We are a leading provider of marine support vessels to the oil and gas industry in the U.S. Gulf of Mexico, the North Sea and Latin America.  The services provided by our diversified fleet include the transportation of drilling materials, supplies and crews to drilling rigs and other offshore facilities; towing drilling rigs and equipment from one location to another; and support for the construction, installation and maintenance of offshore facilities.  Using our larger and more sophisticated vessels, we also provide deepwater ROV (remotely operated vehicle) and well service support, and support for the submarine telecom cable industry, including fiber optic cable installation.  We currently have a total fleet of 94 vessels, including 54 supply vessels, 11 large capacity platform supply vessels, seven large anchor handling, towing and supply vessels, 13 crew boats and nine line-handling vessels.
 
Demand for our services is primarily affected by expenditures for oil and gas exploration, development and production in the markets where we operate.  As a result of the low oil prices, oil and gas companies curtailed or deferred exploration and development spending in 1998 and most of 1999.  Additionally, the entry of newly-built vessels into the market areas where we operate contributed to an increased competitive environment, which also depressed our day rates and utilization.  We began to experience increases in day rates and utilization in the fourth quarter of 1999 and throughout 2000, primarily due to the increase in drilling activity and a reduced number of vessels in the market partially caused by the stacking of vessels by some of our competitors and us.  Also contributing to the increased utilization of our Gulf supply boats was reduced downtime for dry-docking and upgrade projects. 

The Industry

Marine support vessels primarily are used to transport equipment, supplies, and personnel to drilling rigs, to support the construction and operation of offshore oil and gas production platforms, as work platforms for offshore construction and platform maintenance and for towing services for drilling rigs and equipment.  The principal types of vessels that we operate can be summarized as follows:

Supply Boats.  Supply boats are generally at least 150 feet in length and were constructed primarily for operations on the outer continental shelf of the Gulf to serve drilling and production facilities and support offshore construction and maintenance work.  Supply boats are differentiated from other types of vessels by cargo flexibility and capacity.  In addition to transporting deck cargo, such as pipe or drummed materials, supply boats transport liquid mud, potable and drilling water, diesel fuel, dry bulk cement and dry bulk mud. 
 
Platform Supply Vessels.   Platform supply vessels, also known as PSVs, were constructed primarily for international and deepwater operations.  PSVs serve drilling and production facilities and support offshore construction and maintenance work.  They are differentiated from other offshore support vessels by their larger deck space and cargo handling capabilities.  Utilizing space on and below deck, they are used to transport supplies such as fuel, water, drilling fluids, equipment and provisions.  PSVs range in size from 150 feet to more than 275 feet and are particularly suited for supporting large concentrations of offshore production locations because of their large deck space and below deck capacities.  
 
Anchor Handling, Towing and Supply Vessels.   Anchor handling, towing and supply vessels, also known as AHTSs, are used to set anchors for drilling rigs and tow mobile drilling rigs and equipment from one location to another.  In addition, these vessels can be used in limited supply roles when they are not performing anchor handling and towing services.  They are characterized by large horsepower (generally averaging approximately 12,000-15,000 brake horsepower, and up to 24,000 brake horsepower for the most powerful North Sea Class AHTS vessels), shorter after decks and special equipment such as towing winches.
 
Crew Boats.   Crew boats are generally at least 100 feet in length and are used primarily for the transportation of personnel and light cargo, including food and supplies, to and among drilling rigs, production platforms and other offshore installations.  Crew boats are constructed from aluminum.  As a result, they generally require less maintenance and have a longer useful life without refurbishment than steel-hulled supply boats.  The majority of our crew boats are vessels 120-feet long and longer. 
 
Line Handling Boats.   Line handling boats are generally outfitted with special equipment to assist tankers while they are loading from single buoy mooring systems. These vessels support oil off-loading operations from production facilities to tankers and transport supplies and materials to and between deepwater platforms.

Market Areas  

We operate primarily in the Gulf, North Sea and offshore Brazil.  Financial data, including revenues, expenses, and assets by market area/operating segment are detailed in note 18 of our consolidated financial statements.  Our primary market areas are summarized below.  

Gulf of Mexico.  Our vessels support exploration and development activities in the Gulf as well as existing oil and gas production platforms.  Demand for our supply boats is primarily impacted by the level of offshore oil and gas drilling activity.  Drilling activity is influenced by a number of factors, including primarily oil and gas prices and drilling budgets of oil and gas companies.  As a result, utilization and day rates traditionally have had a close relationship to oil and gas prices and drilling activity.  Day rates and utilization rates in the Gulf have traditionally been volatile as a result of fluctuations in oil and gas prices and drilling activity. 

We believe approximately 340 supply boats were in the Gulf fleet at the end of 2000.  We estimate that approximately 40 to 50 of these vessels are de-activated or stacked and would require substantial investment to return to work. We experienced increases in day rates and fleet utilization in the Gulf beginning in the fourth quarter of 1999, and continuing throughout 2000, due to increased drilling activity and the tightening of the supply vessel market caused by the stacking of vessels by some of our competitors and us.  The utilization of our Gulf fleet also improved because we completed all vessel upgrade projects and had reduced downtime from vessel dry-dockings.

As of February 20, 2001, we had 41 supply boats and 12 crew boats operating in the Gulf, excluding our ten stacked supply boats.

North Sea. The North Sea market area consists of offshore Norway, Denmark, the Netherlands, Germany, Great Britain and Ireland, and the area west of the Shetlands Islands.  Historically, it has been the most demanding of all offshore areas due to harsh weather, erratic sea conditions, significant water depth and long sailing distances. Exploration and production operators in the North Sea are typically large and well capitalized entities (such as major oil companies and state owned oil companies), in large part because of the significant financial commitment required in this market area.  In comparison to the Gulf, projects in the region tend to be fewer in number, but larger in scope, with longer planning horizons and more long-term contracts.  Consequently, vessel demand in the North Sea is generally slower to react to changes in energy prices and less susceptible to abrupt swings than vessel demand in other regions. Activity in the North Sea generally is at its highest level during the months from April to September and at its lowest level during November to February.
 
We estimate that the number of vessels operating in the North Sea decreased from approximately 230 in December 1999 to approximately 198 as of December 2000, due primarily to the relocation of vessels to other international areas.  As of February 20, 2001, we had eleven PSVs and seven AHTSs in the North Sea. 

Brazil. The primary customer in the Brazilian market is Petrobras, the Brazilian national oil company.  Since 1999, Brazil has permitted foreign oil companies to participate in offshore oil and gas drilling and production.  Offshore exploration and production activity in Brazil is concentrated in the deep water Campos Basin, located 60 to 100 miles from the Brazilian coast. A number of fields in the Campos Basin are being produced using floating production facilities.  In addition, exploration activity has expanded south to the Santos Basin approximately 100 miles southeast of the city of Rio de Janeiro and to the northeastern and northern continental shelves.  

As of February 20, 2001, we had nine line-handling vessels, our SWATH crew boat and two supply boats operating offshore Brazil.  Eleven of our vessels operating offshore Brazil are under charters with Petrobras.

Our Fleet

Existing Fleet.   The following table sets forth information regarding the vessels owned by us as of February 28, 2001:

_____________
Includes the Stillwater River, our SWATH crew boat.

As of February 20, 2001, the average age of our vessels was 16 years. We believe that our upgrade and refurbishment program, completed in the first half of 1999, has significantly extended the service life of most of our Gulf supply boats.
 
Vessel Maintenance. We incur routine dry-dock inspection, maintenance and repair costs under U.S. Coast Guard Regulations and to maintain American Bureau of Shipping certification for our vessels.  In addition to complying with these requirements, we also have our own comprehensive vessel maintenance program that we believe helps us to continue to provide our customers with well maintained, reliable vessels.  We incurred approximately $24.2 million, $16.4 million and $7.7 million in dry-docking and marine inspection costs for the years ended December 31,  1998, 1999 and 2000, respectively.
 
Operations Bases
 
We support our operations in the Gulf from a 62.5 acre docking, maintenance and office facility in Houma, Louisiana located on the intracoastal waterway that provides direct access to the Gulf.  We also lease a 3,600 square foot office in Houston, Texas.  Our North Sea operations are supported from leased offices in Fosnavag, Norway, Kristiansand, Norway and Aberdeen, Scotland.  Our Brazilian operations are supported from a maintenance and administrative facility in Macae, Brazil and a sales and administrative office in Rio de Janeiro.

Customers and Charter Terms
 
We have entered into master service agreements with substantially all of the major and independent oil companies operating in the Gulf.  Most of our charters in the Gulf are short-term contracts (60 to 90 days) or spot contracts (less than 30 days) and are cancelable upon short notice.  Because of frequent renewals, the stated duration of charters frequently has little relationship to the actual time vessels are chartered to a particular customer.
 
Our principal customers in the North Sea are major integrated oil companies and large independent oil and gas companies as well as foreign government owned or controlled companies that provide logistic, construction and other services to such oil companies and foreign government organizations.  The charters with these customers are industry standard time charters.  Current charters in the North Sea include periods ranging from spot contracts of just a few days or months to long-term contracts of several years.  Seven of our North Sea vessels are on long-term contracts (at least one year in duration).  Any charterer can, however, terminate its contract during the period upon payment of agreed compensation.  Our remaining North Sea vessels are chartered on a short-term basis.
 
Charters are obtained through competitive bidding or, with certain customers, through negotiation.  The percentage of revenues attributable to an individual customer varies from time to time, depending on the level of exploration and development activities undertaken by a particular customer, the availability and suitability of our vessels for the customer's projects, and other factors, many of which are beyond our control.  For the years ended December 31, 1998, 1999, and 2000, approximately 16% , 19%, and 10%, respectively, of our total revenues were received from Statoil AS.

Competition
 
Our business is highly competitive.  Competition in the marine support services industry primarily involves factors such as price, service and reputation of vessel operators and crews, and availability and quality of vessels of the type and size needed by the customer. Although a few of our competitors are larger and have greater financial resources and international experience than us, we believe that our operating capabilities and reputation enable us to compete effectively with other fleets in the market areas in which we operate. 

Regulation
 
Our operations are significantly affected by federal, state and local regulation, as well as certain international conventions, private industry organizations and laws and regulations in jurisdictions where our vessels operate and are registered.  These regulations govern worker health and safety and the manning, construction and operation of vessels.  For example, we are subject to the jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board, the U.S. Customs Service and the Maritime Administration of the U.S. Department of Transportation, as well as private industry organizations such as the American Bureau of Shipping.  These organizations establish safety criteria and are authorized to investigate vessel accidents and recommend improved safety standards.  Among the more significant of the conventions applicable to our international operations are: 1) the International Convention for the Prevention of Pollution of the Sea, 1973, 1979 Protocol;  2) the International Convention on the Safety of Life at Sea, 1974, 1978 and 1981/1983 Protocol;  and 3) the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers.
 
The U.S. Coast Guard regulates and enforces various aspects of marine offshore vessel operations, such as classification, certification, routes, dry-docking intervals, manning requirements, tonnage requirements and restrictions, hull and shafting requirements and vessel documentation.  Coast Guard regulations require that each of our vessels be dry-docked for inspection at least twice within a five-year period.  We believe we are in compliance in all material respects with all Coast Guard regulations.
 
Under the Merchant Marine Act of 1920, as amended, the privilege of transporting merchandise or passengers in domestic waters extends only to vessels that are owned by U.S. citizens and are built in and registered under the laws of the U.S.  A corporation is not considered a U.S. citizen unless, among other things, no more than 25% of any class of its voting securities are owned by non-U.S. citizens.  If we should fail to comply with these requirements, during the period of such noncompliance we would not be permitted to continue operating our vessels in coastwise trade.
 
Our operations are also subject to a variety of federal and state statutes and regulations regarding the discharge of materials into the environment or otherwise relating to environmental protection. Included among these statutes are the Clean Water Act, the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), the Outer Continental Shelf Lands Act ("OCSLA") and the Oil Pollution Act of 1990 ("OPA").
 
The Clean Water Act imposes strict controls on the discharge of pollutants into the navigable waters of the U.S., and imposes potential liability for the costs of remediating releases of petroleum and other substances.  The Clean Water Act provides for civil, criminal and administrative penalties for any unauthorized discharge of oil and other hazardous substances in reportable quantities and imposes substantial potential liability for the costs of removal and remediation.  Many states have laws that are analogous to the Clean Water Act and also require remediation of accidental releases of petroleum in reportable quantities.  Our vessels routinely transport diesel fuel to offshore rigs and platforms, and also carry diesel fuel for their own use.  Our supply boats transport bulk chemical materials used in drilling activities, and also transport liquid mud which contains oil and oil by-products.  All offshore companies operating in the U.S. are required to have vessel response plans to deal with potential oil spills.
 
RCRA regulates the generation, transportation, storage, treatment and disposal of onshore hazardous and non-hazardous wastes, and requires states to develop programs to ensure the safe disposal of wastes.  We generate non-hazardous wastes and small quantities of hazardous wastes in connection with routine operations.  We believe that all of the wastes that we generate are handled in compliance with RCRA and analogous state statutes.
 
CERCLA contains provisions dealing with remediation of releases of hazardous substances into the environment and imposes strict, joint and several liability for the costs of remediating environmental contamination upon owners and operators of contaminated sites where the release occurred and those companies who transport, dispose of or who arrange for disposal of hazardous substances released at the sites.  Although we handle hazardous substances in the ordinary course of business, we are not aware of any hazardous substance contamination for which we may be liable.
 
OCSLA provides the federal government with broad discretion in regulating the release of offshore resources of oil and gas production.  If the government were to exercise its authority under OCSLA to restrict the availability of offshore oil and gas leases, this could reduce demand for our Gulf vessels and adversely affect utilization and day rates.
 
OPA contains provisions specifying responsibility for removal costs and damages resulting from discharges of oil into navigable waters or onto the adjoining shorelines.  Among other requirements, OPA requires owners and operators of vessels over 300 gross tons to provide the U.S. Coast Guard with evidence of financial responsibility to cover the costs of cleaning up oil spills from such vessels.  We have provided satisfactory evidence of financial responsibility to the U.S. Coast Guard for all of our Gulf vessels over 300 tons.
 
We believe we are in compliance in all material respects with all applicable environmental laws and regulations to which we are subject.  Our vessels operating in foreign market areas are subject to regulatory controls concerning environmental protection similar to those in force in the Gulf.  We believe that compliance with any existing environmental requirements will not materially affect our operations or competitive position.

Insurance
 
The operation of our vessels is subject to various risks, such as catastrophic marine disaster, adverse weather conditions, mechanical failure, collision and navigation errors, all of which represent a threat to personnel safety and to our vessels and cargo.  We maintain insurance coverage against certain of these risks, which management considers to be customary in the industry.  We believe that our insurance coverage is adequate and we have not experienced a loss in excess of our policy limits.  However, there can be no assurance that we will be able to maintain adequate insurance at rates which we consider commercially reasonable, nor can there be any assurance that such coverage will be adequate to cover all claims that may arise.
 
Employees
 
As of February 20, 2001, we had 1,191 employees worldwide, including 1,087 operating personnel and 104 corporate, administrative and management personnel.  We believe our relationship with our employees is satisfactory. To date, our operations have not been interrupted by strikes or work stoppages.

None of our U.S. employees is unionized or employed pursuant to any collective bargaining agreement or any similar arrangement.  We have experienced a union organizing campaign for our Gulf employees by five maritime labor unions.  We, together with other providers of marine support vessels, have been a target of the unions' efforts.  An unfair labor practice charge has been filed against us by the unions seeking an order that we permit their organizers access to our properties.  A similar prior charge was withdrawn.  If our Gulf employees were to become union represented, our flexibility in dealing with changing circumstances in our industry or in our own operations could be limited and we could be adversely affected. 

Our Norwegian seamen are covered by three union contracts that are between the Norwegian Shipowners Association and three separate Norwegian unions.  Our U.K. seamen are covered by two union contracts between Guernsey Ship Management Limited acting on our behalf and two separate unions.  
 
Cautionary Statements
 
Certain statements made in this Annual Report that are not historical facts are "forward-looking statements." Such forward-looking statements may include statements that relate to:

• our objectives, business plans or strategies, and projected or anticipated benefits or other consequences of such plans or strategies;
•  projected or anticipated benefits from future or past acquisitions; and
•  projections involving anticipated capital expenditures or revenues, earnings or other aspects of capital projects or operating results.

Also, you can generally identify forward-looking statements by such terminology as "may," "will," "expect," "believe," "anticipate," "project," "estimate" or similar expressions.  We caution you that such statements are only predictions and not guarantees of future performance or events.  In evaluating these statements, you should consider various risk factors, including but not limited to the risks listed below.  These risk factors may affect the accuracy of the forward-looking statements and the projections on which the statements are based.
 
All phases of our operations are subject to a number of uncertainties, risks and other influences, many of which are beyond our control.  Any one of such influences, or a combination, could materially affect the results of our operations and the accuracy of forward-looking statements made by us.  Some important factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in our forward-looking statements include the following:

• dependence on the oil and gas industry, including the volatility of prices of oil and gas, industry perceptions about future oil and gas prices and their effect on industry conditions;
• industry volatility, including the level of offshore drilling and development activity and changes in the size of the offshore vessel fleet in areas where we operate due to new vessel construction and the mobilization of vessels between market areas;
• operating hazards, including the significant possibility of accidents resulting in personal injury, property damage or environmental damage;
• the effect on our performance of regulatory programs and environmental matters;
• the highly competitive nature of the offshore vessel industry;
• the age of our fleet;
• seasonality of the offshore industry;
• the risks of international operations, including currency fluctuations, risk of vessel seizure and political instability; and
• the continued active participation of our executive officers and key operating personnel.

Many of these factors are beyond our ability to control or predict.  We caution investors not to place undue reliance on forward-looking statements.  We disclaim any intent or obligation to update the forward-looking statements contained in this Annual Report, whether as a result of receiving new information, the occurrence of future events or otherwise.
 
In addition to the other information in this Annual Report, the following factors should be considered carefully.

Market volatility may adversely affect operations
 
Demand for our services depends heavily on activity in offshore oil and gas exploration, development and production.  The level of exploration and development activity has traditionally been volatile as a result of fluctuations in oil and natural gas prices and their uncertainty in the future.  For example, as a result of the decline in oil industry activity due to the depressed oil prices experienced during 1998 and early 1999, day rates and utilization of our supply boat fleet decreased dramatically.  Although day rates and utilization rates recovered in 2000 in response to increased industry activity, we are unable to predict how long the recovery will continue.  

The North Sea market is also susceptible to changes in industry activity due to energy price volatility.   The use of long-term contracts in the North Sea generally delays the reaction to fluctuations in energy prices.  However,  a decline in  the worldwide demand for oil and gas or prolonged low oil or natural gas prices in the future could hinder the industry recovery and depress offshore drilling and development activity.  A prolonged low level of activity in the Gulf and other areas where we operate is likely to adversely affect the demand for our marine support services and our financial condition and results of operations. 
 
Charter rates for marine support vessels also depend on the supply of vessels.  Excess vessel capacity in the industry can result primarily from the construction of new vessels and the mobilization of vessels between market areas. During the last few years there has been a significant number of new vessels built for use both in the Gulf and the North Sea.  The addition of new capacity to the worldwide offshore marine fleet has increased competition in those markets where we operate.  The addition of capacity coupled with a prolonged period of low oil and gas prices in the future would likely significantly increase competition and reduce day rates and utilization levels.

We operate in a highly competitive industry
 
Our business is highly competitive.  Certain of our competitors have significantly greater financial resources than us and more experience operating in international areas. Competition in the marine support services industry primarily involves factors such as price, service and reputation of vessel operators and crews; and the quality and availability of vessels of the type and size needed by the customer are also factors affecting the competitive environment.
 
We expect in 2001 and beyond that operators of marine support vessels, including us, will pursue the construction of new vessels in order to replace older vessels and to participate in the growing deepwater exploration and development market area.  We believe that most fleet additions will be larger vessels that have greater cargo capacity and more operating capabilities than the 180 to 200-foot supply boats built in the 1970s and early 1980s.  Newly-built vessels with enhanced capacities cost substantially more to build than traditional supply boats and generally do not compete for the same business.  However, depending on market conditions, newly-built vessels can at least temporarily increase competition and depress day rates and utilization in the market areas where we operate. 

Operating hazards may increase operating costs; limited insurance coverage
 
Marine support vessels are subject to operating risks such as catastrophic marine disaster, adverse weather conditions, mechanical failure, collisions, oil and hazardous substance spills and navigation errors.  The occurrence of any of these events may result in damage to or loss of our vessels and our vessels' tow or cargo or other property and in injury to passengers and personnel.  Such occurrences may also result in a significant increase in operating costs or liability to third parties.  We maintain insurance coverage against certain of these risks, which our management considers to be customary in the industry.  We cannot assure you, however, that we can renew our existing insurance coverage at commercially reasonable rates or that such coverage will be adequate to cover future claims that may arise. 
 
Compliance with governmental regulations may impose additional expenditures
 
Federal, state and local regulations, as well as certain international conventions, private industry organizations and agencies and laws and regulations in jurisdictions where our vessels operate and are registered, materially affect our operations.  These regulations govern worker health and safety and the manning, construction and operation of vessels.  These organizations establish safety criteria and are authorized to investigate vessel accidents and recommend approved safety standards.  If we fail to comply with the requirements of any of these laws or the rules or regulations of these agencies and organizations, this could adversely affect our operations.
 
Our operations also are subject to federal, state and local laws and regulations that control the discharge of pollutants into the environment and that otherwise relate to environmental protection.  While our insurance policies provide coverage for accidental occurrence of seepage and pollution or clean up and containment of the foregoing, pollution and similar environmental risks generally are not fully insurable.  We may incur substantial costs in complying with such laws and regulations, and noncompliance can subject us to substantial liabilities.  The laws and regulations applicable to us and our operations may change.  If we violate any of such laws or regulations, this could result in significant liability to us.  In addition, any amendment to such laws or regulations that mandates more stringent compliance standards would likely cause an increase in our vessel maintenance expenses.
 
Seasonality may adversely affect operations
 
Our marine operations are seasonal and depend, in part, on weather conditions.  In the Gulf, we have historically enjoyed our highest utilization rates during the second and third quarters, as mild weather provides favorable conditions for offshore exploration, development and construction.  Adverse weather conditions during the winter months generally curtail offshore development operations .  Activity in the North Sea is also subject to delays during periods of adverse weather, but is not affected by seasonality to the extent activity in the Gulf is affected.  Accordingly, the results of any one quarter are not necessarily indicative of annual results or continuing trends.

Age of fleet
 
The average age of our vessels (based on the date of construction) is approximately 16 years.  Expenditures required for the repair, certification and maintenance of a vessel typically increase with vessel age.  These expenditures may increase to a level at which they are no longer economically justifiable.  We cannot assure you that we will be able to maintain our fleet by extending the economic life of existing vessels through major refurbishment or by acquiring new or used vessels.  
 
Currency fluctuations could adversely affect results of operations
 
Changes in the value of foreign currencies relative to the United States dollar could adversely affect our results of operations and financial position.  In addition, transaction gains and losses could contribute to fluctuations in our results of operations.  Our international operations are subject to a number of risks inherent to any business operating in foreign countries.  These risks include, among others:

• political instability;
• potential vessel seizure or nationalization of assets;
• currency restrictions and exchange rate fluctuations; and
• import and export quotas and other forms of public and governmental regulation.

All of these risks are beyond our control. We cannot predict the nature and the likelihood of any such events. However, if such an event should occur, it could significantly reduce our operating cash flows and earnings.
 
We depend on key personnel
 
We depend on the continued services of our executive officers and other key management personnel.  If we were to lose any of these officers or other management personnel, such a loss could adversely affect our operations.