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                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form 10-Q
     (Mark One)
         [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended June 30, 2001 or


         [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934


                  For the transition period from __________ to ____________


                        Commission file number 001-16005


                              Chiles Offshore Inc.
             (Exact Name of Registrant as Specified in Its Charter)

             Delaware                                      76-0656029
  (State or other Jurisdiction                         (I.R.S. Employer
of Incorporation or Organization)                     Identification No.)


                            11200 Richmond, Suite 490
                           Houston, Texas, 77082-2618
                                 (832) 486-3500
    (Address, Including Zip Code, and Telephone Number, Including Area Code,
                of the Registrant's Principal Executive Offices)

         Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

         The number of shares of the registrant's Common Stock, par value $.01
per share outstanding as of July 31, 2001, was 20,262,432.




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NY2:\1071575\03\MYTZ03!.DOC\35287.0003
<PAGE>

                          PART I. FINANCIAL INFORMATION


ITEM 1.  Financial Statements

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                             June 30, 2001  Dec. 31, 2000
                                                             -------------  -------------
                                                              (Unaudited)
                             ASSETS
<S>                                                            <C>            <C>
CURRENT ASSETS:
Cash and cash equivalents ................................     $  16,785      $  47,145
Cash and cash equivalents, restricted ....................         8,227          6,443
Accounts receivable ......................................        12,314          7,661
Other current assets .....................................         1,918          1,413
                                                               ---------      ---------
      Total current assets ...............................        39,244         62,662
                                                               ---------      ---------

PROPERTY AND EQUIPMENT:
Drilling rigs and equipment ..............................       200,796        197,903
Less accumulated depreciation ............................       (13,354)        (9,682)
                                                               ---------      ---------
Net drilling rigs and equipment ..........................       187,442        188,221
Rigs under construction ..................................        83,941         46,498
                                                               ---------      ---------
      Total property and equipment .......................       271,383        234,719
                                                               ---------      ---------

DEFERRED DEBT ISSUANCE COSTS AND OTHER, net ..............         2,815          2,674
                                                               ---------      ---------
      Total assets .......................................     $ 313,442      $ 300,055
                                                               =========      =========


  LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable .........................................     $   7,388      $  14,156
Accrued liabilities ......................................        13,676          9,192
                                                               ---------      ---------
      Total current liabilities ..........................        21,064         23,348
                                                               ---------      ---------

DEFERRED TAX LIABILITY ...................................        34,147         28,858
                                                               ---------      ---------
      Total liabilities ..................................        55,211         52,206
                                                               ---------      ---------

STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; 100,000,000 shares
authorized, 17,691,710 shares issued .....................           177            177
Less 109,000 shares held in treasury at cost .............        (1,744)        (1,744)
Additional paid-in capital ...............................       274,104        274,027
Retained deficit .........................................       (14,306)       (24,611)
                                                               ---------      ---------
Stockholders' equity .....................................       258,231        247,849
                                                               ---------      ---------
      Total liabilities and stockholders' equity .........     $ 313,442      $ 300,055
                                                               =========      =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements and should be read in conjunction herewith.


                                       2
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                          Three Months Ended               Six Months Ended
                                                               June 30,                        June 30,
                                                    -----------------------------  -------------------------------

                                                           2001           2000            2001            2000
                                                           ----           ----            ----            ----
<S>                                                       <C>           <C>            <C>               <C>
REVENUE...........................................        $19,628       $14,508        $  38,238         $23,037

COSTS AND EXPENSES:
  Operating.......................................          5,299          4,713          10,561           7,976
  Bareboat charter................................          3,379          1,461           6,549           1,461
  General and administrative......................          1,658            637           2,358           1,346
  Depreciation and amortization...................          1,854          1,769           3,672           3,523
                                                       ----------      ---------      ----------       ---------

OPERATING INCOME..................................          7,438          5,928          15,098           8,731

OTHER INCOME (EXPENSE):
  Interest expense, net of capitalized interest...              -        (2,794)               -          (5,790)
  Interest income.................................            145            116             516             152
                                                       ----------      ---------      ----------       ---------
      Total other income (expense) ...............            145        (2,678)             516          (5,638)

INCOME BEFORE INCOME TAXES........................          7,583          3,250          15,614           3,093

PROVISION FOR INCOME TAX..........................         (2,578)             -          (5,309)              -
                                                       ----------      ---------      ----------       ---------

NET INCOME........................................      $   5,005       $  3,250      $   10,305         $ 3,093
                                                       ==========      =========      ==========       =========

Net income per common share:
  Basic...........................................        $  0.28        $  0.42         $  0.59        $  0.45
  Diluted.........................................           0.28           0.42            0.58           0.44


Weighted average common shares outstanding:
  Basic...........................................     17,580,486      7,722,848      17,579,370       6,947,171
  Diluted.........................................     17,711,177      7,754,081      17,697,274       6,967,189
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements and should be read in conjunction herewith.



                                       3
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                              Six Months Ended
                                                                                   June 30,
                                                                      -----------------------------------
                                                                             2001              2000
                                                                             ----              ----
<S>                                                                        <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.................................................              $ 10,305          $ 3,093
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities -
    Deferred income taxes....................................                 5,289                -
    Depreciation.............................................                 3,672            3,523
    Amortization of deferred expenses........................                     -              210
  Increase (decrease) in operating cash flows resulting from-
    Accounts receivables.....................................                (4,653)          (6,365)
    Accounts payable.........................................                (6,768)          (1,788)
    Accrued liabilities......................................                 4,484            3,014
    Deferred revenue.........................................                     -           (1,500)
    Prepaid expense and other................................                  (858)          (1,132)
                                                                           --------          -------

  Net cash provided by (used in) operating activities........                11,471             (945)
                                                                           --------          -------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment........................               (40,124)         (16,151)
  Net proceeds from sale of fixed assets.....................                     -               31
                                                                           --------          -------

  Net cash used in investing activities......................               (40,124)         (16,120)
                                                                           --------          -------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from issuance of common stock................                    77                -
   Membership capital contributions, net.....................                     -           32,790
  Net payments on line of credit.............................                     -          (15,000)
                                                                           --------          -------

  Net cash provided by financing activities..................                    77           17,790
                                                                           --------          -------

RESTRICTED CASH, beginning of period.........................                 6,443                -

RESTRICTED CASH, end of period...............................                 8,227                -
                                                                           --------          -------

NET INCREASE IN RESTRICTED CASH..............................                (1,784)               -
                                                                           --------          -------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.........               (30,360)             725
                                                                           --------          -------

CASH AND CASH EQUIVALENTS, beginning of period...............                47,145            3,952
                                                                           --------          -------

CASH AND CASH EQUIVALENTS, end of period.....................              $ 16,785          $ 4,677
                                                                           ========          =======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid for interest, net of capitalized interest                      $     -          $ 5,524

</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements and should be read in conjunction herewith.


                                       4
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.       BASIS OF PRESENTATION

         Chiles Offshore LLC, the predecessor to Chiles Offshore Inc., was
formed in August 1997 as a Delaware limited liability company, for the purpose
of constructing, owning and operating ultra-premium jackup drilling rigs. In
September 2000, in conjunction with our initial public offering of common stock
(the "IPO"), Chiles Offshore LLC was converted into a Delaware corporation and
renamed Chiles Offshore Inc.

         The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X and have not been
audited by the Company's independent public accountants. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal and recurring adjustments
necessary to present a fair statement of the results for the periods included
herein) have been made and the disclosures contained herein are adequate to make
the information presented not misleading. Operating results for the three and
six months ended June 30, 2001, are not necessarily indicative of the results
that will be realized for the year ending December 31, 2001. These consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements as of and for the period ended December 31,
2000, included in the Company's Annual Report on Form 10-K. Unless the context
otherwise indicates, any references in the Quarterly Report on Form 10-Q to the
"Company" refer to Chiles Offshore Inc. or Chiles Offshore LLC, as applicable,
and its wholly owned subsidiaries.

         Certain prior period amounts in the consolidated financial statements
have been reclassified for comparative purposes. Such reclassifications had no
effect on net income or the overall financial condition of the Company.

2.       EARNINGS PER SHARE

         For the three and six months ended June 30, 2000, the weighted average
number of common shares represented the conversion of pre-IPO membership
interests to an equivalent number of common shares. In January 2001, the Company
issued 170,300 options to purchase common stock to Company employees at an
exercise price of $22.00 per share, which approximated market value at the date
of grant. There were no anti-dilutive stock options for any of the periods
presented below. The following table summarizes the basic and diluted per share
computations for net income per common share for the three and six months ended
June 30, 2001 and 2000 (in thousands, except share and per share data):
<TABLE>
<CAPTION>
                                              Three Months Ended              Six Months Ended
                                                   June 30,                       June 30,
                                         ---------------------------   -----------------------------
                                              2001           2000           2001            2000
                                         ---------------------------   -----------------------------
<S>                                          <C>            <C>            <C>             <C>
    Numerator:
    Net income .........................     $  5,005       $  3,250       $  10,305       $  3,093

    Denominator:
        Basic...........................   17,580,486      7,722,848      17,579,370      6,947,171
        Effect of dilutive stock options      130,691         31,233         117,904         20,018
                                         ------------   ------------   -------------   ------------
        Diluted.........................   17,711,177      7,754,081      17,697,274      6,967,189
    Net income per common share:
        Basic...........................     $   0.28        $  0.42        $   0.59       $   0.45
        Diluted.........................     $   0.28        $  0.42        $   0.58       $   0.44

</TABLE>


                                       5
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

3.       INCOME TAXES

         Prior to September 22, 2000, the Company was a limited liability
company for federal and state income tax purposes and, as a result, was not
subject to income taxes. On September 22, 2000, the limited liability company
status was terminated. On termination, the Company adopted SFAS No. 109
"Accounting for Income Taxes." SFAS No. 109 requires an asset and liability
based approach in accounting for income taxes. As a result of termination of the
limited liability company status, the Company recorded a net deferred tax
liability through a charge to earnings of $27.4 million in the third quarter of
2000 in connection with the IPO, attributable primarily to the difference in
financial reporting and tax reporting methods of accounting for depreciation.
The following pro forma data is presented to apply the Company's effective tax
rate of 34% to income before income taxes as if the Company had been a taxable
entity for the three and six months ended June 30, 2000.
<TABLE>
<CAPTION>
                                                       Three Months Ended          Six Months Ended
                                                         June 30, 2000               June 30, 2000
                                                     -----------------------      --------------------
<S>                                                               <C>                        <C>
      Income before income taxes .................                $  3,250                   $ 3,093
      Pro forma income tax provision..............                   1,105                     1,052
                                                                  --------                   -------
      Pro forma net income........................                $  2,145                   $ 2,041
                                                                  ========                   =======

      Pro forma net income per common share:
          Basic...................................                $   0.28                   $  0.29
                                                                  ========                   =======
          Diluted.................................                    0.28                      0.29
                                                                  ========                   =======
</TABLE>

4.       LONG TERM DEBT

         In December 2000, the Company entered into an agreement with three
banks to provide a senior secured reducing revolving credit facility of $120
million (the "Bank Facility") of which $74 million was available for general
corporate purposes at June 30, 2001. The entire Bank Facility will be available
subject to the Company providing the lenders with certain additional collateral.
Borrowings under the Bank Facility may be repaid and reborrowed during the term
of the agreement and will bear interest at the rate of LIBOR plus a margin of
1.5% to 2.0% depending upon the amount drawn. The Bank Facility will mature on
December 7, 2007, at which time any outstanding principal amount and any unpaid
interest will be due. The Bank Facility shall be permanently reduced in
semi-annual reductions beginning in June 2001, with a balloon reduction at
maturity. The Company is required to pay a commitment fee equal to 0.7% per
annum, quarterly in arrears, on the undrawn amount of the Bank Facility. The
Bank Facility is guaranteed by two wholly-owned subsidiaries of the Company that
are owners of the Chiles Magellan and Chiles Columbus and such guarantees are
secured by first priority mortgages, assignments of earnings (which may continue
to be collected by the Company unless an event of default occurs) and
assignments of insurances on such rigs. The Bank Facility contains customary
affirmative and negative covenants and, further, requires the Company to prevent
the Guarantors from making certain loans and advances, except in their normal
course of business or to certain affiliates. In September 2000, using proceeds
from the IPO, the Company paid down all outstanding debt under its' prior $40
million bank facility. At June 30, 2001, there were no borrowings under the Bank
Facility.

         In April 2000, in connection with the construction agreement for the
Chiles Discovery, the Company executed an agreement with a non-U.S. lender that
is affiliated with Keppel FELS Limited, a Singapore company ("Keppel"), to
provide up to $82 million of financing toward the construction cost of the
Chiles Discovery (the "Discovery Facility"). This facility is recourse only to
the Chiles Discovery and any other assets owned by the subsidiary that owns the
rig. The agreement relating to the Discovery Facility provides for an interest
rate equal to LIBOR plus 2% on a $75 million term loan due upon the earlier of
twenty-two months from the first borrowing or delivery of the rig and LIBOR plus
3% on a $7 million revolving loan available to pay interest on the term loan.


                                       6
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

The Company will be able to extend the Discovery Facility for an additional
eighteen months after delivery of the Chiles Discovery at a fixed rate to be
determined at that time based on a bank cost of funds rate plus 3%. As of June
30, 2001, there were no borrowings under the Discovery Facility.

         The Company capitalizes interest applicable to the construction of
offshore drilling rigs as a cost of such assets. Capitalized interest for the
three months ended June 30, 2001 and 2000, was $0.4 million and $0.2 million,
respectively. Capitalized interest for the six months ended June 30, 2001 and
2000, was $0.8 million and $0.2 million, respectively.

5.       COMMITMENTS AND CONTINGENCIES

         In April 2000, the Company entered into an agreement with Keppel, and
various equipment vendors for construction and delivery of the Chiles Discovery
rig, at a cost estimated not to exceed $110 million, excluding interest and
other capitalized costs. At June 30, 2001, the Company had a remaining aggregate
estimated cost to complete the construction and outfitting, exclusive of any
interest and other capitalized costs, of the Chiles Discovery, of approximately
$61 million. These amounts will become payable in future periods in accordance
with terms of the construction contract and vendor agreements. The Company
expects to use cash from operations and funds available under the Discovery
Facility to fund the construction of the rig. The Company expects the Chiles
Discovery to be delivered in Singapore and placed in service during the second
quarter of 2002. The rig is contracted to operate for a major independent oil
and gas operator for a term that will last a minimum of 600 days in the Timor
Gap Zone of Cooperation between Australia and East Timor. As part of the
construction agreement with Keppel, the Company entered into a master option
agreement (the "Master Option Agreement") that provides the Company the right to
require Keppel, or its wholly owned subsidiary AMFELS, Inc. ("AMFELS"), of
Brownsville, Texas, to construct up to three additional rigs ("Option Rig or
Rigs") similar to the Chiles Discovery.

         In October 2000, the Company exercised its first option under the
Master Option Agreement to construct the Chiles Galileo at AMFELS shipyard in
Brownsville, Texas at a cost estimated not to exceed $112 million, excluding
interest and other capitalized costs. The Company expects to use cash from
operations and funds available under a credit facility of up to $81 million,
which will be backed by a guarantee from the U.S. Maritime Administration
("Marad") to fund the construction of the rig. The credit facility will be
recourse to the Chiles Galileo and any other assets owned by the subsidiary that
owns the rig with limited recourse to the Company. The Company is presently
negotiating the definitive terms and conditions of this credit facility and
expects to finalize the same during the third quarter of 2001. At June 30, 2001,
the Company had a remaining aggregate estimated cost to complete the
construction and outfitting, exclusive of any interest and other capitalized
costs, of the Chiles Galileo, of approximately $66 million. The Chiles Galileo
is expected to be completed during the third quarter of 2002.

         In September 2000, the Company was served a legal action which was
filed by an offshore worker employed by another drilling contractor on behalf of
himself and those similarly situated, naming most of the offshore drilling
contractors as defendants, including the Company. The action was filed in the
U.S. District Court, Southern District, Galveston Division, seeking to have the
court certify a nationwide class and to recover damages to be proved, as well as
treble damages, attorneys' fees, expenses, costs and other relief deemed
appropriate, for alleged violations of federal and state antitrust laws and for
engaging in alleged unfair trade practices by suppressing wages and benefits of
offshore workers. While the Company believes that it has valid defenses in this
matter, the Company has determined that protracted litigation will be a
distraction to the operation of its business and consequently has agreed to
settle the litigation out of court for a conditional payment of $1 million. As
of June 30, 2001, the Company had fully accrued for the settlement amount,
including legal expenses, classified as general and administrative expenses. The
ultimate payment of the settlement amount is conditioned upon, among other
things, the plaintiff being able to establish a valid nationwide class.



                                       7
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

         The Company is involved in various legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse affect on the
Company's consolidated financial position, results of operations or cash flows.

6.       OPERATING SEGMENTS

         As of June 30, 2001, the Company had a single line of business and
operated in a single geographic area. The Company derived revenue from three
customers of approximately 30 percent, 38 percent and 32 percent for the three
months ended June 30, 2001, and from four customers of 34 percent, 22 percent,
22 percent and 12 percent for the three months ended June 30, 2000.

7.       SUBSEQUENT EVENTS

         On July 25, 2001, pursuant to an agreement entered into in July 2000
(the "Tonala Agreement") and subsequently amended in November 2000 (the "Tonala
Amendment"), the Company completed its acquisition of all of the shares of
capital stock of an entity that owned the ultra-premium jackup rig Tonala, which
the Company has operated under a bareboat charter with Perforadora Central, S.A.
de C.V., a Mexican company, and related parties ("Perforadora Central") since
the completion of its construction and final commissioning in April 2000 (the
"Tonala Charter"). The Tonala Amendment and a concurrent amendment to the Tonala
Charter adjusted payments under the Tonala Charter such that the Company would
be treated from a commercial standpoint as if it owned the Tonala from July 20,
2000, with the Company being credited for cash flow received, and charged for
debt service payments made by Perforadora after such date on Marad guaranteed
debt secured by the Tonala. In October 2000, two executives of Perforadora
Central were named to the Company's board of directors. Under the terms of the
Tonala Agreement, upon closing of the transaction, the Company paid total
consideration for the Tonala of approximately $111 million, which consisted of
the issuance of 2,679,723 shares of common stock with a market value per share
on the date of closing of $20.50 and the assumption of the remaining principal
balance due on the related Marad guaranteed debt, which was approximately $58.8
million at July 25, 2001, less a debt discount of approximately $1 million. In
connection with its acquisition of the Tonala, the Company also paid
approximately $0.6 million in commissions and other acquisition costs, and
received the benefit of approximately $2.5 million in charter payables forgiven
by Perforadora Central. The debt bears interest at a rate of 5.6% per year and
has semi-annual payments of approximately $2.9 million in principal plus accrued
interest due in January and July each year until the final maturity in 2011 and
is subject to certain customary covenants. In each of January and July 2001,
under the terms of the Tonala Agreement, as amended, the Company paid $4.8
million of principal and interest, on behalf of Perforadora Central for the
regularly scheduled payment of the Marad guaranteed debt secured by the Tonala.
Subsequent to the date of acquisition, the Company renamed the acquired rig the
Chiles Coronado.

         In August 2001, the Company signed a three-year contract with a major
integrated oil and gas operator for the use of the Chiles Coronado in Trinidad.
In connection with this contract, the Company has committed to certain capital
expenditures that are anticipated to be incurred in the third quarter of 2001.
Once these modifications to the rig are complete, the Chiles Coronado will be
mobilized from the U.S. Gulf of Mexico to Trinidad to begin drilling operations.



                                       8
<PAGE>

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Forward Looking Statements

         Unless the context otherwise requires, references herein to "Chiles
Offshore," "the Company," "we," "us," and "our," refer to Chiles Offshore Inc.
or Chiles Offshore LLC, as applicable, and its wholly owned subsidiaries and
"Chiles" refers to Chiles Offshore Inc.

         When included in this Quarterly Report on Form 10-Q or in documents
incorporated herein by reference, the words, "expects," "intends,"
"anticipates," "projects," "believes," "estimates," and analogous expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Reform Act of 1995. Such forward-looking statements
concerning management's expectations, strategic objectives, business prospects,
anticipated performance and financial condition and other similar matters
involve known and unknown risks, uncertainties and other important factors that
could cause actual results, performance or achievements of results to differ
materially from any future results, performance or achievements discussed or
implied by such forward-looking statements. Such risks and uncertainties
include, among others, general economic and business conditions, drilling
related risks, changes in oil and gas exploration activity, competition,
regulatory initiatives and compliance with governmental regulations, customer
preferences and various other matters. Certain statements discussed in Item 2
(Management's Discussion and Analysis of Financial Condition and Results of
Operations) and Item 3 (Quantitative and Qualitative Disclosures About Market
Risk) and elsewhere in the Quarterly Report on Form 10-Q contain forward-looking
statements. Upon mobilization of the Chiles Coronado to Trinidad, such risks
will also include risks of operating in foreign jurisdictions, which could
include risks of currency exchange restrictions, changes in foreign political,
military and economic conditions, risks of government seizures of rigs and
related risks. Many of these risks and related risks are beyond our control.
These forward-looking statements speak only as of the date of this Quarterly
Report on Form 10-Q. We expressly disclaim any obligation or undertaking to
provide any updates to any forward-looking statement to reflect any change in
our expectations or any change in events, conditions or circumstances on which
the forward statement is based.

         The following discussion should be read in conjunction with our
Consolidated Financial Statements (including the notes thereto) included
elsewhere in this Quarterly Report on Form 10-Q.

The Company

         Chiles Offshore LLC, the predecessor to Chiles Offshore Inc., was
formed in August 1997 as a Delaware limited liability company, for the purpose
of constructing, owning and operating ultra-premium jackup drilling rigs. In
September 2000, in conjunction with our initial public offering of common stock
(the "IPO"), Chiles Offshore LLC was converted into a Delaware corporation and
renamed Chiles Offshore Inc.

         In 1997, we started construction of two ultra-premium jackup drilling
rigs of the LeTourneau Super 116 design at AMFELS, Inc. ("AMFELS"), a shipyard
located in Brownsville, Texas. The first rig, the Chiles Columbus, was delivered
in May 1999, and the second rig, the Chiles Magellan, was delivered in October
1999. In addition, in July 2001, pursuant to an agreement entered into in July
2000 (the "Tonala Agreement") and subsequently amended in November 2000 (the
"Tonala Amendment"), we completed the acquisition of all of the shares of
capital stock of an entity that owned the ultra-premium jackup rig Tonala, which
the Company has operated under a bareboat charter with Perforadora Central, S.A.
de C.V., a Mexican company, and related parties ("Perforadora Central"), since
the completion of its construction and final commissioning in April 2000 (the
"Tonala Charter"). The Tonala Amendment and a concurrent amendment to the Tonala
Charter adjusted payments under the Tonala Charter such that the Company would
be treated from a commercial standpoint, as if it owned the Tonala from July 20,
2000, with the Company being credited for cash flow received, and charged for
debt service payments made by Perforadora after such date on Marad guaranteed
debt secured by the Tonala. In July 2001, the Company issued 2,679,723 shares of
common stock and assumed the remaining principal balance due of approximately
$58.8 million on the related U.S. Maritime Administration ("Marad") guaranteed
debt. The debt bears interest at a rate of 5.6% per year, has semi-annual
payments of approximately $2.9 million in principal plus accrued interest due
each January and July until the final maturity in 2011 and is subject to certain
customary covenants. In each of January and July 2001, under the terms of the
Tonala Agreement, as amended, the Company paid $4.8 million of principal and


                                       9
<PAGE>

interest on behalf of Perforadora Central for the regularly scheduled payment of
the Marad guaranteed debt secured by the Tonala. Upon completion of the Tonala
acquisition, we had 20,262,432 common shares outstanding, of which the
affiliates and stockholders of Perforadora Central held approximately 13.2%.
Subsequent to the acquisition, the Company renamed the rig the Chiles Coronado.
As a result of the acquisition, we own and operate three of the seven existing
ultra-premium jackup drilling rigs in the world, all of which were operating in
the U.S. Gulf of Mexico at June 30, 2001.

         In August 2001, the Company signed a three-year contract with a major
integrated oil and gas operator for the use of the Chiles Coronado in Trinidad.
In connection with this contract, the Company has committed to certain capital
expenditures that are anticipated to be incurred in the third quarter of 2001.
Once these modifications to the rig are complete, the Chiles Coronado will be
moved from the U.S. Gulf of Mexico to Trinidad to begin drilling operations.

         In April 2000, we entered into an agreement with Keppel FELS Limited
("Keppel"), a Singapore company, to construct an ultra-premium jackup rig of the
KFELS Mod V "B" design, the Chiles Discovery. We expect the Chiles Discovery to
be delivered in Singapore and placed in service during the second quarter of
2002. The rig is contracted to operate for a major independent oil and gas
operator for a term that will last a minimum of 600 days in the Timor Gap Zone
of Cooperation between Australia and East Timor. We estimate its construction
cost not to exceed $110 million, exclusive of interest and other capitalized
costs. The Company expects to use cash from operations and funds available under
a credit facility of up to $82 million to fund the construction of the rig. In
April 2000, we also entered into a master option agreement (the "Master Option
Agreement") with Keppel and its wholly owned subsidiary AMFELS for the
construction, at our option, of up to three additional rigs of the same design.
In October 2000, we exercised our first option under the Master Option Agreement
to construct a rig, to be named the Chiles Galileo, at AMFELS at a cost
estimated not to exceed $112 million, excluding interest and other capitalized
costs. The Chiles Galileo is expected to be completed during the third quarter
of 2002. We expect to use cash from operations and funds available under a
credit facility of up to $81 million, which will be backed by a guarantee from
Marad, to fund the construction of the rig. We are presently negotiating the
definitive terms and conditions of this credit facility and expect to finalize
the same during the third quarter of 2001.

Results of Operations

         Revenue. We derive our revenue primarily from contracts to drill wells
for oil and gas operators. These drilling contracts are typically for terms of
30 to 90 days, although the Company is presently operating under drilling
contracts of longer duration, and provide for base dayrates, which may be
subject to adjustments based on performance incentives. For the three and six
months ended June 30, 2001, rig utilization was 100% and the average dayrates
were $71,895 and $70,419, respectively. During the available operating days in
the three and six months ended June 30, 2000, our rigs earned average dayrates
of $55,374 and $50,789, respectively, and achieved 100% utilization. In
calculating our average dayrates, we divide the revenue earned by our rigs
during the period by the total number of rig operating days in the period. In
addition, our average dayrates include any bonus that may be triggered by
achieving performance and safety targets in our contracts.

         Both dayrates and utilization are a function of demand for, and
availability of, drilling rigs, which are affected by short- and long-term
trends in oil and gas prices, which are, in turn, related to the demand for
petroleum products and the current availability of oil and gas resources.

         Costs and Expenses. Rig operating expense consists primarily of crew
costs, insurance, repair and maintenance and other related costs. General and
administrative expense consists primarily of corporate management,
administration, marketing, financial and legal expenses.



                                       10
<PAGE>

         The following table provides results of operations, utilization,
average dayrates and available rig day information for the periods indicated (in
thousands except rig utilization, average dayrates and available rig days):
<TABLE>
<CAPTION>
                                                      Three Months Ended            Six Months Ended
                                                          June 30,                     June 30,
                                                   -------------------------    -------------------------
                                                         2001      2000            2001            2000
                                                   ------------ ------------    ------------ ------------
<S>                                                   <C>          <C>             <C>          <C>
         Revenue.................................     $ 19,628     $ 14,508        $ 38,238     $ 23,037
         General and administrative expense......        1,658          637           2,358        1,346
         Operating income........................        7,438        5,928          15,098        8,731
         Interest income (expense), net..........          145       (2,678)            516       (5,638)
         Provision for income tax................       (2,578)           -          (5,309)           -
         Net income .............................        5,005        3,250          10,305        3,093

         Rig utilization                                  100%         100%            100%         100%
         Average dayrates                             $ 71,895     $ 55,374        $ 70,419     $ 50,789
         Available rig days                                273          262             543          444
</TABLE>





Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

         The Tonala was delivered and placed in service in April 2000. As a
result of the delivery of the Tonala, the available rig days were 11 days higher
for the three months ended June 30, 2001, compared to the same period for the
previous year. Revenue increased approximately $5.1 million for the three months
ended June 30, 2001, compared to the three-months ended June 30, 2000. The
increase in revenue was a result of the increased number of rig days, combined
with an increase in average dayrates of $16,521, to $71,895 per day for the
three months ended June 30, 2001, as compared with the three months ended June
30, 2000. The increase in average dayrates is due to a combination of, among
other things, the increase in prices for oil and natural gas commodities and the
related increase in drilling activity of oil and gas operators.

         Operating income increased approximately $1.5 million for the three
months ended June 30, 2001, compared to the three months ended June 30, 2000.
The increase was a result of the increase in revenue, offset by a second quarter
2001 charge related to the $1 million conditional litigation settlement of a
class action suit filed against us and most other offshore drilling contractors.

         Net interest expense decreased approximately $2.8 million for the three
months ended June 30, 2001, compared to the three months ended June 30, 2000, as
we had no debt outstanding during the three months ended June 30, 2001.

         The provision for income taxes increased by approximately $2.6 million
for the three months ended June 30, 2001, compared to the three months ended
June 30, 2000, due to our conversion from a limited liability company to a
corporation on September 22, 2000, and, as a result of that conversion, becoming
subject to U.S. federal and state income taxes.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

         Revenue increased approximately $15.2 million for the six months ended
June 30, 2001, compared to the six months ended June 30, 2000. The increase in
revenue was a result of 99 additional rig days due to placing the Tonala in
service, combined with an increase in average dayrates of $19,630, to $70,419
per day for the six months ended June 30, 2001, as compared with the six months
ended June 30, 2000. The increase in average dayrates is due to a combination
of, among other things, the increase in prices for oil and natural gas


                                       11
<PAGE>

commodities and the related increase in drilling activity of oil and gas
operators.

         Operating income increased approximately $6.4 million for the six
months ended June 30, 2001, compared to the six months ended June 30, 2000. The
increase was a result of the increase in revenue, offset by a charge recorded in
2001 related to the $1 million conditional litigation settlement of a class
action suit filed against us and most other offshore drilling contractors.

         Net interest expense decreased approximately $6.2 million for the six
months ended June 30, 2001, compared to the six months ended June 30, 2000, as
we had no debt outstanding during the six months ended June 30, 2001.

         The provision for income taxes increased by approximately $5.3 million
for the six months ended June 30, 2001, compared to the six months ended June
30, 2000, due to our conversion from a limited liability company to a
corporation on September 22, 2000, and, as a result of that conversion, becoming
subject to U.S. federal and state income taxes.

Liquidity and Capital Resources

         Our ongoing liquidity requirements arise primarily from our need to
service debt, when incurred, provide working capital and construct and acquire
rigs and equipment. Since our inception, we have been managing the construction
and ongoing operations of our rigs using cash generated by private placements of
equity, the issuance of our senior notes, borrowings under our credit
facilities, the IPO and cash from operations. If we exercise additional options
under the Master Option Agreement, we may require additional financing in the
future to fund the option rig construction program.

         During the six months ended June 30, 2001, we used approximately $11.5
million of cash flows from operations to meet working capital requirements and
approximately $40.1 million for additions to property and equipment, primarily
to fund the construction of the Chiles Discovery and the Chiles Galileo.

         In each of January and July 2001, under the terms of the Tonala
Agreement, as amended, we paid $4.8 million of principal and interest on behalf
of Perforadora Central for the regularly scheduled payment of the Marad
guaranteed debt secured by the Tonala.

         As of June 30, 2001, we had unrestricted cash of $16.8 million,
restricted cash for the operations and debt service of the Tonala of $8.2
million, working capital of $18.2 million and no borrowings under any of our
credit facilities. The remaining aggregate estimated costs to complete
construction and outfitting of the Chiles Discovery and Chiles Galileo,
including the outfitting of the rigs and engineering, construction management
and other supervisory costs, excluding interest and other capitalized costs, are
expected to be approximately $61 million and $66 million, respectively.

         In connection with the construction agreement for the Chiles Discovery,
we have secured an $82 million construction financing arrangement from a
non-U.S. lender that is affiliated with Keppel (the "Discovery Loan"). The
Discovery Loan is non-recourse to Chiles, but full recourse to the Chiles
Discovery and all assets owned by the borrower, Chiles Discovery LLC, which owns
the Chiles Discovery and is a 100% owned subsidiary of Chiles.

         In December 2000, we entered into an arrangement with a bank group to
provide a $120 million senior secured reducing revolving credit facility
maturing in December 2007 (the "Bank Facility") of which $74 million is
currently available. The entire Bank Facility will be available subject to us
providing the lenders with certain additional collateral. The Bank Facility is
secured by a first priority mortgage on the Chiles Columbus and the Chiles
Magellan. At June 30, 2001, there were no borrowings under the Bank Facility.

          In connection with the Chiles Galileo we have secured a commitment
from Marad for a guarantee of debt for the construction and term financing of
the Chiles Galileo (the "Galileo Facility"). As currently proposed, the Galileo
Facility calls for construction financing for two years and term financing for
up to 18 years after delivery. The Galileo Facility will have limited recourse
to Chiles, and full recourse to the Chiles Galileo and all assets owned by the
borrower, Chiles Galileo LLC, which owns the Chiles Galileo and is a 100% owned


                                       12
<PAGE>

subsidiary of Chiles. We expect to enter into definitive agreements for the
Galileo Facility during the third quarter of 2001.

         Because our fleet is composed of newly constructed rigs, we do not
expect to incur material additional capital expenditures associated with the rig
fleet in the foreseeable future, unless specific requests for modifications are
made by a customer in connection with a drilling contract. Any unanticipated
capital expenditures or mobilizations could materially adversely affect our cash
position in the period in which we incur such expenditures.

Outlook

         Our business and operations are materially dependent upon the condition
of the oil and natural gas industry and, specifically, the exploration and
production expenditures of oil and gas companies. As we begin to expand our
operations beyond the U.S. Gulf of Mexico, our business and operations are and
will continue to be particularly dependent upon the condition of the oil and
natural gas industry and on the exploration and production expenditures of oil
and gas companies in the United States and the other major countries in which we
operate. The offshore contract drilling industry historically has been and is
expected to continue to be highly competitive and cyclical. During 1998, the
decline in commodity prices in the oil and gas industry resulted in
significantly reduced dayrates and decreased utilization, particularly in the
U.S. Gulf of Mexico jackup drilling rig market. Since 1999, crude oil prices and
natural gas prices have recovered but there can be no assurance that demand for
drilling rigs will increase. Sustained weak commodity prices, economic problems
in countries outside the United States, and a number of other factors beyond our
control could further curtail spending by oil and gas companies. We cannot
predict whether or not current market conditions will continue at favorable
levels and if so, to what extent. A sustained period of depressed market
conditions would have a material adverse effect on our future results of
operations.

         While we anticipate that we will continue to obtain drilling contracts
for our rig fleet, no assurance can be given that additional drilling contracts
will be obtained, or obtained on a timely basis, nor can we predict that the
dayrates payable under any drilling contract will be equal to or greater than
the operating costs of the rigs and other fixed costs, and current payment
liabilities, including interest payable with respect to drawings under any of
our credit facilities.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

         We are exposed to changes in interest rates with respect to our various
credit facilities, if and when they are drawn upon. We are also exposed to
changes in the prices of oil and natural gas. The offshore contract drilling
industry is dependent upon the exploration and production programs of oil and
gas companies, which in turn are influenced by the price of oil and natural gas.






                                       13
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

         In September 2000, the Company was served a legal action which was
filed by an offshore worker employed by another drilling contractor on behalf of
himself and those similarly situated, naming most of the offshore drilling
contractors as defendants, including the Company. The action was filed in the
U.S. District Court, Southern District, Galveston Division, seeking to have the
court certify a nationwide class and to recover damages to be proved, as well as
treble damages, attorneys' fees, expenses, costs and other relief deemed
appropriate, for alleged violations of federal and state antitrust laws and for
engaging in alleged unfair trade practices by suppressing wages and benefits of
offshore workers. While the Company believes that it has valid defenses in this
matter, the Company has determined that protracted litigation will be a
distraction to the operation of its business and consequently has agreed to
settle the litigation out of court for a conditional payment of $1 million. As
of June 30, 2001, the Company had fully accrued for the settlement amount,
including legal expenses, classified as general and administrative expenses. The
ultimate payment of the settlement amount is conditioned upon, among other
things, the plaintiff being able to establish a valid nationwide class.

         The Company is involved in various legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse affect on the
Company's consolidated financial position, results of operations or cash flows.

ITEM 2.  Changes in Securities and Use of Proceeds.

         (a) On May 15, 2001, stockholders approved an amendment to the Chiles
Certificate of Incorporation to eliminate restrictions on the mortgage, pledge,
transfer and other disposition of the assets of the Company without obtaining
prior written consent of holders of at least 66 2/3% in voting power of the
outstanding shares of Chiles common stock.

         (c) On July 25, 2001, the Company issued a total of 2,679,723 shares of
Chiles common stock, par value $.01 per share, to former stockholders of GIA2,
Inc. as consideration in the merger of GIA2, Inc. with and into Chiles in
connection with its acquisition of the offshore drilling rig, the Tonala, owned
by a wholly owned subsidiary of GIA2, Inc. This merger was contemplated by an
agreement (the "Tonala Agreement") dated as of July 20, 2000, as amended by
amendment No. 1 thereto, dated November 10, 2000 (the "Amendment"), by and among
Chiles, Perforadora Central, S.A. de C.V. ("Perforadora") and the stockholders
of Perforadora. The sale of these securities was deemed to be exempt from
registration under the Securities Act of 1933, as amended, in reliance on
Section 4(2) thereof as a transaction by an issuer not involving a public
offering.





                                       14
<PAGE>

ITEM 4. Submission of Matters to a Vote of Security Holders

         On May 15, 2001, the Company held its annual meeting of stockholders.
The matters submitted to a vote through the solicitation of proxies were to
elect ten directors to serve until the 2002 annual meeting of stockholders; to
ratify the appointment of Arthur Andersen LLP as the Company's independent
public accountants for the year ending December 31, 2001; and to amend the
Company's Certificate of Incorporation to eliminate restrictions on the
mortgage, pledge, transfer and other disposition of the assets of the Company
without obtaining prior written consent of holders of at least 66 2/3% in voting
power of the outstanding shares of Chiles common stock.
<TABLE>
<CAPTION>
                                                                          Votes Cast:
                                                          --------------------------------------------
                 Matter Voted Upon:                            For         Against/       Abstained
                                                                           Withheld
------------------------------------------------------    --------------------------------------------
<S>                                                          <C>                <C>         <C>
1.   Election of Directors:
       Charles Fabrikant                                     13,826,936              -        214,300
       Randall Blank                                         13,705,363              -        335,873
       William Chiles                                        13,051,236              -        990,000
       Dick Fagerstal                                        12,852,663              -      1,188,573
       Jonathan Fairbanks                                    13,841,036              -        200,200
       Alan Locker                                           13,866,136              -        175,100
       Timothy McKeand                                       13,851,936              -        189,300
       Patricio Morphy                                       13,841,036              -        200,200
       Luis Morphy                                           13,841,036              -        200,200
       Robert Pierot                                         13,866,136              -        175,100
2.   Approval of Arthur Andersen LLP as independent
     public accountants:                                     14,025,336         15,500            400
3.   Approval of the amendment to the Certificate of
     Incorporation:                                          13,185,643         10,825        844,768
</TABLE>

ITEM 6.  Exhibits and Reports on Form 8-K.

A.   Exhibits

Exhibit No.                     Description
-----------                     -----------
         2.1      Agreement and Plan of Merger, dated as of July 25, 2001, by
                  and between Chiles Offshore Inc. and GIA2, Inc. (incorporated
                  by reference to Exhibit 2.1 from Chiles' Current Report on
                  Form 8-K filed August 9, 2001).

         3.1      Certificate of Amendment to the Certificate of Incorporation
                  of Chiles Offshore Inc., effective as of August 13, 2001.

         3.2      Amended and Restated By-laws of Chiles Offshore Inc.,
                  effective as of July 10, 2001.

         10.1     Contract for Hire of the Drilling Unit Chiles Coronado between
                  BP Trinidad and Tobago LLC and Chiles Offshore Inc., dated
                  July 24, 2001.

B.   Reports on Form 8-K

     Current Report on Form 8-K, dated August 9, 2001 and filed on August 9,
     2001, reporting, under Item 2, the Company's announcement that it had
     completed the acquisition of the offshore drilling rig, the Tonala.


                                       15
<PAGE>

                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                CHILES OFFSHORE INC.

                                By:  /s/ Dick Fagerstal
                                     --------------------------------------
                                     Dick Fagerstal
                                     Senior Vice President, Chief Financial
                                         Officer and Secretary
                                     (Principal Financial Officer)



Dated:  August 14, 2001












                                       16
<PAGE>

                                  EXHIBIT INDEX

Exhibit No.                          Description
-----------                          -----------
         2.1      Agreement and Plan of Merger, dated as of July 25, 2001, by
                  and between Chiles Offshore Inc. and GIA2, Inc. (incorporated
                  by reference to Exhibit 2.1 from Chiles' Current Report on
                  Form 8-K filed August 9, 2001).

         3.1      Certificate of Amendment to the Certificate of Incorporation
                  of Chiles Offshore Inc., effective as of August 13, 2001.

         3.2      Amended and Restated By-Laws of Chiles Offshore Inc.,
                  effective as of July 10, 2001.

         10.1     Contract for Hire of the Drilling Unit Chiles Coronado between
                  BP Trinidad and Tobago LLC and Chiles Offshore Inc., dated
                  July 24, 2001.














                                       17