##### Table of Contents





­
    ­
   UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
      ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF
    1934
  For the fiscal year ended December 31, 2007
  Commission file
    number: 0-51582
      Hercules Offshore,
    Inc.
 (Exact name of registrant as
    specified in its charter)
      Delaware

56-2542838(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)9 Greenway Plaza, Suite 2200
    Houston, Texas(Address of principal
    executive offices)

77046(Zip Code)   Registrants telephone number, including area code:
 (713)
    350-5100
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Exchange on Which RegisteredCommon Stock, $0.01 par value per share

NASDAQ Global Select MarketRights to Purchase Preferred Stock

NASDAQ Global Select Market   Securities registered pursuant to Section 12(g) of the
    Act:
    None
      þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated filer
    þ

Accelerated filer
    o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller Reporting
    Company o   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




---



##### 





TABLE OF
    CONTENTS
  PagePART IItem 1.

Business


3Item 1A.

Risk Factors


14Item 1B.

Unresolved Staff Comments


27Item 2.

Properties


27Item 3.

Legal Proceedings


27Item 4.

Submission of Matters to a Vote of Security
    Holders


29PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


30Item 6.

Selected Financial Data


31Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


32Forward-Looking Statements


51Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


52Item 8.

Financial Statements and Supplementary Data


54Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


90Item 9A.

Controls and Procedures


90Item 9B.

Other Information


90PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


90Item 11.

Executive Compensation


91Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


91Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


91Item 14.

Principal Accountant Fees and Services


91PART IVItem 15.

Exhibits and Financial Statement Schedules


91Executive Employment Agreement - Terrell L. CarrSchedule of Executive Officer and Director Compensation ArrangementsSubsidiaries of HerculesConsent of Ernst & Young LLPConsent of Grant Thornton LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO & CFO Pursuant to Section 906   2




---



##### Table of Contents



PART I  Item 1.
    Business  In this Annual Report on
    Form 10-K,
    we refer to Hercules Offshore, Inc. and its subsidiaries as
    we, the Company or Hercules
    Offshore, unless the context clearly indicates otherwise.
    Hercules Offshore, Inc. is a Delaware corporation formed in July
    2004, with its principal executive offices located at 9 Greenway
    Plaza, Suite 2200, Houston, Texas 77046. Hercules
    Offshores telephone number at such address is
    (713) 350-5100
    and our Internet address is www.herculesoffshore.com.
  Overview
        Domestic Offshore
  International Offshore
  Inland
  Domestic Liftboats
  International Liftboats
  Other
 3




---



##### Table of Contents



Our
    Fleet
  Jackup
    Drilling Rigs
            Maximum/MinimumYear

Water Depth

Rated DrillingRig Name

Type

Built

Rating

Depth(a)

Location

Status(b)(Feet)

(Feet)Hercules 85


ILS



1982



85/9



20,000


U.S. GOM

Stacked ReadyHercules 101


MC



1980



100/20



20,000


U.S. GOM

Stacked ReadyHercules 110


MC



1981



100/20



20,000


Trinidad

ContractedHercules 120


MC



1958



120/22



18,000


U.S. GOM

ContractedHercules 150


ILC



1979



150/10



20,000


U.S. GOM

Stacked ReadyHercules 152


MC



1980



150/22



20,000


U.S. GOM

ContractedHercules 153


MC



1980



150/22



25,000


U.S. GOM

Warm StackedHercules 155


ILC



1980



150/15



20,000


U.S. GOM

Cold StackedHercules 156


ILC



1983



150/14



20,000


Cameroon

ContractedHercules 170


ILC



1981



170/16



16,000


Qatar

ContractedHercules 173


MC



1971



173/22



15,000


U.S. GOM

ContractedHercules 185


ILC



1982



120/20



20,000


Angola

ContractedHercules 191


MS



1978



160/20



20,000


U.S. GOM

Cold StackedHercules 200


MC



1979



200/23



20,000


U.S. GOM

ContractedHercules 201


MC



1981



200/23



20,000


U.S. GOM

ContractedHercules 202


MC



1981



200/23



20,000


U.S. GOM

Stacked ReadyHercules 203


MC



1982



200/23



20,000


U.S. GOM

ShipyardHercules 204


MC



1981



200/23



20,000


U.S. GOM

ContractedHercules 205


MC



1979



200/23



20,000


Mexico

ContractedHercules 206


MC



1980



200/23



20,000


Mexico

ContractedHercules 207


MC



1981



200/23



20,000


U.S. GOM

ContractedHercules 208(c)


MC



1980



200/22



20,000


Malaysia

Shipyard/ContractedHercules 211


MC



1980



200/23



18,000
(d)

U.S. GOM

Contracted 4




---



##### Table of Contents



Maximum/MinimumYear

Water Depth

Rated DrillingRig Name

Type

Built

Rating

Depth(a)

Location

Status(b)(Feet)

(Feet)Hercules 250


MS



1974



250/24



20,000


U.S. GOM

Warm StackedHercules 251


MS



1978



250/24



20,000


U.S. GOM

Stacked ReadyHercules 252


MS



1978



250/24



20,000


U.S. GOM

ContractedHercules 253


MS



1982



250/24



20,000


U.S. GOM

ContractedHercules 254


MS



1977



250/24



20,000


U.S. GOM

Cold StackedHercules 255


MS



1977



250/24



20,000


U.S. GOM

Cold StackedHercules 256


MS



1977



250/24



20,000


U.S. GOM

Cold StackedHercules 257


MS



1979



250/24



20,000


U.S. GOM

Stacked ReadyHercules 258


MS



1979



250/24



20,000


India

ContractedHercules 260


ILC



1979



250/12



20,000


India

Shipyard/Contracted     (a)
    
    Rated drilling depth means drilling depth stated by the
    manufacturer of the rig. Depending on deck space and other
    factors, a rig may not have the actual capacity to drill at the
    rated drilling depth.(b)
    
    Rigs designated as Contracted are under contract
    while rigs described as Stacked Ready are not under
    contract but generally are ready for service. Rigs described as
    Warm Stacked may have a reduced number of crew, but
    only require a full crew to be ready for service. Rigs described
    as Cold Stacked are not actively marketed, normally
    require the hiring of an entire crew and require a maintenance
    review and refurbishment before they can function as a drilling
    rig. Rigs described as Shipyard are undergoing
    maintenance, repairs, or upgrades and may or may not be actively
    marketed depending on the length of stay in the shipyard.(c)
    
    This rig is currently unable to operate in the U.S. Gulf of
    Mexico due to regulatory restrictions.(d)
    
    Rated workover depth. Hercules 211is currently
    configured for workover activity, which includes maintenance and
    repair or modification of wells that have already been drilled
    and completed to enhance or resume the wells production.  Other
    Drilling Rigs
      Maximum/MinimumYear

Water Depth

Rated DrillingRig Name

Type

Built

Rating

Depth(a)

Location

Status(b)(Feet)

(Feet)Hercules 75


Sub



1983



85/14



25,000


U.S. GOM

Warm StackedHercules 77


Sub



1982



85/14



30,000


U.S. GOM

Warm StackedHercules 78


Sub



1985



85/14



30,000


U.S. GOM

Warm StackedPlatform 3


Plat



1993



N/A



25,000


Mexico

Contracted  5




---



##### Table of Contents



(a)
    
    Rated drilling depth means drilling depth stated by the
    manufacturer of the rig. Depending on deck space and other
    factors, a rig may not have the actual capacity to drill at the
    rated drilling depth.(b)
    
    Rigs designated as Contracted are under contract
    while rigs described as Warm Stacked may have a
    reduced number of crew, but only require a full crew to be ready
    for service.  Barge
    Drilling Rigs
      Year

Horsepower

Rated DrillingRig Name

Type

Built

Rating

Depth(a)

Location

Status(b)(Feet)1


Conv.



1980



2,000



20,000



U.S. GOM


Stacked Ready7


Posted



1978



2,000



25,000



U.S. GOM


Cold Stacked9


Posted



1981



2,000



25,000



U.S. GOM


Contracted10


Posted



1981



2,000



25,000



U.S. GOM


Cold Stacked11


Conv.



1982



3,000



30,000



U.S. GOM


Contracted15


Conv.



1981



2,000



25,000



U.S. GOM


Contracted17


Posted



1981



3,000



30,000



U.S. GOM


Contracted19


Conv.



1974



1,000



14,000



U.S. GOM


Stacked Ready20(c)


Conv.



1968



1,000



14,000



U.S. GOM


Cold Stacked21


Conv.



1979



1,600



15,000



U.S. GOM


Cold Stacked23


Conv.



1995



1,000



14,000



U.S. GOM


Cold Stacked27


Posted



1979



3,000



30,000



U.S. GOM


Contracted28


Conv.



1980



3,000



30,000



U.S. GOM


Warm Stacked29


Conv.



1981



3,000



30,000



U.S. GOM


Contracted30


Conv.



1981



3,000



30,000



U.S. GOM


Cold Stacked31


Conv.



1982



3,000



30,000



U.S. GOM


Cold Stacked32


Conv.



1982



3,000



30,000



U.S. GOM


Cold Stacked41


Posted



1981



3,000



30,000



U.S. GOM


Contracted46


Posted



1979



3,000



30,000



U.S. GOM


Contracted47


Posted



1982



3,000



30,000



U.S. GOM


Cold Stacked48


Posted



1982



3,000



30,000



U.S. GOM


Shipyard49


Posted



1980



3,000



30,000



U.S. GOM


Shipyard52


Posted



1981



2,000



25,000



U.S. GOM


Contracted55


Posted



1981



3,000



30,000



U.S. GOM


Stacked Ready57


Posted



1975



2,000



25,000



U.S. GOM


Contracted61


Posted



1978



3,000



30,000



U.S. GOM


Cold Stacked64


Posted



1979



3,000



30,000



U.S. GOM


Contracted     (a)
    
    Rated drilling depth means drilling depth stated by the
    manufacturer of the rig. Depending on deck space and other
    factors, a rig may not have the actual capacity to drill at the
    rated drilling depth. 6




---



##### Table of Contents



(b)
    
    Rigs designated as Contracted are under contract
    while rigs described as Stacked Ready are not under
    contract but generally are ready for service. Rigs described as
    Warm Stacked may have a reduced number of crew, but
    only require a full crew to be ready for service. Rigs described
    as Cold Stacked are not actively marketed, normally
    require the hiring of an entire crew and require a maintenance
    review and refurbishment before they can function as a drilling
    rig. Rigs described as Shipyard are undergoing
    maintenance, repairs, or upgrades and may or may not be actively
    marketed depending on the length of stay in the shipyard.(c)
    
    In 2003, this barge was severely damaged by fire. This rig is no
    longer operating and will require substantial refurbishment to
    return to service.  Liftboats
    
    production platform construction, inspection, maintenance and
    removal;
    well intervention and workover;
    well plug and abandonment; and
    pipeline installation and maintenance.        Year

Leg

Deck

Maximum



GrossLiftboat Name(1)

Built

Length

Area

Deck Load

Location

Tonnage(Feet)

(Square feet)

(Pounds)Whale Shark


2005



260



8,170



729,000


U.S. GOM


99Tigershark


2001



230



5,300



1,000,000


U.S. GOM


469Kingfish


1996



229



5,000



500,000


U.S. GOM


188Man-O-War


1996



229



5,000



500,000


U.S. GOM


188Wahoo


1981



215



4,525



500,000


U.S. GOM


491 7




---



##### Table of Contents



Year

Leg

Deck

Maximum



GrossLiftboat Name(1)

Built

Length

Area

Deck Load

Location

Tonnage(Feet)

(Square feet)

(Pounds)Blue Shark


1981



215



3,800



400,000


Nigeria


1,182Amberjack


1981



205



3,800



500,000


U.S. GOM


417Bullshark


1998



200



7,000



1,000,000


U.S. GOM


859Creole Fish


2001



200



5,000



798,000


U.S. GOM


192Cutlassfish


2006



200



5,000



798,000


U.S. GOM


183Black Jack


1997



200



4,000



480,000


Nigeria


777Swordfish


2000



190



4,000



700,000


U.S. GOM


189Mako


2003



175



5,074



654,000


U.S. GOM


168Leatherjack


1998



175



3,215



575,850


U.S. GOM


168Oilfish


1996



170



3,200



590,000


Nigeria


495Manta Ray


1981



150



2,400



200,000


U.S. GOM


194Seabass


1983



150



2,600



200,000


U.S. GOM


186F.J. Leleux(2)


1981



150



2,600



200,000


Nigeria


407Black Marlin


1984



150



2,600



200,000


Nigeria


407Hammerhead


1980



145



1,648



150,000


U.S. GOM


178Pilotfish


1990



145



2,400



175,000


Nigeria


292Rudderfish


1991



145



3,000



100,000


Nigeria


309Blue Runner


1980



140



3,400



300,000


U.S. GOM


174Starfish


1978



140



2,266



150,000


U.S. GOM


99Rainbow Runner


1981



140



3,400



300,000


U.S. GOM


174Pompano


1981



130



1,864



100,000


U.S. GOM


196Sandshark


1982



130



1,940



150,000


U.S. GOM


196Stingray


1979



130



2,266



150,000


U.S. GOM


99Albacore


1985



130



1,764



150,000


U.S. GOM


171Moray


1980



130



1,824



130,000


U.S. GOM


178Skipfish


1985



130



1,116



110,000


U.S. GOM


91Sailfish


1982



130



1,764



137,500


U.S. GOM


179Mahi Mahi


1980



130



1,710



142,000


U.S. GOM


99Triggerfish


2001



130



2,400



150,000


U.S. GOM


195Scamp


1984



130



2,400



150,000


Nigeria


195Rockfish


1981



125



1,728



150,000


U.S. GOM


192Gar


1978



120



2,100



150,000


U.S. GOM


98Grouper


1979



120



2,100



150,000


U.S. GOM


97Sea Robin


1984



120



1,507



110,000


U.S. GOM


98Tilapia


1976



120



1,280



110,000


U.S. GOM


97Charlie Cobb(2)


1980



120



2,000



100,000


Nigeria


229Durwood Speed(2)


1979



120



2,000



100,000


Nigeria


210James Choat(2)


1980



120



2,000



100,000


Nigeria


210Solefish


1978



120



2,000



100,000


Nigeria


229Tigerfish


1980



120



2,000



100,000


Nigeria


210Zoal Albrecht(2)


1982



120



2,000



100,000


Nigeria


213Barracuda


1979



105



1,648



110,000


U.S. GOM


93Carp


1978



105



1,648



110,000


U.S. GOM


98 8




---



##### Table of Contents



Year

Leg

Deck

Maximum



GrossLiftboat Name(1)

Built

Length

Area

Deck Load

Location

Tonnage(Feet)

(Square feet)

(Pounds)Cobia


1978



105



1,648



110,000


U.S. GOM


94Dolphin


1980



105



1,648



110,000


U.S. GOM


97Herring


1979



105



1,648



110,000


U.S. GOM


97Marlin


1979



105



1,648



110,000


U.S. GOM


97Corina


1974



105



953



100,000


U.S. GOM


98Pike


1980



105



1,360



130,000


U.S. GOM


92Remora


1976



105



1,179



100,000


U.S. GOM


94Wolffish


1977



105



1,044



100,000


U.S. GOM


99Seabream


1980



105



1,140



100,000


U.S. GOM


92Sea Trout


1978



105



1,500



100,000


U.S. GOM


97Tarpon


1979



105



1,648



110,000


U.S. GOM


97Palometa


1972



105



780



100,000


U.S. GOM


99Jackfish


1978



105



1,648



110,000


U.S. GOM


99Bonefish


1978



105



1,344



90,000


Nigeria


97Croaker


1976



105



1,344



72,000


Nigeria


82Gemfish


1978



105



2,000



100,000


Nigeria


223Tapertail


1979



105



1,392



110,000


Nigeria


100     (1)
    
    The Black Jack, which we acquired in June 2007 and is
    undergoing refurbishment, is expected to be available by April
    2008. The Pikeis currently cold-stacked. All other
    liftboats are either available or operating.(2)
    
    We operate these vessels; however, they are owned by a third
    party.  Competition
    Customers
    Contracts
   9




---



##### Table of Contents



Contract
    Backlog
    For the years ending December 31,Total


2008


2009


2010


2011


Thereafter(in thousands)Domestic Offshore

$
46,172


$
46,172


$



$



$



$
International Offshore


570,395



213,759



181,071



134,975



40,590



Inland


19,660



19,660















Total

$
636,227


$
279,591


$
181,071


$
134,975


$
40,590


$
   Employees
   10




---



##### Table of Contents



Insurance
      Regulation
       11




---



##### Table of Contents



12




---



##### Table of Contents




    it is organized under the laws of the United States or a state;
    each of its president or other chief executive officer and the
    chairman of its board of directors is a U.S. citizen;
    no more than a minority of the number of its directors necessary
    to constitute a quorum for the transaction of business are
    non-U.S. citizens; and
    at least 75% of the interest and voting power in the corporation
    is held by U.S. citizens free of any trust, fiduciary
    arrangement or other agreement, arrangement or understanding
    whereby voting power may be exercised directly or indirectly by
    non-U.S. citizens.  non-U.S. citizens
      non-U.S. operations
 13




---



##### Table of Contents



Available
    Information
  www.herculesoffshore.com Form 10-K, Form 10-Q, Form 8-K, www.sec.gov
  Segment
    and Geographic Information
    Item 1A.
    Risk
    Factors  Our
    business depends on the level of activity in the oil and natural
    gas industry, which is significantly affected by volatile oil
    and natural gas prices.
    
    the demand for oil and natural gas in the United States and
    elsewhere;
    the cost of exploring for, producing and delivering oil and
    natural gas;
    political, economic and weather conditions in the United States
    and elsewhere;
    imports of liquefied natural gas; 14




---



##### Table of Contents




    expectations regarding future prices;
    advances in exploration, development and production technology;
    the ability of the Organization of Petroleum Exporting
    Countries, commonly called OPEC, to set and maintain
    production levels and pricing;
    the level of production in non-OPEC countries;
    domestic and international tax policies;
    the development and exploitation of alternative fuels;
    the policies of various governments regarding exploration and
    development of their oil and natural gas reserves; and
    the worldwide military and political environment, uncertainty or
    instability resulting from an escalation or additional outbreak
    of armed hostilities or other crises in the Middle East and
    other significant oil and natural gas producing regions or
    further acts of terrorism in the United States, or elsewhere.    A
    significant portion of our business is conducted in the
    shallow-water U.S. Gulf of Mexico, where market conditions are
    highly cyclical and subject to rapid change. The mature nature
    of this region could result in less drilling activity in the
    area, thereby reducing demand for our services.
     15




---



##### Table of Contents



Our
    industry is highly competitive, with intense price competition.
    Our inability to compete successfully may reduce our
    profitability.
      The
    terms of some of our dayrate drilling contracts may limit our
    ability to benefit from increasing dayrates in an improving
    market.
    Our
    drilling and liftboat contracts may be terminated due to events
    beyond our control.
   16




---



##### Table of Contents



Our
    business involves numerous operating hazards, and our insurance
    may not be adequate to cover our losses.
            Our
    customers may be unable or unwilling to indemnify
    us.
   17




---



##### Table of Contents



Our
    international operations are subject to additional political,
    economic, and other uncertainties not generally associated with
    domestic operations.
    
    political, social and economic instability, war and acts of
    terrorism;
    potential seizure, expropriation or nationalization of assets;
    damage to our equipment or violence directed at our employees,
    including kidnappings;
    piracy;
    increased operating costs;
    complications associated with repairing and replacing equipment
    in remote locations;
    repudiation, modification or renegotiation of contracts;
    limitations on insurance coverage, such as war risk coverage in
    certain areas;
    import-export quotas;
    confiscatory taxation;
    work stoppages, particularly in the Nigerian labor environment;
    unexpected changes in regulatory requirements;
    wage and price controls;
    imposition of trade barriers;
    imposition or changes in enforcement of local content laws;
    restrictions on currency or capital repatriations;
    currency fluctuations and devaluations; and
    other forms of government regulation and economic conditions
    that are beyond our control.  jack-ups
   18




---



##### Table of Contents



non-U.S. contract
    A
    small number of customers account for a significant portion of
    our revenues, and the loss of any of these customers could
    adversely affect our financial condition and results of
    operations.
    Reactivation
    of non-marketed rigs or liftboats, mobilization of rigs or
    liftboats back to the U.S. Gulf of Mexico or new construction of
    rigs or liftboats could result in excess supply in the region,
    and our dayrates and utilization could be reduced.
    Upgrade,
    refurbishment and repair projects are subject to risks,
    including delays and cost overruns, which could have an adverse
    impact on our available cash resources and results of
    operations.
   19




---



##### Table of Contents



Hercules 208 Black Jack Hercules 260 Hercules 258
    
    unexpectedly long delivery times for, or shortages of, key
    equipment, parts and materials;
    shortages of skilled labor and other shipyard personnel
    necessary to perform the work;
    unforeseen increases in the cost of equipment, labor and raw
    materials, particularly steel;
    unforeseen design and engineering problems;
    unanticipated actual or purported change orders;
    work stoppages;
    latent damages or deterioration to hull, equipment and machinery
    in excess of engineering estimates and assumptions;
    failure or delay of third-party service providers and labor
    disputes;
    disputes with shipyards and suppliers;
    delays and unexpected costs of incorporating parts and materials
    needed for the completion of projects;
    financial or other difficulties at shipyards;
    adverse weather conditions; and
    inability to obtain required permits or approvals.  Hercules 208
    Our
    jackup rigs are at a relative disadvantage to higher
    specification rigs, which may be more likely to obtain contracts
    than lower specification jackup rigs such as ours.
   20




---



##### Table of Contents



The
    impact of purchase accounting associated with our acquisition of
    TODCO could adversely affect our results of operations and
    financial condition.
        TODCOs
    tax sharing agreement with Transocean may require continuing
    substantial payments.
     21




---



##### Table of Contents



Our
    acquisition strategy may be unsuccessful if we incorrectly
    predict operating results, are unable to identify and complete
    future acquisitions, fail to successfully integrate acquired
    assets or businesses we acquire, or are unable to obtain
    financing for acquisitions on acceptable terms.
      
    the risk of incorrect assumptions regarding the future results
    of acquired operations or assets or expected cost reductions or
    other synergies expected to be realized as a result of acquiring
    operations or assets;
    the risk of failing to integrate the operations or management of
    any acquired operations or assets successfully and
    timely; and
    the risk of diversion of managements attention from
    existing operations or other priorities.      Failure
    to employ a sufficient number of skilled workers or an increase
    in labor costs could hurt our operations.
      Governmental
    laws and regulations may add to our costs or limit drilling
    activity and liftboat operations.
   22




---



##### Table of Contents



Compliance
    with or a breach of environmental laws can be costly and could
    limit our operations.
    We may
    not be able to maintain or replace our rigs and liftboats as
    they age.
    Our
    operating and maintenance costs with respect to our rigs do not
    necessarily fluctuate in proportion to changes in operating
    revenues.
   23




---



##### Table of Contents



We are
    subject to litigation that could have an adverse effect on
    us.
    Changes
    in effective tax rates or adverse outcomes resulting from
    examination of our tax returns could adversely affect our
    operating results and financial results.
    Our
    business would be adversely affected if we failed to comply with
    the provisions of U.S. law on coastwise trade, or if those
    provisions were modified, repealed or waived.
    U.S.-flag U.S.-flag
  Our
    debt could adversely affect our ability to operate our business
    and make it difficult to meet our debt service
    obligations.
    
    we may not be able to obtain necessary financing in the future
    for working capital, capital expenditures, acquisitions, debt
    service requirements or other purposes; 24




---



##### Table of Contents




    we may be exposed to risks inherent in interest rate
    fluctuations because our borrowings generally are at variable
    rates of interest, which would result in higher interest expense
    to the extent we have not hedged such risk in the event of
    increases in interest rates; and
    we could be more vulnerable in the event of a downturn in our
    business that would leave us less able to take advantage of
    significant business opportunities and to react to changes in
    our business and in market or industry conditions.    Our
    senior secured credit agreement imposes significant operating
    and financial restrictions, which may prevent us from
    capitalizing on business opportunities and taking some
    actions.
    
    make investments and other restricted payments, including
    dividends;
    incur or guarantee additional indebtedness;
    create or incur liens;
    restrict dividend or other payments by our subsidiaries to us;
    sell our assets or consolidate or merge with or into other
    companies; and
    engage in transactions with affiliates.    If we
    are unable to comply with the restrictions and covenants in the
    agreements governing our indebtedness, there could be a default
    under the terms of these agreements, which could result in an
    acceleration of payment of funds that we have
    borrowed.
   25




---



##### Table of Contents



Because
    we have a limited operating history, you may not be able to
    evaluate our current business and future earnings prospects
    accurately.
    We
    limit foreign ownership of our company, which could reduce the
    price of our common stock.
  non-United U.S.-flag non-U.S. non-United
  Restrictions
    on the percentage ownership of our outstanding capital stock by
    non-U.S.
    citizens may subject the shares held by such
    non-U.S.
    citizens to restrictions, limitations and
    redemption.
    We
    have no plans to pay regular dividends on our common stock, so
    investors in our common stock may not receive funds without
    selling their shares.
    Provisions
    in our charter documents, stockholder rights plan or Delaware
    law may inhibit a takeover, which could adversely affect the
    value of our common stock.
   26




---



##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties        Item 3.
    Legal
    Proceedings  Frank Donio v. Jan Rask, et al No. 2007-16357, Robert Foster v. Jan Rask, et al No. 2007-16397, and/or and/or
  th
 27




---



##### Table of Contents



Robert E. Aaron et al. vs. Phillips 66 Company et al. Circuit
    Court, Second Judicial District, Jones County,
    Mississippi.
   28




---



##### Table of Contents



Item 4.
    Submission
    of Matters to a Vote of Security Holders   29




---



##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Quarterly
    Common Stock Prices and Dividend Policy
    PriceHigh


Low2007Fourth Quarter

$
28.43


$
22.93Third Quarter


34.98



24.88Second Quarter


36.97



25.45First Quarter


29.24



23.80   PriceHigh


Low2006Fourth Quarter

$
36.97


$
28.14Third Quarter


36.23



28.72Second Quarter


43.89



29.14First Quarter


36.70



27.68     Issuer
    Purchases of Equity Securities
    TotalNumber of


MaximumShares


NumberPurchased


of Sharesas Part of a


that may yet beTotal Number


Average


Publicly


Purchasedof Shares


Price Paid


Announced


Under thePeriod

Purchased(1)


per Share


Plan(2)


Plan(2)October 1  31, 2007










N/A



N/ANovember 1  30, 2007


6,172


$
26.95



N/A



N/ADecember 1  31, 2007










N/A



N/ATotal


6,172



26.95



N/A



N/A     (1)
    
    Represents the surrender of shares of common stock to satisfy
    tax withholding obligations in connection with the vesting of
    restricted stock issued to employees under our
    stockholder-approved long-term incentive plan.(2)
    
    We did not have at any time during 2007 or 2006, and currently
    do not have, a share repurchase program in place. 30




---



##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K,
        Period fromYear Ended


Year Ended


Year Ended


InceptionDecember 31,


December 31,


December 31,


to December 31,2007


2006


2005


2004(In thousands, except per share data)Statement of Operations Data:Revenues

$
766,793


$
344,312


$
161,334


$
31,728Operating income


231,459



158,057



55,859



9,907Net income


136,522



119,050



27,456



8,065Earnings per share:Basic

$
2.32


$
3.80


$
1.10


$
0.55Diluted


2.29



3.70



1.08



0.55Balance Sheet Data (as of end of period):Cash and cash equivalents

$
212,452


$
72,772


$
47,575


$
14,460Working capital


327,684



110,897



70,083



30,283Total assets


3,642,539



605,581



354,825



132,156Long-term debt, net of current portion


890,013



91,850



93,250



53,000Total stockholders equity


2,011,433



394,851



215,943



71,087Cash dividends per share














 31




---



##### Table of Contents



Period fromYear Ended


Year Ended


Year Ended


InceptionDecember 31,


December 31,


December 31,


to December 31,2007


2006


2005


2004(In thousands, except per share data)Other Financial Data:Net cash provided by (used in):Operating activities

$
178,319


$
124,241


$
54,762


$
(8,528
)Investing activities


(825,007
)


(149,983
)


(174,952
)


(94,241
)Financing activities


786,368



50,939



153,305



117,229Capital expenditures


155,390



204,456



168,038



94,443Deferred drydocking expenditures


20,772



12,544



7,369



601   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion and analysis of our financial
    condition and results of operations should be read in
    conjunction with the accompanying consolidated financial
    statements as of December 31, 2007 and 2006 and for the
    years ended December 31, 2007, 2006 and 2005 included in
    Item 8 of this annual report. The following discussion and
    analysis contains forward-looking statements that involve risks
    and uncertainties. Our actual results may differ materially from
    those anticipated in these forward-looking statements as a
    result of certain factors, including those set forth under
    Risk Factors in Item 1A and elsewhere in this
    annual report. See Forward-Looking Statements.
  OVERVIEW
        Domestic Offshore
  International Offshore
 32




---



##### Table of Contents



Inland
  Domestic Liftboats
  International Liftboats
  Other
           33




---



##### Table of Contents



RESULTS
    OF OPERATIONS
        Year Ended December 31,2007


2006


2005(Dollars in thousands)Domestic Offshore:Number of rigs (as of end of period)


27



6



9Revenues

$
241,452


$
160,761


$
103,422Operating Expenses


122,131



51,862



48,330Depreciation and amortization expense


35,143



8,882



5,547General and administrative expenses


6,105



6,980



5,486Operating income

$
78,073


$
93,037


$
44,059International Offshore:Number of rigs (as of end of period)


10



3



Revenues

$
144,778


$
30,460


$
Operating expenses


59,593



13,377



Depreciation and amortization expense


15,513



2,547



General and administrative expenses


1,863



1,606



Operating income

$
67,809


$
12,930


$
Inland:Number of rigs (as of end of period)


27







Revenues

$
107,100


$



$
Operating expenses


56,636







Depreciation and amortization expense


16,264







General and administrative expenses


533







Operating income

$
33,667


$



$
Domestic Liftboats:Number of liftboats (as of end of period)


47



47



42Revenues

$
137,745


$
133,929


$
55,740Operating expenses


59,902



49,025



28,413Depreciation and amortization expense


24,969



18,854



8,031General and administrative expenses


2,190



2,259



1,888Operating income

$
50,684


$
63,791


$
17,408International Liftboats:Number of liftboats (as of end of period)


18



17



4Revenues

$
63,282


$
19,162


$
2,172Operating expenses


31,879



9,874



1,071Depreciation and amortization expense


7,619



1,923



176General and administrative expenses


3,888



3,056



336Operating income

$
19,896


$
4,309


$
589  34




---



##### Table of Contents



Year Ended December 31,2007


2006


2005(Dollars in thousands)Other:Revenues

$
72,436


$



$
Operating expenses


46,318







Depreciation and amortization expense


9,028







General and administrative expenses


1,011







Operating income

$
16,079


$



$
Total Company:Revenues

$
766,793


$
344,312


$
161,334Operating expenses


376,459



124,138



77,814Depreciation and amortization expense


109,064



32,310



13,790General and administrative expenses


49,811



29,807



13,871Operating income


231,459



158,057



55,859Interest expense


(36,055
)


(9,278
)


(9,880
)Gain on disposal of assets






30,690



Loss on early retirement of debt


(2,182
)






(4,078
)Other income


6,291



4,038



924Income before income taxes


199,513



183,507



42,825Income tax provision


(62,991
)


(64,457
)


(15,369
)Net income

$
136,522


$
119,050


$
27,456     Year Ended December 31, 2007AverageAverage


OperatingOperating


Available





Revenue


Expense perDays


Days


Utilization(1)


per Day(2)


Day(3)Domestic Offshore


3,265



4,958



65.9
%

$
73,952


$
24,633International Offshore


1,549



1,625



95.3
%


93,465



36,673Inland


2,279



2,941



77.5
%


46,994



19,257Domestic Liftboats


11,265



16,749



67.3
%


12,228



3,576International Liftboats


5,077



6,149



82.6
%


12,464



5,184   Year Ended December 31, 2006AverageAverage


OperatingOperating


Available





Revenue


ExpenseDays


Days


Utilization(1)


per Day(2)


per Day(3)Domestic Offshore


1,973



2,078



94.9
%

$
81,480


$
24,957International Offshore


305



321



95.0
%


99,868



41,673Inland


n/a



n/a



n/a



n/a



n/aDomestic Liftboats


11,895



15,416



77.2
%


11,259



3,180International Liftboats


1,765



2,009



87.9
%


10,857



4,915   35




---



##### Table of Contents



Year Ended December 31, 2005AverageAverage


OperatingOperating


Available





Revenue


ExpenseDays


Days


Utilization(1)


per Day(2)


per Day(3)Domestic Offshore


2,192



2,309



94.9
%

$
47,177


$
20,932International Offshore


n/a



n/a



n/a



n/a



n/aInland


n/a



n/a



n/a



n/a



n/aDomestic Liftboats


8,571



10,971



78.1
%


6,503



2,590International Liftboats


212



212



100.0
%


10,243



5,052     (1)
    
    Utilization is defined as the total number of days our rigs or
    liftboats, as applicable, were under contract, known as
    operating days, in the period as a percentage of the total
    number of available days in the period. Days during which our
    rigs and liftboats were undergoing major refurbishments,
    upgrades or construction, and days during which our rigs and
    liftboats are cold-stacked, are not counted as available days.
    Days during which our liftboats are in the shipyard undergoing
    drydocking or inspection are considered available days for the
    purposes of calculating utilization.(2)
    
    Average revenue per rig or liftboat per day is defined as
    revenue earned by our rigs or liftboats, as applicable, in the
    period divided by the total number of operating days for our
    rigs or liftboats, as applicable, in the period. Included in
    Domestic Offshore revenue is a total of $0.4 million
    related to amortization of contract specific capital
    expenditures reimbursed by the customer for the twelve months
    ended December 31, 2007. There was no such revenue in the
    twelve months ended December 31, 2006 and 2005. Included in
    International Offshore revenue is a total of $3.2 million
    and $2.6 million related to amortization of deferred
    mobilization revenue and contract specific capital expenditures
    reimbursed by the customer for the twelve months ended
    December 31, 2007 and 2006, respectively. There was no
    revenue recognized in 2005 related to the amortization of
    deferred mobilization revenue and contract specific capital
    expenditures. Included in revenue for our International Offshore
    segment for the twelve months ended December 31, 2006 is
    $2.0 million earned for a timely departure of Hercules
    170from the shipyard in the second quarter of 2006.(3)
    
    Average operating expense per rig or liftboat per day is defined
    as operating expenses, excluding depreciation and amortization,
    incurred by our rigs or liftboats, as applicable, in the period
    divided by the total number of available days in the period. We
    use available days to calculate average operating expense per
    rig or liftboat per day rather than operating days, which are
    used to calculate average revenue per rig or liftboat per day,
    because we incur operating expenses on our rigs and liftboats
    even when they are not under contract and earning a dayrate. In
    addition, the operating expenses we incur on our rigs and
    liftboats per day when they are not under contract are typically
    lower than the
    per-day
    expenses we incur when they are under contract. Included in
    International Offshore operating expense is a total of
    $2.8 million and $1.6 million related to amortization
    of deferred mobilization expenses for the twelve months ended
    December 31, 2007 and 2006, respectively. There was no
    expense recognized in 2005 related to the amortization of
    deferred mobilization expenses.   36




---



##### Table of Contents



2007
    Compared to 2006
  Revenues
  Consolidated.
  Domestic Offshore.
  International Offshore. Hercules 258
  Inland.
  Domestic Liftboats.
  International Liftboats.
  Other.
 37




---



##### Table of Contents



Operating
    Expenses
  Consolidated.
  Domestic Offshore.
  International Offshore.
  Inland.
  Domestic Liftboats.
  International Liftboats.
  Other.
  Depreciation
    and Amortization
    General
    and Administrative Expenses
    Interest
    Expense
   38




---



##### Table of Contents



Loss
    on Early Retirement of Debt
    Other
    Income
    Income
    Tax Provision
    2006
    Compared to 2005
  Revenues
  Consolidated.
  Domestic Offshore. Rig 25 Hercules 120,
  International Offshore.
  Domestic Liftboats.
 39




---



##### Table of Contents



International Liftboats.
  Operating
    Expenses
  Consolidated.
  Domestic Offshore. Hercules 120 Hercules 120
  International Offshore.
  Domestic Liftboats.
  International Liftboats.
  Depreciation
    and Amortization
   40




---



##### Table of Contents



General
    and Administrative Expenses
    Gain
    on Disposal of Assets
  Rig 25 Rig
    41
  Income
    Tax Provision
    Critical
    Accounting Policies
      Cash
    and Cash Equivalents and Marketable Securities
     41




---



##### Table of Contents



Goodwill
  Goodwill and Other
    Intangible Assets
  Other
    Intangible Assets
      2008

$
8,0882009


4,6582010


1,4662011


6072012


   Property
    and Equipment
   42




---



##### Table of Contents



Revenue
    Recognition
    Income
    Taxes
  Accounting for Income Taxes
      Allowance
    for Doubtful Accounts
    Deferred
    Charges
   43




---



##### Table of Contents



Stock-Based
    Compensation
      Outlook
  Offshore
           44




---



##### Table of Contents



Inland
      Liftboats
       45




---



##### Table of Contents



Labor
    Markets
      LIQUIDITY
    AND CAPITAL RESOURCES
  Sources
    and Uses of Cash
    2007


2006Net Cash Provided by Operating Activities

$
178.3


$
124.2Net Cash Provided by (Used in) Investing ActivitiesAcquisition of Business, Net of Cash Acquired


(728.4
)


Investment in Marketable Securities, Net


(39.3
)


Additions to Property and Equipment


(155.4
)


(204.5
)Deferred Drydocking Expenditures


(20.8
)


(12.5
)Proceeds from Sale of Assets, Net


109.7



6.0Insurance Proceeds Received


4.3



61.3Other


4.9



(0.2
)Total


(825.0
)


(149.9
)Net Cash Provided by (Used in) Financing ActivitiesLong-term and Short-term Debt Borrowings, Net of Repayments


800.9



(1.4
)Proceed from Issuance of Common Stock






54.2Payment of Debt Issuance Costs


(17.8
)


(0.6
)Other


3.3



(1.3
)Total


786.4



50.9Net Increase in Cash and Cash Equivalents

$
139.7


$
25.2   Sources
    of Liquidity and Financing Arrangements
     46




---



##### Table of Contents



Cash
    Requirements and Contractual Obligations
  Pending
    Asset Acquisition
    TODCO
    Acquisition
    Debt
        
    the net proceeds from sales of certain assets to the extent that
    we do not reinvest the proceeds in our business within one year;
    the net proceeds from casualties or condemnations of assets to
    the extent that we do not reinvest the proceeds in our business
    within one year;
    the net proceeds of debt that we incur to the extent that such
    debt is not permitted by the credit agreement; 47




---



##### Table of Contents




    50% of the net proceeds that we receive from any issuance of
    preferred stock; and
    commencing with the fiscal year ending December 31, 2008,
    50% of our excess cash flow until the outstanding principal
    balance of the term loan is less than $550.0 million.          December 31, 2007-March 31, 2008

$
350,000April 1, 2008-June 30, 2008


300,000July 1, 2008-September 30, 2008


200,000October 1,
    2008-December 31,
    2008


100,000January 1, 2009-March 31, 2009


50,000    48




---



##### Table of Contents



Capital
    Expenditures
  Hercules 185 Hercules 208 Hercules 258, Hercules 260, Black Jack
  Hercules 258 Hercules 260, Hercules 208 Black Jack Hercules 185 Hercules 185, Hercules 208 Hercules 258 Hercules 260 Black Jack
        Contractual
    Obligations
   49




---



##### Table of Contents



Payments due by PeriodContractual Obligations and

Less than


1-3


4-5


After 5Contingent Commitments

1 Year


Years


Years


Years


Total(In thousands)Recorded Obligations:Long-term debt obligations

$
21,427


$
18,000


$
18,000


$
854,008


$
911,435Insurance note payable


16,931















16,931Other


408















408Unrecorded Obligations:Letters of credit


1,494



17,000



9,961







28,455Surety Bonds


46,401



19,456











65,857Management compensation obligations


3,578



1,989











5,567Purchase obligations (a)


46,212















46,212Operating lease obligations


2,230



2,108



2,118



5,971



12,427Total contractual obligations

$
138,681


$
58,553


$
30,079


$
859,979


$
1,087,292     (a)
    
    A purchase obligation is defined as an agreement to
    purchase goods or services that is enforceable and legally
    binding on the company and that specifies all significant terms,
    including: fixed or minimum quantities to be purchased; fixed,
    minimum or variable price provisions; and the approximate timing
    of the transaction. These amounts are primarily comprised of
    open purchase order commitments to vendors and subcontractors.  Off-Balance
    Sheet Arrangements
  Guarantees
    Letters
    of Credit and Surety Bonds
    Accounting
    Pronouncements
  , Business
    Combinations Business Combinations
 50




---



##### Table of Contents



Accounting for Costs Associated with
    Exit or Disposal Activities Accounting for
    Contingencies.
  The
    Fair Value Option for Financial Assets and Financial Liabilities
  Fair Value Measurements
 FORWARD-LOOKING
    STATEMENTS  Form 10-K
  
    our ability to enter into new contracts for our rigs and
    liftboats and future utilization rates for the units;
    the correlation between demand for our rigs and our liftboats
    and our earnings and customers expectations of energy
    prices;
    future capital expenditures and refurbishment, repair and
    upgrade costs;
    expected completion times for our refurbishment and upgrade
    projects;
    sufficiency of funds for required capital expenditures, working
    capital and debt service;
    our plans regarding increased international operations;
    expected useful lives of our rigs and liftboats;
    liabilities under laws and regulations protecting the
    environment;
    expected outcomes of litigation, claims and disputes and their
    expected effects on our financial condition and results of
    operations; and 51




---



##### Table of Contents




    expectations regarding improvements in offshore drilling
    activity and dayrates, continuation of current market
    conditions, demand for our rigs and liftboats, operating
    revenues, operating and maintenance expense, insurance
    expense and deductibles, interest expense, debt levels and
    other matters with regard to outlook.    
    oil and natural gas prices and industry expectations about
    future prices;


    demand for offshore jackup rigs and liftboats;
    our ability to enter into and the terms of future contracts;
    the worldwide military and political environment, uncertainty or
    instability resulting from an escalation or additional outbreak
    of armed hostilities or other crises in the Middle East and
    other oil and natural gas producing regions or further acts of
    terrorism in the United States, or elsewhere;
    the impact of governmental laws and regulations;
    the adequacy of sources of liquidity;
    uncertainties relating to the level of activity in offshore oil
    and natural gas exploration, development and production;
    competition and market conditions in the contract drilling and
    liftboat industries;
    the availability of skilled personnel;
    labor relations and work stoppages, particularly in the West
    African and Venezuelan labor environments;
    operating hazards such as severe weather and seas, fires,
    cratering, blowouts, war, terrorism and cancellation or
    unavailability of insurance coverage;
    the effect of litigation and contingencies; and
    our inability to achieve our plans or carry out our strategy.    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk   52




---



##### Table of Contents



Interest
    Rate Exposure
          Interest
    Rate Swaps and Derivatives
  Liquidity and Capital
    Resources
    December 31, 2007-March 31, 2008

$
350,000April 1, 2008-June 30, 2008


300,000July 1, 2008-September 30, 2008


200,000October 1,
    2008-December 31,
    2008


100,000January 1, 2009-March 31, 2009


50,000  53




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                   54




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                     55




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                 56




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006(In thousands, except par value)ASSETSCurrent Assets:Cash and Cash Equivalents

$
212,452


$
72,772Restricted Cash






250Marketable Securities


39,300



Accounts Receivable, Net


221,663



89,136Insurance Claims Receivable


43,342



Supplies


2,494



Prepaids


31,417



14,438Current Deferred Tax Asset


17,551



Other


23,565



3,627591,784



180,223Property and Equipment, Net


2,060,224



415,864Goodwill


940,241



Other Assets, Net


50,290



9,494$
3,642,539


$
605,581LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term Debt and Current Portion of Long-term Debt

$
21,653


$
1,400Insurance Note Payable


16,931



6,058Accounts Payable


105,527



29,123Accrued Liabilities


80,138



16,262Taxes Payable


23,006



8,745Other Current Liabilities


16,845



7,738264,100



69,326Long-term Debt, Net of Current Portion


890,013



91,850Other Liabilities


19,518



6,700Deferred Income Taxes


457,475



42,854Commitments and ContingenciesStockholders Equity:Common Stock, $0.01 par value; 200,000 Shares Authorized;
    88,876 and 32,008 Shares Issued, Respectively; 88,857 and
    32,002 Shares Outstanding, Respectively


889



320Capital in Excess of Par Value


1,731,882



243,157Treasury stock, at Cost, 19 Shares and 6 shares,
    Respectively


(582
)


(220
)Accumulated Other Comprehensive Income (Loss)


(8,117
)


755Retained Earnings


287,361



150,8392,011,433



394,851$
3,642,539


$
605,581    57




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2007


2006


2005(In thousands, except per share data)Revenues

$
766,793


$
344,312


$
161,334Costs and Expenses:Operating Expenses


376,459



124,138



77,814Depreciation and Amortization


109,064



32,310



13,790General and Administrative


49,811



29,807



13,871535,334



186,255



105,475Operating Income


231,459



158,057



55,859Other Income (Expense):Interest Expense


(36,055
)


(9,278
)


(9,880
)Gain on Disposal of Assets






30,690



Loss on Early Retirement of Debt


(2,182
)






(4,078
)Other, Net


6,291



4,038



924Income Before Income Taxes


199,513



183,507



42,825Income Tax Provision


(62,991
)


(64,457
)


(15,369
)Net Income

$
136,522


$
119,050


$
27,456Earnings Per Share:Basic

$
2.32


$
3.80


$
1.10Diluted

$
2.29


$
3.70


$
1.08Weighted Average Shares Outstanding:Basic


58,897



31,327



24,919Diluted


59,563



32,203



25,432    58




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  December 31, 2007


December 31, 2006


December 31, 2005Shares


Amount


Shares


Amount


Shares


Amount(In thousands)Member Interests:Balance at Beginning of Period





$







$




64


$
63,022Contributions from Members


















4



4,329Effect of Conversion


















(68
)


(67,351
)Balance at End of Period






















Common Stock:Balance at Beginning of Period


32,008



320



30,243



302







Effect of Conversion


















23,923



239Exercise of Stock Options


250



3



129



2







Issuance of Common Stock










1,600



16



6,250



62Issuance of Common Stock, Net


56,618



566















Issuance of Restricted Stock










36







70



1Balance at End of Period


88,876



889



32,008



320



30,243



302Capital in Excess of Par Value:Balance at Beginning of Period






243,157







184,698







Effect of Conversion






















67,112Exercise of Stock Options






2,052







1,230







Issuance of Common Stock, Net






1,471,379







54,182







116,187Issuance of Restricted Stock






















1,399Reclass of Restricted Stock














(1,322
)






Compensation Expense Recognized






7,680







3,098







Compensation Capitalized as part of the Purchase Price Allocation






3,778















Tax Sharing Agreement with Transocean






2,578















Excess of Tax Benefit From Stock-Based Arrangements






1,258







1,271







Balance at End of Period






1,731,882







243,157







184,698Treasury Stock:Balance at Beginning of Period


(6
)


(220
)














Repurchase of Common Stock


(13
)


(362
)


(6
)


(220
)






Balance at End of Period


(19
)


(582
)


(6
)


(220
)






Restricted Stock:Balance at Beginning of Period














(1,322
)






Issuance of Restricted Stock






















(1,400
)Compensation Expense Recognized






















78Reclass of Restricted Stock














1,322







Balance at End of Period






















(1,322
)Accumulated Comprehensive Income (Loss):Balance at Beginning of Period






755







476







Change in Unrealized Gain (Loss) on Hedge Transactions, Net of
    Tax of $4,778, $(150) and $(257), Respectively






(8,872
)






279







476Balance at End of Period, net of tax of $4,371, $(407) and
    $(257), Respectively






(8,117
)






755







476Retained Earnings:Balance at Beginning of Period






150,839







31,789







8,065Net Income






136,522







119,050







27,456Distribution to Former Members






















(3,732
)Balance at End of Period






287,361







150,839







31,789Total Stockholders Equity


88,857


$
2,011,433



32,002


$
394,851



30,243


$
215,943    59




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
  Years Ended December 31,2007


2006


2005(In thousands)Net Income

$
136,522


$
119,050


$
27,456Other Comprehensive Income (Loss):Reclassification of (gains) losses, net included in net income


(897
)


(382
)


73Other comprehensive gains (losses), net


(7,975
)


661



403Comprehensive Income

$
127,650


$
119,329


$
27,932    60




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2007


2006


2005(In thousands)Cash Flows from Operating Activities:Net Income

$
136,522


$
119,050


$
27,456Adjustments to Reconcile Net Income to Net Cash Provided by
    Operating Activities:Depreciation and Amortization


109,064



32,310



13,790Stock-Based Compensation Expense


7,680



3,098



78Deferred Income Taxes


2,841



27,200



15,247Amortization of Deferred Financing Fees


1,805



686



890Recovery of Bad Debts










(519
)Loss on Early Retirement of Debt


2,182







4,078Gain on Disposal of Assets


(4,491
)


(30,779
)


Excess Tax Benefit from Stock-Based Arrangements


(1,258
)


(1,271
)


(Increase) Decrease in Operating Assets Accounts Receivable


58,827



(50,653
)


(12,545
)Insurance Claims Receivable


(13,565
)


5,919



(5,919
)Prepaid Expenses and Other


9,263



(12,617
)


(7,721
)Increase (Decrease) in Operating Liabilities  
    Accounts Payable


(6,794
)


15,842



11,443Insurance Note Payable


(25,301
)


3,657



1,718Other Current Liabilities


15,239



11,499



6,766Tax Sharing Agreement Payment


(116,003
)






Other Liabilities


2,308



300



Net Cash Provided by Operating Activities


178,319



124,241



54,762Cash Flows from Investing Activities:Acquisition of Business, Net of Cash Acquired


(728,396
)






Investment in Marketable Securities


(151,675
)






Proceeds from Sale of Marketable Securities


112,375







Additions of Property and Equipment


(155,390
)


(204,456
)


(168,038
)Deferred Drydocking Expenditures


(20,772
)


(12,544
)


(7,369
)Insurance Proceeds Received


4,285



61,278



Proceeds from Sale of Assets, Net


109,745



5,989



455(Increase) Decrease in Restricted Cash


4,821



(250
)


Net Cash Used in Investing Activities


(825,007
)


(149,983
)


(174,952
)Cash Flows from Financing Activities:Short-term Debt Borrowings (Repayments), Net


(1,395
)






Long-term Debt Borrowings


900,000







185,000Long-term Debt Repayments


(97,750
)


(1,400
)


(146,350
)Proceeds from Issuance of Common Stock, Net






54,198



116,249Proceeds from Exercise of Stock Options


2,054



1,232



Excess Tax Benefit from Stock-Based Arrangements


1,258



1,271



Payment of Debt Issuance Costs


(17,753
)


(630
)


(5,923
)(Distributions to) Contributions from Members






(3,732
)


4,329Other


(46
)






Net Cash Provided by Financing Activities


786,368



50,939



153,305Net Increase in Cash and Cash Equivalents


139,680



25,197



33,115Cash and Cash Equivalents at Beginning of Period


72,772



47,575



14,460Cash and Cash Equivalents at End of Period

$
212,452


$
72,772


$
47,575    61




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Nature of
    Business and Significant Accounting Policies  Organization
      Principles
    of Consolidation
    Reclassifications
    Cash
    and Cash Equivalents and Marketable Securities
     62




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Restricted
    Cash
    Revenue
    Recognition
    Year Ended December 31,2007


2006


2005Mobilization revenue deferred

$
6,517


$
5,680


$
Mobilization expense deferred


3,340



3,287



Mobilization revenue recognized


3,060



2,590



Mobilization expense recognized


2,839



1,600



       Stock-Based
    Compensation
     63




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Accounts
    Receivable and Allowance for Doubtful Accounts
    Insurance
    Claims Receivable
  Hercules
    205
  Prepaid
    Expenses
    Property
    and Equipment
        YearsDrilling rigs and marine equipment (salvage value of 10%)


15Drilling machinery and equipment


3-12Furniture and fixtures


3Computer equipment


3-7Automobiles and trucks


3   Goodwill
  Goodwill and Other Intangible Assets
 64




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Domestic


InternationalOffshore


Offshore


Inland


Other


TotalAs of January 1, 2007

$



$



$



$



$
Goodwill acquired during the period


513,602



133,046



206,264



87,329



940,241As of December 31, 2007

$
513,602


$
133,046


$
206,264


$
87,329


$
940,241     Other
    Intangible Assets
      2008

$
8,0882009


4,6582010


1,4662011


6072012


   Impairment
    of Long-Lived Assets
   65




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Other
    Assets, Net
        Income
    Taxes
       66




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Use of
    Estimates
    Fair
    Value of Financial Instruments
      Accounting
    Pronouncements
  , Business
    Combinations Business Combinations Accounting for Costs Associated with
    Exit or Disposal Activities Accounting for
    Contingencies.
  The
    Fair Value Option for Financial Assets and Financial Liabilities
  Fair Value Measurements
 67




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2.
    Property
    and Equipment, net    December 31,2007


2006Drilling rigs and marine equipment

$
1,914,018


$
420,961Drilling machinery and equipment


235,680



23,329Leasehold improvements


9,722



267Automobiles and trucks


2,470



915Computer equipment


10,505



1,040Furniture and fixtures


962



779Total property and equipment, at cost


2,173,357



447,291Less accumulated depreciation


(113,133
)


(31,427
)Total property and equipment, net

$
2,060,224


$
415,864   3.
    Earnings
    per Share    Year Ended December 31,2007


2006


2005Numerator:Net income

$
136,522


$
119,050


$
27,456Denominator:Weighted average basic shares


58,897



31,327



24,919Add effect of stock equivalents


666



876



513Weighted average diluted shares


59,563



32,203



25,432Basic earnings per share

$
2.32


$
3.80


$
1.10Diluted earnings per share


2.29



3.70



1.08    68




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    4.
    Asset
    Acquisitions and Business Combination        July 11, 2007(In thousands)(Unaudited)Cash and Cash Equivalents

$
235,163Accounts Receivable


191,369Insurance Claims Receivable


34,060Current Deferred Tax Asset


14,320Prepaid Expenses and Other


16,811Property and Equipment, Net


1,685,477Goodwill


940,241Other Assets, Net


32,049Total Assets


3,149,490Short-Term Debt


(3,618
)Accounts Payable


(83,199
)Income Taxes Payable


(5,448
)Other Current Liabilities


(69,773
)Long-Term Debt


(14,062
)Deferred Tax Liabilities


(530,086
)Other Liabilities


(3,982
)Total Preliminary Purchase Price

$
2,439,322    69




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year EndedDecember 31,2007


2006(In millions, exceptper share amounts)Revenues

$
1,268.1


$
1,256.4Net Income


198.5



230.7Basic earnings per share


2.24



2.62Diluted earnings per share


2.21



2.58         Hercules 260 Hercules 260
    Hercules 258
  Whale
    Shark
  Hercules 170
 70




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Rig 25 Hercules 257
  5.
    Dispositions      Rig 41
  6.
    Stock-based
    Compensation  Share-Based Payment Accounting for Stock Issued to Employees
  10-year
 71




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           2007


2006


2005Dividend yield










Expected price volatility


35.0
%






35.0
%Risk-free interest rate


4.58
%






4.40
%Expected life of options (in years)


5.88







8.08Weighted-average fair value of options granted

$
11.18






$
9.45       Year EndedDecember 31,2005Net Income:As reported

$
27,456Compensation expense included in reported net income, net of
    income tax benefit


51Pro forma compensation expense, net of income tax benefit


(1,752
)Pro forma

$
25,755Basic earnings per share:As reported

$
1.10Pro forma


1.03Diluted earnings per share:As reported

$
1.08Pro forma


1.01  72




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,2006Compensation expense related to stock options, net of tax of $736

$
1,367Basic earnings per share impact


(0.04
)Diluted earnings per share impact


(0.04
)Cash flow from operating activities impact


(3,374
)Cash flow from financing activities impact


1,271     Weighted-Weighted-


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicOptions

Shares


Price


Term


Value(In thousands)Outstanding at January 1, 2007


1,659,922


$
11.27



8.35



29,264Granted


591,914



26.34Options assumed in the TODCO acquisition


331,038



25.37Exercised


(250,172
)


8.21Forfeited


(17,900
)


21.31Outstanding at December 31, 2007


2,314,802



17.39



7.98



17,558Vested or Expected to Vest at December 31, 2007


2,314,802



17.39



7.98



17,558Exercisable at December 31, 2007


1,596,452



14.03



7.54



16,931       Weighted-AverageRestricted


Grant DateStock


Fair ValueNon-Vested at January 1, 2007


82,432


$
26.48Granted


264,487



28.75Restricted stock issued in the TODCO acquisition


20,608



25.32Vested


(63,253
)


27.88Forfeited


(21,910
)


29.77Non-Vested at December 31, 2007


282,364



26.42    73




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7.
    Accrued
    Liabilities    December 31,2007


2006Accrued Liabilities:Taxes other than Income

$
21,686


$
3,005Accrued Payroll and Employee Benefits


27,941



12,828Accrued Self-Insurance Claims


29,973



150Other


538



279$
80,138


$
16,262   8.
    Benefit
    Plans    9.
    Debt    December 31,


December 31,2007


2006Term Loan Facility, due July 2013

$
895,500


$
9.5% Senior Notes, due December 2008


10,432



7.375% Senior Notes, due April 2018


3,513



6.95% Senior Notes, due April 2008


2,221



Foreign Line of Credit






Senior Secured Term Loan, due June 2010






93,250Total Debt


911,666



93,250Less Short-term Debt and Current Portion of Long-term Debt


21,653



1,400Total Long-term Debt, Net of Current Portion

$
890,013


$
91,850  74




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008

$
21,6532009


9,0002010


9,0002011


9,0002012


9,000Thereafter


854,013$
911,666   Senior
    secured credit agreement
          
    the net proceeds from sales of certain assets to the extent that
    the Company does not reinvest the proceeds in its business
    within one year; 75




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    the net proceeds from casualties or condemnations of assets to
    the extent that the Company does not reinvest the proceeds in
    its business within one year;
    the net proceeds of debt that the Company incurs to the extent
    that such debt is not permitted by the credit agreement;
    50% of the net proceeds that the Company receives from any
    issuance of preferred stock; and
    commencing with the fiscal year ending December 31, 2008,
    50% of the Companys excess cash flow until the outstanding
    principal balance of the term loan is less than
    $550.0 million.        Senior
    notes and other debt
    10.
    Derivative
    Instruments and Hedging   76




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31, 2007-March 31, 2008

$
350,000April 1, 2008-June 30, 2008


300,000July 1, 2008-September 30, 2008


200,000October 1,
    2008-December 31,
    2008


100,000January 1, 2009-March 31, 2009


50,000   Accounting for
    Derivative Instruments and Hedging Activities Accounting for Certain Derivative
    Instruments and Certain Hedging Activities (an amendment of FASB
    Statement No. 133) Amendment of Statement 133 on Derivative Instruments and
    Hedging Activities
    December 31,2007


2006Fair value included in Other Assets, Net

$
322


$
1,162Fair value included in Other Liabilities


12,809



Cumulative unrealized gain (loss), net of tax of $4,371 and
    $(407), respectively included in Accumulated Other Comprehensive
    Income


(8,117
)


755   Recognized Gain(Loss) in Consolidated Statements of Operationsfor the Year Ended2007


2006


2005Realized gains included in Other, net

$
658


$
588


$
Realized gains (losses) included in Interest Expense


239







(113
)  77




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  11.
    Supplemental
    Cash Flow Information    Year EndedDecember 31,2007Fair Value of Assets, net of cash acquired

$
1,974,086Goodwill


940,241Common Stock Issuance


(1,475,763
)Total Liabilities


(710,168
)Cash Consideration, net of cash acquired

$
728,396   Non-cash
    Activities
  Year Ended December 31,2007


2006


2005(In thousands)Cash paid during the period for:Interest, net of capitalized interest

$
36,426


$
8,246


$
7,688Income taxes


45,893



27,363



Non-cash activities:Change in fair value of derivative instruments


8,872



(279
)


(476
)Distribution to original members










3,732     12.
    Concentration
    of Credit Risk      13.
    Sales to
    Major Customers    Year EndedDecember 31,2007


2006


2005Chevron Corporation


21
%


35
%


31
%Bois dArc Energy, Inc.










12
%    78




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   14.
    Income
    Taxes    Year Ended December 31,2007


2006


2005United States

$
110,060


$
168,885


$
42,236Foreign


89,453



14,622



589Total

$
199,513


$
183,507


$
42,825     Year Ended December 31,2007


2006


2005Current-United
    States

$
23,262


$
33,054


$
Current-foreign


33,604



3,070



100Current-state


3,284



1,133



22Current income tax provision


60,150



37,257



122Deferred-United
    States


17,029



26,597



14,423Deferred-foreign


(12,341
)


(59
)


Deferred-state


(1,847
)


662



824Deferred income tax provision


2,841



27,200



15,247Total income tax provision

$
62,991


$
64,457


$
15,369     December 31,2007


2006Deferred tax assets:Net operating loss carryforward (Federal & State)

$
95,939


$
Credit carryforwards (Net of valuation allowance)


28,271



Accrued expenses


17,200



Unearned income


4,509



Other


7,730



1,318Deferred tax assets


153,649



1,318Deferred tax liabilities:Fixed assets


(582,233
)


(37,962
)Deferred expenses


(7,820
)


(2,523
)Other


(3,520
)


(3,687
)Deferred tax liabilities


(593,573
)


(44,172
)Net deferred tax liabilities

$
(439,924
)

$
(42,854
)  79




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,2007


2006


2005Statutory rate


35.0
%


35.0
%


35.0
%Effect of:State income taxes


0.1



1.1



Foreign income taxes


2.1







Foreign earnings indefinitely reinvested


(5.1
)


(1.0
)


Income of LLC prior to conversion










(27.5
)Change in tax status and other


(0.5
)






28.4Effective rate


31.6
%


35.1
%


35.9
%           Tax Sharing Agreement 
 80




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Accounting for Uncertainty in
    Income Taxes
  2001-2006.
    15.
    Segments   81




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Domestic Offshore 
  International Offshore
  Inland 
  Domestic Liftboats
  International Liftboats
  Other 
      Year Ended December 31, 2007


Year Ended December 31, 2006Income


Depreciation





Income


Depreciationfrom


and





from


andRevenue


Operations


Amortization


Revenue


Operations


AmortizationDomestic Offshore

$
241,452


$
78,073


$
35,143


$
160,761


$
93,037


$
8,882International Offshore


144,778



67,809



15,513



30,460



12,930



2,547Inland


107,100



33,667



16,264











Domestic Liftboats


137,745



50,684



24,969



133,929



63,791



18,854International Liftboats


63,282



19,896



7,619



19,162



4,309



1,923Other


72,436



16,079



9,028











766,793



266,208



108,536



344,312



174,067



32,206Corporate






(34,749
)


528







(16,010
)


104Total Company

$
766,793


$
231,459


$
109,064


$
344,312


$
158,057


$
32,310   82




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2005Income


Depreciationfrom


andRevenue


Operations


AmortizationDomestic Offshore

$
103,422


$
44,059


$
5,547International Offshore










Inland










Domestic Liftboats


55,740



17,408



8,031International Liftboats


2,172



589



176Other










161,334



62,056



13,754Corporate






(6,197
)


36Total Company

$
161,334


$
55,859


$
13,790   Total AssetsDecember 31,


December 31,2007


2006Domestic Offshore

$
1,504,548


$
144,467International Offshore


681,742



126,191Inland


646,120



Domestic Liftboats


186,568



192,314International Liftboats


149,813



89,954Other


229,979



Corporate


243,769



52,655Total Company

$
3,642,539


$
605,581   Year Ended December 31,2007


2006


2005Capital Expenditures and Deferred Drydocking Expenditures:Domestic Offshore

$
22,720


$
76,635


$
90,347International Offshore


78,455



20,100



Inland


17,145







Domestic Liftboats


16,950



66,279



67,460International Liftboats


20,183



53,955



17,600Other


6,239







Corporate


14,470



31



Total Company

$
176,162


$
217,000


$
175,407    83




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Operating Revenues:United States

$
516,408


$
294,690


$
159,162Mexico


28,364







Venezuela


36,694







Nigeria


60,384



18,440



2,172India


52,501



12,392



Qatar


27,146



18,068



Other(a)


45,296



722



Total

$
766,793


$
344,312


$
161,334   As of December 31,2007


2006Long-Lived Assets:United States

$
2,375,874


$
266,850Mexico


161,568



Nigeria


82,455



76,377India


128,773



37,539Qatar


32,619



35,071Other(a)


269,466



27Total

$
3,050,755


$
415,864     (a)
    
    Other represents countries in which we operate that individually
    had operating revenues or long-lived assets representing less
    than 3% of total operating revenues earned or total long-lived
    assets.  16.
    Commitments
    and Contingencies  Operating
    Leases
    Years Ended December 31,2008

$
2,2302009


1,0992010


1,0092011


1,0412012


1,077Thereafter


5,971Total

$
12,427  84




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Legal
    Proceedings
  Accounting for
    Contingencies
  Frank Donio v. Jan Rask, et al. No. 2007-16357, Robert Foster v. Jan Rask, et al. No. 2007-16397, and/or and/or
       85




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Robert E. Aaron et al. vs. Phillips 66 Company et al. Circuit
    Court, Second Judicial District, Jones County,
    Mississippi.
     86




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Insurance
        Surety
    Bonds and Unsecured Letters of Credit
   87




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2005
    Hurricanes
  Hercules 120 Rig 25 Rig 25 Rig 25 Hercules 120
    17.
    Unaudited
    Interim Financial Data    Quarter EndedMarch 31


June 30


September 30


December 312007Operating revenues

$
110,464


$
99,044


$
294,365


$
262,920Operating income


48,044



33,104



92,864



57,447Net income


33,391



23,466



48,371



31,294Net income per share:Basic

$
1.04


$
0.73


$
0.59


$
0.35Diluted


1.03



0.72



0.58



0.35   Quarter EndedMarch 31


June 30


September 30


December 312006Operating revenues

$
56,133


$
76,297


$
97,212


$
114,670Operating income


21,677



35,885



47,709



52,786Net income


30,912



22,933



29,679



35,526Net income per share:Basic

$
1.02


$
0.73


$
0.93


$
1.11Diluted


1.00



0.71



0.91



1.09   18.
    Related
    Parties   88




---



##### Table of Contents



HERCULES
    OFFSHORE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Hercules 257 Hercules 257
  19.
    Subsequent
    Event   89




---



##### Table of Contents



Item 9.  Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure   Item 9A.  Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rule 13a-15
    Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f)
      Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance   90




---



##### Table of Contents



Code of
    Business Conduct and Ethical Practices
  www.herculesoffshore.com www.herculesoffshore.com
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules    Financial Statements
  Consolidated Financial Statement Schedules
   91




---



##### Table of Contents



Exhibits:
  ExhibitNumber



Description2
.1



Plan of Conversion (incorporated by reference to
    Exhibit 2.1 to Hercules Registration Statement on
    Form S-1
    (Registration
    No. 333-126457),
    as amended (the
    S-1
    Registration Statement), originally filed on July 8,
    2005).2
.2



Amended and Restated Agreement and Plan of Merger, dated
    effective as of March 18, 2007, by and among Hercules, THE
    Hercules Offshore Drilling Company LLC and TODCO (incorporated
    by reference to Annex A to the Joint Proxy/Statement
    Prospectus included in Part I of Hercules
    Registration Statement on
    Form S-4
    (Registration
    No. 333-142314),
    as amended (the
    S-4
    Registration Statement), originally filed April 24,
    2007).3
.1



Certificate of Incorporation of Hercules (incorporated by
    reference to Exhibit 3.1 to Hercules Current Report
    on
    Form 8-K
    dated November 1, 2005 (File
    No. 0-51582)
    (the 2005
    Form 8-K)).3
.2



Amended and Restated Bylaws of Hercules (incorporated by
    reference to Exhibit 3.1 to Hercules Current Report
    on
    Form 8-K
    dated July 11, 2007 (File
    No. 0-51582)
    (the 2007
    Form 8-K)).4
.1



Form of specimen common stock certificate (incorporated by
    reference to Exhibit 4.1 to the
    S-1
    Registration Statement).4
.2



Rights Agreement, dated as of October 31, 2005, between
    Hercules and American Stock Transfer &
    Trust Company, as rights agent (incorporated by reference
    to Exhibit 4.1 to the 2005
    Form 8-K).4
.3



Amendment No. 1 to Rights Agreement, dated as of
    February 1, 2008, between Hercules and American Stock
    Transfer & Trust Company, as rights agent.4
.4



Certificate of Designations of Series A Junior
    Participating Preferred Stock (incorporated by reference to
    Exhibit 4.2 to the 2005
    Form 8-K).4
.5



Credit Agreement dated as of July 11, 2007 among Hercules,
    as borrower, its subsidiaries party thereto, as guarantors, UBS
    AG, Stamford Branch, as issuing bank, administrative agent and
    collateral agent, Amegy Bank National Association and Comerica
    Bank, as co-syndication agents, Deutsche Bank AG Cayman Islands
    Branch and Jefferies Finance LLC, as co-documentation agents,
    and the lenders party thereto (incorporated by reference to
    Exhibit 10.1 to the 2007
    Form 8-K).
    Hercules and its subsidiaries are parties to several debt
    instruments that have not been filed with the SEC under which
    the total amount of securities authorized does not exceed 10% of
    the total assets of Hercules and its subsidiaries on a
    consolidated basis. Pursuant to paragraph 4(iii)(A) of
    Item 601(b) of
    Regulation S-K,
    Hercules agrees to furnish a copy of such instruments to the SEC
    upon request.10
.1



Executive Employment Agreement, dated November 3, 2006,
    between Hercules and Randall D. Stilley (incorporated by
    reference to Exhibit 10.1 to Hercules Current Report
    on
    Form 8-K
    dated November 3, 2006 (File
    No. 0-51582)
    (the 2006
    Form 8-K)).10
.2



Employment Agreement, dated as of March 13, 2007, by and
    between Hercules and Lisa W. Rodriguez (incorporated by
    reference to Exhibit 10.1 to Hercules Current Report
    on
    Form 8-K
    dated March 8, 2007 (File
    No. 0-51582)).10
.3



Executive Employment Agreement, dated November 3, 2006,
    between Hercules and John T. Rynd (incorporated by reference to
    Exhibit 10.2 to the 2006
    Form 8-K).10
.4



Executive Employment Agreement, dated November 3, 2006,
    between Hercules and James W. Noe (incorporated by reference to
    Exhibit 10.5 to the 2006
    Form 8-K).10
.5



Executive Employment Agreement, dated November 3, 2006,
    between Hercules and Steven A. Manz (incorporated by reference
    to Exhibit 10.3 to the 2006
    Form 8-K).10
.6



Executive Employment Agreement, dated November 3, 2006,
    between Hercules and Randal R. Reed (incorporated by reference
    to Exhibit 10.4 to the 2006
    Form 8-K).*10
.7



Executive Employment Agreement, dated January 15, 2007,
    between Hercules and Terrell L. Carr. 92




---



##### Table of Contents



ExhibitNumber



Description10
.8



Expatriate Employment Agreement, dated November 1, 2006,
    between Hercules and Don P. Rodney incorporated by reference to
    Exhibit 10.2 to Hercules Current Report on
    Form 8-K
    dated October 31, 2006 (File
    No. 0-51582)).10
.9



Form of Indemnification Agreement (incorporated by reference to
    Exhibit 10.1 to Hercules Current Report on
    Form 8-K
    dated April 7, 2006 (File
    No. 0-51582)).10
.10



Employment Agreement, dated effective as of January 1,
    2005, by and between Hercules Drilling Company, LLC and Thomas
    E. Hord (incorporated by reference to Exhibit 10.4 to the
    S-1
    Registration Statement).10
.11



Amendment to Employment Agreement, dated October 31, 2006,
    between Hercules Drilling Company, LLC and Thomas E. Hord
    (incorporated by reference to Exhibit 10.1 to
    Hercules Current Report on
    Form 8-K
    dated October 31, 2006 (File
    No. 0-51582)).10
.12



Amendment to Stock Option Award Agreement, dated
    October 31, 2006, between Hercules and Thomas E. Hord
    (incorporated by reference to Exhibit 10.3 to
    Hercules Current Report on
    Form 8-K
    dated October 31, 2006 (File
    No. 0-51582)).10
.13



Amended and Restated Hercules Offshore 2004 Long-Term Incentive
    Plan (incorporated by reference to Annex E to the Joint
    Proxy Statement/Prospectus included in Part I of the
    S-4
    Registration Statement).10
.14



Form of Stock Option Agreement (incorporated by reference to
    Exhibit 10.12 to Hercules Annual Report on
    Form 10-K
    for the year ended December 31, 2006 (File
    No. 0-51582)).10
.15



Form of Restricted Stock Agreement for Employees and Consultants
    (incorporated by reference to Exhibit 10.13 to
    Hercules Annual Report on
    Form 10-K
    for the year ended December 31, 2006 (File
    No. 0-51582)).10
.16



Form of Restricted Stock Agreement for Directors (incorporated
    by reference to Exhibit 10.14 to Hercules Annual
    Report on
    Form 10-K
    for the year ended December 31, 2006 (File
    No. 0-51582)).10
.17



Hercules Offshore, Inc. Deferred Compensation Plan (incorporated
    by reference to Exhibit 10.1 to Hercules Current
    Report on
    Form 8-K
    dated January 10, 2007 (File
    No. 0-51582)).*10
.18



Schedule of executive officer and director compensation
    arrangements.10
.19



Registration Rights Agreement, dated as of July 8, 2005,
    between Hercules and the holders listed on the signature page
    thereto (incorporated by reference to Exhibit 10.9 to
    Hercules Annual Report on
    Form 10-K
    for the year ended December 31, 2005 (File
    No. 0-51582)).10
.20



Asset Purchase Agreement, dated April 3, 2006, by and
    between Hercules Liftboat Company, LLC and Laborde Marine Lifts,
    Inc. (incorporated by reference to Exhibit 10.1 to
    Hercules Current Report on
    Form 8-K
    dated April 3, 2006 (File
    No. 0-51582)).10
.21



Asset Purchase Agreement, dated as of August 23, 2006, by
    and among Hercules International Holdings, Ltd., Halliburton
    West Africa Ltd. and Halliburton Energy Services Nigeria Limited
    (incorporated by reference to Exhibit 10.1 to
    Hercules Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006 (File
    No. 0-51582)).10
.22



First Amendment to Asset Purchase Agreement, dated as of
    November 1, 2006, by and among Hercules International
    Holdings, Ltd., Hercules Oilfield Services Ltd., Halliburton
    West Africa Ltd. and Halliburton Energy Services Nigeria Limited
    (incorporated by reference to Exhibit 10.2 to
    Hercules Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006 (File
    No. 0-51582)).10
.23



Earnout Agreement, dated November 7, 2006, by and among
    Hercules Oilfield Services, Ltd., Halliburton West Africa Ltd.
    and Halliburton Energy Services Nigeria Limited (incorporated by
    reference to Exhibit 10.3 to Hercules Current Report
    on
    Form 8-K
    dated November 7, 2006 (File
    No. 0-51582)).*21




Subsidiaries of Hercules. 93




---



##### Table of Contents



ExhibitNumber



Description*23
.1



Consent of Ernst & Young LLP.*23
.2



Consent of Grant Thornton LLP.*31
.1



Certification of Chief Executive Officer of Hercules pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.*31
.2



Certification of Chief Financial Officer of Hercules pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.*32




Certification of the Chief Executive Officer and the Chief
    Financial Officer of Hercules pursuant to Section 901 of
    the Sarbanes-Oxley Act of 2002.99
.1



Policy Regarding Director Recommendations by Stockholders
    (incorporated by reference to Exhibit 99.1 to
    Hercules Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2007 (File
    No. 0-51582)).     *
    
    Filed herewith.
    
    Compensatory plan, contract or arrangement. 94




---



##### Table of Contents



SIGNATURES
      By:
    /s/  RANDALL
    D. STILLEY  Randall D. Stilley
 Chief Executive Officer and President
    Signatures

Title/s/  RANDALL
    D. STILLEYRandall
    D. Stilley

Chief Executive Officer, President and Director (Principal
    Executive Officer)/s/  LISA
    W. RODRIGUEZLisa
    W. Rodriguez

Senior Vice President and Chief Financial Officer (Principal
    Financial and Accounting Officer)/s/  JOHN
    T. REYNOLDSJohn
    T. Reynolds

Chairman of the Board/s/  THOMAS
    N. AMONETTThomas
    N. Amonett

Director/s/  SUZANNE
    V. BAERSuzanne
    V. Baer

Director/s/  THOMAS
    R. BATES, JR.Thomas
    R. Bates, Jr.

Director/s/  THOMAS
    M HAMILTONThomas
    M Hamilton

Director/s/  THOMAS
    J. MADONNAThomas
    J. Madonna

Director/s/  F.
    GARDNER PARKERF.
    Gardner Parker

Director/s/  THIERRY
    PILENKOThierry
    Pilenko

Director/s/  STEVEN
    A. WEBSTERSteven
    A. Webster

Director  95




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber



Description2
.1



Plan of Conversion (incorporated by reference to
    Exhibit 2.1 to Hercules Registration Statement on
    Form S-1
    (Registration
    No. 333-126457),
    as amended (the
    S-1
    Registration Statement), originally filed on July 8,
    2005).2
.2



Amended and Restated Agreement and Plan of Merger, dated
    effective as of March 18, 2007, by and among Hercules, THE
    Hercules Offshore Drilling Company LLC and TODCO (incorporated
    by reference to Annex A to the Joint Proxy/Statement
    Prospectus included in Part I of Hercules
    Registration Statement on
    Form S-4
    (Registration
    No. 333-142314),
    as amended (the
    S-4
    Registration Statement), originally filed April 24,
    2007).3
.1



Certificate of Incorporation of Hercules (incorporated by
    reference to Exhibit 3.1 to Hercules Current Report
    on
    Form 8-K
    dated November 1, 2005 (File
    No. 0-51582)
    (the 2005
    Form 8-K)).3
.2



Amended and Restated Bylaws of Hercules (incorporated by
    reference to Exhibit 3.1 to Hercules Current Report
    on
    Form 8-K
    dated July 11, 2007 (File
    No. 0-51582)
    (the 2007
    Form 8-K)).4
.1



Form of specimen common stock certificate (incorporated by
    reference to Exhibit 4.1 to the
    S-1
    Registration Statement).4
.2



Rights Agreement, dated as of October 31, 2005, between
    Hercules and American Stock Transfer &
    Trust Company, as rights agent (incorporated by reference
    to Exhibit 4.1 to the 2005
    Form 8-K).4
.3



Amendment No. 1 to Rights Agreement, dated as of
    February 1, 2008, between Hercules and American Stock
    Transfer & Trust Company, as rights agent.4
.4



Certificate of Designations of Series A Junior
    Participating Preferred Stock (incorporated by reference to
    Exhibit 4.2 to the 2005
    Form 8-K).4
.5



Credit Agreement dated as of July 11, 2007 among Hercules,
    as borrower, its subsidiaries party thereto, as guarantors, UBS
    AG, Stamford Branch, as issuing bank, administrative agent and
    collateral agent, Amegy Bank National Association and Comerica
    Bank, as co-syndication agents, Deutsche Bank AG Cayman Islands
    Branch and Jefferies Finance LLC, as co-documentation agents,
    and the lenders party thereto (incorporated by reference to
    Exhibit 10.1 to the 2007
    Form 8-K).
    Hercules and its subsidiaries are parties to several debt
    instruments that have not been filed with the SEC under which
    the total amount of securities authorized does not exceed 10% of
    the total assets of Hercules and its subsidiaries on a
    consolidated basis. Pursuant to paragraph 4(iii)(A) of
    Item 601(b) of
    Regulation S-K,
    Hercules agrees to furnish a copy of such instruments to the SEC
    upon request.10
.1



Executive Employment Agreement, dated November 3, 2006,
    between Hercules and Randall D. Stilley (incorporated by
    reference to Exhibit 10.1 to Hercules Current Report
    on
    Form 8-K
    dated November 3, 2006 (File
    No. 0-51582)
    (the 2006
    Form 8-K)).10
.2



Employment Agreement, dated as of March 13, 2007, by and
    between Hercules and Lisa W. Rodriguez (incorporated by
    reference to Exhibit 10.1 to Hercules Current Report
    on
    Form 8-K
    dated March 8, 2007 (File
    No. 0-51582)).10
.3



Executive Employment Agreement, dated November 3, 2006,
    between Hercules and John T. Rynd (incorporated by reference to
    Exhibit 10.2 to the 2006
    Form 8-K).10
.4



Executive Employment Agreement, dated November 3, 2006,
    between Hercules and James W. Noe (incorporated by reference to
    Exhibit 10.5 to the 2006
    Form 8-K).10
.5



Executive Employment Agreement, dated November 3, 2006,
    between Hercules and Steven A. Manz (incorporated by reference
    to Exhibit 10.3 to the 2006
    Form 8-K).10
.6



Executive Employment Agreement, dated November 3, 2006,
    between Hercules and Randal R. Reed (incorporated by reference
    to Exhibit 10.4 to the 2006
    Form 8-K).*10
.7



Executive Employment Agreement, dated January 15, 2007,
    between Hercules and Terrell L. Carr.10
.8



Expatriate Employment Agreement, dated November 1, 2006,
    between Hercules and Don P. Rodney incorporated by reference to
    Exhibit 10.2 to Hercules Current Report on
    Form 8-K
    dated October 31, 2006 (File
    No. 0-51582)).




---



##### Table of Contents



ExhibitNumber



Description10
.9



Form of Indemnification Agreement (incorporated by reference to
    Exhibit 10.1 to Hercules Current Report on
    Form 8-K
    dated April 7, 2006 (File
    No. 0-51582)).10
.10



Employment Agreement, dated effective as of January 1,
    2005, by and between Hercules Drilling Company, LLC and Thomas
    E. Hord (incorporated by reference to Exhibit 10.4 to the
    S-1
    Registration Statement).10
.11



Amendment to Employment Agreement, dated October 31, 2006,
    between Hercules Drilling Company, LLC and Thomas E. Hord
    (incorporated by reference to Exhibit 10.1 to
    Hercules Current Report on
    Form 8-K
    dated October 31, 2006 (File
    No. 0-51582)).10
.12



Amendment to Stock Option Award Agreement, dated
    October 31, 2006, between Hercules and Thomas E. Hord
    (incorporated by reference to Exhibit 10.3 to
    Hercules Current Report on
    Form 8-K
    dated October 31, 2006 (File
    No. 0-51582)).10
.13



Amended and Restated Hercules Offshore 2004 Long-Term Incentive
    Plan (incorporated by reference to Annex E to the Joint
    Proxy Statement/Prospectus included in Part I of the
    S-4
    Registration Statement).10
.14



Form of Stock Option Agreement (incorporated by reference to
    Exhibit 10.12 to Hercules Annual Report on
    Form 10-K
    for the year ended December 31, 2006 (File
    No. 0-51582)).10
.15



Form of Restricted Stock Agreement for Employees and Consultants
    (incorporated by reference to Exhibit 10.13 to
    Hercules Annual Report on
    Form 10-K
    for the year ended December 31, 2006 (File
    No. 0-51582)).10
.16



Form of Restricted Stock Agreement for Directors (incorporated
    by reference to Exhibit 10.14 to Hercules Annual
    Report on
    Form 10-K
    for the year ended December 31, 2006 (File
    No. 0-51582)).10
.17



Hercules Offshore, Inc. Deferred Compensation Plan (incorporated
    by reference to Exhibit 10.1 to Hercules Current
    Report on
    Form 8-K
    dated January 10, 2007 (File
    No. 0-51582)).*10
.18



Schedule of executive officer and director compensation
    arrangements.10
.19



Registration Rights Agreement, dated as of July 8, 2005,
    between Hercules and the holders listed on the signature page
    thereto (incorporated by reference to Exhibit 10.9 to
    Hercules Annual Report on
    Form 10-K
    for the year ended December 31, 2005 (File
    No. 0-51582)).10
.20



Asset Purchase Agreement, dated April 3, 2006, by and
    between Hercules Liftboat Company, LLC and Laborde Marine Lifts,
    Inc. (incorporated by reference to Exhibit 10.1 to
    Hercules Current Report on
    Form 8-K
    dated April 3, 2006 (File
    No. 0-51582)).10
.21



Asset Purchase Agreement, dated as of August 23, 2006, by
    and among Hercules International Holdings, Ltd., Halliburton
    West Africa Ltd. and Halliburton Energy Services Nigeria Limited
    (incorporated by reference to Exhibit 10.1 to
    Hercules Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006 (File
    No. 0-51582)).10
.22



First Amendment to Asset Purchase Agreement, dated as of
    November 1, 2006, by and among Hercules International
    Holdings, Ltd., Hercules Oilfield Services Ltd., Halliburton
    West Africa Ltd. and Halliburton Energy Services Nigeria Limited
    (incorporated by reference to Exhibit 10.2 to
    Hercules Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2006 (File
    No. 0-51582)).10
.23



Earnout Agreement, dated November 7, 2006, by and among
    Hercules Oilfield Services, Ltd., Halliburton West Africa Ltd.
    and Halliburton Energy Services Nigeria Limited (incorporated by
    reference to Exhibit 10.3 to Hercules Current Report
    on
    Form 8-K
    dated November 7, 2006 (File
    No. 0-51582)).*21




Subsidiaries of Hercules.*23
.1



Consent of Ernst & Young LLP.*23
.2



Consent of Grant Thornton LLP.*31
.1



Certification of Chief Executive Officer of Hercules pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.




---



##### Table of Contents



ExhibitNumber



Description*31
.2



Certification of Chief Financial Officer of Hercules pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.*32




Certification of the Chief Executive Officer and the Chief
    Financial Officer of Hercules pursuant to Section 901 of
    the Sarbanes-Oxley Act of 2002.99
.1



Policy Regarding Director Recommendations by Stockholders
    (incorporated by reference to Exhibit 99.1 to
    Hercules Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2007 (File
    No. 0-51582)).     *
    
    Filed herewith.
    
    Compensatory plan, contract or arrangement.