UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission file number 000-22853

GulfMark Offshore, Inc.

Registrant’s telephone number, including area code: (713) 963-9522
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 Par Value
(Title of class)

     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 þ

     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 the Form 10-K or any amendment to this Form 10-K. Yes o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ

     The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter was $223,673,326 calculated by reference to the closing price of $15.78 for the registrant’s common stock on the NASDAQ National Market on that date.

     Number of shares of common stock outstanding as of March 24, 2005: 20,114,744.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III, Items 10, 11, 12, 13 and 14, will be included in a
definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Form 10-K, and is incorporated herein by reference.

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TABLE OF CONTENTS

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PART I

ITEMS 1. and 2. Business and Properties

GENERAL BUSINESS

     GulfMark Offshore, Inc. is a Delaware corporation that provides offshore marine services primarily to companies involved in offshore exploration and production of oil and natural gas. Our vessels transport materials, supplies and personnel to offshore facilities, and position drilling structures. The majority of our operations are conducted in the North Sea, with the balance in offshore Southeast Asia and Brazil. Periodically, we will contract vessels into other regions to meet our customers’ requirements.

     GulfMark Offshore, Inc. operates the following operating segments: the North Sea, Southeast Asia and the Americas. Our chief operating decision maker regularly reviews financial information about each of these operating segments in deciding how to allocate resources and evaluate performance. The business within each of these geographic regions has similar economic characteristics, services, distribution methods and regulatory concerns. All of the operating segments are considered reportable segments under Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information”. For financial information about our operating segments and geographic areas, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Segment Results” included in Part II, Item 7. and Note 9 to our Consolidated Financial Statements included in Part II, Item 8.

     Our principal executive offices are located at 10111 Richmond Avenue, Suite 340, Houston, Texas 77042, and our telephone number at that address is (713) 963-9522. We file annual, quarterly, and special reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet on our website at http://www.gulfmark.com and at the SEC’s website at http://www.sec.gov. Filings are available on our website as soon as reasonably practicable after we electronically file or furnish them to the SEC. You may also read and copy any document we file at the SEC’s Public Reference Room at the following location: 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

THE COMPANY

Offshore Marine Services Industry Overview

     Our customers employ our vessels to provide services supporting the construction, positioning and ongoing operation of offshore oil and natural gas drilling rigs and platforms. This industry employs various types of vessels, referred to broadly as offshore support vessels, or OSVs, that are used to transport materials, supplies, and personnel and position drilling structures. Offshore marine service providers are employed by oil and gas companies that are engaged in the offshore exploration and production of oil and natural gas and related services. Services provided by companies in this industry are performed in numerous locations worldwide. The North Sea, offshore Southeast Asia, offshore West Africa, offshore Brazil and the Gulf of Mexico are each major markets that employ a large number of vessels. Vessel usage is also significant in other international markets, including India, Australia, Trinidad, the Persian Gulf and the Mediterranean Sea. The industry is relatively fragmented, with more than 20 major participants and numerous small regional competitors. We currently operate our fleet of 54 offshore supply vessels in the following regions: 34 in the North Sea, ten in Southeast Asia, five in Brazil, two in India, one in West Africa, and two vessels mobilizing to Mexico.

     Our business is directly impacted by the level of activity in worldwide offshore oil and natural gas exploration, development and production, which in turn is influenced by trends in oil and natural gas prices. Additionally, oil and natural gas prices are affected by a host of geopolitical and economic forces, including the fundamental principles of supply and demand. Although commodity prices have remained high by historical standards over the last several years, upstream expenditures by oil and gas exploration and development companies have not followed previous patterns of greater expenditures when commodity prices are high and lower expenditures during lower pricing periods. Each of the major geographic offshore oil and natural gas production regions has unique characteristics that influence the economics of exploration and production and consequently the market for vessels in support of these activities. While there is some vessel interchangeability between geographic regions, barriers such as mobilization costs and vessel suitability restrict migration of some vessels between regions. This is most notably the case in the North Sea, where vessel design requirements dictated by the harsh operating environment restrict relocation of vessels into that market. These same design characteristics make the North Sea capable vessels unsuitable for certain underdeveloped areas where draft restrictions and, to a lesser degree, higher operating costs restrict migration out of the market. The effect of these restrictions on vessel movement is to segment various regions into separate markets.

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Size of Vessel Fleet

     The size of our fleet has changed from 56 vessels on December 31, 2003 to 54 vessels on March 31, 2005. One newbuild vessel, the Austral Abrolhos, was delivered in September 2004, as a part of our new construction program. Additionally, in December 2004 we acquired the Highland Citadel, a 2003 built 755L platform supply vessel, which we previously managed. The new vessel construction program was concluded in March 2005 with the delivery of two vessels that are mobilizing to Mexico under long-term charters. During 2004, we sold three of our older Southeast Asia-based vessels, one vessel in the North Sea, and we returned the last of our bareboat chartered vessels to its owner. Also, during 2004, our managed vessel fleet was reduced by one vessel bringing the total managed vessels to seven as of March 31, 2005. The following table summarizes the fleet changes since December 31, 2003:

Vessel Classifications

     Offshore support vessels generally fall into seven functional classifications derived from their primary or predominant operating characteristics or capabilities. However, these classifications are neither precise nor rigid, and it is not unusual for a vessel to fit into more than one of the categories. These functional classifications are:

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Platform Supply Vessels, or PSVs, serve drilling and production facilities and support offshore construction and maintenance work. They are differentiated from other offshore support vessels by their cargo handling capabilities, particularly their large capacity and versatility. PSVs utilize space on deck and below deck and are used to transport supplies such as fuel, water, drilling fluids, equipment and provisions. PSVs range in size from 150’ to 200’. Large PSVs or LgPSVs, range up to 300’ in length, with a few vessels somewhat larger, and are particularly suited for supporting large concentrations of offshore production locations because of their large, clear after deck and below deck capacities. The majority of the LgPSVs we operate function primarily in this classification but are also capable of service in construction support.

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Anchor Handling, Towing and Supply Vessels, or AHTS, are used to set anchors for drilling rigs and tow mobile drilling rigs and equipment from one location to another. In addition, these vessels typically can be used in limited supply roles when they are not performing anchor handling and towing services. They are characterized by shorter after decks and special equipment such as towing winches. Vessels of this type with less than 10,000 brake horsepower, or BHP, are referred to as small AHTSs or, SmAHTS, while AHTSs in excess of 10,000 BHP are referred to as large AHTSs, or LgAHTSs. The most powerful North Sea Class AHTSs have up to 25,000 BHP. All our AHTSs can also function as PSVs.

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Construction Support Vessels are vessels such as pipe-laying barges or specially designed vessels, such as pipe carriers, used to transport the large cargos of material and supplies required to support the construction and installation of offshore platforms and pipelines. A large number of our LgPSVs also function as pipe carriers. Our North Sea fleet has the distinction of being one of the only significant concentration of pipe carrier capable vessels outside of Scandinavian control.

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Standby Rescue Vessels, or Stby, perform a safety patrol function for an area and are required for all manned locations in the United Kingdom sector of the North Sea. These vessels typically remain on station to provide a safety backup to offshore rigs and production facilities and carry special equipment to rescue personnel. They are equipped to provide first aid and shelter and, in some cases, also function as supply vessels.

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Crewboats, or Crew, transport personnel and cargo to and from production platforms and rigs. Older crewboats (early 1980s build) are typically 100’ to 120’ in length, and are designed for speed and to transport personnel. Newer crewboat designs are generally larger, 130’ to 185’ in length, and can be longer with greater cargo carrying capacities. Vessels in this category are also called fast supply vessels, or FSVs. They are used primarily to transport cargo on a time-sensitive basis. We do not currently operate any vessels in this category.

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Specialty Vessels, or SpVs, generally have special features to meet the requirements of specific jobs. The special features can include large deck spaces, high electrical generating capacities, slow controlled speed and varied propulsion thruster configurations, extra berthing facilities and long-range capabilities. These vessels are primarily used to support floating production storing and offloading, or FPSOs, diving operations, remotely operated vehicles, or ROVs, survey operations and seismic data gathering, as well as oil recovery, oil spill response and well stimulation.

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Some of our owned vessels frequently provide specialty functions, and two managed vessels are currently chartered for specialty functions.

•	Utility Vessels are typically 90’ to 150’ in length and are used to provide limited crew transportation, some transportation of oilfield support equipment and, in some locations, standby functions. We do not currently operate any vessels in this category.

The North Sea Market

     We define the North Sea market as offshore Norway, Denmark, the Netherlands, Germany, Great Britain and Ireland, the Norwegian Sea and the area West of Shetlands. Historically, this has been the most demanding of all exploration frontiers due to harsh weather, erratic sea conditions, significant water depth and long sailing distances. Exploration and production operators in the North Sea market have typically been large and well-capitalized entities (such as major oil and gas companies and state-owned oil and gas companies), in large part because of the significant financial commitment required in this market. Recently, however, there have been a number of independent operators who have begun to develop fields in the North Sea or who have made significant acquisitions from the major oil companies with plans to further develop these properties. Projects in the North Sea tend to be fewer in number but larger in scope, with longer planning horizons than projects in regions with less demanding environments such as the Gulf of Mexico. Due to these factors, vessel demand in the North Sea has historically been more stable and less susceptible to abrupt swings than vessel demand in other regions.

     This market can be broadly divided into three areas: exploration, production platform support and field development or construction. Support of the more volatile exploration segment of the market represents the primary demand for AHTSs. While supply vessels support the exploration segment, they also support the production and field construction segments, which generally are not affected by the volatility in demand for the AHTSs. However, since AHTSs are capable of performing in a supply role, with the reduction in exploration and production activities starting in 2002 in the North Sea, many AHTSs have been available to compete in the supply vessel market and thus contributed to lower day rates in 2003 and through the third quarter of 2004.

     Our North Sea-based fleet is oriented toward supply vessels which work in the more stable segments of production platform support and field development or construction, and includes 30 owned (21 PSVs, four AHTSs, and five SpV vessels) and seven managed PSVs. Onshore bases in Aberdeen, Scotland, Liverpool, England and Sandnes, Norway support these vessels. Vessels that are based in the North Sea but operate temporarily out of the region are included in the North Sea vessel count and related statistics, unless deployed to one of our other regions under long-term contracts.

     The North Sea market was generally a very stable market from the early-1990’s through late in 2001 with minor periods of disruption caused by fluctuating expenditures for oil and natural gas exploration and development, primarily by the major oil companies that dominated this market. In late 2000, commodity prices and increased drilling activity resulted in improved vessel utilization and day rates through 2001 and into the first part of 2002. Subsequent to the terrorist attacks on September 11, 2001, both oil and natural gas prices remained significantly higher; however, despite these higher commodity price levels, exploration and development activity in the region did not increase accordingly. At the same time, there was an increase in the number of newbuild vessels delivered into the market in 2002 – 2004 which resulted in the lowest utilization in the region in the last decade during the period 2003-2004. While the number of high capacity vessels in this market has remained fairly constant over the last ten years at approximately two hundred, there have been over three hundred vessels of the same design capacity delivered which have gone into service in other international markets or displaced older equipment in the North Sea. These displaced vessels have subsequently mobilized to other international markets, either permanently or for temporary assignments.

     There was also a transformation in the customer base in the region that began in 2003 and continued throughout 2004 as the major oil and natural gas companies disposed of prospects and mature producing properties in the North Sea to independent oil and natural gas companies. This was in part caused by legislative initiatives in the U.K., which made these properties attractive to the independents. The independent companies typically had shorter horizons with regard to exploration and development activities than the major oil and natural gas companies, which in turn resulted in a decline in the availability of long-term contracts for vessel services at economically attractive day rates. The consequence of this transformation and curtailment of activities by the major companies was an increase in the number of vessels available in the spot market which in turn depressed both utilization of vessels and day rates. In the second quarter of 2004, an increase in long-term drilling rig contracts was evidenced in the North Sea, particularly in the Norwegian sector, which specifically related to the opening of the Barent Sea to exploration activities by the Norwegian government. In addition, several large projects including the Orman Lange, Snovhit and Alvheim Field developments resulted in the oil and gas companies that contracted the drilling rigs to tender for vessel services in support for these rigs. Late in the third quarter

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of 2004, utilization and day rates for vessels in the region began to improve with some consistency throughout the balance of 2004.

     This region typically has weaker periods in the winter months of December – February; however, with a few exceptions, utilization and day rates have remained strong throughout these months. Visibility with regard to vessel demand over the balance of 2005 and into 2006 is directly related to drilling and development activities in the region as well as construction work required in support of these activities and demands outside of the region which will draw vessels to other international markets. Geopolitical events, the demand for oil and gas in both mature and emerging countries and a host of other factors will influence the expenditures of both independent and major oil and gas companies in the near term; however, based on current conditions and the available information regarding future drilling plans for the region, we anticipate a consistent market throughout the balance of 2005 and into the first half of 2006.

     The demand for existing vessels outside of the North Sea and the expanded role for deepwater projects in worldwide locations have continued to lead to migrations of vessels to other operating areas. As 2002 was coming to a close, we mobilized three vessels from the North Sea to other operating areas. The Highland Legend went to Southeast Asia, the Highland Piper went to Brazil and the newly delivered Highland Bugler went to India. In 2003, the North Crusader mobilized to Brazil as a front-runner for the Brazilian vessel under construction and the Highland Drummer mobilized to India along with a managed vessel. In 2004 we mobilized the Highland Warrior to Brazil on a four-year contract and the North Stream on a two year contract. The Highland Patriot went to Southeast Asia where we gained higher utilization. We also brought the Highland Bugler and the Highland Piper back to the North Sea after completion of contracts in India and Brazil respectively. Late in 2004 and after the delivery of the Austral Abrolhos in Brazil the North Crusader left the region and initially went to West Africa where it is working on a short term exploration project. All of these vessel movements have been undertaken to take advantage of contract opportunities or to place the vessels where there were improved opportunities for contracts. It is our intent to continue to seek opportunities for term work at attractive rates outside of the North Sea while preserving our capability to take advantage of market potential in the North Sea region.

The Southeast Asia Market

     We define the Southeast Asia market as offshore Asia bounded roughly on the west by the Indian subcontinent and on the north by China. This market includes offshore Brunei, Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. The design requirements for vessels in this market are generally similar to the requirements of the shallow water Gulf of Mexico. However, advanced exploration technology and rapid growth in energy demand among many Pacific Rim countries have led to more remote drilling locations, which has increased both the overall demand in this market and the technical requirements for vessels. We believe that a number of exploration and production projects planned or underway could increase the future demand for offshore marine services in the Southeast Asia market.

     The Southeast Asia market differs country by country, but the competitive environment is broadly characterized by a large number of small companies, in contrast to many of the other major offshore exploration and production areas of the world, where a few large operators dominate the market. Affiliations with local companies are generally necessary to maintain a viable marketing presence. Our management has been involved in the region since the mid-1970s, and we currently maintain long-standing business relationships with a number of local companies. We currently have ten vessels deployed in this market.

     Vessels in this market are typically smaller than those operating in areas such as the North Sea. Yet, the varying weather conditions, annual monsoons and long distances between supply centers in Southeast Asia have allowed for a variety of vessel designs to compete in this market, each suited for a particular set of operating parameters. Vessels designed for the Gulf of Mexico and other areas, where moderate weather conditions prevail, have historically made up the bulk of the Southeast Asian fleet. Demand for larger, newer and higher specification vessels is developing in the region where deepwater projects occur or where oil and natural gas companies employ larger fleets of vessels. This development led us to mobilize the Highland Legend from the North Sea to this market in late 2002 and the Highland Patriot in early 2004 to meet the changing market in the region, as both of these vessels are larger than the typical vessels of the region. We sold three vessels serving in our Southeast Asia fleet, the Seawhip and the Seawitch in July 2004, and the Sea Conquest in September 2004.

     Changes in supply and demand dynamics have led at times to an excess number of vessels in markets such as the Gulf of Mexico. It is possible that vessels currently located in the Arabian/Persian Gulf area, West Africa or the Gulf of Mexico could relocate to Southeast Asia. Not all vessels currently located in those regions would be able to operate in Southeast Asia. Furthermore, transferring a vessel from the Gulf of Mexico to this region would involve a significant cash and opportunity cost. During 2003, and the first half of 2004 when this market was stronger than other markets, movement of vessels into the Southeast Asia became more of a factor in the supply/demand equation. However, in the latter stages of 2004 the continuing strength in West Africa and the Middle East resulted in vessels leaving the area for those locations.

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     Indonesia is the only member of OPEC in the region. Oil and natural gas exploration activity in Indonesia has historically focused on oil exploration. Several large projects have now been identified that would exploit gas reserves as well as convert gas into liquefied natural gas for shipment to other areas of the world where gas demand is anticipated to continue to grow. Indonesian-based operations utilize the largest number of service vessels in the region. Demand in Indonesia has seen a number of peaks and valleys during the past decade, but over the last several years, has remained relatively constant with utilization levels remaining relatively high and day rates steady. We currently have one vessel operating in Indonesia for a major oil and natural gas company.

The Americas Market

     We define the Americas market as offshore North, Central and South America. Historically, our activity in the Americas has been in Brazil; however, we currently have two vessels in transit to Mexico to fulfill a contract with Pemex.

     Similar to the North Sea, the Brazilian market requires highly sophisticated vessels due to the harsh operating environment. We have experienced success in meeting the market requirements through owned, managed and bareboat chartered vessels and will look to our existing and newbuild fleet to meet the expanding demand for vessels in this important market.

     Over the last several years, the Brazilian government has opened up the petroleum industry to private investment. The early bid rounds resulted in extensive commitments by major international oil companies and consortiums of independents, many of whom have explored and to some extent will continue to explore the offshore blocks awarded in the lease sales. This created a demand for deepwater AHTSs to some extent and PSVs in support of the drilling and exploration activities that has been met primarily from mobilization of vessels from other regions. In addition, Petrobras, the Brazilian national oil company, continues to expand operations which has created, and could continue to create, additional demand for offshore support vessels. We have been active in bidding on additional work with both Petrobras and the consortiums, with the recent success resulting in the contract awards for the North Stream, the Highland Warrior and the Austral Abrolhos.

     Currently, we operate five vessels in this region, including the Brazilian newbuild Austral Abrolhos, which was delivered in September 2004 and is contracted through October 2009 to Enterprise Oil do Brasil Ltda., a subsidiary of the Royal Dutch/Shell Group, in support of its Brazilian program in the Campos Basin. The Seapower has been operating in Brazil since 1995 under a contract with Petrobras, which runs into October 2005. The Highland Scout has been contracted to Petrobras since January 2000 and is contracted into April 2007. The Highland Warrior and the North Stream were mobilized to the region during 2004 and are contracted through August 2008 and June 2006, respectively. The North Crusader, which had been used as a front-runner for the Austral Abrolhos, mobilized to West Africa, and the Highland Piper completed its contract with Petrobras and mobilized back to the North Sea.

     We have contracted the two new build vessels, Coloso and Titan, under five-year primary-term contracts to Pemex in the Gulf of Mexico. This represents our first entry into the Gulf of Mexico market with Pemex and is anticipated to create additional opportunities in the Gulf of Mexico in the future as Pemex increases the size and capability of the vessel fleet required to support their drilling operations. The vessels are scheduled to arrive in Mexico from the shipyard in Singapore and begin their contracts late in the second quarter of 2005.

Other Markets

     We have contracted our vessels outside of our operating segment regions principally on short-term charters in places such as West Africa and the Mediterranean region. We currently have a managed vessel in addition to one of our owned vessels working in support of drilling operations in India and one of our owned vessels operating in the Congo. We look to our core markets for the bulk of our term contracts; however, when the economics of a contract are attractive, or we believe it is strategically advantageous, we will operate our vessels in markets outside of our core regions.

New Vessel Construction Program

     During 2000, we committed to the construction of nine new North Sea class vessels with a Norwegian shipbuilder. This shipyard previously constructed several of our other newbuilds including the UT 755 design PSVs. The newbuild program included six PSVs and three AHTSs with all vessels designed to be multi-functional in that they are capable of supporting underwater ROV operations as well as traditional offshore support operations. All of the vessels were built to Rolls Royce/Ulstein specifications and included two UT 745 PSV, four UT 755 PSV and three UT 722L

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AHTSs. All of these vessels were delivered on time and within budget.

     Additionally, we contracted with the Norwegian shipyard’s Brazilian affiliate for the construction of a SpV for an estimated cost of $24 million. This vessel, the Austral Abrolhos, was delivered in September 2004. In December of 2003, we entered into a contract to build two 6,000 horsepower AHTSs pursuant to a contract with our joint venture partner in Mexico for Pemex. These two vessels, that cost approximately $22.0 million, were delivered in March 2005. As of the end of 2004, we had spent $226.0 million under the new vessel construction program, including $88.2 million in 2003 and $23.5 million in 2004. The following table outlines the cost and contracted delivery schedule of the program:

Delivered Vessels

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Our Fleet

     Our existing fleet as of March 31, 2005 is 54 vessels including the two vessels transitioning to Mexico. Of these vessels, 47 are owned by us (see table below) and seven are under management for other owners.

     The table above does not include seven managed vessels.

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Customers, Contract Terms and Competition

     Our principal customers are major integrated oil and gas companies and large independent oil and natural gas exploration and production companies working in international markets, and foreign government-owned or controlled oil and gas companies, as well as companies that provide logistic, construction and other services to such oil and gas companies and foreign government organizations. The contracts are industry standard time charters for periods ranging from a few days or months to more than a year. While certain contracts do contain cancellation provisions, the contracts are generally not cancelable except for unsatisfactory performance by the vessel. During 2004, under multiple contracts in the ordinary course of business, one customer, Petrobras, accounted for 10.3% of total consolidated revenues. No other single customer accounted for 10% or more of our total consolidated revenues for 2004.

     Contract or charter durations vary from single-day to multi-year in length, based upon many different factors that vary by market. Additionally, there are “evergreen” charters (also known as “life of field” or “forever” charters), and at the other end of the spectrum, there are “spot” charters and “short duration” charters, which can vary from single voyage to charters of less than six months. Longer duration charters are more common where equipment is not as readily available or specific equipment is required. In the North Sea, multi-year charters have been more common, and we believe that term charters constitute a significant portion of that market. Term charters in Southeast Asia are currently somewhat less common than in the North Sea and generally less than two years in length. In addition, charters for vessels in support of floating production are typically “life of field” or “full production horizon charters”. Because of options and frequent renewals, the stated duration of charters may have little correlation with the length of time the vessel is actually contracted to a particular customer.

     In the past we have bareboat chartered vessels. Bareboat charters are contracts for vessels, generally for a term in excess of one year, whereby the owner transfers all market exposure for the vessel to the charterer in exchange for an arranged fee. The charterer has the right to market the vessel without direction from the owner. Currently however, we have no bareboat chartered vessels in our fleet.

     Managed vessels add to the market presence of the manager but provide limited direct financial contribution. Management fees are typically based on a per diem rate and are not subject to fluctuations in the charter hire rates. The manager is typically responsible for disbursement of funds for operating the vessel on behalf of the owner. Depending on the level of service provided by the manager, fees for services are generally less than $10,000 per month per vessel. Currently, we have seven vessels under management.

     Substantially all of our charters are fixed in British pounds, Norwegian kroner and U.S. dollars. We attempt to reduce currency risk by matching each vessel’s contract revenue to the currency in which its operating expenses are incurred. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Currency Fluctuations and Inflation.”

     We compete with approximately 10-15 companies in the North Sea market and numerous small and large competitors in the Southeast Asia and Americas markets principally on the basis of suitability of equipment, price and service. Also, in certain foreign countries, preferences are given to vessels owned by local companies. We have attempted to mitigate some of the impact of such preferences through affiliations with local companies. Some of our competitors have significantly greater financial resources than we do.

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Fleet Availability

     A portion of our available fleet is committed under contracts of various terms. The following table outlines the percentage of our forward days under contract as of March 1, 2004 and March 1, 2005:

     These commitments provide us with a forward view of vessel income in the respective periods based on the contract rates that are in effect on each of the contracts comprising the forward days less the estimated costs of operating the vessels in each geographical area. The increase in the percentage of contracted days at March 1, 2005, as compared to March 1, 2004, for the current year and one year forward, is primarily a reflection of increased drilling and exploration activity in late 2004 and continuing into 2005, which resulted in higher demand for support vessels. This increase in demand resulted in more long-term (greater than one year) contracts at day rates we deem to be acceptable.

Environmental and Government Regulation

     We must comply with extensive government regulation in the form of international conventions, federal and state laws and regulations in jurisdictions where our vessels operate and/or are registered. These conventions, laws and regulations govern matters of environmental protection, worker health and safety vessel and port security, and the manning, construction and operation of vessels. We believe that we are in material compliance with all applicable laws and regulations. The International Maritime Organization, or IMO, recently made the regulations of the International Safety Management Code, or ISM Code, mandatory. The ISM Code provides an international standard for the safe management and operation of ships, pollution prevention and certain crew and vessel certifications which became effective on July 1, 2002. IMO has recently adopted the International Ship & Port Facility Security Code, or ISPS Code, which became effective on July 1, 2004. The ISPS Code provides that owners or operators of certain vessels and facilities must provide security and security plans for their vessels and facilities and obtain appropriate certification of compliance. We believe all of our vessels presently are certificated in accordance with ISPS Code. The risks of incurring substantial compliance costs, liabilities and penalties for non-compliance are inherent in offshore marine operations. Compliance with environmental, health and safety laws and regulations increases our cost of doing business. Additionally, environmental, health and safety laws change frequently. Therefore, we are unable to predict the future costs or other future impact of these laws on our operations. There is no assurance that we can avoid significant costs, liabilities and penalties imposed as a result of governmental regulation in the future.

Operational Risks and Insurance

     Our operations are subject to various operating hazards and risks, including:

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	•	catastrophic marine disaster;
	•	adverse sea and weather conditions;
	•	mechanical failure;
	•	navigation errors;
	•	collision;
	•	oil and hazardous substance spills, containment and clean up;
	•	labor shortages and strikes;
	•	damage to and loss of drilling rigs and production facilities; and