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                                                                    EXHIBIT 10.7

                              TORCH OFFSHORE, INC.
                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective as of January
15, 2001 (the "Effective Date"), and is entered into between Torch Offshore,
Inc., a Delaware corporation (the "Corporation"), and Eric N. Smith, a person of
the full age of majority (the "Employee").

         1. Employment and Duties.

         (a) The Corporation agrees to employ the Employee as Executive Vice
President, or a similar capacity, as of the Effective Date for the period set
forth in paragraph 1(c) below, unless employment is terminated sooner as
provided herein.

         (b) The Employee accepts employment and agrees to devote his full time
and attention to the performance of his duties as determined, from time to time,
by the Chief Executive Officer or the Board of Directors of the Corporation.

         (c) The Employee shall continue to serve in the employ of the
Corporation until December 31, 2002 (the "Initial Term"), except as provided
herein. Upon the expiration of the Initial Term, this Agreement may be renewed
for one or more additional one-year term(s) (the "Renewal Term") with the
written consent of the parties hereto.

         2. Compensation. For all services rendered by the Employee, the
Corporation shall compensate the Employee as follows:

         (a) Annual Salary. The Corporation shall pay to the Employee, subject
to the terms and conditions set forth in this Agreement, an annual salary of
$185,000.00, and such amount shall be prorated and paid in accordance with the
Corporation's customary payroll practices. If the Employee is employed by the
Corporation on September 7, 2001, his annual salary shall be raised to
$200,000.00.

         (b) Perquisites and Benefits. The Employee shall be entitled to receive
in the aggregate substantially the same fringe benefits and perquisites offered
by the Corporation to any of the Corporation's similarly situated employees,
including, without limitation, participation in the various employee benefit
plans or programs provided to the employees of the Corporation in general,
subject to the regular eligibility requirements with respect to each of such
benefit plans or programs.

         (c) Severance. If the Corporation terminates the employment of the
Employee for any reason other than Cause (as defined in paragraph 4(d)), then
the Corporation shall pay to the Employee severance payments of six months of
salary at his then current rate, to be paid in accordance with the Company's
standard payroll practices. The Employee expressly acknowledges and agrees that
the Employee shall not be eligible to receive from the Corporation any form of
severance pay or other form of termination benefit, except as expressly provided
in



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this paragraph 2(c) (other than coverage under COBRA or other form of legally
mandated benefit available after the termination of employment).

                  Any amount(s) payable under this Agreement shall be subject to
the withholding of such income and employment taxes as may be required by law to
be withheld.

         3. Payment or Reimbursement of Expenses. Subject to compliance by the
Employee with such policies regarding expenses and expense reimbursements as may
be adopted, from time to time, by the Corporation, the Employee shall be paid or
reimbursed for reasonable expenses actually incurred in connection with the
performance of his duties hereunder and in the furtherance of the business and
affairs of the Corporation. Any such reimbursement shall be made within a
reasonable period after presentation by the Employee of an itemized account of
such expenses, accompanied by appropriate receipts satisfactory to the
Corporation. In no event shall any expense be paid or reimbursed, unless
properly accounted for to the extent necessary to substantiate the Corporation's
Federal income tax deduction under the applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder or any similar state or federal law or regulation.

         4. Termination.

         (a) This Agreement and the Corporation's obligations hereunder shall
terminate as of the conclusion of the Initial Term, unless terminated earlier
pursuant to this paragraph 4 or extended for successive one-year terms as
provided in paragraph 1(c) hereof.

         (b) Either party may terminate this Agreement by providing the other
party with written notice.

         (c) If the Employee dies or becomes totally disabled (as determined by
the Board of Directors or the Chief Executive Officer of the Corporation), this
Agreement and the Employee's rights hereunder shall automatically terminate as
of the date of such death or disability.

         (d) The Corporation may terminate this Agreement and the Employee's
rights hereunder at any time for Cause, which shall mean (i) conviction of the
Employee by a court of competent jurisdiction of any felony or a crime involving
moral turpitude; (ii) the Employee's knowing failure or refusal to follow
reasonable instructions of the Board of Directors or reasonable policies,
standards and regulations of the Corporation; (iii) the Employee's continued
failure or refusal to faithfully and diligently perform the usual, customary
duties of his employment with the Corporation; (iv) the Employee's continuously
conducting himself in an unprofessional, unethical, immoral or fraudulent
manner; or (v) the Employee's conduct discredits the Corporation or is
detrimental to the reputation, character and standing of the Corporation; or
(vi) breach of the provisions of paragraphs 5 or 6 hereof.

         5. Covenant Not to Compete. During the term of the Employee's
employment with the Corporation or for a period of six (6) months following any
termination of the Employee's employment by the Corporation, the Employee agrees
that, with respect to the parishes within the State of Louisiana and the
counties within the States of Texas, Alabama, Florida, and



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Mississippi set forth on Schedule A attached hereto, including the territorial
waters of the United States located offshore of such areas, each of which the
Employee stipulates and agrees that the Corporation carries on or intends to
carry on a like business, the Employee shall not, directly or indirectly, for
his own benefit or to the detriment of the Corporation or its affiliates:

         (a) Own, manage, operate, control, or participate in the ownership,
management, operation, or control of a business (however structured) that
carries on or engages in any manner (excluding stock in a publicly held
corporation), in the Pipelay and Subsea Construction Business. For this purpose,
the term "Pipelay and Subsea Construction Business" shall refer to the
installation, laying, and/or burying of transmission lines, trunk lines, and
flowlines, laying of all rigid, flexible, reeled, or coiled tubing and
installing, laying, and/or burying of control, power umbilicals and subsea
communication or power cables, and pipeline tie-ins, pipeline burial, riser
installation and survey, inspection, maintenance, and repair services in
connection with oil and gas pipelines;

         (b) Perform any services similar to the primary services he performed
while employed by the Corporation or any of its subsidiaries or affiliates for
any person, partnership, corporation, association, group, or other entity
engaged in the Pipelay and Subsea Construction Business (as defined above),
whether as an employee, independent contractor, or otherwise; or

         (c) Solicit customers or employees of the Corporation or any of its
subsidiaries or affiliates for any purpose or in any manner detrimental to the
Corporation or it business or operations.

                  The parties hereto agree that each of the foregoing
prohibitions is intended to constitute a separate restriction. Accordingly,
should any such prohibition be declared invalid or unenforceable, such
prohibition shall be deemed severable from and shall not affect the remainder
thereof. The parties further agree that the foregoing restrictions are
reasonable in both time and scope.

                  Because of the difficulty of measuring economic loss to the
Corporation as a result of a breach of any of the foregoing prohibitions, and
because of the immediate and irreparable damage that could be caused to the
Corporation for which it would have no other adequate remedy, the Employee
agrees that the foregoing prohibitions may be enforced by the Corporation, in
the event of breach by him, by injunctions, restraining orders, and orders of
specific performance issued by a court of competent jurisdiction. The Employee
further agrees to waive any requirement for the Corporation's securing or
posting of any bond in connection with such remedies.



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         6. Confidential Information.

         (a) The Employee agrees not to disclose, either while employed by the
Corporation or any of its subsidiaries or affiliates or at any time thereafter,
to any person not employed by the Corporation or not engaged by the Corporation
to render services to the Corporation, any confidential information of the
Corporation or its subsidiaries or affiliates learned by the Employee during the
course of his employment by the Corporation. This paragraph 6 shall not preclude
the Employee from the use or disclosure of information known generally to the
public or of information not considered confidential by persons engaged in the
business conducted by the Corporation or from disclosure required by law or
court order. The Employee further agrees that, upon the expiration or
termination of this Agreement for any reason, he will not take with him, without
the prior written consent of the Corporation, any document, magnetic or other
storage media, or any other books, records, files, or confidential or
proprietary information of the Corporation or any of its subsidiaries or
affiliates.

         (b) All written materials, records, and documents made by the Employee
or in the possession of the Employee during or after the term of this Agreement
concerning the business or affairs of the Corporation or any of its subsidiaries
or affiliates, or other items or property held by or for the Employee, but owned
or used by the Corporation or its subsidiaries or affiliates, shall be the sole
property of the Corporation or such subsidiary or affiliate, as the case may be,
and, upon the expiration or termination of the term of this Agreement or upon
the request of the Corporation or such subsidiary or affiliate, the Employee
shall promptly deliver all of such materials, records, documents, or other items
or property that are then in his possession.

         7. Notices. All notices, requests, demands, and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been duly given when delivered in person or mailed by United States certified
mail, return receipt required, postage prepaid, addressed as follows:

                  If to the Employee:            If to the Corporation:

                  Eric N. Smith                  Torch Offshore, Inc.
                  6214 St. Charles Ave.          401 Whitney Avenue, Suite 400
                  New Orleans, Louisiana 70118   Gretna, Louisiana 70056
                                                 Attention: Lyle Stockstill, CEO

or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.

         8. Governing Law. The provisions of this Agreement shall be construed
in accordance with the substantive local law of the State of Louisiana, without
consideration of the conflicts of law provisions thereof.

         9. Successors. This Agreement shall be assignable by the Corporation,
with the prior written consent of the Employee. The Employee's obligation to
provide services hereunder, being personal to the Employee, may not be assigned
by the Employee.



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         10. Remedies. Each party acknowledges that the other party will have no
adequate remedy at law if the first party violates certain of the terms of this
Agreement, including but not limited to paragraphs 5 and 6, and that the other
party shall have the right, to the extent permitted by applicable law, in
addition to any other rights or remedies it may have, to obtain from any court
of competent jurisdiction, injunctive relief to restrain any breach or
threatened breach hereof or otherwise to specifically enforce the provisions
hereof.

         11. Waiver. No waiver of any obligation, right, or remedy under this
Agreement shall be effective, unless such waiver is made in writing, specifying
the terms of this Agreement subject to waiver and executed by the party to be
charged with such waiver. A waiver by either party of any of his or its rights
or remedies hereunder on any occasion shall not be a bar to the exercise of the
same right or remedy on any subsequent occasion or of the exercise of any other
right or remedy at any time.

         12. Release. Notwithstanding anything in this Agreement to the
contrary, the Employee shall not be entitled to receive any severance payment
pursuant to paragraph 2(c) of this Agreement unless the Employee has executed
(and not revoked) a general release of all claims the Employee may have against
the Corporation and/or its subsidiaries and affiliates with respect to
employment under this Agreement, in a form of such release reasonably acceptable
to the Corporation.

         13. Integration and Amendments. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes any prior agreement or understanding, whether
written or oral, relating to such subject matter. No modification or amendment
to this Agreement shall be effective or binding unless in writing, specifying
such modification or amendment, executed by both of the parties hereto.

         14. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the construction or interpretation
of this Agreement.

         15. Severability. Should any section, provision, or portion of this
Agreement be declared invalid or unenforceable in any jurisdiction, then such
section, provision, or portion shall be deemed to be (a) severable from this
Agreement as to such jurisdiction (but not elsewhere) and shall not affect the
remainder hereof and (b) amended to the extent, and only to the extent,
necessary to permit such section, provision, or portion, as the case may be, to
be valid and enforceable in such jurisdiction (but not elsewhere).

         16. Survival of Certain Provisions. The rights and obligations of the
Employee under paragraphs 5 and 6 hereof shall survive the expiration or
termination of this Agreement.

         17. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraphs 5 and 10, neither party shall institute a proceeding in
any court or administrative agency to resolve a dispute between the parties
before that party has sought to resolve the dispute through direct negotiation
with the other party. If the dispute is not resolved within two weeks after a
demand for direct negotiation, the parties shall attempt to resolve the dispute
through



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mediation. If the parties do not promptly agree on a mediator, the parties shall
request the Louisiana State Bar Association to appoint a mediator in the state
of Louisiana who is qualified as a mediator under the Louisiana Mediation Act,
as amended from time to time. If the mediator is unable to facilitate a
settlement of the dispute within a reasonable period of time, as determined by
the mediator, the mediator shall issue a written statement to the parties to
that effect and any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Gretna, Louisiana in accordance
with the employment dispute resolution arbitration rules of the American
Arbitration Association then in effect. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs and
expenses, including those incurred to enforce this Agreement, including
reasonable attorneys' fees, and interest thereon. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction.

         THIS AGREEMENT was executed in multiple counterparts, each of which
shall be deemed an original, as of the dates set forth below, but to be
effective as of the Effective Date.


EMPLOYEE:                              TORCH OFFSHORE, INC.


/s/ Eric N. Smith                      By: /s/ Lyle Stockstill
----------------------------------        --------------------------------------
Eric N. Smith
                                       Title: Chairman & CEO
                                             -----------------------------------

Date: 1-15-2001                        Date: 1-15-2001
     -------------------------------        ------------------------------------



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Schedule A - Counties and Parishes in which Competition is Prohibited


<TABLE>
<S>      <C>                                <C>                        <C>
I.       TEXAS

         Jefferson                          Chambers                   Harris
         Galveston                          Brazoria
         Calhoun                            Aransas
         Nueces                             Cameron


II.      LOUISIANA

         Cameron                            Vermilion                  Lafayette
         Iberia                             St. Mary                   Orleans
         Terrebonne                         Lafourche
         Jefferson                          Plaquemines


III.     MISSISSIPPI

         Hancock                            Harrison
         Jackson


IV.      ALABAMA

         Mobile


V.       FLORIDA

         Escambia                           Santa Rosa
         Pinnellas                          Hillsborough
         Manatee                            Brevard
</TABLE>



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