2.1 thousand for the five-month period ended December 31, 2004, an increase of 4%.