SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                          ----------------------------

                                    Form 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the fiscal year ended December 31, 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 (333-39418)

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

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

11200 Richmond Avenue, Suite 490, Houston, Texas                77082-2618
--------------------------------------------------------------------------------
   (Address of Principal Executive Offices)                     (Zip Code)

                                 (713) 339-3777
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:


         Title of Each Class           Name of Each Exchange on Which Registered
         -------------------           -----------------------------------------
Common Stock, par value $.01 per share          American Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act:


                                      None
                     --------------------------------------
                                (Title of Class)


                  Indicate by check mark whether each of the registrants: (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 such registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No __


                  Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.


                  The aggregate market value of the voting stock of the
registrant held by non-affiliates as of March 21, 2002 was approximately
$404,245,493. The total number of shares of common stock issued and outstanding
as of March 21, 2002 was 20,262,932.


DOCUMENTS INCORPORATED BY REFERENCE:

                  The registrant's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14A within 120 days after the end of the
registrant's last fiscal year is incorporated by reference into Items 10 through
13, Part III of this annual report on Form 10-K.


NY2:\1137983\10\_#2N09!.DOC\35287.0003
<PAGE>

                              CHILES OFFSHORE INC.

                                    FORM 10-K

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                       Page
                                                                                                       ----
<S>                                                                                                    <C>
PART I..................................................................................................2
         Items 1. and 2.  Business and Properties.......................................................2
         Item 3.         Legal Proceedings.............................................................14
         Item 4.         Submission of Matters to a Vote of Security Holders...........................14
         Item 4a.        Executive Officers of the Registrant..........................................14

PART II................................................................................................16
         Item 5.         Market for Registrant's Common Equity and Related Stockholder Matters.........16
         Item 6.         Selected Financial Data.......................................................17
         Item 7.         Management's Discussion and Analysis of Financial Condition and
                         Results of Operations ........................................................18
         Item 7A.        Quantitative and Qualitative Disclosures About Market Risk....................33
         Item 8.         Financial Statements and Supplementary Data...................................33
         Item 9.         Changes in and Disagreements with Accountants on Accounting and
                         Financial Disclosure .........................................................34

PART III...............................................................................................34
         Item 10.        Directors and Executive Officers of the Registrant............................34
         Item 11.        Executive Compensation........................................................34
         Item 12.        Security Ownership of Certain Beneficial Owners and Management................34
         Item 13.        Certain Relationships and Related Transactions................................34

PART IV................................................................................................34
         Item 14.        Exhibits, Financial Statements Schedules, and Reports on Form 8-K.............34

SIGNATURES.............................................................................................40
</TABLE>


<PAGE>

                                     PART I

Certain statements discussed in this Annual Report under the captions "Business
and Properties," "Legal Proceedings," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Notes to Consolidated
Financial Statements" and elsewhere in this Annual Report constitute
forward-looking statements. These statements relate to future events or our
future financial performance and involve known and unknown risks, uncertainties
and other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from those
expressed or implied by any of our forward-looking statements. Some of these
factors are listed under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Risks Related to Our Operations" and
elsewhere in this Annual Report. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could," "expects,"
"plans," "anticipates," "intends," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievement. Except as required by law, we
undertake no obligation to update publicly any forward-looking statements for
any reason after the date of this Annual Report or to conform these statements
to actual results or to changes in our expectations.

ITEMS 1. and 2.  Business and Properties

General

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 corporation and renamed
Chiles Offshore Inc. 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.

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.
Both the Chiles Columbus and Chiles Magellan are currently operated in the U.S.
Gulf of Mexico under short-term (under twelve months) drilling contracts with
affiliates of Shell ("Shell").

From April 2000 through July 2001, we operated a third ultra-premium jackup
drilling rig of the Le Tourneau Super 116 design, the Tonala, under a bareboat
charter with Perforadora Central S.A. de C.V., a Mexican company. In July 2001,
pursuant to an agreement entered into in July 2000, as amended, we completed our
acquisition of all of the shares of capital stock of the entity that owned the
Tonala. Subsequent to the date of this acquisition, we renamed the acquired rig
the Chiles Coronado. In August 2001, we signed a three-year contract with an
affiliate of British Petroleum ("BP") for the use of the Chiles Coronado in
Trinidad. The Chiles Coronado was subsequently moved from the U.S. Gulf of
Mexico to Trinidad and began drilling operations in Trinidad in September 2001.

In April 2000, we entered into an agreement with Keppel FELS Limited, a
Singapore company ("Keppel"), to construct an ultra-premium jackup rig of the
KFELS Mod V "B" design, the Chiles Discovery. In February 2002, we took
scheduled delivery of the Chiles Discovery in Singapore. The rig will remain in
Singapore through commissioning, at which time it will be mobilized to the East
Timor Gap Zone of Cooperation, located between East Timor and Australia, to
begin work under a 600-800 day contract with an affiliate of Phillips Petroleum
("Phillips"). We anticipate that the rig will be placed in service in the second
quarter of 2002 and estimate its final cost of construction to be approximately
$110 million, exclusive of interest and other capitalized costs.


                                       2
<PAGE>

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 the first of three options under the Master Option
Agreement to construct the Chiles Galileo at AMFELS. We expect the Chiles
Galileo to be delivered during the third quarter of 2002 and estimate its
construction will cost $112 million, exclusive of interest and other capitalized
costs. Because we exercised this first option, we now have a second option,
which expires on April 6, 2002, to have Keppel or AMFELS construct a second
ultra-premium rig. If we do not exercise our second option by April 6, 2002, the
third option will also expire. We have not yet determined whether we will
exercise the second option.

Drilling Operations

We intend to continue to focus on the ultra-premium jackup niche of the offshore
drilling industry, a niche that is positioned between traditional jackup rigs
and much more costly harsh environment jackup rigs. We intend to maximize the
utilization of, and dayrates we receive for, our rigs by providing customers
with significantly enhanced drilling flexibility and the ability to drill and
complete a well faster and at overall lower costs than most other classes of
rigs, while maintaining safe and environmentally sound operations. The key
elements of our strategy are as follows:

         Own and Operate Ultra-Premium Jackup Rigs. We believe our ultra-premium
         jackup rigs can complete wells faster, more safely and more efficiently
         than more traditional jackup rigs. We believe the dayrates generally
         charged for jackup rigs represent less than half of the total cost to
         our clients of drilling a well and that the more complicated and
         technically demanding the well, the lower the rig costs are in
         proportion to the total variable costs of drilling the well. Additional
         variable costs relate to independent service crews, supply boats,
         provisioning and related logistics, helicopter runs and other ancillary
         services, all of which must be provided for as long as the rig is in
         operation. Given the magnitude of these related costs, the significant
         reduction in completion times that our ultra-premium jackup rigs are
         capable of achieving can result in significant savings to our clients
         in terms of the total cost of completing a well. We believe that these
         savings enable us to price our services at a premium to those commanded
         by less advanced drilling rigs. In addition, ultra-premium jackup rigs
         can drill wells that other less technologically advanced jackup rigs
         are unable to drill, which broadens the market for our rigs.

         Increase the Size of Our Ultra-Premium Jackup Rig Fleet to Meet Demand
         Growth. We expect to expand our fleet prudently over time. In July
         2001, we acquired the Chiles Coronado and in February 2002 took
         delivery of the Chiles Discovery. We have entered into a contract to
         construct the Chiles Galileo and we have options to order up to two
         additional rigs. We believe that the offshore drilling industry is in
         the early stage of growth in the demand for ultra-premium jackup rigs.
         We believe that we have been able to secure favorable construction
         contract terms by placing orders at a time when relatively few new rigs
         are being built.

         Focus on the Natural Gas-Rich Markets in the U.S. Gulf of Mexico.
         Industry analysts expect that demand for natural gas in the United
         States will continue to grow over the next several years. The U.S. Gulf
         of Mexico is expected to remain a major source for meeting this demand
         and we intend to continue to focus a significant portion of our
         operations in that area. The U.S. Gulf of Mexico is the single largest
         market for jackup rigs in the world. The significant reserve potential
         and the presence of an established pipeline and production
         infrastructure in the U.S. Gulf of Mexico make it an attractive market
         for continued exploration and production activity.

         Target Market Opportunities Internationally. In addition to focusing on
         the U.S. Gulf of Mexico, we have begun to focus on international
         markets. In August 2001, we signed a three-year contract with BP for
         the use of the Chiles Coronado in Trinidad. The Chiles Coronado was
         subsequently moved from the U.S. Gulf of Mexico to Trinidad and began
         drilling operations in Trinidad in September 2001. In addition,
         following its commissioning, we anticipate that the Chiles Discovery
         will be mobilized to the East Timor Gap Zone of Cooperation, located
         between East Timor and Australia, in the second quarter of 2002 to
         begin work under a 600-800 day contract with Phillips. Subject to


                                       3
<PAGE>

         market conditions, we intend to continue to devote a portion of our
         efforts toward developing and expanding our international operations.

         Target Sophisticated Oil and Gas Operators. We seek to drill wells for
         major oil and gas companies and larger independent operators that we
         believe are willing to pay a premium dayrate for our rigs which can
         satisfy their more demanding productivity, environmental and safety
         requirements.

         Employ and Retain an Experienced Workforce. We seek to employ, retain
         and motivate experienced senior management and key employees to
         maximize the performance of our ultra-premium jackup rig fleet.

Overview of Our Industry

Demand for offshore drilling services is cyclical in nature and depends
substantially on the condition of the oil and gas industry and the industry's
willingness to spend capital on the exploration for and production of oil and
natural gas. The level of these capital expenditures is highly sensitive to
existing oil and gas prices as well as price expectations among oil and gas
operators. Increasing commodity prices generally result in increased oil and gas
exploration and production, which translates into greater demand for offshore
drilling services. Conversely, falling commodity prices generally result in
reduced demand for those services. Historically, changes in budgets and activity
levels by oil and gas exploration and production companies have lagged behind
significant movements in oil and gas prices. In recent years, exploration and
production expenditures have become increasingly concentrated in deeper water
requiring semisubmersible drilling rigs or drill ships. The trend is expected to
continue and could result in a decline in demand for jackup rigs. In addition,
the allocation of exploration and production expenditures to on-shore prospects
could affect the demand for such rigs.

Industry sources project domestic natural gas demand to grow significantly over
the next several years. This demand is expected to come from growth in the U.S.
economy plus new sources of demand such as newly constructed natural gas fired
power generation plants. The natural gas prices and demand for natural gas is
also highly correlated to the overall economic activity in the U.S. and
worldwide, as well as to the accelerated depletion rate of existing production
wells.

The financial results of the offshore drilling industry depend on the
utilization levels and dayrates for rigs, which in turn are determined by the
supply of available drilling rigs relative to demand. Periods of high demand,
high utilization levels and high dayrates have been followed by periods of low
demand, low utilization levels and low dayrates. In the early 1980s, in the
aftermath of the second oil price shock, general expectations were that oil
prices would rise substantially. This was the basis for the dramatic new
building activity that followed, which resulted in the construction of 279
offshore mobile rigs between 1980 and 1983. Oversupply of rigs caused worldwide
offshore rig utilization to decline rapidly thereafter and substantially
depressed the offshore contract drilling market until the beginning of the
1990s. By the mid-1990s, the world's offshore drilling rig fleet had declined in
size to the point at which low supply and high demand yielded higher utilization
and, consequently, higher dayrates.

In 1998, the decline in oil and natural gas prices resulted in a reduction by
oil and gas operators of their capital expenditures and a significant decline in
worldwide drilling activity. As a result, utilization levels and dayrates in the
jackup market were significantly reduced in 1998 and 1999.

Oil prices began to recover in the second quarter of 1999 primarily because OPEC
stabilized oil prices through voluntary production limits, which resulted in
reduced oil inventories worldwide. Natural gas prices in North America also
strengthened considerably over this same time, as reduced drilling activity
resulted in a lower supply of natural gas. In response to higher commodity
prices, operators increased their spending budgets for 2000. Although oil and
natural gas prices were strong during the first half of 2001, natural gas prices
were much lower during the second half of 2001. Due to the weakening of natural
gas prices, demand for offshore drilling rigs in the U.S. Gulf of Mexico
softened, and as a result, the percentage of available days rigs were operating
and dayrates began to decrease in 2001. The lower natural gas prices were caused


                                       4
<PAGE>

by cooler than normal summer weather, warmer than expected fall and winter
weather, weaker than expected industrial demand and a stronger than expected
supply of natural gas, which contributed to a build-up in natural gas inventory
storage levels. We believe that a continuation of this supply and demand
imbalance could keep natural gas prices at depressed levels and further weaken
demand for offshore drilling rigs in the U.S. Gulf of Mexico. However, drilling
activity in many international markets, which are influenced more by oil prices,
improved in 2001 as reflected by higher utilization and dayrates.

As of December 31, 2001, the world's jackup rig fleet consisted of 389 rigs,
which vary significantly in terms of technical specifications, water depth
capability and age. A total of 114 of these rigs are premium jackup rigs. The
average age of the world's jackup rig fleet is approximately 21 years, with
premium jackup rigs having an average age of approximately 20 years, which
compares to an expected original useful life for such units of approximately 25
to 30 years. Other than our ultra-premium jackup rig under construction in
Brownsville, Texas, we believe there are currently only seven other orders with
shipyards around the world to construct new jackup rigs, six of which are
significantly more expensive jackup rigs designed for work in "harsh
environment" areas. We believe the level of new rig construction is modest
relative to the potential need to replace the aging worldwide fleet and
potential market growth.

The following table describes the principal characteristics of the worldwide
jackup rig fleet as of March 21, 2001:
<TABLE>
<CAPTION>
                                        Number of Rigs   New Buildings    Average Age      New Buildings as
Rig Class                                  in class         in Class        (years)        Percent of Class
---------                                  --------         --------        -------        ----------------
<S>                                           <C>               <C>            <C>               <C>
Harsh environment...................          23                6              12.3              26.1%
Ultra-premium.......................           9                2              14.4              22.2%
Premium.............................         114                1              20.1               0.9%
Commodity...........................         243                0              22.9               0.0%
---------                                  --------         --------        -------        ----------------
      Total fleet...................         389                9              21.2               2.3%
</TABLE>

Jackup Rigs

Jackup, or self-elevating, rigs are mobile drilling platforms equipped with legs
that are lowered to the ocean floor until a foundation is established to support
the drilling platform. Oil and gas operators use jackup rigs extensively for
offshore drilling in water depths from 20 feet to 400 feet because they provide
a stable drilling platform supported by fixed legs that are in firm contact with
the bottom of the ocean and are relatively easy to move. Jackup rigs can be
designed to operate in a variety of marine environments ranging from relatively
warm and tranquil regions to cold and harsh weather regions. Jackup rigs,
however, cannot drill in deeper waters. Semi-submersible drilling rigs and
drillships must be used to drill wells at water depths greater than 400 feet.

A jackup rig consists of the hull, jacking system, a drilling package, crew
quarters, loading and unloading facilities, storage areas, heliport and other
related equipment. The drilling package typically consists of a power plant,
hoisting equipment for raising and lowering the drill bit and drill pipe, a
rotary system that rotates the drill bit, mud pumps and systems for controlling
well pressure.

A jackup rig is towed to the drill site with its hull riding in the sea and its
legs retracted. At the drill site, the legs are jacked down to the ocean floor
until the hull has been elevated a sufficient distance above the water,
generally at least 35 feet, to allow storm waves to pass beneath the hull. After
completion of drilling operations, the hull is lowered until it rests in the
water and then the legs are retracted for relocation to another drillsite.
Depending on the condition of the ocean floor, the legs will penetrate a number
of feet into the ocean floor, effectively reducing the water depth at which the
rig can operate.


                                       5
<PAGE>

Several factors determine the type of rig most suitable for a particular
project. The more significant factors are:

         o        the marine environment;
         o        water depth and seabed conditions at the proposed drilling
                  location;
         o        whether the drilling is being done over a platform or other
                  structure;
         o        the intended well depth;
         o        the requirement for the capacity to carry equipment and
                  supplies; and
         o        well control requirements.


Considerable variation in utilization and dayrates often exists among different
types of rigs, primarily as a function of their capabilities and location.

Water depth and the nature of the seabed at a particular drilling location
dictate the appropriate rig-leg configuration of the jackup rig to be used. Some
jackup rigs have a lower hull (mat) attached to the bottom of the rig legs,
while others have independent legs. A mat-supported rig provides a stable
foundation in flat soft-bottom areas in water depths of up to 250 feet, while
independent-leg rigs are better suited for deeper water depths or uneven seabed
conditions.

Jackup rigs can be generally characterized as either cantilevered jackup rigs or
slot jackup rigs. A cantilevered jackup rig can extend its drill floor and
derrick over an existing, fixed structure, thereby permitting the rig to drill
or work over a well located on such a structure. Slot-design rigs are configured
for drilling operations to take place through a slot in the hull. A slot design
is appropriate for drilling exploratory wells in the absence of any existing
permanent structure, such as a production platform, although some slot design
rigs are capable of drilling over some small production platforms.

Jackup rigs vary a great deal in size and capability. Ultra-premium jackup rigs
are independent-leg, cantilevered rigs capable of operating in water depths in
excess of 350 and up to 400 feet. Ultra-premium jackup rigs also have enhanced
cantilever reach and mud pump capacity. Mud pumps are large, heavy-duty pumps
that circulate drilling fluid, or mud, from a pit located in the hull into and
down the drill pipe to the drill bit and then back up the hole to the surface.
The drilling fluid lubricates the drill bit and carries cuttings made by the
drill bit to the surface, where the cuttings are screened from the drilling
fluid. The clean drilling fluid is then returned to the pit and recirculated
through the system. Generally, mud pumps installed on premium rigs produce
3,200, and in some cases, 4,800, horsepower of output capacity. Mud pumps on
ultra-premium jackup rigs produce between 4,800 and 6,600 total hydraulic
horsepower. Ultra-premium jackup rigs also have extended cantilever reach, which
allows them to extend the drill floor 50 to 70 feet over an offshore production
platform. Harsh environment jackup rigs differ from ultra-premium jackup rigs
primarily in their ability to work in the harsh environments found in the North
Sea and off of the eastern coast of Canada and are generally significantly more
expensive to construct.

The following table compares the classifications of jackup rigs:
<TABLE>
<CAPTION>
                                                                                           Ability to Work
                              Maximum Leg Length   Cantilever Reach   Mud Pump Capacity        in Harsh
Jackup Rig Class                   (in feet)          (in feet)        (in horsepower)       Environments
----------------                   ---------          ---------        ---------------       ------------
<S>                                 <C>                   <C>            <C>                 <C>
Harsh environment...........        360-650               50-75          4,800-8,800             yes
Ultra-premium...............        477-544               50-70          4,800-6,600         limited
Premium.....................        411-477               30-50          3,200-4,800         limited
Commodity...................        170-411                0-50          2,000-3,200              no
</TABLE>



                                       6
<PAGE>

Our Fleet

Our rigs are the newest ultra-premium jackup rigs in operation in the world and
have capabilities that exceed those of existing ultra-premium jackup rigs. The
enhanced capabilities generally include:

         o        increased engine horsepower;
         o        increased hydraulic horsepower;
         o        greater drilling fluid capacity;
         o        enlarged mud handling and solids control system;
         o        digital instrumentation;
         o        large diameter dual pipe handling equipment; and
         o        more efficient well control equipment.


The following table summarizes the principal specifications of the ultra-premium
jackup rigs we operate as well as our rig that is under construction:
<TABLE>
<CAPTION>
                                      Chiles         Chiles         Chiles         Chiles          Chiles
                                     Columbus       Magellan       Coronado      Discovery        Galileo
                                     --------       --------       --------      ---------        -------
<S>                                 <C>            <C>            <C>            <C>             <C>
Design..........................    LeTorneau      LeTorneau      LeTorneau        KFELS           KFELS
                                    Super 116      Super 116      Super 116      Mod V "B"       Mod V "B"
Year built (expected delivery)..       1999           1999           2000           2002         (Q3 2002)
Location........................    U.S. Gulf      U.S. Gulf       Trinidad      Singapore         Texas
Current Customer................      Shell          Shell            BP          Phillips       Available
Leg Length......................       511'           544'           477'           517'            517'
Cantilever reach................       70'            70'            65'            70'             70'
Mud pump (hp)...................      6,600          6,600          6,600          6,600           6,600
Total engine horsepower.........      9,275          9,275          10,804         11,130          11,130
Control systems.................     Digital        Digital         Analog        Digital         Digital
Automatic pipe handling.........        No             No             No            Yes             Yes
Rack chocks.....................        No             No             No            Yes             Yes
</TABLE>
Rig Construction Contracts

In April 2000, we entered into an agreement with Keppel to build the Chiles
Discovery. In October 2000, in connection with our exercise of our first option
under the Master Option Agreement, discussed further below, we entered into an
agreement with AMFELS to build the Chiles Galileo. In February 2002, we took
scheduled delivery of the Chiles Discovery in Singapore. The rig will remain in
Singapore through commissioning, at which time it will be mobilized to the East
Timor Gap Zone of Cooperation, located between East Timor and Australia, where
it is expected to commence operations in the second quarter of 2002 under a
600-800 day contract with Phillips. The Chiles Galileo is expected to be
delivered and placed in service in the third quarter of 2002.

The Chiles Discovery is, and the Chiles Galileo and the additional rigs that we
may build under the Master Option Agreement will be, KFELS Mod V "B"
ultra-premium jackup rigs. These rigs have been designed to have somewhat higher
capabilities than the other rigs in our fleet. These rigs also have greater load
carrying capacity, allowing them to operate for longer periods of time
independent of shore supplies and to withstand more severe environmental forces.
These new rigs are also equipped with so called "rack chocks" which allow
further significant load carrying capacity.

Under our contract with Keppel, the Chiles Discovery was built at Keppel's
shipyard located in Jurong, Singapore. The Keppel shipyard is a worldwide leader
in jackup drilling rig construction. Keppel introduced the KFELS Mod V "B"
ultra-premium jackup rig design and has built in excess of 25 jackup rigs since
the 1970s. The KFELS Mod V "B" is essentially a smaller version of a KFELS Mod V
harsh environment jackup rig design. Under our contract with AMFELS, the Chiles


                                       7
<PAGE>

Galileo is being built at AMFELS' shipyard in Brownsville, Texas. AMFELS,
originally built and operated by Marathon LeTourneau, Inc., has a long-term
commitment to the offshore drilling industry and is the shipyard where we
successfully built the Chiles Columbus and the Chiles Magellan, on time and on
budget in 1999.

Payment Terms. The shipyard contract price for the Chiles Discovery was
approximately $75 million, exclusive of owner furnished equipment that we were
required to provide and other costs including direct overhead, shipyard
supervision and capitalized interest and related costs. The contract price for
the rig was payable in six installments, five of which, or 80% of the contract
price, were due prior to delivery. In February 2002, in connection with taking
delivery of the rig, we paid the remaining balance due under the shipyard
contract.

The shipyard contract price for the Chiles Galileo is approximately $76 million,
exclusive of owner furnished equipment that we are required to provide and other
costs including direct overhead, shipyard supervision and capitalized interest
and related costs. The contract price for the rig is payable in six
installments, five of which, or 90% of the contract price, are due prior to
delivery. As of March 21, 2002, we have paid approximately $53 million of the
contract price and anticipate paying the remaining balance upon launching and
delivery of the rig in the third quarter of 2002.

Delivery Dates. The Chiles Discovery was delivered as scheduled in February
2002, and is currently undergoing further commissioning before leaving the
shipyard to commence operations beginning, as expected, in the second quarter of
2002 under its contract with Phillips. The original scheduled delivery date for
the Chiles Galileo under our agreement with AMFELS is in August 2002, and, after
final commissioning, we expect to place this rig in service by the end of the
third quarter of 2002. The delivery date may be extended, without penalty to
AMFELS, if we fail to timely deliver to them any equipment we are required to
furnish or because of delays caused by any governmental agency or other events
outside their control.

Liquidated Damages and Bonuses for Deviations in Variable Load Tolerance. If the
variable load that the Chiles Galileo can carry does not meet the target load
and AMFELS cannot correct the deficiency, then they will pay us liquidated
damages of up to $3 million. If the variable load tolerance falls below a
minimum threshold, we will have the right, unless AMFELS can make corrective
modifications, to reject the rig, terminate the agreement and receive a refund
of all progress payments already made plus 8% interest. If the load tolerance is
in excess of an upper threshold, we will pay AMFELS a bonus of up to a maximum
of $3 million. With regard to the Chiles Discovery, as the construction
agreement for the Chiles Discovery contained similar bonus provisions, we
anticipate that we will pay a bonus to Keppel in connection with the variable
load of the Chiles Discovery.

Risk of Loss; AMFELS Insurance. Under the construction agreement for the Chiles
Galileo, the risk of loss of the rig passes to us upon delivery and our
acceptance of the rig. However, in the event of a total loss of the rig prior to
delivery, the agreement will terminate and we will owe AMFELS for that portion
of the rig then constructed for which we have not made progress payments. Under
the agreement, however, AMFELS maintains builder's risk insurance which may
offset any of these progress payments.

Keppel and AMFELS Warranties. For a period of twelve months following the date
of delivery of the rig, each of Keppel and AMFELS warrants its workmanship and
materials from material defects and systems it has designed, supplied and
installed and that it will be in compliance with the rig construction agreement
specifications. Each of Keppel and AMFELS will, at our choice, repair or replace
the defective workmanship or components or reimburse us for the costs of such
corrections. Equipment or other components of each rig sold to us pursuant to
the rig construction agreements but not manufactured by Keppel or AMFELS are not
covered by their respective warranties.


                                       8
<PAGE>

Master Option Agreement

In April 2000, we entered into a Master Option Agreement with Keppel and its
wholly-owned subsidiary, AMFELS. Under the Master Option Agreement, we have the
right to require Keppel or AMFELS to construct up to three additional KFELS Mod
V "B" ultra-premium jackup drilling rigs.

Our Exercise of the First Rig Option - the Chiles Galileo. In October 2000, we
exercised the first option for construction of the Chiles Galileo. The
construction of the rig was funded partly by proceeds from the IPO, cash from
operations and borrowings under an $81 million credit facility guaranteed by the
U.S. Maritime Administration ("Marad").

Second Rig Option. Since we exercised our first option, we now also have the
right to require AMFELS or Keppel to construct a second ultra-premium jackup
rig. The shipyard construction price would be approximately $78 million,
exclusive of equipment that we are required to provide and other costs including
direct overhead, shipyard supervision and capitalized interest and related
costs, adjusted for inflation if built in the United States or for U.S.
dollar/Singapore dollar exchange rate fluctuation if built in Singapore. The rig
would be deliverable no later than 22 months after the date we exercise the
option, subject to available capacity in the shipyard that we select. Unless
earlier terminated, the second option expires April 6, 2002. If we do not
exercise this option by April 6, 2002, the remaining third option will also
terminate. We have not yet determined whether we will exercise the second
option.

Third Rig Option. If we exercise the second rig option, we will have the right
to require AMFELS or Keppel to construct another rig pursuant to a third rig
option which expires if not exercised by January 6, 2003. The purchase price
under the third rig option would be the best price offered to any customer of
the shipyard for a rig of equivalent specification at the time we exercise the
option. That rig would be deliverable no later than 24 months after the date we
exercise the option.

Tonala Acquisition

In July 2001, pursuant to an agreement entered into in July 2000, as
subsequently amended (as amended, the "Tonala Agreement"), we completed our
acquisition of all of the shares of capital stock of the entity that owned the
ultra-premium jackup rig Tonala. Previously, we had operated the Tonala 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
Agreement and an amendment to the Tonala Charter adjusted payments under the
Tonala Charter such that we would be treated from a commercial standpoint as if
we owned the Tonala from July 20, 2000, with us being credited for cash flow
received by Perforadora Central under the Tonala Charter, and charged for debt
service payments made by Perforadora Central after such date on Marad-guaranteed
debt secured by the Tonala. In connection with the acquisition of the Tonala, in
October 2000 two executives of Perforadora Central were named to our board of
directors.

As consideration for our acquisition of the Tonala, in July 2001, we issued
2,679,723 shares of common stock having a market value on the date of issuance
of $20.50 per share to Perforadora Central and assumed approximately $58.8
million in principal amount of Perforadora Central's related Marad-guaranteed
debt. We also paid approximately $0.1 million in commissions and $0.7 million in
other acquisition costs, and received the benefit of approximately $2.5 million
in charter payables forgiven by Perforadora Central, which resulted in a
discount to the purchase price (for an aggregate rig cost of approximately $111
million). The debt we assumed bears interest at a rate of approximately 5.6% per
year, has semi-annual payments of approximately $2.9 million of principal plus
accrued interest due in January and July of each year until the final maturity
in July 2011 and is subject to certain customary covenants, including
restrictions on our ability to pay dividends and other financial covenants.
Subsequent to the date of acquisition, we renamed the acquired rig the Chiles
Coronado. Patricio Morphy and Luis Morphy, two of our directors, own,
collectively, a majority of the outstanding shares of Perforadora Central.



                                       9
<PAGE>

Competition

The contract drilling industry is highly competitive. Customers generally award
contracts on a competitive bid basis. Although a customer selecting a rig may
consider, among other things, a contractor's safety record, operational
capability, crew quality and quality of service and equipment, dayrates and the
total cost to drill a well are the principal factors customers consider when
selecting a drilling contractor. Therefore, more productive jackup rigs can
receive higher dayrates if they can demonstrate an ability to lower the total
costs of drilling a well. Competition is usually restricted to a particular
region, although drilling rigs can be moved from one region to another in
response to changes in market conditions. Such movement or a decrease in
drilling activity in any major market could depress dayrates and could adversely
affect the utilization of our rigs. In addition, multiple classes of rigs,
including harsh environment jackup rigs and semi-submersible rigs, may have the
technical ability to compete for any given drilling opportunity, making bidding
particularly competitive in periods of low utilization. Substantially all of our
competitors are much larger and more established companies with greater
financial resources. An improvement in the current prospects for jackup rigs
could also lead to increased rig construction and rig upgrade programs by our
competitors. A significant increase in the supply of jackup rigs or other mobile
offshore drilling units that compete with our rigs could decrease the dayrates
we are able to charge for our rigs and their utilization levels.

Our Drilling Contracts

Our drilling contracts vary in their terms and provisions. We expect to obtain
future contracts through competitive bidding, although we also are awarded
drilling contracts without competitive bidding. Drilling contracts generally
provide for a basic drilling rate on a fixed dayrate basis, regardless of
whether such drilling results in a successful well. Drilling contracts may
include a fixed dayrate or include rates that vary over the contract period,
which may either be stated rates or calculated based on an index such as the
price of natural gas. Drilling contracts may also provide for lower rates during
periods when a rig cannot undertake drilling operations because it is being
moved, or suffering equipment breakdowns, adverse weather conditions or other
conditions beyond our control. Under dayrate contracts, we would generally
expect to pay the operating expenses of the rig, including wages and the cost of
incidental supplies. Our contracts may occasionally provide us with an incentive
bonus based upon performance.

A dayrate drilling contract generally extends over a period of time covering
either the drilling of a single well, a group of wells or a stated term.
Contracts covering a single well or a group of separate wells are called
well-to-well contracts and those for a stated term are called term contracts.
Contracts may also cover the mobilization of our rigs to the well location. In
the U.S. Gulf of Mexico, well-to-well contracts are typically 30 to 90 days in
duration, while term contracts generally cover a period of at least six months.
International contracts tend to have a longer duration. Contracts also generally
permit the customer to terminate the contract in the event the drilling unit is
destroyed or lost or if drilling operations are suspended for a specified period
of time as a result of a breakdown of major equipment or, in some cases, due to
other events beyond the control of either party. In addition, contracts may
permit the customer to terminate the contract early by giving notice and in some
circumstances may require the customer to pay an early termination fee. A
customer may in many instances extend the contract term by exercising options
for the drilling of additional wells on predetermined or newly agreed terms,
including dayrates to be paid. If a rig is not under contract, we will continue
incurring the expense of maintaining that rig while awaiting the next contract
and we may incur additional expenses if we decide to move the rig from a market
with low demand to another market where we believe demand will be stronger.

Market demand for rigs and the management strategy of the offshore drilling
contractor and its customers generally determine the duration of offshore
drilling contracts. In periods of rising demand for offshore rigs, contractors
typically prefer short-term contracts that give contractors the flexibility to
profit from increasing dayrates. During these periods, customers with reasonably
definite drilling programs typically prefer longer term contracts to fix
drilling prices at the lowest level possible. Conversely, in periods of
decreasing demand for offshore rigs, contractors generally prefer longer term
contracts to preserve dayrates at existing levels and ensure utilization. We
intend to seek a reasonable balance of short- and long-term contracts to


                                       10
<PAGE>

minimize the downside impact of a decline in the market while still taking
advantage of increasing dayrates in a rising market.

The contract drilling industry is highly volatile and cyclical. During industry
down cycles we compete more aggressively for contracts and we may have to accept
liability and indemnity provisions that do not offer the same level of
protection against potential losses that we may obtain during industry up
cycles. During down cycles, we may feel compelled to enter into long-term
contracts for our rigs with low dayrates, and then we would not be able to
contract these rigs at higher dayrates if industry conditions improve during the
term of the contracts. Both increased contractual liabilities and lower revenues
would have an adverse effect on our consolidated financial condition, results of
operations and cash flows.

We do not intend to enter into turnkey drilling contracts because of the higher
levels of risk inherent in these arrangements. Under typical turnkey drilling
arrangements, the drilling contractor does not receive progress payments and is
entitled to be paid by the customer only upon successful completion of the
drilling contract. Because the contractor under a turnkey drilling contract must
assume the risks associated with completing a well, the risk under turnkey
drilling contracts is substantially greater than for wells drilled on a dayrate
basis

Both the Chiles Columbus and Chiles Magellan are currently operated in the U.S.
Gulf of Mexico under short-term (under twelve months) drilling contracts with
Shell. In August 2001, we signed a three-year contract with BP for the use of
the Chiles Coronado. In addition, we anticipate that in the second quarter of
2002 the Chiles Discovery will be mobilized to the East Timor Gap Zone of
Cooperation, located between East Timor and Australia, to begin work under a
600-800 day contract with Phillips.

Geographic Areas of Operation

We operate mobile offshore drilling rigs for our customers in both the U.S. Gulf
of Mexico and Trinidad. Financial information regarding our operations in these
areas is presented in Note 10 of the notes to the consolidated financial
statements included in this Annual Report on Form 10-K. In addition, we
anticipate that the Chiles Discovery will be placed in service in the East Timor
Gap Zone of Cooperation, located between East Timor and Australia, in the second
quarter of 2002. Our operations in international regions are subject to risks
inherent in doing business abroad, including certain political, economic and
other uncertainties not typically encountered in U.S. operations, including
risks of disruption of markets from war, civil disturbances or other similar
events, government expropriation of assets, the general hazards associated with
the assertion of national sovereignty by foreign governments over the regions in
which we conduct operations, hard currency shortages, governmental controls of
currency exchange, repatriation of income or capital and regulation of oil and
gas drilling operations relating to natural resources, employment, the
environment and other areas of our business. Any of these factors could have a
substantial impact on our business and may reduce our revenues and operating
results.

Customers

Our customers consist primarily of major integrated and large independent oil
and gas companies and their affiliates. In recent years, several major
international oil companies have consolidated, and we are currently unable to
predict the impact, if any, of this consolidation on our business. During the
year ended December 31, 2001, Shell accounted for 55% of our consolidated
revenue, Chevron accounted for 17% of our revenue, Apache accounted for 12% and
BP accounted for 11% of our total revenue. The loss of any of these customers
could have a material adverse effect on our results of operations. In addition,
our customer concentration has the potential to impact our overall exposure to
market and credit risks, in that our customers could be affected by similar
changes in economic, industry or other conditions. For further information about
the concentration of our customer base, see Note 10 of the notes to the
consolidated financial statements included in this Annual Report on Form 10-K.



                                       11
<PAGE>

Backlog Information

During the past several years, contracts for our rigs have typically been
short-term, particularly in the U.S. Gulf of Mexico where we have historically
operated most of our rigs. The backlog of business for our contract drilling
operations was $148.5 million and $21.3 million in February 1, 2002 and February
1, 2001, respectively. Approximately $73.7 million of the backlog for contract
drilling services as of February 1, 2002 is expected to be realized after
December 31, 2002.

Governmental Regulation and Risks

Our operations are subject to a variety of federal, state and local
environmental and safety laws and regulations which, among other things, limit
discharge of certain materials into the environment and can require removal and
cleanup operations. For example, we could become liable for damages and costs
incurred in connection with oil spills. Environmental protection has become
increasingly stringent in recent years, and certain laws impose "strict
liability" rendering a company liable for environmental damage without regard to
fault. Such environmental laws and regulations may expose us to liability for
the conduct of or conditions caused by others, or for our acts that were in
compliance with all applicable laws at the time such acts were performed. In
addition, these laws and regulations can restrict access to certain areas,
reducing potential sales of our service in the United States.

The primary federal environmental laws to which we are subject include the:

         o        Federal Water Pollution Act of 1972;
         o        Oil Pollution Act of 1990;
         o        Outer Continental Shelf Lands Act;
         o        Clean Air Act;
         o        Resource Conservation and Recovery Act; and
         o        Comprehensive Environmental Response, Compensation and
                  Liability Act of 1980, as each has been amended.


The Federal Water Pollution Control Act of 1972, commonly called the Clean Water
Act, prohibits the discharge of certain substances into the navigable U.S.
waters without a permit. The regulations implementing the Clean Water Act
require operators to obtain permits before beginning certain exploration or
drilling activities. The Environmental Protection Agency periodically increases
the restrictions on discharges, thereby increasing the costs of drilling
operations. Violations of monitoring, reporting and permitting requirements can
result in the imposition of civil and criminal penalties. Citizens' groups also
can enforce the provisions of the Clean Water Act. This increases the likelihood
of litigation. Many states have similar laws and regulations.

The Oil Pollution Act of 1990 ("OPA '90") and similar laws in Texas, Louisiana
and other coastal states address oil spill prevention and control. These laws
impose, with limited exceptions, joint and several liability upon each
responsible party for oil removal costs and a variety of public and private
damages. The owner or operator of a drilling vessel qualifies as a "responsible
party" and could be held responsible for damages caused by all parties
responsible for an oil spill. OPA `90 also imposes ongoing requirements for
demonstrating financial responsibility and for oil spill contingency planning.
Civil or criminal enforcement actions can arise from failure to comply with such
ongoing requirements.

The Outer Continental Shelf Lands Act ("OCLSA") authorizes regulations relating
to safety and environmental protection related to oil and gas exploration and
production operations on the outer continental shelf, which includes submerged
lands subject to U.S. control and seaward of areas the states control. Specific
design and operational standards may apply to vessels, rigs, platforms, vehicles
and structures operating on the outer continental shelf. A violation of the
standards issued pursuant to OCLSA can result in large civil and criminal
penalties. It also could result in court injunctions curtailing operations and
canceling leases. These liabilities can result from either governmental
prosecution or citizen suits, increasing the potential for litigation under this
law.



                                       12
<PAGE>

Our operations are subject to regulations under the Clean Air Act, air emission
standards under the OCSLA, and, in certain areas, state air regulations. Air
quality controls can affect offshore drilling operations by increasing operating
costs, imposing capital expenditures, or limiting access to certain areas. The
controls or limits arise from programs to protect air quality in certain
pristine areas and to meet air quality standards in areas with unacceptable
levels of air contaminants.

Our operations can and do involve the use of hazardous materials, such as
fracturing fluids or acids. Use of some hazardous materials can generate waste
that is subject to regulations under the Resource Conservation and Recovery Act
("RCRA") and comparable state regulation. Failure to comply with RCRA waste
management standards can result in civil and criminal penalties. The
Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA")
imposes reporting requirements for releases of hazardous substances, and joint
and several liability for cleanup of certain areas containing hazardous
substances. Some, but not all, materials we handle in our operations are exempt
from RCRA hazardous waste requirements, such as drilling fluids, produced
waters, and certain other wastes associated with exploration and drilling. In
addition, CERCLA exempts crude oil and its fractions, and natural gas, from the
definition of "hazardous substance." Elimination or modification of those
exemptions could increase the costs of exploration and drilling operations as
well as potential environmental liability.

Operational Risks and Insurance

We emphasize ongoing safety and training programs and have installed significant
safety equipment, all designed to promote a safe working environment.
Nevertheless, our operations are subject to the many hazards inherent in the
drilling business.

While we maintain broad insurance coverage, this insurance generally does not
cover all types of losses, including war, internal disturbances, expropriation
or nationalization. Losses and liabilities arising from uninsured or
underinsured events would reduce our revenues and increase our costs. In
addition, pollution and similar environmental risks generally are not fully
insurable. As a result, although we believe our existing insurance coverage is
consistent with industry practices, it may not protect us from all of our
operational risk or against liability from all consequences of well disasters,
maritime casualties or damage to the environment resulting from operations or
hazardous waste disposal. Our insurance may not prove to be sufficient to
protect us for the full market or replacement value of lost assets. We may be
liable for oil spills, costs of controlling a wild well, well loss or damage and
similar matters and not be indemnified by our customers or insured.

We believe our policy of purchasing insurance coverage is consistent with
industry practice for the types, amounts and limits of insurance maintained.
Occasionally, we review our coverage levels and adjust them commensurate with
industry conditions and perceived rig values. However, we cannot assure you that
the desired insurance coverage will continue to be available at rates considered
reasonable or that the types of coverage we need will be available at any cost.
In addition, because of the relatively small size of our fleet, an uninsured
loss could be much more detrimental to our operations and future prospects than
it would be to one of our larger competitors with a larger fleet of rigs.

If we determine our insurance to be inadequate, uneconomic or unavailable, we
will evaluate our exposure to uninsurable risks before participating in any
projects. To the extent permitted by market conditions, we contract with our
customers to provide us with indemnification or other protection against risks
not generally covered by insurance and against losses in excess of applicable
insurance limits. We generally have been able to obtain contractual
indemnification from our customers which protects and indemnifies us to some
degree from liability arising out of damages to customer property and injuries
to specified personnel, reservoir, pollution and environmental damages and wild
well control. However, we are not able to obtain this indemnification in all of
our contracts.

Terrorist acts or acts of war may cause damage to or disruption of our
operations, our employees, our property and equipment, or our customers,
suppliers and subcontractors, which could significantly impact our financial
condition, results of operations and cash flows. The terrorist attacks that
occurred in the United States on September 11, 2001 were unprecedented events
that have created many economic and political uncertainties. The long-term


                                       13
<PAGE>

effects on our operations of the September 11, 2001 attacks are unknown. The
potential for future terrorist attacks, the national and international responses
to terrorist attacks, and other acts of war or hostility could create many
economic and political uncertainties, including an impact upon oil and gas
exploration and development, which could adversely affect our operations in ways
that cannot be readily determined.

Employees

As of March 21, 2002, we had 286 employees. We consider our relationship with
our employees to be good. None of our employees are covered by any collective
bargaining agreement. During 1997, unemployment rates in the offshore contract
drilling industry reached unusually low levels. If such industry conditions
return, we may experience similar shortages and increased labor costs.

Other Property

We lease approximately 10,663 square feet of office space located at 11200
Richmond Avenue, Suite 490, Houston, Texas 77082.

ITEM 3.  Legal Proceedings

Raymond Verdin, on behalf of himself and those similarly situated v. Pride
Offshore, Inc., et al; C.A. No. G-01-168 in the United States District Court for
the Southern District of Texas, Houston, Division; formerly styled Raymond
Verdin v. R&B Falcon Drilling USA, Inc., et al; No. G-00-488 in the United
States District Court for the Southern District of Texas, Galveston Division,
filed October 10, 2000. We were named as a defendant in a proposed class action
suit filed on behalf of offshore workers against all of the major offshore
drilling companies that operated in the U.S. Gulf of Mexico since 1990. The
proposed class includes persons hired in the United States by the companies to
work in the U.S. Gulf of Mexico and around the world. The lawsuit alleges that
the companies, through trade groups, shared information in violation of the
Sherman Antitrust Act and various state laws. Plaintiff Thomas Bryant has
replaced the named plaintiff as the proposed class representative. The lawsuit
is seeking money damages and injunctive relief as well as attorney's fees and
costs. Although we believe that we have valid defenses in this matter, we have
determined that protracted litigation will be a distraction to the operation of
our business and, in May 2001, agreed to settle plaintiffs' outstanding claims
for a conditional payment of $1 million. During 2001, we recorded a reserve for
this pending litigation, including legal expenses, and made a partial payment of
the settlement amount. In December 2001, the United States District Judge for
the Southern District of Texas, Houston Division, entered an order preliminarily
approving the proposed class action settlement, preliminarily certifying the
settlement class, and setting a fairness hearing for April 18, 2002, to
determine whether to give the settlement final approval. A court appointed
settlement administrator will provide notice of the proposed class action
settlement.

We are also involved in various legal actions arising out of our ordinary course
of business. We believe that none of these actions, if adversely determined,
will have a material adverse effect on our consolidated financial condition,
results of operations or cash flows.

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

There were no items submitted to a vote of our shareholders during the fourth
quarter of our fiscal year ended December 31, 2001.

ITEM 4a.        Executive Officers of the Registrant

Our executive officers serve at the pleasure of our Board of Directors. Below,
is a list of the name, age and position held by each of our executive officers
as of March 21, 2002.



                                       14
<PAGE>

<TABLE>
<CAPTION>
Name                              Age     Title
---------------------------   ------------------------------------------------------------------------
<S>                               <C>     <C>
William Chiles.............       53      President and Chief Executive Officer
Dick Fagerstal.............       41      Senior Vice President, Chief Financial Officer and Secretary
Donald Gregg...............       63      Senior Vice President--Operations and Engineering
William Hopkins............       60      Vice President--Human Resources
Bruce Brumley..............       47      Vice President--Operations
Gabe Padilla...............       51      Vice President--Engineering
</TABLE>
William Chiles has served as our President and Chief Executive Officer since
August 1997. Mr. Chiles has also served as a director since August 1997. In
March 1997, Mr. Chiles and Donald Gregg led the formation of our predecessor.
Mr. Chiles has extensive management experience in offshore drilling operations.
From May 1996 until March 1997, he served as Senior Vice President--Drilling
Operations of Cliffs Drilling Company, responsible for the operation of its
worldwide fleet. From 1992 to May 1996, Mr. Chiles served as President and Chief
Executive Officer of Southwestern Offshore Corporation, a company he founded in
1992 and whose drilling rigs and equipment were acquired by Cliffs Drilling
Company in 1996. Mr. Chiles co-founded Chiles Offshore Corporation in 1987 and
in 1977 he co-founded Chiles Drilling Company, each of which was an offshore
contract drilling company.

Dick Fagerstal has served as our Senior Vice President and Chief Financial
Officer since August 1997. Mr. Fagerstal has also served as a director since
August 1997 and as our Secretary since February 1998. In addition, Mr. Fagerstal
has served as the Vice President, Finance of SEACOR SMIT Inc. ("SEACOR") since
August 1997 and has held the additional position of Treasurer of SEACOR since
May 2000. Before 1997, and for more than five years prior to 1997, Mr. Fagerstal
worked as a bank officer with Den norske Bank ASA, New York Branch.

Donald Gregg has served as our Senior Vice President--Operations and Engineering
since August 1997. Mr. Gregg joined with Mr. Chiles in the formation of our
predecessor in March 1997. From May 1994 until March 1997, Mr. Gregg formed and
served as the President of International Renovators, Inc., a company which
provided technical assistance, engineering and regulatory consulting services to
the offshore drilling industry. From October 1996 to March 1997, Mr. Gregg was
an employee of Cliffs Drilling Company. From February 1992 to May 1994, Mr.
Gregg held various positions at Chiles Drilling Company and its successors,
including Vice President--Engineering, Vice President--Operations and Vice
President--Marketing.

William Hopkins has served as our Vice President--Human Resources since November
1997. From March 1995 to October 1997, Mr. Hopkins served as an area executive
and senior consultant for Right Management Consultants, an international human
resources management consulting firm providing services to the contract drilling
and other oilfield service industries. From April 1992 to February 1995, Mr.
Hopkins served as a Director of Safety, Training and Environmental Management of
Tidewater, Inc., a major oilfield service company.

Bruce Brumley has served as our Vice President--Operations since February 2001.
From November 1997 to January 2001, Mr. Brumley served as our Operations
Manager. From 1990 to 1997, Mr. Brumley was Drilling Superintendent and Area
Manager for Rowan Drilling Company, and prior to that time, held various
positions at Chiles Drilling Company.

Gabe Padilla has served as our Vice President--Engineering since February 2001.
From November 1997 to January 2001, Mr. Padilla served as our Engineering
Manager. From 1994 to 1997, Mr. Padilla was Manger of Projects at Noble Drilling
Company and, prior to that time, served as Engineering Manager for Chiles
Drilling Company. Mr. Padilla has been involved in the design and construction
of offshore rigs and equipment since 1977.



                                       15
<PAGE>

                                     PART II


ITEM 5.         Market for Registrant's Common Equity and Related Stockholder
                Matters

Market Information

On September 22, 2000, our common stock commenced trading on the AMEX under the
symbol "COD."

Set forth in the table below for the period presented are the high and low sales
prices of our shares of common stock as reported on the AMEX:
<TABLE>
<CAPTION>
       Fiscal Year Ended December 31, 2000                                  High                 Low
       -----------------------------------                                  ----                 ---
<S>                                                                         <C>                  <C>
       Third Quarter (from September 22, 2000)....................          $21.75               $19.25
       Fourth Quarter.............................................          $25.13               $15.19

       Fiscal Year Ended December 31, 2001
       -----------------------------------

       First Quarter..............................................          $25.06               $19.75
       Second Quarter.............................................          $28.65               $17.75
       Third Quarter..............................................          $23.08               $15.70
       Fourth Quarter.............................................          $20.48               $16.93

       Fiscal Year Ending December 31, 2002
       ------------------------------------

       First Quarter (through March 21, 2002).....................          $20.70               $17.20
</TABLE>

Holders

The closing price of our common stock as reported on the AMEX Composite Tape on
March 21, 2002, was $19.95 per share. As of March 21, 2002, there were 102
holders of record of our shares of common stock.

Dividend Policy

Since our inception in 1997, we have not paid any dividends to our stockholders
(or, prior to our becoming a corporation in September 2000, any distributions to
our members) and it is our current intention to retain all cash generated from
our operations or otherwise in our company to support our planned future growth
and general corporate working capital needs. In addition, certain covenants in
our credit facilities restrict our ability to pay dividends. Therefore, we do
not anticipate paying any cash dividends on our common stock in the foreseeable
future.

Report of Offering of Securities and Use of Proceeds Therefrom

Pursuant to Rule 463 and Item 701(f) of Regulation S-K promulgated under the
Securities Act, the following information is provided in this annual report on
Form 10-K:

         1.       A registration statement on Form S-1 of Chiles Offshore Inc.
                  (File No. 333-39418) (the "Registration Statement") was
                  declared effective by the Securities and Exchange Commission
                  on September 18, 2000.

         2.       As of December 31, 2001, we have used all of the approximately
                  $157 million in proceeds from our IPO. We used $99 million of
                  the IPO proceeds to repurchase and retire substantially all of
                  our outstanding senior notes with accrued interest. All of


                                       16
<PAGE>

                  such proceeds to repurchase the senior notes were paid to
                  SEACOR, our largest stockholder, or to an entity through which
                  SEACOR held an indirect economic interest in the senior notes.
                  We used approximately $7 million of the IPO proceeds to repay
                  the amounts outstanding under our prior bank credit facility
                  with accrued interest and used approximately $51 million of
                  the IPO proceeds in connection with the construction of our
                  rigs.

ITEM 6.  Selected Financial Data

The following selected financial data is derived from our consolidated financial
statements as of and for the periods presented. The selected financial data
below should be read together with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements (including the notes thereto) included elsewhere in this Annual
Report on Form 10-K.


                              CHILES OFFSHORE INC.
          (in thousands, except share, per share and operational data)
<TABLE>
<CAPTION>
                                                                                                 From August 5,
                                                                                                  1997 (Date of
                                                                                                  Inception) to
                                                        Years Ended December 31,                  December  31,
                                             ---------------------------------------------------- -------------
                                              2001          2000          1999         1998           1997
                                              ----          ----          ----         ----           ----
Statement of Operations Data:
----------------------------
<S>                                         <C>           <C>           <C>           <C>         <C>
Revenue.................................    $  74,184     $  56,006     $   8,596     $      --   $      --
Operating expense.......................       23,659        18,538         5,377            --          --
Charter expense.........................        6,798         6,677            --            --          --
General and administrative expenses.....        5,020         2,853         1,326           767         376
Depreciation and amortization...........        9,019         7,176         2,478            56           6
Operating income (loss).................       29,688        20,762          (585)         (823)       (382)
Interest expense, net of capitalized
 interest...............................           --         8,008         3,764         2,387          --
Interest and other income...............        4,473         1,224           874         3,383          73
Extraordinary loss on extinguishment of
 debt, net of tax.......................           --         1,820           488            --          --
Provision for income taxes..............       11,615        29,881            --            --          --
Net income (loss).......................       22,546       (17,723)       (3,963)          173        (309)
Income (loss) per common share before
 extraordinary item-(1)
Basic ..................................    $    1.20     $   (1.55)    $   (0.68)    $    0.03   $   (0.09)
Diluted.................................    $    1.20     $   (1.55)    $   (0.68)    $    0.03   $   (0.09)
Net income (loss) per common share-(1)
Basic ..................................    $    1.20     $   (1.73)    $   (0.77)    $    0.03   $   (0.09)
Diluted.................................    $    1.20     $   (1.73)    $   (0.77)    $    0.03   $   (0.09)
Weighted average common shares - Basic..       18,756        10,253         5,116         5,014       3,637
Weighted average common shares - Diluted       18,852        10,253         5,116         5,014       3,637

Statement of Cash Flows Data:
----------------------------
Cash flows provided by (used in):
Operating activities....................    $  45,044     $  25,716     $   1,929     $     925   $   3,571
Investing activities....................     (109,378)      (50,198)      (82,138)      (76,552)     (5,215)
Financing activities....................       32,165        74,118        21,947       105,500      33,985


                                       17
<PAGE>

                                                                                                 From August 5,
                                                                                                  1997 (Date of
                                                                                                  Inception) to
                                                        Years Ended December 31,                  December  31,
                                             ---------------------------------------------------- -------------
                                              2001          2000          1999         1998           1997
                                              ----          ----          ----         ----           ----

EBITDA(2)...............................       38,707        27,938         1,893          (767)       (376)

Balance Sheet Data (at end of period):
--------------------------------------
Working capital.........................    $   2,080     $  39,314     $  (3,731)    $   9,677   $  28,401
Property and equipment, net.............      446,082       234,719       191,697       111,725      35,020
Total assets............................      492,564       300,055       203,246       178,433      67,398
Total debt..............................       89,988            --       117,000       110,000          --
Stockholders' equity....................      325,483       247,849        74,578        63,595      63,422

Operational Data: (unaudited)
----------------------------
Average rig utilization(3)..............         100.0%        100.0%         99.8%         n/a         n/a
Average daily revenue(4)................    $  71,609     $  56,230     $  33,598           n/a         n/a
Available rig days......................        1,021           996           256           n/a         n/a
Number of rigs operated (end of year)...            3             3             2             0           0
Number of employees (end of year).......          279           264           202            53           6
</TABLE>

1.  Net income (loss) per common share has been calculated for years prior to
    2000 by converting the membership interests of the members of Chiles
    Offshore LLC at the rate of approximately 87,172 shares of our common stock
    for each 1% membership interest then outstanding.

2.  EBITDA consists of income prior to interest and other income, interest
    expense, income taxes, depreciation, amortization and extraordinary items.
    However, we were not subject to U.S. corporate income taxes prior to
    September 22, 2000, because as a limited liability company, we were treated
    as a partnership for tax purposes, and such taxes were liabilities of the
    individual equity members. EBITDA is not intended to represent cash flows
    from operations, as defined by generally accepted accounting principles, and
    should not be considered as an alternative to net income as an indicator of
    our operating performance or to cash flows from operations as a measure of
    liquidity. EBITDA is provided because we understand that such information is
    used by certain investors when analyzing our financial condition and
    performance.

3.  The average rig utilization for a period is the ratio of days in the period
    during which the rigs were under contract to the total days in the period
    during which the rigs were available to work.

4.  Based on rigs under operation, including where applicable, the Tonala. The
    average daily revenue is computed by dividing dayrate revenue from drilling
    contracts and mobilization by the number of days under contract.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

General

The following discussion should be read together with our consolidated financial
statements (including the notes thereto) included elsewhere in this Annual
Report on Form 10-K.

Introduction

We were formed in August 1997 as Chiles Offshore LLC for the purpose of
constructing, owning and operating a fleet of ultra-premium jackup drilling
rigs. In September 2000, we converted into a Delaware corporation in conjunction
with our IPO.


                                       18
<PAGE>

In 1997, we started construction of two ultra-premium jackup drilling rigs of
the LeTourneau Super 116 design at 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. Both of these
rigs are currently employed under short-term (under twelve months) drilling
contracts in the U.S. Gulf of Mexico.

In April 2000, we started construction on the Chiles Discovery, an ultra-premium
jackup rig of the KFELS Mod V "B" design at Keppel. The Chiles Discovery was
delivered in Singapore in February 2002 and we expect it to be placed in service
during the second quarter of 2002 in the East Timor Gap Zone of Cooperation,
located between Australia and East Timor, to begin work under a 600-800 day
contract with Phillips. We estimate its final cost of construction to be
approximately $110 million, exclusive of interest and other capitalized costs.

In April 2000, we also entered into a 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 the
first of three options under the Master Option Agreement to construct the Chiles
Galileo at AMFELS. We expect the Chiles Galileo to be delivered during the third
quarter of 2002 and estimate its construction will cost $112 million, exclusive
of interest and other capitalized costs.

In July 2001, we completed the acquisition of all of the shares of capital stock
of the entity that owned the ultra-premium jackup rig the Tonala, which we
subsequently renamed the Chiles Coronado and had operated under a bareboat
charter since the completion of its construction and final commissioning in
April 2000. In August 2001, we signed a three-year contract with BP for the use
of the Chiles Coronado in Trinidad. The Chiles Coronado was subsequently moved
from the U.S. Gulf of Mexico to Trinidad and began drilling operations in
Trinidad in September 2001.

Results of Operations

Revenue. We derive our revenue primarily from contracts to drill wells for oil
and gas operators. In the U.S. Gulf of Mexico, these drilling contracts are
typically for terms of 30 to 90 days and provide for base dayrates, which may be
subject to adjustments based on performance incentives. In our international
operations, we have entered into drilling contracts for up to three years from
inception. Drilling contracts may include a fixed dayrate or include rates that
vary over the contract period, which may either be stated rates or calculated
based on an index such as the price of natural gas. For variable rate contracts,
we record revenue on a straight-line basis over the life of the contract and
record any adjustments to the straight-line calculation in the period they
become known. We may also receive lump-sum fees for the mobilization of
equipment and personnel to and from drilling locations. Mobilization fees
received and costs incurred to mobilize an offshore rig from one market to
another are recognized over the term of the related drilling contract. For 2001,
rig utilization was 100% and the average dayrate was $71,609. During the
available operating days in 2000, our rigs achieved 100% utilization and earned
an average dayrate of $56,230.

In calculating our average dayrates, we divide the revenue earned by our rigs
during the period, including the amortization of deferred revenue for
transporting our rigs between sites, by the total number of rig operating days
in the period. In addition, our average dayrates include any bonuses that may be
triggered by achieving performance and safety targets in our drilling contracts,
but exclude certain reimbursable income from customers.

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, the
current availability of oil and gas resources and the general level of worldwide
economic activity.

We expect that the commencement of operations by the Chiles Discovery and the
delivery of the Chiles Galileo will positively impact our revenue for 2002.
However, any resulting increase in revenue may be offset by the expiration of
the short-term operating contracts of each of the Chiles Columbus and Chiles
Magellan.



                                       19
<PAGE>

Costs and expenses. Rig operating expense consists primarily of crew costs,
insurance, inspections, repair and maintenance and other related costs. General
and administrative expense consists primarily of corporate and safety
management, administration, marketing, financial and legal expenses. 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 began to expand our operations
beyond the U.S. Gulf of Mexico into Trinidad and the Far Eastern markets, 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. 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 and we experienced steady demand for our services through 2001.
However, U.S. Gulf of Mexico rig activity has declined in recent months due
apparently to lower natural gas prices and current natural gas inventories are
reported to be at higher than normal capacity. Drilling activities in the U.S.
Gulf of Mexico may also be adversely affected by the present U.S. economic
slowdown that may be further exacerbated by the September 11, 2001, terrorist
attacks in New York City and Washington D.C. Although the initial decline in
U.S. drilling activity did not impact the demand for our services in 2001, a
sustained decline could adversely impact the demand for our services in 2002.
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 U.S. market conditions will improve 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. 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.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenue. Revenue for the year ended December 31, 2001, increased approximately
$18.2 million, or 32.5%, compared to the year ended December 31, 2000. The
chartered rig, the Tonala (which we acquired in July 2001 and subsequently
renamed the Chiles Coronado), was effectively delivered and placed in service in
April 2000. As a result, available rig days for the year ended December 31,
2001, were higher than in 2000. However, somewhat offsetting this increase was a
reduction in available rig days as, during the third quarter of 2001, the Chiles
Coronado underwent modifications in connection with its long-term contract with
BP. The rig was then mobilized from the U.S. Gulf of Mexico to Trinidad to begin
operations under the contract and was not available during those days. In
addition to the increase in available rig days, average dayrates increased
$15,379, or 27.4%, to $71,609 per day for the year ended December 31, 2001, as
compared to the year ended December 31, 2000. The increase in average dayrates
was a result of higher market rates for rigs in the markets in which we operate,
which are generally connected with current and future expectations of oil and
gas prices at the time we enter into the contracts.

Operating Income. Operating income increased approximately $8.9 million, or 43%,
for the year ended December 31, 2001, compared to the year ended December 31,
2000. The increase was a result of a higher number of available rig days and
higher average dayrates, as discussed above, offset by approximately $1.3
million in additional depreciation expense incurred subsequent to the
acquisition of the Chiles Coronado and $5.1 million in additional operating
expense attributed to the increase in available rig days and additional costs of
operating the Chiles Coronado outside of the U.S. Gulf of Mexico. In addition,
we generated additional general and administrative expenses of $2.2 million,
including costs associated with the delivery and operation of the additional rig
and a charge in 2001 related to the previously disclosed $1 million conditional
settlement of a class action suit filed against us and other offshore drilling
contractors.

Other Income. Other income was comprised of $3.8 million in gains from
derivative transactions of which $1.8 million was realized and $2 million was
unrealized. See "Derivative Transactions" following this section.



                                       20
<PAGE>

Net Interest Expense. Net interest expense decreased approximately $8 million to
$0 for the year ended December 31, 2001, compared to the year ended December 31,
2000. All interest expense incurred in 2001 was capitalized into the cost of our
rigs under construction. During 2000, we carried outstanding debt until late
September, at which time we used proceeds from our IPO to purchase and retire
all of our outstanding debt obligations. Capitalized interest expense for the
year ended December 31, 2001 was approximately $3.3 million, compared to
approximately $0.6 million for the same period in the prior year.

Income Taxes. The provision for income taxes decreased by approximately $18.3
million, or 61.1%, for the year ended December 31, 2001, compared to the year
ended December 31, 2000, due to our conversion from a limited liability company
to a corporation in connection with our IPO in September 2000 and, as a result
of that conversion, becoming subject to U.S. federal and state income taxes.

Extraordinary loss. We incurred an extraordinary loss of approximately $1.8
million, net of tax benefit, for the year ended December 31, 2000, due to the
early extinguishment of certain debt obligations. Such loss consisted of the
write off of related deferred debt issuance costs.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenue. Revenue for the year ended December 31, 2000, increased approximately
$47.4 million, from $8.6 million for the year ended December 31, 1999, as the
number of rigs we operated increased and the average dayrate increased by
$22,632. The Chiles Columbus commenced operations in June 1999, the Chiles
Magellan commenced operations in November 1999 and the Chiles Coronado commenced
operations in April 2000.

Operating Income. Operating income increased $21.3 million for the year ended
December 31, 2000, from a loss of $0.6 million for the year ended December 31,
1999, due to the increase in revenue, offset by an increase in rig operating
expense of approximately $13.2 million and an increase in depreciation expense
of approximately $4.7 million, in each case, as the number of rigs we operated
and available rig operating days increased. Also offsetting the increase in
revenue was charter expense of approximately $6.7 million for 2000 for the use
of the Chiles Coronado beginning in April 2000 and an increase in general and
administrative expense of approximately $1.5 million, as marketing and other
administrative expenses increased in connection with the delivery and operation
of the rigs.

Interest expense. Interest expense increased approximately $4.2 million, or
113%, for the year ended December 31, 2000, compared to the year ended December
31, 1999, as capitalized interest in 2000 was $7.4 million less than capitalized
interest in 1999, due to the completion of the two rigs under construction in
1999.

Income taxes. Income tax expense was $29.9 million for the year ended December
31, 2000, compared to $0 for the year ended December 31, 1999, due to our
limited liability company status being terminated upon our IPO. Prior to
September 22, 2000, we were not subject to federal and state income taxes.

Extraordinary loss. We incurred an extraordinary loss of approximately $1.8
million, net of tax benefit, and $0.5 million due to the early extinguishment of
certain debt obligations for the years ended December 31, 2000, and 1999,
respectively. Such losses consisted of the write off of related deferred debt
issuance costs.

Liquidity and Capital Resources

General

Our ongoing liquidity requirements arise primarily from our need to service
debt, 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 debt, borrowings under our credit facilities, the IPO and cash from
operations. Currently, we have used all of the proceeds from the IPO and finance


                                       21
<PAGE>

our operations primarily through borrowings under our credit facilities and cash
from operations. If we exercise our additional options under the Master Option
Agreement to construct additional rigs, we may require additional financing in
the future.

We expect to fund our short-term liquidity needs, including approximately $88.8
million in contractual obligations related to our rigs under construction, our
credit facilities, other contractual agreements and any other working capital
requirements, from cash and cash equivalents, operating cash flow and our credit
facilities. We believe that we will be able to meet all of our current
obligations, including our obligations under our credit facilities and other
contractual agreements.

We expect to fund our long-term liquidity needs, including contractual
obligations and anticipated capital expenditures, from our cash and cash
equivalents, investments, operating cash flow and our credit facilities.

As of December 31, 2001 and 2000, we had cash and cash equivalents of $21.4
million and $47.1 million, respectively, working capital of $2.1 million and
$39.3 million, respectively, and outstanding debt of approximately $90 million
and $0, respectively. For the year ended December 31, 2001, cash and cash
equivalents decreased $25.7 million, as compared to the year ended December 31,
2000 and working capital for the year ended December 31, 2001 decreased $37.2
million as compared to the year ended December 31, 2000, as we continued to
invest the remaining proceeds from the IPO and incurred additional liabilities
related to the construction of the Chiles Discovery and Chiles Galileo.
Outstanding debt for the year ended December 31, 2001 increased as compared to
the year ended December 31, 2000, due to our assumption of debt in connection
with the acquisition of the Tonala and our entering into a credit facility for
the construction and term financing of the Chiles Galileo.

Cash flows from operations

During the year ended December 31, 2001, we generated approximately $45 million
of cash flows from operations which were used to meet working capital
requirements and to invest, together with remaining proceeds from our IPO and
borrowings under our credit facilities, an aggregate of $109.4 million in
additions to property and equipment, primarily to fund the construction of the
Chiles Discovery and Chiles Galileo. Cash flow from operations for the years
ended December 31, 2000 and 1999, were $25.7 million and $1.9 million,
respectively. The increase in 2001 compared to prior years was primarily due to
an increase in the number of rig operating days and higher average dayrates.

We expect that the commencement of operations by the Chiles Discovery and the
delivery of the Chiles Galileo will positively impact our revenue for 2002.
However, any resulting increase in revenue may be offset by the expiration of
the short-term operating contracts of each of the Chiles Columbus and Chiles
Magellan.

Investing and financing activities

Net cash used in investing activities was $109.4 million for the year ended
December 31, 2001, compared to $50.2 million and $82.1 million for the years
ended December 31, 2000 and 1999, respectively.

In July 2001, pursuant to the Tonala Agreement, we completed our acquisition of
all of the shares of capital stock of the entity that owned the ultra-premium
jackup rig Tonala. Previously, we had operated the Tonala under a bareboat
charter with Perforadora Central since the completion of its construction and
final commissioning in April 2000. The Tonala Agreement and an amendment to the
Tonala Charter adjusted payments under the Tonala Charter such that we would be
treated from a commercial standpoint as if we owned the Tonala from July 20,
2000, with us being credited for cash flow received by Perforadora Central under
the Tonala Charter, and charged for debt service payments made by Perforadora
Central after such date on Marad-guaranteed debt secured by the Tonala.

As consideration for our acquisition of the Tonala, in July 2001, we issued
2,679,723 shares of common stock having a market value on the date of issuance
of $20.50 per share to Perforadora Central and assumed approximately $58.8


                                       22
<PAGE>

million in principal amount of Perforadora Central's related Marad-guaranteed
debt. We also paid approximately $0.1 million in commissions and $0.7 million in
other acquisition costs, and received the benefit of approximately $2.5 million
in charter payables forgiven by Perforadora Central, which resulted in a
discount to the purchase price (for an aggregate rig cost of approximately $111
million). The debt we assumed bears interest at a rate of approximately 5.6% per
year and has semi-annual payments of approximately $2.9 million of principal
plus accrued interest due in January and July of each year until the final
maturity in July 2011 and is subject to certain customary covenants, including
restrictions on our ability to pay dividends and other financial covenants. As
of December 31, 2001, we were in compliance with all covenants. Subsequent to
the date of acquisition, we renamed the acquired rig the Chiles Coronado.
Patricio Morphy and Luis Morphy, two of our directors, own, collectively, a
majority of the outstanding shares of Perforadora Central.

In April 2000, we entered into an agreement for the construction of the Chiles
Discovery and took scheduled delivery of it in February 2002. The rig is
undergoing final commissioning and we anticipate that it will be placed in
service during the second quarter of 2002 in the East Timor Gap Zone of
Cooperation, located between Australia and East Timor, to begin work under a
600-800 day contract with Phillips. We estimate that its final cost of
construction will be approximately $110 million, exclusive of interest and other
capitalized costs. At December 31, 2001, we had a remaining aggregate estimated
cost to complete the construction and outfitting, exclusive of interest and
other capitalized costs, of approximately $22 million. We expect to use cash
from operations and funds available under our bank facility to fund the
remaining construction of the rig.

In October 2000, we exercised the first of our three options under the Master
Option Agreement and we entered into an agreement with AMFELS for construction
of the Chiles Galileo. The Chiles Galileo is under contract to be completed at
an estimated cost of $112 million, excluding interest and other capitalized
costs. At December 31, 2001, we had a remaining aggregate estimated cost to
complete the construction and outfitting, exclusive of any interest and other
capitalized costs, of approximately $49 million. We expect to finance the
construction of the Chiles Galileo with cash from operations and with funds
drawn under an $81 million Marad-guaranteed credit facility. See "Credit
facilities" below.

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.

Net cash provided by financing activities was $32.2 million for the year ended
December 31, 2001, compared to $74.1 million and $21.9 million for the years
ended December 31, 2000 and 1999, respectively. Financing activities in 2001
consisted mainly of borrowings and repayments of debt. During 2000, we received
net proceeds of $32.8 million from capital contributions and net proceeds of
approximately $157 million from our IPO. Also in 2000, we used approximately $99
million of the IPO proceeds to repurchase and retire substantially all of our
outstanding senior notes with accrued interest and repaid approximately $7
million of the amounts outstanding under our prior bank credit facility with
accrued interest. In 2001, we used the remaining IPO proceeds to fund a portion
of the costs required to further expand our rig fleet, as described above, and
for other general corporate purposes. In addition, in September 2000, we
received $3 million from the exercise of certain rights to acquire equity
interests in us. In October 2000, our board of directors authorized the
repurchase of our common stock up to a total amount of $25 million and in the
fourth quarter of 2000 we repurchased, through open market transactions, 109,000
shares of our common stock for approximately $1.7 million.

Credit facilities

In April 2000, in connection with the construction agreement for the Chiles
Discovery, we executed an agreement with a non-US lender that is affiliated with
Keppel to provide up to $82 million of debt financing toward the construction
cost of the Chiles Discovery (the "Discovery Facility"). The Discovery Facility
was recourse only to the Chiles Discovery and any other assets owned by the
subsidiary owning the rig. The Discovery Facility provided for an interest rate


                                       23
<PAGE>

equal to LIBOR plus 2% on a $75 million term loan due upon the earlier of 22
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. We had the
option to extend the Discovery Facility for an additional 18 months after
delivery at a fixed rate to be determined at that time based on the lender's
cost of funds plus 3%. During the years ended December 31, 2001 and December 31,
2000, there were no borrowings under the Discovery Facility and, subsequent to
December 31, 2001, in connection with the delivery of the rig in February 2002,
we cancelled the facility.

In December 2000, we entered into a $120 million credit facility (the "Bank
Facility"), which was provided by Fortis Capital Corporation, DVB Nedship Bank
N.V. and Den norske Bank ASA. The Bank Facility provides for a $120 million
senior secured reducing revolving credit facility, of which $72 million was
available, including $14 million outstanding, at December 31, 2001. Beginning in
June 2001, the Bank Facility must be permanently reduced semi-annually, with a
balloon payment at maturity. Subject to such reductions, the entire Bank
Facility will be available subject to us providing the lenders with certain
additional collateral. Borrowings under the Bank Facility are available for
general corporate purposes and may be repaid and reborrowed during the term of
the Bank Facility and bear interest at a per annum rate equal to LIBOR plus a
margin ranging from 1.5% to 2.0%. For the year ended December 31, 2001, the
weighted average interest rate for the Bank Facility was 3.8%. The Bank Facility
will mature on December 7, 2007, at which time any outstanding principal amount,
up to a maximum of $53.5 million, and any unpaid interest will be due. We are
required to pay a commitment fee equal to 0.7% per annum, payable quarterly in
arrears, on the undrawn amount. The Bank Facility is guaranteed by two of our
wholly-owned subsidiaries (the "Guarantors"), which are the owners of the Chiles
Magellan and Chiles Columbus. These guarantees are secured by first priority
mortgages on the two rigs, assignments of earnings (which may continue to be
collected by us unless an event of default occurs) and assignments of insurances
on such rigs. The Bank Facility contains customary affirmative covenants,
including a requirement to maintain a combination of cash and availability under
the Bank Facility of at least $20 million and that at least 50% of the
requirement be satisfied by unrestricted cash balances, a minimum consolidated
net worth requirement, a minimum ratio of operating income plus depreciation,
amortization and other non-cash operating charges to total interest expense and
a maximum level of funded debt to total capitalization. The Bank Facility also
contains certain negative covenants, including prohibitions against certain
liens, material changes in the nature of our business, sale or pledge of any
Guarantor's membership interests, sale or disposition of any of the two
mortgaged rigs or other substantial assets, consolidations or mergers and
restrictions on our ability to pay dividends. The Bank Facility also requires
that we prevent the Guarantors from making certain loans and advances, except in
the normal course of business or to certain affiliates. In addition, under the
Bank Facility, SEACOR's failure to maintain minimum ownership levels and board
representations constitutes an event of default and, in the event of such
failure, the lenders may accelerate the maturity of this debt and foreclose upon
the collateral securing the debt. As of December 31, 2001, we had $14 million
outstanding under the Bank Facility and we were in compliance with all
covenants.

In July 2001, in connection with the acquisition of the Tonala, subsequently
renamed the Chiles Coronado, we assumed the remaining principal balance due on
the related Marad-guaranteed debt, which was approximately $58.8 million (the
"Coronado Facility"), and recorded a debt discount of approximately $1 million,
which is being amortized to interest expense on a straight-line basis over the
remaining life of the Coronado Facility. The Coronado Facility 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 in January and July each year until the
final maturity in July 2011 and is subject to certain customary covenants,
including restrictions on our ability to pay dividends and other financial
covenants. As of December 31, 2001, we had approximately $58.8 million
outstanding under the Coronado Facility and we were in compliance with all
covenants.

In October 2001, we entered into definitive documentation for the $81 million
Marad-guaranteed financing for the construction and term financing of the Chiles
Galileo (the "Galileo Facility"). The Galileo Facility allows for floating rate
debt, which we must convert to fixed rate debt no later than two years after
delivery of the rig. We have the option to convert from a floating interest rate
to a fixed interest rate at any time prior to two years after delivery of the
rig, and would also be required to convert to a fixed interest rate under
certain circumstances. Under the terms of the Galileo Facility, principal and


                                       24
<PAGE>

interest payments are due semi-annually starting six months after delivery of
the rig and ending 18 years after delivery of the rig. The Galileo Facility has
limited recourse to us, 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 subsidiary of ours. For the year ended December 31, 2001, the
weighted-average interest rate for the Galileo Facility was 2.34%. The Galileo
Facility is subject to certain customary covenants. As of December 31, 2001, we
had approximately $18 million outstanding under the Galileo Facility and we were
in compliance with all covenants.

Contractual Cash Obligations

Our significant contractual obligations as of December 31, 2001, and the periods
in which such obligations are due are as follows (in thousands):
<TABLE>
<CAPTION>
                                                               Payments Due by Period
-------------------------------------------------------------------------------------------------------
                                                         Less than                             After 4
          Contractual Obligations              Total      1 Year     1-2 Years    3-4 Years     Years
-------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>          <C>         <C>
Principal on long-term debt...............   $  90,875   $   5,878   $  13,768    $  13,768   $  57,461
Interest on long-term debt................      26,524       4,131       7,234        5,816       9,343
Non-cancelable operating leases...........       1,180         434         497          249          --
Construction commitments..................      63,762      63,762          --           --          --
Other contractual obligations(1)..........      14,556      14,556          --           --          --
                                             ---------   ---------   ---------    ---------   ---------
     Total contractual obligations........   $ 196,897   $  88,761   $  21,499    $  19,833   $  66,804
                                             =========   =========   =========    =========   =========
</TABLE>

(1)  Includes deferred payments for owner-furnished equipment purchased in
     connection with the construction of the Chiles Discovery and Chiles
     Galileo.

Derivative Transactions

During 2001, we entered into treasury rate lock agreements with a financial
institution on a total notional amount of $40 million. Such treasury rate lock
agreements mature in the fourth quarter of 2003 and provide a partial hedge to
changes in the future interest cost of issuing long-term fixed rate debt under
the Galileo Facility and take advantage of what management considered to be a
favorable interest rate environment at the time. We account for the treasury
rate locks as speculative instruments under Statement of Financial Accounting
Standards ("SFAS") No. 133 and record the change in the market value at the end
of each reporting period as a gain or loss in other income in our Consolidated
Statement of Operations. We record the net effect of these positions in
operating cash flows in the Consolidated Statements of Cash Flow. For the year
ended December 31, 2001, we recognized other income of approximately $2.8
million, of which $1.6 million represents realized gain from the settlement of
treasury rate locks with a total notional amount of $20 million and $1.2 million
represents the remaining unrealized treasury rate lock positions at December 31,
2001, as provided by our counterparty.

Beginning in 2001, we entered into and settled various positions in natural gas
swaps and options, pursuant to which, on each applicable settlement date, we
receive an amount, if any, by which a contract price for a swap or an option
exceeds the quoted settlement price or pay the amount, if any, by which the
quoted settlement price exceeds the contract price. We also entered into short
positions in natural gas futures, the value of which moves in the opposite
direction of the underlying price of natural gas futures. The general purpose of
the natural gas transactions is to provide value for us should the price of
natural gas decline, which over time, if sustained, would lead to a decline in
the market values and cash flows generated by our assets. We, furthermore,
entered into short positions in U.S. treasury note futures, the value of which
moves in the opposite direction of the underlying price of the U.S. treasury
notes futures. The general purpose of the U.S. treasury note transactions is to
provide value to us should the price of U.S. treasury notes decline, leading to
generally higher interest rates, which, if sustained over time, might lead to a
higher interest costs for us. We account for these transactions as speculative
and record the transactions as current assets or current liabilities, as
applicable, and record any realized gain or loss on settled transactions and the


                                       25
<PAGE>

change in the market value of the unsettled positions at the end of each
reporting period in other income in our Consolidated Statement of Operations. We
record the net effect of these positions in operating cash flows in our
Consolidated Statement of Cash Flows. For the year ended December 31, 2001, we
recognized other income of $1 million, of which $0.2 million represented
realized gains and $0.8 million represented unrealized gains from these
activities, primarily related to short positions in natural gas. The value of
the unrealized positions was determined based on market quotes obtained from the
New York Mercantile Exchange and the Chicago Board of Trade, as applicable. All
open positions as of December 31, 2001, mature within one year.

A rollforward of the fair value of derivative transactions for the year ended
December 31, 2001, is as follows (in thousands):
<TABLE>
<CAPTION>
<S>                                                                            <C>
Fair value of contracts outstanding, December 31, 2000...................      $      --
Fair value of new contracts when entered into............................             --
Changes in fair value of contracts.......................................          3,808
Contracts realized or otherwise settled..................................         (1,767)
                                                                               ---------
Fair value of contracts outstanding, December 31, 2001...................      $   2,041
                                                                               =========
</TABLE>
Discussion of Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results could
differ from those estimates and the use of different assumptions would likely
result in materially different results of operations.

Critical accounting policies are those that are both most important to the
portrayal of a company's financial position and results of operations, and
require management's most difficult, subjective or complex judgments. Although
not all of our significant accounting policies require management to make
difficult, subjective or complex judgments or estimates, the following policies
and estimates are those that we deem most critical:

Revenue Recognition

We account for revenue in accordance with Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statements," which provides the
Securities and Exchange Commission staff's interpretations of the application of
generally accepted accounting principles to revenue recognition. Our drilling
contracts provide for a dayrate fee that is generally recognized to revenue on a
per day basis as work is performed. Drilling contracts may include a fixed
dayrate or include rates that vary over the contract period, which may either be
stated rates or calculated based on an index such as the price of natural gas.
For variable rate contracts, we record revenue on a straight-line basis over the
life of the contract and record any adjustments to revenue in the period they
become known. The related drilling expenses are recorded to operating expense in
the period in which they are incurred. As of December 31, 2001, the Company had
unbilled revenue of approximately $0.4 million related to variable rate
contracts. We may also receive lump-sum fees for the mobilization of equipment
and personnel to and from drilling locations. Mobilization fees received and
costs incurred to mobilize an offshore rig from one market to another are
recognized over the term of the related drilling contract. As of December 31,
2001, we had deferred revenue of approximately $6.2 million recorded in other
non-current liabilities in our Consolidated Balance Sheet and deferred costs
related to the mobilization of rigs of approximately $2.8 million recorded in
other assets. As of December 31, 2000, there was no deferred revenue or related
costs. Any lump-sum payments received from customers relating to specific
contracts are generally deferred and amortized over the term of the drilling
contract.

                                       26
<PAGE>

Property and Equipment

Property and equipment is recorded at cost and depreciated from the date the
asset is placed in service, using the straight-line method, over the estimated
useful lives of the assets, which range from 3 to 25 years. Our estimates of
these remaining useful lives may be impacted by factors such as changing market
conditions, technological advances in the performance of offshore drilling or
changes in regulations governing the industry. Major additions and improvements
are capitalized and depreciated over the remaining useful life of the asset.
Maintenance and repairs are charged against income as incurred. Disposals are
removed at cost less accumulated depreciation, and any resulting gain or loss is
reflected in our Consolidated Statement of Operations. We capitalize interest
and certain general and administrative expenses applicable to the construction
of the rigs as a cost of such assets. Costs incurred for the purchase and
development of computer software are capitalized and amortized on a straight
line basis over the estimated useful life.

We evaluate the carrying value of our long-lived assets following the guidelines
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires that certain long-lived
assets be reviewed for impairment whenever events indicate that the carrying
amount of an asset may not be recoverable and that an impairment loss be
recognized under certain circumstances in the amount by which the carrying value
exceeds the fair value of the asset.

Accrued Claims and Other Accrued Liabilities

We estimate our accrued claims and other accrued liabilities based on facts and
circumstances surrounding those claims. Accruals for claims are recorded at the
full expected settlement amount of those claims and the accruals are adjusted
accordingly as additional facts and circumstances become known.

Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." This statement
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
This statement establishes a single accounting model to be used for long-lived
assets to be disposed of by sale and it expands the presentation of discontinued
operations. The provisions of the statement are effective for financial
statements issued for fiscal years beginning after December 15, 2001. We do not
anticipate that the statement will have a material impact on our financial
position or results of operations.

Related-Party Transactions

SEACOR Offshore Rigs Inc. ("SEACOR Rigs"), which is a wholly-owned subsidiary of
SEACOR, a New York Stock Exchange listed company, owned approximately 24% of our
common stock as of March 21, 2002. We entered into a Management and
Administrative Services Agreement with SEACOR, dated as of February 27, 1998
(the "Services Agreement"), pursuant to which SEACOR agreed to continue to
perform certain administrative and technical services on our behalf, including
providing the services of our Senior Vice President, Chief Financial Officer and
Secretary, Dick Fagerstal, as well as general management and financial services,
including periodic advice and consultation in connection with corporate, legal,
finance and other matters that may be required for our day-to-day operations.
The Services Agreement was amended on July 18, 2000 to permit either party to
terminate it upon 180 days' notice. Under the Services Agreement, we agreed to
pay a fee to SEACOR not to exceed $15,000 per month for the services of Mr.
Fagerstal, plus such other fees for services of others not to exceed the
reasonable value thereof and to reimburse SEACOR for all out-of-pocket expenses
related to the provision of such services. We believe the fees charged by SEACOR
for such services rendered under the Services Agreement approximate the rate
that would be charged by outside non-related parties. We paid SEACOR
approximately $0.2 million, $0.2 million and $0.1 million for the years ended
December 31, 2001, 2000 and 1999, respectively, exclusive of reimbursement of


                                       27
<PAGE>

direct expenses. In January 2002, we paid SEACOR approximately $0.1 million for
services it provided in connection with the financing obtained for the
construction of the Chiles Galileo.

Jonathan Fairbanks, one of our directors, is a partner of Bassoe Offshore A/S
("Bassoe"), a brokerage and market research firm serving the offshore drilling
and service industry. In each of May and October 2000, we paid Bassoe
commissions of approximately $0.5 million upon delivery of each of the Chiles
Magellan and Chiles Columbus and in July 2001, paid Bassoe a commission of
approximately $0.1 million in connection with our acquisition of the Chiles
Coronado. Pursuant to an agreement with Bassoe and SEACOR, in connection with
the delivery of the Chiles Discovery in February 2002, we paid Bassoe and SEACOR
commissions of $0.5 million and $1 million, respectively. In addition, in
connection with the expected delivery of the Chiles Galileo in August 2002, we
are obligated to pay commissions to Bassoe and SEACOR of approximately $0.3
million and $1 million, respectively. These commissions for services rendered
were included in the cost of the rigs. We believe these commissions paid to
Bassoe and SEACOR approximate the commissions that would be paid to outside
non-related parties.

We have also agreed to pay Bassoe a commission equal to one percent of base
dayrate less operating costs in connection with Bassoe's services in
identifying, developing and executing the charter of the Chiles Discovery to
Phillips. We estimate annual commission payments under this agreement will be
approximately $0.1 million (which we believe to be within the range of
acceptable compensation charged by similarly situated firms for such services)
and expect to begin paying Bassoe these commissions in the third quarter of
2002.

Bassoe also has an exclusive right to broker future sale, purchase and charter
transactions with respect to these rigs, provided that its rates are not in
excess of rates charged by unrelated third parties in similar transactions. If
our board of directors decides in the future to exercise any of the remaining
options under the Master Option Agreement, it would have to decide at such time
what commissions, if any, would be due to Bassoe and SEACOR.

Risks Related to Our Operations

The demand for and supply of jackup drilling rigs has been volatile in recent
years. A decrease in demand or an increase in supply of these rigs could reduce
our revenue and operating results

Our business and operations depend upon conditions in the oil and natural gas
industry, including the exploration and production expenditures by oil and gas
companies. Oil and natural gas prices are highly volatile. Material decreases in
oil and natural gas prices will likely affect the level of exploratory and
production expenditures by oil and gas companies, which would decrease the
demand for our services, and reduce our revenues and operating results.
Moreover, because our operations to date have been primarily in the U.S. Gulf of
Mexico, we depend particularly on the condition of the oil and natural gas
industry in the U.S. Gulf of Mexico and on the industry's exploration and
production expenditures in that market. In recent years, an increasing amount of
exploration and production expenditures has been concentrated in deeper water
requiring semisubmersible drilling rigs or drill ships. The trend is expected to
continue and could result in a decline in demand for jackup rigs. In addition,
the allocation of exploration and production expenditures to on-shore prospects
could affect demand for our services.

An improvement in the current prospects for jackup rigs could lead to increased
rig construction and rig upgrade programs by our competitors. A significant
increase in the supply of jackup drilling rigs or other mobile offshore drilling
units that compete with our rigs could decrease the dayrates we are able to
charge for our rigs and their utilization levels. For example, following high
oil and natural gas prices and the related expansion of the offshore drilling
fleet in the 1970s and early 1980s, low oil and natural gas prices weakened the
offshore drilling market for the balance of the 1980s and most of the first half
of the 1990s, which resulted in an excess supply of rigs and significantly
reduced utilization and dayrates. This weakness was particularly pronounced in
the U.S. Gulf of Mexico. While oil and natural gas prices subsequently recovered
and were strong during the first half of 2001, natural gas prices were much
lower during the second half of 2001. Due in large part to the weakening of
natural gas prices, demand for offshore drilling rigs in the U.S. Gulf of Mexico


                                       28
<PAGE>

softened. Although this decline did not impact the demand for our services in
2001, because payments under drilling contracts provide nearly all of our
revenues, if our rigs are not utilized at optimal levels during 2002, or if
market or other conditions do not allow us to charge desirable rates, our
revenues and operating results will decline.

We face intense competition

The offshore contract drilling industry is highly competitive. If the recent
trend toward consolidation in the industry continues, we would expect
competition to become even more intense. Customers generally award drilling
contracts on a competitive bid basis and we believe price of the rig-related
costs and operational capability are generally the major factors in selecting a
drilling contractor. We believe that competition for drilling contracts will
continue to be intense for the foreseeable future in part because of the ability
of contractors to move rigs from areas of low utilization to areas of greater
activity. Drilling contractors operating more expensive rigs, such as "harsh
environment" jackup rigs or semisubmersible drilling rigs, may redeploy rigs to
the U.S. Gulf of Mexico during periods of low demand for these categories of
rigs in other markets and accept lower rate contracts in order to keep their
rigs operating and offset the costs of maintaining and reactivating rigs.
Movement of rigs into the regions in which we operate or a decrease in drilling
activity in the regions in which we operate could reduce utilization of our rigs
and could depress the rates we are able to charge. Moreover, almost all of our
competitors are much larger and more established companies with greater
financial resources.

Drilling-related risks could disrupt our drilling services and result in
liabilities to us.

Our operation of offshore jackup drilling rigs is subject to drilling and
marine-related risks, including:

         o        well blowouts from high pressure formations;
         o        capsizing or sinking;
         o        grounding;
         o        fires;
         o        collapse of wells being drilled;
         o        collisions with other vessels; and
         o        damage from weather or sea conditions or unsound locations.

These hazards could damage the environment, cause personal injury or loss of
life and damage to or destruction of the property and equipment involved. If any
of these events were to occur, we could incur substantial liability. In
addition, the affected rigs could be removed from service and would not be
available to generate revenue and operating income.

Because we operate a limited number of rigs under relatively short-term
contracts, our revenues and operating results are subject to substantial
volatility.

Because we now operate only three rigs, if any of our rigs suffers an actual or
total casualty loss, significant damage, mechanical or other difficulties, or if
for any other reason a rig does not operate for an extended period, our
consolidated revenues and operating results would be significantly reduced. Our
insurance for business interruption may not adequately compensate us for these
reduced revenues.

In addition, because we operate under relatively short-term drilling contracts,
there may be periods in the future when one or more of our rigs is not under
contract and not producing revenues. In addition, if we relocate a rig from one
region to another, customers may not be willing to pay contract rates while the
rig is in transit. If a rig is not under contract, we will continue incurring
the expense of maintaining that rig while awaiting the next contract. Moreover,
if a rig is idle because of lack of demand in the local market, we could incur
additional expenses if we decide to move the rig from that market to another
market where we believe demand will be stronger.



                                       29
<PAGE>

We typically operate our rigs in the U.S. Gulf of Mexico on well-to-well
contracts that last from 30 to 90 days. Presently, two of our rigs are working
for customers who employ the rigs in the U.S. Gulf of Mexico and one of our rigs
is working for a customer in Trinidad. In 2002, two of our rigs, the Chiles
Columbus and Chiles Magellan, will complete their current drilling projects and
we intend to negotiate for other work for these rigs with other potential
customers. However, we cannot guarantee that such negotiations will be
successful nor can we guarantee, if such negotiations are successful, that the
rigs will be able to start such new work immediately after finishing their
current projects.

Construction of our new rig, the Chiles Galileo, is subject to many risks.

We have contracted with AMFELS to construct the Chiles Galileo. This shipyard
may not complete construction on time or within budget for a number of reasons,
including:

         o        shortages of materials or skilled labor;
         o        failure or delay of third party providers to deliver equipment
                  or services to the shipyard;
         o        labor disputes;
         o        weather interferences;
         o        difficulties in obtaining necessary permits or in meeting
                  permit conditions;
         o        or unforeseen engineering problems.

We cannot assure you that the Chiles Galileo or any other rig we may order will
be successfully built or that it will be completed or commissioned on time. If
construction of the Chiles Galileo is delayed due to engineering problems,
termination of the rig construction agreement might be our sole remedy. In the
event we terminate the construction agreement, we would not realize our
anticipated revenues and operating results from the Chiles Galileo until we are
able to otherwise complete its construction and place it into operation, if at
all. These delays could cause us to spend significantly more on the Chiles
Galileo than we currently anticipate.

Under the rig construction agreement, we are responsible for a number of matters
in connection with the construction and completion of the Chiles Galileo.
Because we rely on third parties to satisfy many of these obligations on our
behalf, we cannot assure you that these other parties will perform in a timely
manner, or at all, under our agreements with them. As with all contracts, we may
ultimately have to resort to expensive, protracted and uncertain litigation in
order to enforce our rights under these agreements and seek compensation for any
harm to us.

Terrorist attacks could result in a material adverse effect on our business

On September 11, 2001, the United States was the target of terrorist attacks of
unprecedented scope. These attacks have caused instability in the world's
financial and insurance markets and have significantly increased political and
economic instability in the geographic areas in which we operate. In addition,
these attacks may lead to increased volatility in prices for crude oil and
natural gas and could affect the markets for drilling services. Although we have
not experienced any material adverse effects on our results of operations as a
result of terrorist acts to date, there can be no assurance that terrorism and
its effects on us or our markets will not significantly affect our business in
the future.

Immediately following the events of September 11, 2001, our war risk insurance
underwriters notified us of their intent to cancel their coverage of that risk
in accordance with the terms of the policies and offered to reinstate such
coverage for significantly higher premiums. We agreed to the proposed increase
in premiums and currently maintain war risk coverage for our fleet. War risk
coverage is cancelable by underwriters on forty-eight hours notice, and there
can be no assurance that underwriters will not cancel nor that they will then
offer to reinstate on terms deemed acceptable by us. The events of September 11,
2001 led to war in Afghanistan and may lead to armed hostilities or to further
acts of terrorism in the United States or elsewhere, and such acts of terrorism
could be directed against companies such as ours. Current United States
government regulations effectively preclude us from actively engaging in
business activities in certain countries, including oil-producing countries such
as Iran, Iraq and Libya. Following the events of September 11, 2001, these


                                       30
<PAGE>

regulations could be amended to cover countries where we currently operate or
where we may wish to operate in the future. These developments could subject us
to increased risks and, depending on their magnitude, could have a material
adverse effect on our business.

We have incurred a substantial amount of debt, which could adversely affect our
business, financial condition and results of operations.

In December 2000, we entered into the Bank Facility. In July 2001, in connection
with the acquisition of the Tonala, we assumed approximately $58.8 million in
Marad-guaranteed debt. In October 2001, we entered into an $81 million
Marad-guaranteed financing for the construction and term financing of the Chiles
Galileo. This large amount of indebtedness:

         o        requires us to dedicate a substantial portion of our cash flow
                  from operations to required payments on indebtedness, thereby
                  reducing the availability of cash flow for working capital,
                  capital expenditures and other general corporate purposes;
         o        limits our ability to obtain additional financing in the
                  future for working capital, capital expenditures and other
                  general corporate purposes;
         o        restricts our flexibility in planning for, or reacting to,
                  changes in our business and the industry in which we operate;
         o        detracts from our ability to successfully withstand a downturn
                  in our business or the economy generally; and o places us at a
                  competitive disadvantage against other less leveraged
                  competitors.

The terms of our debt substantially limit our financial and operating
flexibility.

The covenants contained in the agreements governing our existing debt materially
limit our operating flexibility by restricting, among other things, our ability
and the ability of our subsidiaries to:

         o        borrow money for operations or expansion;
         o        make capital investments;
         o        pay dividends; and
         o        engage in other business activities.

If we are unable to hire and retain the qualified personnel we need, our
business will be harmed.

Our success depends to a large extent on the continued services of our senior
management, including, in particular, William Chiles, our President and Chief
Executive Officer, and our ability to attract and retain key operating
personnel. The loss of the services of Mr. Chiles or a number of our senior
managers could, at least in the short term, harm our business and impair our
ability to continue to grow our business.

During 1997, unemployment rates in the offshore contract drilling industry
reached unusually low levels. If the industry returns to such level of activity
in the future, we may experience similar shortages and increased labor costs. We
cannot assure you that sufficient labor will be available in the future or that
the cost of labor will not rise, either of which could negatively affect our
performance.

We are subject to risks associated with operating in markets outside the United
States.

In October 2001, we began operations in Trinidad. In addition, we expect to
commence operations in the East Timor Gap Zone of Cooperation, located between
East Timor and Australia, in the second quarter of 2002 and may, in the future,
conduct operations in additional international regions. Our operations in these
regions are, and will be, subject, in varying degrees, to risks inherent in
doing business abroad. Our non-U.S. operations are, and will be, subject to
certain political, economic and other uncertainties not typically encountered in
U.S. operations, including risks of:

         o        disruption of markets from war, civil disturbances or other
                  similar events;



                                       31
<PAGE>

         o        government expropriation of assets;
         o        the general hazards associated with the assertion of national
                  sovereignty by foreign governments over the regions in which
                  we conduct operations;
         o        fluctuating currency values;
         o        hard currency shortages;
         o        governmental controls of currency exchange;
         o        repatriation of income or capital; and
         o        regulation of oil and gas drilling operations relating to
                  natural resources, employment, the environment and other areas
                  of our business.

Any of these factors could have a substantial impact on our business and may
reduce our revenues and operating results.

Contractual indemnification provisions and insurance coverage may not protect us
from a number of the liabilities that could arise from the risks inherent in our
business.

We cannot assure you that we can obtain contractual indemnification pursuant to
which our customers would agree to protect and indemnify us to some degree from
liability for pollution and environmental damages in all of our contracts, that
the level of indemnification that we obtain will be meaningful, that such
indemnification agreements will be enforceable or that the customer will be
financially able to comply with its indemnity obligations.

We also maintain insurance coverage that we consider adequate against many of
the risks related to our drilling services. We have not in the past experienced
a loss in excess of policy limits. We cannot assure you, however, that our
existing insurance coverage can be renewed at commercially reasonable rates, or
at all, or that available coverage will be adequate to cover future claims.
Moreover, any insurance that we do obtain may have significant exceptions to
coverage, be subject to substantial deductibles or provide for premium
adjustments based on claims. If a loss occurs that is partially or completely
uninsured, we could be exposed to substantial liability.

Moreover, the relatively small number of rigs in our fleet means that material
damage to or loss of even one of these rigs would have a material impact on our
business and future prospects.

We may suffer losses if our customers terminate or seek to renegotiate their
contracts.

Our contracts with customers may be cancelable upon specified notice at the
option of the customer. Some drilling contracts require the customer to pay a
specified early termination payment upon cancellation, which payments may not
fully compensate us for the loss of the contract. Contracts customarily provide
for either automatic termination or termination at the option of the customer in
the event of total loss of the drilling rig or if drilling operations are
suspended for extended periods of time by reason of acts of God or excessive rig
downtime for repairs, or other specified conditions. Early termination of a
contract may result in a rig being idle for an extended period of time. Our
revenue may be adversely affected by customers' early termination of contracts,
especially if we are unable to recontract the affected rig within a short period
of time. Further, in times of depressed market conditions, our customers
historically have on occasion sought to renegotiate firm drilling contracts to
reduce their obligations.

Laws and governmental regulations may add to our operating costs or limit
drilling activity.

Our business is affected by changes in public policy and by federal, state,
foreign and local laws and regulations relating to the energy industry. The
drilling industry is dependent on demand for services from the oil and natural
gas exploration industry and, accordingly, we will be directly affected by the
adoption of laws and regulations curtailing exploration and development drilling
for oil and natural gas for economic, environmental and other policy reasons. We
may be required to make significant capital expenditures to comply with
governmental laws and regulations. It is also possible that these laws and
regulations may in the future add significantly to our operating costs or may
significantly limit drilling activity.



                                       32
<PAGE>

Governments in some non-U.S. countries have become increasingly active in
regulating and controlling the ownership of concessions, companies holding
concessions, the exploration of oil and natural gas and other aspects of the oil
and natural gas industries in these countries. In some areas of the world, this
governmental activity has adversely affected the amount of exploration and
development work done by major oil companies and may continue to do so.

Risks Related to Our Relationship with SEACOR

SEACOR is able to exert significant influence over us.

SEACOR owns approximately 24% of the voting power of our company. In addition,
four of the members of our board of directors are officers of SEACOR. As a
result, SEACOR is in a position to influence our policies and affairs and to
influence the outcome of corporate actions requiring stockholder approval,
including:

         o        the composition of our Board of Directors and, through it, the
                  direction and policies of our company, including the
                  appointment and removal of officers;
         o        mergers and business combinations or sales of our assets; and
         o        amendments to our charter.

Significant reductions in SEACOR's ownership of our stock or board
representation will result in an event of default under our Bank Facility.

In connection with our Bank Facility, the failure of SEACOR to maintain minimum
ownership levels and board representation constitutes an event of default. In
this event, the lenders may accelerate the maturity of this debt and foreclose
upon the collateral securing the debt. If the debt is accelerated, we expect
that we will have to refinance that debt and we cannot assure you that we will
be able to refinance the debt on favorable terms, if at all.

ITEM 7A. 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. Our policy is to manage interest
rate risk through the use of a combination of fixed and floating rate debt. We
may also use treasury rate locks and U.S. treasury note futures and options
contracts, when appropriate, to manage this risk. 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. From time to
time, when appropriate, we may enter into natural gas futures, swaps and options
contracts to help mitigate this risk. This may cause additional exposure to
changes in interest rates and the price of natural gas. We mitigate this
additional risk by closely tracking our open positions in accordance with
parameters set by our board of directors and carefully monitor the credit
ratings of our counterparties on transactions. In addition, we can settle our
open positions in our contracts at any time, thereby minimizing the risk of
loss. As of December 31, 2001, we held derivative positions with an aggregate
fair market value of approximately $2 million. For further discussion of these
transactions see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Derivative Transactions" above.

As of December 31, 2001, the carrying value of our fixed-rate debt approximated
market value based on interest rates that could be obtained on similar issuances
of debt.

ITEM 8.  Financial Statements and Supplementary Data

The consolidated financial statements and related notes commence on page F-1 of
this Annual Report on Form 10-K.


                                       33
<PAGE>

ITEM 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

None.
                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant

As permitted by General Instruction G. to this Form 10-K, other than information
with respect to our executive officers which is set forth in Item 4a of Part I
of this Form 10-K, the information required to be disclosed pursuant to this
Item 10 is incorporated in its entirety herein by reference to our definitive
proxy statement to be filed with the Commission pursuant to Regulation 14A
within 120 days after the end of our last fiscal year.

ITEM 11. Executive Compensation

As permitted by General Instruction G. to this Form 10-K, the information
required to be disclosed pursuant to this Item 11 is incorporated in its
entirety herein by reference to our definitive proxy statement to be filed with
the Commission pursuant to Regulation 14A within 120 days after the end of our
last fiscal year.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

As permitted by General Instruction G. to this Form 10-K, the information
required to be disclosed pursuant to this Item 12 is incorporated in its
entirety herein by reference to our definitive proxy statement to be filed with
the Commission pursuant to Regulation 14A within 120 days after the end of our
last fiscal year.

ITEM 13. Certain Relationships and Related Transactions

As permitted by General Instruction G. to this Form 10-K, the information
required to be disclosed pursuant to this Item 13 is incorporated in its
entirety herein by reference to our definitive proxy statement to be filed with
the Commission pursuant to Regulation 14A within 120 days after the end of our
last fiscal year.

                                     PART IV

ITEM 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K

(a)      Index to Financial Statements, Financial Statement Schedules and
         Exhibits

                  (1)      Financial Statements

                           See Index to Consolidated Financial Statements on F-1
                           of this Annual Report on Form 10-K.

                  (2)      Financial Statement Schedules

                           No schedules have been included herein because the
                           information required to be submitted has been
                           included in the Consolidated Financial Statements or
                           the notes thereto, or the required information is
                           inapplicable.

                  (3)      Exhibit Index -


                                       34
<PAGE>

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 to Chiles Offshore Inc.'s Current Report on
           Form 8-K filed with the Commission August 9, 2001).

3.1*       Second Amended and Restated Operating Agreement of Chiles Offshore,
           LLC, dated as of May 1, 2000 (incorporated herein by reference to
           exhibit 3.1 to the Registration Statement on Form S-1 (No. 333-39418)
           filed with the Commission on June 15, 2000).

3.2*       Amendment, dated as of June 14, 2000, to Second Amended and Restated
           Operating Agreement of Chiles Offshore LLC (incorporated herein by
           reference to exhibit 3.2 to the Registration Statement on Form S-1
           (No. 333-39418) filed with the Commission on June 15, 2000).

3.3*       Form of Certificate of Incorporation of Chiles Offshore Inc.
           (incorporated herein by reference to exhibit 3.3 to Amendment No. 2
           to the Registration Statement on Form S-1 (No. 333-39418) filed with
           the Commission on July 24, 2000).

3.4*       Form of Bylaws of Chiles Offshore Inc. (incorporated herein by
           reference to exhibit 3.4 to Amendment No. 3 to the Registration
           Statement on Form S-1 (No. 333-39418) filed with the Commission on
           August 11, 2000).

3.5*       Certificate of Formation of Chiles Offshore LLC, dated as of July 31,
           1997 (incorporated herein by reference to exhibit 3.5 to Amendment
           No. 1 to the Registration Statement on Form S-1 (No. 333-39418) filed
           with the Commission on July 7, 2000).

3.6*       Form of Certificate of Conversion (incorporated herein by reference
           to exhibit 3.6 to Amendment No. 3 of the Registration Statement on
           Form S-1 (No. 333-39418) filed with the Commission on August 11,
           2000).

3.7*       Certificate of Amendment to the Certificate of Incorporation of
           Chiles Offshore Inc., effective as of August 13, 2001 (incorporated
           herein by reference to Exhibit 3.1 to Chiles Offshore Inc.'s
           Quarterly Report on Form 10-Q for the period ended June 30, 2001
           filed with the Commission on August 14, 2001).

3.8*       Amended and Restated By-Laws of Chiles Offshore Inc., effective as of
           July 10, 2001 (incorporated herein by reference to Exhibit 3.2 to
           Chiles Offshore Inc.'s Quarterly Report on Form 10-Q for the period
           ended June 30, 2001 filed with the Commission on August 14, 2001).

4.1*       Form of Specimen Certificate of Common Stock of Chiles Offshore Inc.
           (incorporated herein by reference to exhibit 4.1 to Amendment No. 2
           to the Registration Statement on Form S-1 (No. 333-39418) filed with
           the Commission on July 24, 2000).

10.1*      Platform Construction Agreement, dated April 6, 2000, by and between
           Keppel FELS Limited and Chiles Offshore LLC relating to the Chiles
           Discovery (incorporated herein by reference to exhibit 10.1 to the
           Registration Statement on Form S-1 (No. 333-39418) filed with the
           Commission on June 15, 2000).


                                       35
<PAGE>

Exhibit No.                             Description
-----------                             -----------

10.2*           Platform Construction Agreement, dated April 6, 2000, by and
                between AMFELS, Inc. and Chiles Offshore LLC related to the
                Chiles Galileo, including the Letter regarding Platform
                Construction Agreement, dated October 3, 2000 and related
                material (incorporated herein by reference to exhibit 10.2 to
                the Annual Report on Form 10-K for the year ended December 31,
                2000).

10.3*           Master Option Agreement, dated April 6, 2000, by and among
                Chiles Offshore LLC, Keppel FELS Limited and AMFELS, Inc.
                (incorporated herein by reference to exhibit 10.3 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on June 15, 2000).

10.5*           Commission Agreement, dated April 1, 2000, between Bassoe
                Offshore (USA), Inc. and Chiles Offshore LLC (incorporated
                herein by reference to exhibit 10.5 to the Registration
                Statement on Form S-1 (No. 333-39418) filed with the Commission
                on June 15, 2000).

10.6*           Commission Agreement, dated April 1, 2000, among Bassoe Offshore
                (USA), Inc., SEACOR SMIT Inc. and Chiles Offshore LLC
                (incorporated herein by reference to exhibit 10.6 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on June 15, 2000).

10.7*           Amended and Restated Management and Administrative Services
                Agreement, dated as of July 18, 2000, by and between SEACOR SMIT
                Inc. and Chiles Offshore LLC (incorporated herein by reference
                to exhibit 10.7 to Amendment No. 2 to the Registration Statement
                on Form S-1 (No. 333-39418) filed with the Commission on July
                24, 2000).

10.8*, **       Employment Agreement, dated November 1, 1997, by and between
                William E. Chiles and Chiles Offshore LLC (incorporated herein
                by reference to exhibit 10.8 to the Registration Statement on
                Form S-1 (No. 333-39418) filed with the Commission on June 15,
                2000).

10.9*, **       Extension of Term under Employment Agreement, dated November 1,
                1997, between Chiles Offshore LLC and William E. Chiles
                (incorporated herein by reference to exhibit 10.9 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on June 15, 2000).

10.10*, **      2000 Stock Option Plan (incorporated herein by reference to
                exhibit 10.10 to Amendment No. 2 to the Registration Statement
                on Form S-1 (No. 333-39418) filed with the Commission on July
                24, 2000).

10.11*, **      Severance Benefits Agreement, dated June 12, 2000, among Chiles
                Offshore LLC and Gabriel Padilla, William H. Hopkins, William A.
                Thorogood, Donald B. Gregg and George Bruce Brumley
                (incorporated herein by reference to exhibit 10.11 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on June 15, 2000).

10.12*          Registration Rights Agreement, dated as of June 15, 2000 among
                Chiles Offshore LLC and the Holders named therein (incorporated
                herein by reference to exhibit 10.16 to Amendment No. 2 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on July 24, 2000).

10.13*          Letter Agreement, dated August 5, 1997, between Chiles Offshore
                LLC and Bassoe Rig Partners Ltd. (incorporated herein by
                reference to exhibit 10.19 to the Registration Statement on Form
                S-1 (No. 333-39418) filed with the Commission on June 15, 2000).



                                       36
<PAGE>

Exhibit No.                             Description
-----------                             -----------

10.14*          Commitment Letter, dated April 4, 2000, by Keppel TatLee Bank
                (incorporated herein by reference to exhibit 10.20 to Amendment
                No. 1 to the Registration Statement on Form S-1 (No. 333-39418)
                filed with the Commission on July 7, 2000).

10.15*          Agreement with Respect to Ownership of the Tonala, dated as of
                July 20, 2000, by and between Chiles Offshore LLC, Perforadora
                Central, S.A. de C.V., Grupo Industrial Atlantida, S.A. de C.V.,
                Patricio Alvarez Morphy, Javier Alvarez Morphy, Luis Alvarez
                Morphy and Enrique Chaves Quintana (incorporated herein by
                reference to exhibit 10.22 to Amendment No. 2 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on July 24, 2000).

10.16*          Amendment No. 1 to the Chiles Offshore Inc. 2000 Stock Option
                Plan (incorporated herein by reference to exhibit 10.1 to the
                Quarterly Report on Form 10-Q for the fiscal quarter ending
                September 30, 2000 filed with the Commission on November 14,
                2000).

10.17*          Amendment to Bareboat Charter, dated November 10, 2000, between
                Chiles Offshore Inc. and Perforadora Central, S.A. de C.V.
                (incorporated herein by reference to exhibit 10.2 to the
                Quarterly Report on Form 10-Q for the fiscal quarter ending
                September 30, 2000 filed with the Commission on November 14,
                2000).

10.18*          Amendment No. 1 to Agreement with Respect to Ownership of the
                Tonala, dated November 10, 2000, among Chiles Offshore Inc.,
                Perforadora Central, S.A. de C.V., Grupo Industrial Atlantida,
                S.A. de C.V., Patricio Alvarez Morphy, Javier Alvarez Morphy,
                Luis Alverez Morphy and Enrique Chavez Quintana (incorporated
                herein by reference to exhibit 10.3 to the Quarterly Report on
                Form 10-Q for the fiscal quarter ending September 30, 2000 filed
                with the Commission on November 14, 2000).

10.19*          Amended and Restated Credit Agreement, dated as of December 7,
                2000 among Chiles Offshore Inc. and Fortis Capital Corp, Nedship
                Bank N.V. and Den norske Bank ASA (incorporated herein by
                reference to exhibit 10.25 to the Annual Report on Form 10-K for
                the year ended December 31, 2000).

10.20*          Rig Finance Agreement, dated as of November 22, 2000, by and
                among Chiles Discovery LLC, the financial institutions listed
                therein and Keppel Tatlee Bank Limited, as agent (incorporated
                herein by reference to exhibit 10.26 to the Annual Report on
                Form 10-K for the year ended December 31, 2000).

10.21*          Commitment Letter, dated December 22, 2000, by Citibank, N.A.
                (incorporated herein by reference to exhibit 10.27 to the Annual
                Report on Form 10-K for the year ended December 31, 2000)

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

10.23+          Drilling Contract, dated June 21, 2001, between Phillips
                Petroleum (91-12) Pty Ltd. ABN 73 064 963 346 and Chiles
                Offshore Inc.

10.24+          Separation and Release Agreement, dated January 31, 2002,
                between William A. Thorogood and Chiles Offshore Inc.

10.25+          Drill Pipe Rental Agreement, dated February 25, 2002, by and
                between Chiles Offshore Inc. and Hercules Offshore Corporation.



                                       37
<PAGE>

Exhibit No.                             Description
-----------                             -----------

10.26+          Credit Agreement, dated as of October 31, 2001, between Chiles
                Galileo LLC, Citibank, N.A. and the other lenders set forth on
                the signature pages thereof.

10.27+          Trust Indenture, dated as of October 31, 2001, between Chiles
                Galileo LLC and U.S. Bank National Association.

10.28+          $81,000,000 United States Government Guaranteed Export Ship
                Financing Note, dated October 31, 2001, by Chiles Galileo LLC.

10.29+          Security Agreement, dated October 31, 2001, between Chiles
                Galileo LLC and the United States of America.

10.30+          Title XI Reserve Fund and Financial Agreement, dated October 31,
                2001, between Chiles Galileo LLC and the United States of
                America.

10.31+          Subordinated Loan Commitment, dated October 31, 2001, made by
                Chiles Offshore Inc. to Chiles Galileo LLC.

10.32+          Subordination Agreement dated October 31, 2001, among Chiles
                Offshore Inc., Chiles Galileo LLC and the United States of
                America.

10.33+          Amendment No. 1 to Platform Construction Agreement, dated
                October 31, 2001, between AMFELS, Inc. and Chiles Offshore Inc.

10.34+          Assignment and Assumption of Construction Contract, dated
                October 31, 2001, among AMFELS, Inc., Chiles Offshore Inc. and
                Chiles Galileo LLC.

10.35+          Trust Indenture, dated as of November 5, 1998, between
                Perforadora Central, S.A. de C.V. (predecessor in interest to
                Chiles Coronado Inc.) and Bank One Trust Company, N.A.

10.36+          Security Agreement, dated as of November 5, 1998, between
                Perforadora Central, S.A. de C.V. (predecessor in interest to
                Chiles Coronado Inc.) and the United States of America.

10.37+          Amendment No. 1 to Security Agreement, dated as of January 21,
                2000, between Perforadora Central, S.A. de C.V. (predecessor in
                interest to Chiles Coronado Inc.) and the United States of
                America.

10.38+          Amendment No. 2 to Security Agreement, dated as of July 30,
                2001, between Chiles Coronado Inc. and the United States of
                America.

10.39+          Title XI Reserve Fund and Financial Agreement, dated November 5,
                1998, between Perforadora Central, S.A. de C.V. (predecessor in
                interest to Chiles Coronado Inc.) and the United States of
                America.

10.40+          Amendment No. 1 to Title XI Reserve Fund and Financial
                Agreement, dated as of January 21, 2000, between Perforadora
                Central, S.A. de C.V. (predecessor in interest to Chiles
                Coronado Inc.) and the United States of America.

10.41+          Amendment No. 2 to Title XI Reserve Fund and Financial
                Agreement, dated July 30, 2001, between Chiles Coronado Inc. and
                the United States of America.


                                       38
<PAGE>

Exhibit No.                             Description
-----------                             -----------

10.42+          Master Assumption Agreement, Supplemental Indenture No. 1 and
                Amendment to Title XI Finance Agreements, dated as of March 15,
                2001, among Perforadora Central, S.A. de C.V., PC2 S.A. de C.V.,
                the United States of America and Bank One Trust Company N.A.

10.43+          Intervention of Grupo Industrial Atlantida, S.A. de C.V. into
                Master Assumption Agreement, Supplemental Indenture No. 1 and
                Amendment to Title XI Finance Agreement, dated June 6, 2001,
                among Grupo Industrial Atlantida, S.A. de C.V., the United
                States of America and Bank One Trust Company.

10.44+          Intervention of GIA 2 S.A. de C.V. into the Master Assumption
                Agreement, Supplemental Indenture No. 1 and Amendment to Title
                XI Finance Agreements, dated as of June 6, 2001, among GIA 2
                S.A. de CV, the United States of America and Bank One Trust
                Company N.A.

10.45+          Intervention of Tonala, Inc. (now Chiles Coronado Inc.) into the
                Master Assumption Agreement, Supplemental Indenture No. 1 and
                Amendment to Title XI Finance Agreements, dated as of July 13,
                2001, among Tonala, Inc. the United States of America and Bank
                One Trust Company N.A.

10.46+          Release, dated July 30, 2001, between the United States of
                America and Bank One Trust Company, N.A.

21.1+           Subsidiaries of Chiles Offshore Inc.

23.1+           Consent of Arthur Andersen LLP.

99.1+           Letter from Chiles Offshore Inc. to the Securities and Exchange
                Commission regarding representations by Arthur Andersen LLP.

-----------
*        Incorporated herein by reference as indicated.
**       Management contracts or compensatory plans or arrangements required to
         be filed as exhibits to this Annual Report on Form 10-K by Item 14 (c)
         of the rules governing the preparation of this Annual Report on Form
         10-K.
+        Filed as an exhibit herewith.

(b)      Reports on Form 8-K

         No reports on Form 8-K were filed by the registrant during the
         quarterly period ended December 31, 2001.


                                       39
<PAGE>

                                   SIGNATURES

                  Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has duly caused this
Annual Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 29, 2002.

                          CHILES OFFSHORE INC.

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

                  Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Annual Report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on March 29,
2002.
<TABLE>
                         Signature                                                    Title
                         ---------                                                    -----
<S>                                                            <C>
                   /s/ Charles Fabrikant                                Chairman of the Board of Directors
-----------------------------------------------------------
                     Charles Fabrikant



                    /s/ William Chiles                                President and Chief Executive Officer
-----------------------------------------------------------         (Principal Executive Officer) and Director
                      William Chiles



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



                     /s/ Randall Blank                                               Director
-----------------------------------------------------------
                       Randall Blank



                    /s/ Timothy McKeand                                              Director
-----------------------------------------------------------
                      Timothy McKeand



                     /s/ Robert Pierot                                               Director
-----------------------------------------------------------
                       Robert Pierot


                                       40
<PAGE>

                         Signature                                                    Title
                         ---------                                                    -----

                  /s/ Jonathan Fairbanks                                             Director
-----------------------------------------------------------
                    Jonathan Fairbanks



                      /s/ Alan Locker                                                Director
-----------------------------------------------------------
                        Alan Locker



                    /s/ Patricio Morphy                                              Director
-----------------------------------------------------------
                      Patricio Morphy



                      /s/ Luis Morphy                                                Director
-----------------------------------------------------------
                        Luis Morphy

</TABLE>








                                       41
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                     Page
                                                                     ----

Report of Independent Public Accountants..............................F-2

Consolidated Balance Sheets...........................................F-3

Consolidated Statements of Operations.................................F-4

Consolidated Statements of Cash Flows.................................F-5

Consolidated Statement of Members' and Stockholders' Equity...........F-6

Notes to Consolidated Financial Statements............................F-7











                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of Chiles Offshore Inc.:

We have audited the accompanying consolidated balance sheets of Chiles Offshore
Inc. (a Delaware corporation) and subsidiaries (formerly, Chiles Offshore LLC)
as of December 31, 2001 and 2000, and the related consolidated statements of
operations, cash flows and members' and stockholders' equity for each of the
three years in the period ended December 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chiles Offshore Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
February 12, 2002









                                      F-2
<PAGE>
                      CHILES OFFSHORE INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                           ----------------------------
                                                                              2001             2000
                                                                           -----------      -----------
                                ASSETS
<S>                                                                        <C>              <C>
CURRENT ASSETS:
  Cash and cash equivalents...........................................     $    21,419      $    47,145
  Restricted cash ....................................................               -            6,443
  Accounts receivable.................................................           9,982            7,661
  Inventories.........................................................           1,943              797
  Other current assets................................................           2,948              616
                                                                           -----------      -----------
      Total current assets............................................          36,292           62,662
                                                                           -----------      -----------

PROPERTY AND EQUIPMENT:
  Drilling rigs and equipment.........................................         320,568          196,496
  Furniture and fixtures..............................................           1,899            1,407
  Rigs under construction.............................................         142,317           46,498
  Less:  accumulated depreciation.....................................         (18,702)          (9,682)
                                                                           ------------     ------------
      Total property and equipment....................................         446,082          234,719

OTHER ASSETS..........................................................          10,190            2,674
                                                                           -----------      -----------
      Total assets....................................................     $   492,564      $   300,055
                                                                           ===========      ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable....................................................     $    19,400      $    14,156
  Accrued liabilities.................................................           7,552            9,192
  Taxes payable.......................................................           1,485                -
  Current portion of long-term debt...................................           5,775                -
                                                                           -----------      -----------
      Total current liabilities.......................................          34,212           23,348

BANK FACILITY.........................................................          14,000                -
LONG-TERM DEBT, net of current portion................................          70,213                -
DEFERRED TAX LIABILITY................................................          38,967           28,858
OTHER NON-CURRENT LIABILITIES.........................................           9,689                -
                                                                           -----------      -----------
      Total liabilities...............................................         167,081           52,206
                                                                           -----------      -----------

COMMITMENTS  AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Common stock, par value $0.01 per share; 100,000,000 shares
    authorized, 20,371,932 and 17,687,241 shares issued, respectively.             204              177
  Less 109,000 shares held in treasury, at cost.......................          (1,744)          (1,744)
  Additional paid-in capital..........................................         329,088          274,027
  Retained deficit....................................................          (2,065)         (24,611)
                                                                           -----------      -----------
      Total stockholders' equity......................................         325,483          247,849
                                                                           -----------      -----------
      Total liabilities and stockholders' equity......................     $   492,564      $   300,055
                                                                           ===========      ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements and should be read in conjunction herewith.


                                      F-3
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                            ----------------------------------------------
                                                                2001             2000            1999
                                                            ------------      ------------    ------------
<S>                                                         <C>               <C>             <C>
REVENUE................................................     $     74,184      $     56,006    $      8,596

COSTS AND EXPENSES:
  Operating............................................           23,659            18,538           5,377
  Charter..............................................            6,798             6,677               -
  General and administrative...........................            5,020             2,853           1,326
  Depreciation and amortization........................            9,019             7,176           2,478
                                                            ------------      ------------    ------------
      Total costs and expenses.........................           44,496            35,244           9,181

OPERATING INCOME (LOSS)................................           29,688            20,762            (585)

OTHER INCOME (EXPENSE):
  Interest expense, net of capitalized interest........                -            (8,008)         (3,764)
  Interest income......................................              649             1,224             874
  Other income.........................................            3,824                 -               -
                                                            ------------      ------------    ------------
      Total other income (expense)....................             4,473            (6,784)         (2,890)

INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM          34,161            13,978          (3,475)

PROVISION FOR INCOME TAXES, INCLUDING
  CHANGE IN TAX FILING STATUS IN 2000..................          (11,615)          (29,881)              -
                                                                 -------      ------------    ------------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................           22,546           (15,903)         (3,475)

EXTRAORDINARY ITEM, NET OF TAX OF
  $1,023 IN 2000 AND $0 IN 1999........................                -            (1,820)           (488)
                                                            ------------      ------------  --------------

NET INCOME (LOSS)......................................     $     22,546      $    (17,723)   $     (3,963)
                                                            ============      ============    ============


Income (loss) per common share - basic:
  Before extraordinary item...........................      $       1.20      $      (1.55)   $      (0.68)
  Extraordinary item, net.............................                 -             (0.18)          (0.09)
                                                            ------------      ------------    ------------
  Net income (loss)....................................     $       1.20      $      (1.73)   $      (0.77)
                                                            ============      ============    ============

Income (loss) per common share - diluted:
  Before extraordinary item...........................      $       1.20      $      (1.55)   $      (0.68)
  Extraordinary item, net.............................                 -             (0.18)          (0.09)
                                                            ------------      ------------    ------------
  Net income (loss)....................................     $       1.20      $      (1.73)   $      (0.77)
                                                            ============      ============    ============

Weighted average common shares outstanding:
  Basic................................................           18,756            10,253           5,116
  Diluted..............................................           18,852            10,253           5,116
</TABLE>

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


                                      F-4
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)
<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                             ------------------------------------------
                                                                2001            2000            1999
                                                             ----------      ----------      ----------
<S>                                                          <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).......................................   $   22,546      $  (17,723)     $   (3,963)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities -
    Deferred income taxes.................................       10,130          29,881               -
    Depreciation and amortization.........................        9,019           7,176           2,478
    Recognition of deferred (revenue) expense, net........         (319)            368             136
    Unrealized gain on derivative instruments.............       (2,041)              -               -
    Extraordinary loss on extinguishment of debt, net ....            -           1,820             488
  Increase (decrease) in operating cash flows resulting
from-
    Accounts receivable...................................       (2,321)         (3,908)         (3,753)
    Inventories...........................................       (1,146)            715              82
    Accounts payable......................................        5,244           7,291           4,204
    Accrued liabilities...................................        1,067           5,889           1,126
    Current taxes payable.................................        1,485               -               -
    Deferred revenue......................................        6,780          (1,500)          1,500
    Other.................................................       (5,400)         (4,293)           (369)
                                                             ----------      ----------      ----------

  Net cash provided by operating activities...............       45,044          25,716           1,929
                                                             ----------      ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.....................     (109,378)        (50,198)        (82,138)
                                                             ----------      ----------      ----------

  Net cash used in investing activities...................     (109,378)        (50,198)        (82,138)
                                                             ----------      ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Membership capital contributions, net...................            -          32,790          14,947
  Exercise of rights......................................            -           3,000               -
  Proceeds from credit facility...........................       21,000          16,860          22,000
  Repayment of credit facility ...........................       (7,000)        (38,860)              -
  Borrowings of long-term debt............................       18,102               -               -
  Repurchase and retirement of senior notes...............            -         (94,876)        (15,000)
  Purchase of treasury stock..............................            -          (1,744)              -
  Exercise of employee stock options......................           63               -               -
  Proceeds from public offering, net......................            -         156,948               -
                                                             ----------      ----------      ----------

  Net cash provided by financing activities...............       32,165          74,118          21,947
                                                             ----------      ----------      ----------

RESTRICTED CASH, beginning of period......................        6,443               -          62,214
                                                             ----------      ----------      ----------

RESTRICTED CASH, end of period............................            -           6,443               -
                                                             ----------      ----------      ----------
NET DECREASE (INCREASE) IN RESTRICTED CASH................        6,443          (6,443)         62,214
                                                             ----------      ----------      ----------

NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS..........................................      (25,726)         43,193           3,952
                                                             ----------      ----------      ----------
CASH AND CASH EQUIVALENTS, beginning of period............       47,145           3,952               -
                                                             ----------      ----------      ----------

CASH AND CASH EQUIVALENTS, end of period..................   $   21,419      $   47,145      $    3,952
                                                             ==========    ============      ==========
</TABLE>

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


                                      F-5
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF MEMBERS' AND
                              STOCKHOLDERS' EQUITY

                        (in thousands, except share data)
<TABLE>
<CAPTION>
                                             Retained               Common Stock                Additional   Retained
                                 Members'    Earnings            ------------------    Treasury   Paid-In    Earnings
                                  Equity    (Deficit)  Rights    Shares     Dollars     Stock     Capital    (Deficit)     Total
                                  ------    ---------  ------    ------     -------     -----     -------    ---------     -----
<S>                              <C>         <C>        <C>     <C>         <C>        <C>       <C>          <C>        <C>
BALANCE, December 31, 1998...... $  63,731   $   (136)  $  --          --   $    --    $    --   $     --     $    --    $ 63,595
Capital contributions,
  November 30, 1999 (net of
  offering costs)...............    14,490         --     456          --        --         --         --          --      14,946
Net loss........................        --     (3,963)     --          --        --         --         --          --      (3,963)
                                 ---------   --------   -----   ---------   -------    -------   --------     -------    --------
BALANCE, December 31, 1999......    78,221     (4,099)    456                    --         --         --          --      74,578
Capital contributions, May, 2000
  (net of offering costs).......    32,790         --      --                    --         --         --          --      32,790
Net income, January 1, 2000
  through September 21, 2000....        --      6,888      --          --        --         --         --          --       6,888
Exchange of membership interests
  for shares of common stock,
  September 22, 2000............  (111,011)        --      --   8,485,810        85         --    110,926          --          --
Transfer Chiles Offshore LLC
  retained earnings to Chiles
  Offshore Inc. additional
  paid-in capital...............        --     (2,789)     --          --        --         --      2,789          --          --
Exercise of rights,
  September 22, 2000............        --         --    (456)    231,431         2         --      3,454          --       3,000
Net proceeds from public
  offering of common stock,
  September 22, 2000............        --         --      --   8,970,000        90         --    156,858          --     156,948
Purchase of treasury stock,
  December  2000................        --         --      --    (109,000)       --     (1,744)        --          --      (1,744)
Net loss, September 22, 2000
  through
  December, 31, 2000............        --         --      --          --        --         --         --     (24,611)    (24,611)
                                 ---------   --------   -----   ---------   -------    -------   --------     -------    --------
BALANCE, December 31, 2000......        --         --      --   17,578,241      177     (1,744)   274,027     (24,611)    247,849
Issuance of stock in acquisition
  of Chiles Coronado, July 2001.        --         --      --   2,679,723        27         --     54,977          --      55,004
Exercise of employee stock
  options.......................        --         --      --       4,968        --         --         84          --          84
Net income......................        --         --      --          --        --         --         --      22,546      22,546
                                 ---------   --------   -----   ---------   -------    -------   --------     -------    --------
BALANCE, December 31, 2001...... $      --   $     --   $  --   20,262,932  $   204    $(1,744)  $329,088     $(2,065)   $325,483
                                 =========   ========   =====  ===========  =======    =======   ========     =======    ========
</TABLE>

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


                                      F-6
<PAGE>
                      CHILES OFFSHORE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.      ORGANIZATION AND BUSINESS

Chiles Offshore Inc. ("Chiles") and its wholly-owned subsidiaries (collectively,
the "Company") is engaged in the construction and operation of mobile offshore
drilling rigs in the U.S. Gulf of Mexico, Trinidad and Singapore. The Company
presently operates three jackup drilling rigs and has two additional jackup
drilling rigs under construction.

The Company was originally formed as Chiles Offshore LLC under the laws of the
State of Delaware as a limited liability company on August 5, 1997, and
converted into a Delaware corporation on September 22, 2000, in conjunction with
the Company's initial public offering of common stock ("IPO"). In connection
with the conversion, the membership interests of the members of Chiles Offshore
LLC were converted at the rate of approximately 87,172 shares of common stock of
the Company for each 1% membership interest, with a total 8,485,810 shares of
common stock issued to Chiles Offshore LLC members. Just prior to the IPO,
rights for membership interests in Chiles Offshore LLC (representing 231,431
shares of common stock after the IPO) were exercised for $3 million. The number
of shares of common stock of the Company received by each member of Chiles
Offshore LLC was in proportion to each member's previous membership interest in
Chiles Offshore LLC immediately prior to the IPO. Through the IPO, the Company
sold 8,970,000 common shares for approximately $157 million of net proceeds and
used approximately $106 million of the IPO proceeds to repurchase and retire
substantially all of its outstanding senior notes and accrued interest and to
repay its Bank Facility with accrued interest. The Company also used IPO
proceeds to fund a portion of the costs required to further expand the rig fleet
and for other corporate purposes. The Company's common stock is traded on the
American Stock Exchange under the trading symbol "COD."

The Company's 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 the Company begins to
expand its operations beyond the U.S. Gulf of Mexico into Trinidad and the Far
Eastern markets, the Company's 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 it operates. 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 and the Company experienced steady demand for
its services through 2001. However, U.S. Gulf of Mexico rig activity has
declined in recent months due apparently to lower natural gas prices and current
natural gas inventories are reported to be at higher than normal capacity.
Drilling activities in the U.S. Gulf of Mexico may also be adversely affected by
the present U.S. economic slowdown that may be further exacerbated by the
September 11, 2001, terrorist attacks in New York City and Washington D.C.
Although the initial decline in U.S. drilling activity did not impact the demand
for the Company's services in 2001, a sustained decline could adversely impact
the demand for the Company's services in 2002. Sustained weak commodity prices,
economic problems in countries outside the United States, and a number of other
factors beyond the Company's control could further curtail spending by oil and
gas companies. The Company cannot predict whether or not current U.S. market
conditions will improve and if so, to what extent. A sustained period of
depressed market conditions would have a material adverse effect on the
Company's future results of operations. The Company is 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.



                                      F-7
<PAGE>


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

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.

Revenue Recognition

The Company accounts for revenue in accordance with Staff Accounting Bulletin
No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which
provides the Securities and Exchange Commission staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company's drilling contracts provide for a dayrate that is generally
recognized to revenue on a per day basis as work is performed. Drilling
contracts may include a fixed dayrate or include rates that vary over the
contract period, which may either be stated rates or calculated based on an
index such as the price of natural gas. For variable rate contracts, the Company
records revenue on a straight-line basis over the life of the contract and
records any adjustments to the straight-line calculation in the period they
become known. The related drilling expenses are recorded to operating expense in
the period in which they are incurred. As of December 31, 2001, we had unbilled
revenue of approximately $0.4 million related to variable rate contracts. The
Company may also receive lump-sum fees for the mobilization of equipment and
personnel to and from a drilling location. Mobilization fees received and costs
incurred to mobilize an offshore rig from one market to another are deferred or
accrued and recognized over the term of the related drilling contract. As of
December 31, 2001, the Company had deferred revenue of approximately $6.2
million recorded in other non-current liabilities in the Consolidated Balance
Sheet and deferred costs related to the mobilization of rigs of approximately
$2.8 million recorded in other assets. As of December 31, 2000, there was no
deferred revenue or related costs. Any lump-sum payments received from customers
relating to specific contracts are generally deferred and amortized over the
term of the drilling contract.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates.

Cash and Cash Equivalents and Statements of Cash Flows

For presentation in the consolidated balance sheets and for purposes of
reporting cash flows, all liquid investments with maturities at the date of
purchase of three months or less are considered cash equivalents. As of December
31, 2000, the Company had $6.4 million in cash that was restricted in use for
the operations and debt service of the chartered rig, the Tonala (later acquired
and renamed the Chiles Coronado. See Note 4). As of December 31, 2001, the
Company had no restricted cash.

Inventories

Inventories primarily includes repair and maintenance and operating supply parts
on each of our operating rigs. Inventories are recorded on a first-in, first-out
basis, not to exceed market value.

Property and Equipment

Property and equipment is recorded at cost and depreciated from the date the
asset is placed in service, using the straight-line method, over the estimated
useful lives of the assets, which range from 3 to 25 years. Major additions and


                                      F-8
<PAGE>


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

improvements are capitalized and depreciated over the remaining useful life of
the asset. Maintenance and repairs are charged against income as incurred.
Disposals are removed at cost less accumulated depreciation, and any resulting
gain or loss is reflected in the accompanying consolidated statements of
operations. The Company capitalizes interest applicable to the construction of
the rigs as a cost of such assets. Interest expense capitalized for the years
ended December 31, 2001, 2000 and 1999, was $3.3 million, $0.6 million and $8
million, respectively. Depreciation expense for the periods ended December 31,
2001, 2000 and 1999, was $9 million, $7.2 million and $2.5 million,
respectively. The costs to purchase and develop computer software are
capitalized and amortized on a straight line basis over its estimated useful
life.

Realization of Long-Lived Assets

The Company evaluates the carrying value of its long-lived assets following the
guidelines of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," which requires that certain
long-lived assets by reviewing for impairment whenever events indicate that the
carrying amount of an asset may not be recoverable and that an impairment loss
be recognized under certain circumstances in the amount by which the carrying
value exceeds the fair value of the asset. As of December 31, 2001, the Company
has evaluated the carrying value of its property and equipment based upon the
estimated undiscounted future net cash flows of the related asset and none of
its assets were impaired.

Debt Issuance Costs

Debt issuance costs related to the Company's debt are included in the
Consolidated Balance Sheet and are amortized to interest expense over the
scheduled maturity of the debt. Amortization of debt issuance cost for the
periods ended December 31, 2001, 2000 and 1999 was approximately $0.5 million,
$0.4 million and $0.4 million, respectively. As of December 31, 2001 and 2000,
there was approximately $6 million and $2.3 million, respectively, of debt
issuance costs recorded in other assets.

Income Taxes

Since conversion from limited liability company in September 2000, the Company
accounts for income taxes in accordance with SFAS 109 "Accounting for Income
Taxes." Under this method, deferred income taxes are recorded based upon the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws expected to
apply to the taxable income in the periods when the underlying assets are
realized or liabilities are settled.

Earnings per Share

Under the provisions of SFAS No. 128, "Earnings per Share," basic earnings per
share consist of the Company's historical net income divided by the weighted
average number shares of common stock outstanding. For the time prior to the IPO
on September 22, 2000, weighted average number of common shares includes the
conversion of membership interest to an equivalent number of common shares.
Dilutive earnings per share is computed including the impact of all potentially
dilutive securities. The dilutive effect of stock options was 96,578 shares for
the year ended December 31, 2001. There were no dilutive securities for the
years ended December 31, 2000 and 1999. Diluted weighted average common shares
outstanding for the year ended December 31, 2001, excluded incremental shares
related to 182,800 stock options, the effects of which were anti-dilutive.

Derivatives

Effective January 1, 2001, the Company adopted the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137. This statement
requires that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value and that changes in the


                                      F-9
<PAGE>


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

derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. At December 31, 2001, the Company carried
open positions in treasury rate locks, natural gas swaps, options and futures
contracts and U.S. treasury note futures. The Company "marks-to-market" all of
its derivative transactions and records the corresponding gain or loss to other
income in the Statement of Operations. Cash receipts for derivatives settled
during the year ended December 31, 2001, were $1.8 million and were included in
cash flows from operating activities in the Consolidated Statement of Cash Flows
(see Note 8).

Fair Value of Financial Instruments

The carrying values of current assets and current liabilities in the
accompanying consolidated balance sheets approximated fair value due to the
short maturity of these amounts. The net fair value of the Company's derivative
transactions was included in other assets at December 31, 2001. The bank
facility and a portion of the Company's long-term debt were at market adjustable
variable interest rates, which approximated market value at December 31, 2001.
The fixed rate portion of long-term debt approximated market value as determined
based on quoted market rates provided to the Company by a third party bank.

Accounts Receivable and Provision for Doubtful Accounts

The Company provides an allowance for doubtful accounts based on prior history
with its customers and provides additional reserves for specific receivables
where collection is considered doubtful.

Extraordinary Loss

The Company incurred an extraordinary loss of approximately $1.8 million, net of
tax benefit, and $0.5 million due to the early extinguishment of certain debt
obligations for the periods ended December 31, 2000 and 1999, respectively. Such
losses consisted of the write off of related deferred debt issuance costs.

Foreign Currency

The Company uses the United States dollar as the functional currency for foreign
operations.

Reclassification

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

Newly Issued Accounting Standards

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." This statement
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
This statement establishes a single accounting model to be used for long-lived
assets to be disposed of by sale and it expands the presentation of discontinued
operations. The provisions of the statement are effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company does not anticipate that the statement will have a material impact on
its financial position or results of operations.

3.      RELATED-PARTY TRANSACTIONS

As of December 31, 2001, SEACOR Offshore Rigs Inc. ("SEACOR Rigs"), which is a
wholly-owned subsidiary of SEACOR SMIT Inc. ("SEACOR"), a New York Stock
Exchange listed company, owned approximately 24% of the common stock of the


                                      F-10
<PAGE>


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

Company. At the time of the IPO, SEACOR held approximately $26.7 million
aggregate principal amount of the senior notes and also held an indirect
economic interest in substantially all of the Company's remaining outstanding
senior notes. Subsequent to the IPO, the Company purchased from SEACOR and the
other noteholders, and retired substantially all of the outstanding senior notes
at a price equal to par plus accrued interest (see Note 5). As a result of this
transaction, SEACOR reported a pre-tax gain of approximately $10.6 million in
2000.

The Company and SEACOR entered into a Management and Administrative Services
Agreement, dated as of February 27, 1998 (the "Services Agreement"), pursuant to
which SEACOR agreed to continue to perform certain administrative and technical
services on behalf of the Company including providing the services of the
Company's Senior Vice President, Chief Financial Officer and Secretary, Dick
Fagerstal, as well as general management and financial services, including
periodic advice and consultation in connection with corporate, legal, finance
and other matters that may be required for the Company's day-to-day operations.
The Services Agreement was amended on July 18, 2000 to permit either party to
terminate it upon 180 days' notice. Under the Services Agreement, the Company
agreed to pay a fee to SEACOR not to exceed $15,000 per month for the services
of Mr. Fagerstal, plus such other fees for services of others not to exceed the
reasonable value thereof and to reimburse SEACOR for all out-of-pocket expenses
related to the provision of such services. Management believes the fees charged
by SEACOR for such services rendered under the Services Agreement approximate
the rate that would be charged by outside non-related parties. The Company paid
SEACOR approximately $0.2 million, $0.2 million and $0.1 million for the years
ended December 31, 2001, 2000 and 1999, respectively, exclusive of reimbursement
of direct expenses.

One of the Company's directors is a partner of Bassoe Offshore A/S ("Bassoe"), a
brokerage and market research firm serving the offshore drilling and service
industry. In each of May and October 2000, the Company paid Bassoe commissions
of approximately $0.5 million upon delivery of each of the Chiles Magellan and
Chiles Columbus and in July 2001, paid Bassoe a commission of approximately $0.1
million in connection with the Company's acquisition of the Chiles Coronado (see
Note 4). Pursuant to an agreement with Bassoe and SEACOR, in connection with the
delivery of the Chiles Discovery in February 2002, the Company paid Bassoe and
SEACOR commissions of $0.5 million and $1 million, respectively. In addition, in
connection with the expected delivery of the Chiles Galileo in August 2002, the
Company is obligated to pay commissions to Bassoe and SEACOR of approximately
$0.3 million and $1 million, respectively. These commissions for services
rendered were included in the cost of the rigs. Management believes these
commissions paid to Bassoe and SEACOR approximate the commissions that would be
paid to outside non-related parties.

The Company has also agreed to pay Bassoe a commission equal to one percent of
base dayrate less operating costs in connection with Bassoe's services in
identifying, developing and executing the charter of the Chiles Discovery to an
affiliate of Phillips Petroleum. The Company estimates annual commission
payments under this agreement will be approximately $0.2 million (which
management believes to be within the range of acceptable compensation charged by
similarly situated firms for such services) and expects to begin paying Bassoe
these commissions in the third quarter of 2002.

Bassoe also has an exclusive right to broker future sale, purchase and charter
transactions with respect to these rigs, provided that its rates are not in
excess of rates charged by unrelated third parties in similar transactions. If
the Board decides in the future to exercise any of the remaining options under
the Master Option Agreement, it would have to decide at such time what
commissions, if any, would be due to Bassoe and SEACOR.

The Company entered into an agreement with a non-U.S. lender that is affiliated
with Keppel, a shareholder of the Company, to provide a maximum of $82 million
of financing towards the construction cost of the Chiles Discovery. As of
December 31, 2001, there were no borrowings under this credit facility and, in
connection with the delivery of the rig in February 2002, the credit facility
was cancelled by the Company.


                                      F-11
<PAGE>

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


4.      TONALA ACQUISITION

In July 2001, pursuant to an agreement entered into in July 2000, as
subsequently amended (as amended, the "Tonala Agreement"), the Company completed
its acquisition of all of the shares of capital stock of the entity that owned
the ultra-premium jackup rig Tonala. Previously, the Company had operated the
Tonala 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 Agreement and an 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 by Perforadora
Central under the Tonala Charter, and charged for debt service payments made by
Perforadora Central after such date on debt guaranteed by the U.S. Maritime
Administration ("Marad") and secured by the Tonala. In connection with the
acquisition of the Tonala, in October 2000 two executives of Perforadora Central
were named to the Company's board of directors.

As consideration for our acquisition of the Tonala, in July 2001, the Company
issued 2,679,723 shares of common stock having a market value on the date of
issuance of $20.50 per share to Perforadora Central and assumed approximately
$58.8 million in principal amount of Perforadora Central's related
Marad-guaranteed debt. The Company also paid approximately $0.1 million in
commissions and $0.7 million in other acquisition costs, and received the
benefit of approximately $2.5 million in charter payables forgiven by
Perforadora Central, which resulted in a discount to the purchase price (for an
aggregate rig cost of approximately $111 million). The debt the Company assumed
bears interest at a rate of approximately 5.6% per year, has semi-annual
payments of approximately $2.9 million of principal plus accrued interest due in
January and July of each year until the final maturity in July 2011 and is
subject to certain customary covenants, including restrictions on the Company's
ability to pay dividends and other financial covenants. Subsequent to the date
of acquisition, the Company renamed the acquired rig the Chiles Coronado.
Patricio Morphy and Luis Morphy, two of the Company's directors, own,
collectively, a majority of the outstanding shares of Perforadora Central.

In August 2001, the Company signed a three-year contract with an affiliate of
British Petroleum for the use of the Chiles Coronado in Trinidad. The rig began
operations in September 2001.

5.      LONG-TERM DEBT

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 debt financing toward the construction cost of the Chiles
Discovery (the "Discovery Facility"). The Discovery Facility had recourse only
to the Chiles Discovery and any other assets owned by the subsidiary that owns
the rig. The Discovery Facility provided for an interest rate equal to LIBOR
plus 2% on a $75 million term loan due upon the earlier of 22 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. The Company had the
option to extend the Discovery Facility for an additional 18 months after
delivery of the Chiles Discovery at a fixed rate to be determined at that time
based on the lender's cost of funds plus 3%. During the years ended December 31,
2001 and December 31, 2000, there were no borrowings under the Discovery
Facility and, subsequent to December 31, 2001, in connection with the delivery
of the rig, the Company cancelled the facility.

In September 2000, in connection with the IPO, the Company repaid and retired
approximately $95 million of the senior notes and paid $4 million of accrued
interest, which was substantially all of the remaining outstanding senior notes,
and recorded an extraordinary loss of $1.8 million, net of an income tax benefit
of $1 million, to write off the related unamortized debt issuance costs.

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 $72 million is available for general corporate
purposes, including $14 million outstanding at December 31, 2001. The Bank
Facility shall be permanently reduced semi-annually, beginning in June 2001,
with a balloon payment at maturity. Subject to such reductions, the entire Bank


                                      F-12
<PAGE>


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

Facility will be available subject to the Company providing the lenders with
certain additional collateral. Borrowings under the Bank Facility are available
for general corporate purposes and may be repaid and reborrowed during the term
of the Bank Facility and will bear interest at the rate of LIBOR plus a margin
of 1.5% to 2.0% depending upon the amount drawn. For the year ended December 31,
2001, the weighted-average interest rate was 3.8%. The Bank Facility will mature
on December 7, 2007, at which time any outstanding principal amount, up to a
maximum of $53.5 million, and any unpaid interest will be due. 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 (the "Guarantors") 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
covenants, including a requirement to maintain a combination of cash and
availability under the Bank Facility of at least $20 million and that at least
50% of the requirement be satisfied by unrestricted cash balances, a minimum
consolidated net worth requirement, a minimum ratio of operating income plus
depreciation, amortization and other non-cash operating charges to total
interest expense and a maximum level of funded debt to total capitalization. The
Bank Facility also contains certain negative covenants, including prohibitions
against certain liens, material changes in the nature of the Company's business,
sale or pledge of any Guarantor's membership interests, sale or disposition of
any of the two mortgaged rigs or other substantial assets, consolidations or
mergers and restrictions on the Company's ability to pay dividends. The Bank
Facility 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 addition, under the Bank Facility, SEACOR's failure to
maintain minimum ownership levels and board representations constitutes an event
of default and, in the event of such failure, the lenders may accelerate the
maturity of this debt and foreclose upon the collateral securing the debt. As of
December 31, 2001, the Company had $14 million outstanding under the Bank
Facility and was in compliance with all covenants. There were no borrowings
outstanding at December 31, 2000.

In July 2001, in connection with the acquisition of the Tonala (see Note 4),
subsequently renamed the Chiles Coronado, the Company assumed the remaining
principal balance due on the related Marad-guaranteed debt, which was
approximately $58.8 million (the "Coronado Facility"), and recorded a debt
discount of approximately $1 million, which is being amortized to interest
expense on a straight-line basis over the remaining life of the Coronado
Facility. The Coronado Facility 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 in January and July each year until the final maturity in July 2011
and is subject to certain customary covenants. As of December 31, 2001, the
Company had $58.8 million outstanding under the Coronado Facility and was in
compliance with all covenants.

In October 2001, the Company entered into definitive documentation for the $81
million Marad-guaranteed financing for the construction and term financing of
the Chiles Galileo (the "Galileo Facility"). The Galileo Facility allows for
floating rate debt, which must be converted by the Company to fixed rate debt no
later than two years after delivery of the rig. The Company has the option to
convert from a floating interest rate to a fixed interest rate at any time prior
to two years after delivery of the rig, and would also be required to convert to
a fixed interest rate under certain circumstances. Under the terms of the
Galileo Facility, principal and interest payments are due semi-annually starting
six months after delivery of the rig and ending eighteen years after delivery of
the rig. The Galileo Facility has 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 subsidiary of Chiles. For the
year ended December 31, 2001, the weighted-average interest rate for the Galileo
Facility was 2.34%. As of December 31, 2001, the Company had approximately $18
million outstanding under the Galileo Facility and was in compliance with all
covenants.


                                      F-13
<PAGE>


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

The aggregate maturities of long-term obligations for each of the five years
subsequent to December 31, 2001, are as follows (in thousands):

2002.........................................................   $    5,878
2003.........................................................        6,884
2004.........................................................        6,884
2005.........................................................        6,884
2006.........................................................        6,884
Thereafter...................................................       57,461
Less:  current maturities, excluding discount of $103........       (5,878)
                                                                ----------
    Total long-term obligations..............................       84,997
Less:  discount on long-term debt............................         (784)
                                                                -----------
    Total long-term obligations, net of unamortized discount.   $   84,213
                                                                ==========


6.      INCOME TAXES

Prior to September 22, 2000, the Company was a limited liability company, which
was treated as a partnership 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 and, upon termination, the Company
adopted SFAS No. 109 "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
2000 in connection with the IPO, attributable primarily to the difference in
financial reporting and tax reporting methods of accounting for depreciation.

Income tax expense consisted of the following components for the years ended
December 31, 2001 and 2000 (in thousands):

                                             2001              2000
Current:
  U.S. Federal......................       $   1,485         $      --
  State.............................              --                --
                                           ---------         ---------
  Total current.....................           1,485                --
                                           ---------         ---------

Deferred:
  U.S. Federal......................          10,130           29,881
  State.............................              --                --
                                           ---------         ---------
  Total deferred....................       $  10,130         $  29,881
                                           =========         =========
  Total.............................       $  11,615         $  29,881
                                           =========         =========





                                      F-14
<PAGE>


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

A reconciliation of the differences between taxes on income before extraordinary
items for the year ended December 31, 2001, and the period September 22, 2000
through December 31, 2000, the period in 2000 for which the Company was a
taxable corporation, computed at the U.S. federal statutory rate of 34 percent
and the Company's reported provision for income taxes is as follows:

                                                         2001             2000
Income tax provision at statutory rate..........          34%              34%
Non-taxable income for period prior to IPO......          --              (16)
Charge related to change in tax status from
  limited liability company to corporation......          --              196
                                                        ----             ----
      Provision for income taxes................          34%             214%
                                                        ====             ====

Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for
income tax purposes. The income tax effects of these temporary differences,
representing deferred income tax assets and liabilities, result principally from
the following (in thousands):

                                                      2001              2000
                                                    ---------         ---------
Deferred income tax assets:
  Net operating loss...........................     $   3,627         $   3,114
  Other........................................         3,010                --
                                                    ---------         ---------
      Total deferred income tax assets.........         6,637             3,114
                                                    ---------         ---------

Deferred income tax liabilities:
  Property, equipment and intangibles..........        45,082            31,972
  Other........................................           522                --
                                                    ---------         ---------
      Total deferred income tax liabilities            45,604            31,972
                                                    ---------         ---------

      Net deferred income tax liabilities......     $  38,967         $  28,858
                                                    =========         =========

The Company has recorded a deferred tax asset for the benefit of net operating
loss (NOL) carryforwards in future years. If the Company is unable to utilize
the NOL carryforwards before expiration, the majority of these will expire in
2020.


                                      F-15
<PAGE>

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

The following unaudited pro forma data is presented to apply the Company's
effective tax rate to income (loss) before income taxes, extraordinary loss and
net income (loss) as if the Company had been a taxable entity for the years
ended December 31, 2000 and 1999 (in thousands, except per share data):

                                                   Year Ended December 31,
                                                 ----------------------------
                                                    2000             1999
                                                 -----------      -----------
Income (loss) before income taxes and
  extraordinary loss...........................  $    13,978      $    (3,475)
Pro forma income tax (provision) benefit.......       (4,753)           1,181
                                                 -----------      -----------

Pro forma income (loss) before extraordinary
loss                                             $     9,225      $    (2,294)
                                                 -----------      -----------

Pro forma net income (loss)....................  $     7,405      $    (2,782)
                                                 -----------      -----------

Pro forma income (loss) before extraordinary
  loss per common share:
  Basic........................................  $      0.90      $     (0.45)
                                                 ===========      ===========
  Diluted......................................  $      0.90      $     (0.45)
                                                 ===========      ============

Pro forma net income (loss) per common share:
  Basic........................................  $      0.72      $     (0.54)
                                                 ===========      ============
  Diluted......................................  $      0.72      $     (0.54)
                                                 ===========      ============

Pro forma weighted average common shares
  outstanding:
  Basic........................................       10,253            5,116
  Diluted......................................       10,288            5,116

7.      BENEFIT PLANS

During 1998, the Company adopted a 401(k) Profit Sharing Plan (the "Plan"),
covering substantially all of its employees. The Company will match employees'
contributions to the Plan in an amount equal to 50%, up to six percent of
eligible compensation. The Company incurred approximately $300,000, $187,000 and
$87,000 in expense related to the Plan for the years ended December 31, 2001,
2000 and 1999, respectively.

Stock Options

The Company adopted the Chiles Offshore LLC 1998 Equity Option Plan (the "1998
Plan") in 1998. The 1998 Plan authorized the issuance of membership equity
options to key employees of the Company to acquire up to five percent of the
then outstanding membership interests, on a fully diluted basis. However,
subsequent to the Company's conversion to a corporate form on September 22, 2000
in conjunction with its IPO, the Company adopted the Chiles Offshore Inc. 2000
Stock Option Plan (the "Option Plan"). The Option Plan, as amended, assumed the
outstanding options under the 1998 Plan. The Option Plan specifies that up to
1,009,536 shares of the Company's common stock can be awarded as options. As of


                                      F-16
<PAGE>

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

December 31, 2001, there were 306,156 options to purchase shares of common stock
remaining available for issuance under the Option Plan.
<TABLE>
<CAPTION>
                                                                                  Weighted Average
                                          Number of         Exercise Price         Exercise Price
Stock Options                               Shares            per Share               per Share
-------------                               ------            ---------               ---------
<S>                                     <C>                <C>                     <C>
Outstanding at December 31, 1998             243,433            $   12.31               $ 12.31
  Granted.............................        49,193          12.31-12.96                 12.67
  Exercised...........................             -                    -                     -
  Forfeited...........................       (3,273)                12.31                 12.31
                                        ---------------

Outstanding at December 31, 1999             289,353          12.31-12.96                 12.37
  Granted.............................       235,000          12.96-19.00                 18.03
  Exercised...........................             -                    -                     -
  Forfeited...........................       (2,973)          12.31-12.96                 12.39
                                        ---------------

Outstanding at December 31, 2000             521,380          12.31-19.00                 14.92
  Granted.............................       182,800                22.00                 22.00
  Exercised...........................       (4,969)          12.31-12.96                 12.72
  Forfeited...........................         (800)                22.00                 22.00
                                        ---------------

Outstanding at December 31, 2001             698,411          12.31-22.00                 16.78
                                        ===============
</TABLE>

The weighted average remaining contractual life of the outstanding options as of
December 31, 2001, was 7.88 years. There were 346,648 options exercisable as of
December 31, 2001, with a weighted average exercise price of $13.63, 179,717
options exercisable as of December 31, 2000, with a weighted average exercise
price of $12.34 and 79,807 options exercisable as of December 31, 1999, with a
weighted average exercise price of $12.31.

The following table summarizes information regarding our ranges of options
prices as of December 31, 2001:
<TABLE>
<CAPTION>
                                      Options Outstanding                          Options Exercisable
                     ------------------------------------------------------  --------------------------------
                                  Weighted-Average
     Range of                         Remaining         Weighted-Average                 Weighted-Average
  Exercise Prices     Number      Contractual Life       Exercise Price        Number     Exercise Price
  ---------------     ------      ----------------       --------------        ------     --------------
<S>                   <C>               <C>                 <C>                <C>             <C>
$12.31 - $12.96       319,199           6.68                $12.43             280,906         $12.37
$19.00 - $22.00       379,212           8.89                $20.44              65,742         $19.00
                      -------                                                   ------
                      698,411           7.88                $16.78             346,648         $13.63
                      =======                                                  =======
</TABLE>

All stock options under the Option Plan are granted at the fair market value of
the common stock at the grant date. The stock options generally expire ten years
from the date of grant and all stock options vest over a three-year period, with
one-third of the shares becoming exercisable on each of the first, second, and
third anniversaries of the grant date.

The fair market value of the options granted during 2001 and 2000 was estimated
using the Black-Scholes option pricing model. The fair market value of the
options granted during 1999 was estimated using the minimum value option pricing
model. The subjective assumptions and resulting weighted average fair market
values of the options are as follows:


                                      F-17
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
                 Weighted Average                                          Expected        Weighted Avg.
                    Risk Free            Expected          Expected          Price         Fair Value of
                  Interest Rate       Dividend Yield   Life (in years)    Volatility      Options Granted
                  -------------       --------------   ---------------    ----------      ---------------
<S>                  <C>                   <C>                <C>            <C>              <C>
   2001              5.19%                 0.00%              5              45.43%          $ 10.43
   2000              5.90%                 0.00%              5              49.68%          $  9.16
   1999              5.70%                 0.00%              5               0%             $  3.09
</TABLE>
The Company accounts for the Option Plan in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option awards. Compensation cost for the Option Plan
calculated consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," is set forth on a pro-forma basis for
the years ended December 31, 2001, 2000 and 1999 below (in thousands, except per
share data):
<TABLE>
<CAPTION>
                                                2001           2000           1999
                                                ----           ----           ----
<S>                                          <C>            <C>            <C>
Net income (loss):
    As reported..........................    $  22,546      $ (17,723)     $  (3,963)
    Pro-forma............................    $  21,654      $ (18,000)     $  (4,276)

Basic net income (loss) per share:
    As reported..........................    $    1.20      $   (1.73)     $   (0.77)
    Pro-forma............................    $    1.15      $   (1.76)     $   (0.84)

Diluted net income (loss) per share:
    As reported..........................    $    1.20      $   (1.73)     $   (0.77)
    Pro-forma............................    $    1.15      $   (1.76)     $   (0.84)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of future results or performance.

8.      DERIVATIVES

Treasury Rate Locks

In the fourth quarter of 2001, the Company entered into treasury rate lock
agreements with a financial institution on a total notional amount of $40
million. Such treasury rate lock agreements mature in the fourth quarter 2003
and provide a partial hedge to changes in the future interest cost of issuing
long-term fixed rate debt under the Galileo Facility and take advantage of what
management considered to be a favorable interest rate environment at the time.
The Company accounts for the transactions as speculative instruments under SFAS
No. 133 and records the change in the market value at the end of each reporting
period as a gain or loss in other income in the Consolidated Statement of
Operations. The Company records the net effect of these positions in operating
cash flows in the Consolidated Statement of Cash Flows. For the year ended
December 31, 2001, the Company recognized other income of approximately $2.8
million, of which $1.6 million represented realized gain from the settlement of
treasury rate locks with a total notional amount of $20 million and $1.2 million
represented the remaining treasury rate lock position, the value of which was
provided by the Company's counterparty.

Natural Gas and U.S. Treasury Note Positions

In the fourth quarter of 2001, the Company entered into and settled various
positions in natural gas swaps and options, pursuant to which, on each
applicable settlement date, the Company receives an amount, if any, by which a
contract price for a swap or an option exceeds the quoted settlement price or
pays the amount, if any, by which the quoted settlement price exceeds the
contract price. The Company also entered into short positions in natural gas
futures, the value of which moves in the opposite direction of the underlying


                                      F-18
<PAGE>

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

price of natural gas futures. The general purpose of the natural gas
transactions is to provide value for the Company should the price of natural gas
decline, which over time, if sustained, would lead to a decline in the market
values and cash flows generated by the Company's assets. The Company furthermore
entered into short positions in U.S. treasury note futures, the value of which
moves in the opposite direction of the underlying price of the U.S. treasury
notes futures. The general purpose of the U.S. treasury note transactions is to
provide value to the Company should the price of U.S. treasury notes decline,
leading to generally higher interest rates, which, if sustained over time, might
lead to a higher interest cost for the Company. For accounting purposes, the
Company accounts for these transactions as speculative and records the
transactions as current assets or current liabilities, as applicable, and
records any realized gain or loss on settled transactions and the change in the
market value of the unsettled positions at the end of each reporting period in
other income in the Consolidated Statement of Operations. The Company records
the net effect of these positions in operating cash flows in the Consolidated
Statement of Cash Flows. For the year ended December 31, 2001, the Company
recognized other income of $1 million, of which $0.2 million represents realized
gains and $0.8 million represented unrealized gains from these activities, as
determined by market quotes, primarily related to short positions in natural
gas.

9.      COMMITMENTS AND CONTINGENCIES

Construction Contracts

In April 2000, the Company entered into an agreement with Keppel and various
equipment vendors for construction and delivery of the Chiles Discovery, at a
cost estimated not to exceed $110 million, excluding interest and other
capitalized costs. At December 31, 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
$22 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 Bank Facility
to fund the construction of the rig. The Company expects the Chiles Discovery to
be 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 East Timor Gap Zone of Cooperation, located between
East Timor and Australia. 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. At December 31, 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 $49 million. The Company expects to use cash from operations and
funds available under the Galileo Facility of up to $81 million, which is backed
by a guarantee from Marad (see Note 5) to fund the construction of the rig. The
Chiles Galileo is expected to be completed during the third quarter of 2002, and
the Company is currently pursuing contract commitments from prospective
customers. The remaining two options under the Master Option Agreement will
expire unless the first such option is exercised before April 6, 2002. The
Company has not yet determined whether it will exercise the second option.

Leases

The Company occupies an administrative office and leases certain equipment under
operating leases from unaffiliated third parties. Rent expense for 2001, 2000
and 1999 was approximately $399,000, $122,000 and $83,000, respectively. In
December 1999, the Company entered into a lease, which became effective in March
2000, for administrative offices, which expires in the year 2006. Aggregate


                                      F-19
<PAGE>

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

minimum future annual rental commitments under operating leases with lease terms
in excess of one year as of December 31, 2001, are as follows:

                        Years ended December 31,
                        --------------------------------------------------

                        2002...............................   $  434,000
                        2003...............................      258,000
                        2004...............................      239,000
                        2005...............................      199,000
                        2006...............................       50,000

Litigation

Raymond Verdin, on behalf of himself and those similarly situated v. Pride
Offshore, Inc., et al; C.A. No. G-01-168 in the United States District Court for
the Southern District of Texas, Houston, Division; formerly styled Raymond
Verdin v. R&B Falcon Drilling USA, Inc., et al; No. G-00-488 in the United
States District Court for the Southern District of Texas, Galveston Division,
filed October 10, 2000. The Company was named as a defendant in a proposed class
action suit filed on behalf of offshore workers against all of the major
offshore drilling companies that operated in the U.S. Gulf of Mexico since 1990.
The proposed class includes persons hired in the United States by the companies
to work in the U.S. Gulf of Mexico and around the world. The lawsuit alleges
that the companies, through trade groups, shared information in violation of the
Sherman Antitrust Act and various state laws. Plaintiff Thomas Bryant has
replaced the named plaintiff as the proposed class representative. The lawsuit
is seeking money damages and injunctive relief as well as attorney's fees and
costs. Although the Company believes that it has valid defenses in this matter,
it has determined that protracted litigation will be a distraction to the
operation of its business and, in May 2001, agreed to settle plaintiffs'
outstanding claims for a conditional payment of $1 million. During 2001, the
Company recorded a reserve for this pending litigation, including legal
expenses, and made a partial payment of the settlement amount. In December 2001,
the United States District Judge for the Southern District of Texas, Houston
Division, entered an order preliminarily approving the proposed class action
settlement, preliminarily certifying the settlement class, and setting a
fairness hearing for April 18, 2002, to determine whether to give the settlement
final approval. A court appointed settlement administrator will provide notice
of the proposed class action settlement.

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.

10.     CONCENTRATION OF MARKET AND CREDIT RISKS AND GEOGRAPHICAL INFORMATION

The Company operates mobile offshore drilling rigs for customers in the oil and
gas business in both the U.S. Gulf of Mexico and Trinidad, which represents a
single line of business under SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company derived the majority of its
revenue for the year ended December 31, 2001, from four customers of 55 percent,
17 percent, 12 percent and 11 percent of total revenue. The Company derived
revenue for the year ended December 31, 2000, from three customers of 32
percent, 25 percent, and 16 percent of total revenue and for the year ended
December 31, 1999, from three customers of 39 percent, 28 percent, and 23
percent of total revenue. This industry and customer concentration has the
potential to impact the Company's overall exposure to market and credit risks,
either positively or negatively, in that the Company's customers could be
affected by similar changes in economic, industry or other conditions. However,
the Company believes that the credit risk posed by this industry concentration
is offset by the creditworthiness of the Company's customer base. The Company's
accounts receivable are typically composed of major integrated or large
independent oil and gas operators. Historically, the Company's uncollectible
accounts receivable have been immaterial.


                                      F-20
<PAGE>

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

Geographical information for revenue and long-lived assets is as follows:

                                                Year Ended December 31,
                                        -------------------------------------
                                          2001          2000           1999
                                        ---------     ---------     ---------
Revenue:
  U.S. Gulf of Mexico..............     $  65,859     $  56,006     $   8,596
  Trinidad.........................         8,325            --            --
                                        ---------     ---------     ---------
                                        $  74,184     $  56,006     $   8,596
                                        =========     =========     =========

                                             December 31,
                                        -----------------------
                                          2001          2000
                                        ---------     ---------
Long-lived assets: (1)
  U.S. Gulf of Mexico..............     $ 181,482     $ 186,996
  Trinidad.........................       120,770            --
                                        ---------     ---------
                                        $ 302,252     $ 186,996
                                        =========     =========

(1) Long-lived assets include drilling rigs and equipment, net of accumulated
    depreciation.

11.     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                        --------------------------------
                                                        2001          2000          1999
                                                        ----          ----          ----
<S>                                                   <C>           <C>           <C>
Cash paid for interest, net of capitalized interest   $      --     $   9,369     $   3,276
Non-cash investing and financing activities-
Acquisition of the Tonala with:
  Common stock...............................            54,934            --            --
  Assumption of debt.........................            57,844            --            --
  Reduction of accounts payable and other....            (2,271)           --            --
</TABLE>

12.     MEMBERSHIP INTERESTS AND CAPITAL SHARES

Allocation of Profits and Losses

Prior to the IPO, profits or losses for any taxable year were allocated between
members in proportion to their percentage interests, and after giving effect to
special allocations as set forth in the Operating Agreement of Chiles Offshore
LLC.

Membership Capital Contributions

In May 2000, Chiles Offshore LLC received capital contributions of approximately
$32.8 million, net of offering costs.

Common Stock

As discussed in Note 1, the Company completed its IPO on September 22, 2000 and
converted Chiles Offshore LLC membership interests into 8,485,810 shares of the
Company's common stock. Just prior to the IPO, rights for membership interests
in Chiles Offshore LLC (representing 231,431 shares of common stock after the
IPO) were exercised for $3 million. Through the IPO, the Company sold 8,970,000
common shares for approximately $157 million, net of offering costs.


                                      F-21
<PAGE>

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

Treasury Stock

In October 2000, the Company's Board of Directors authorized the Company's
management to buy back, from time to time, up to $25 million of the Company's
common stock. During the fourth quarter ended December 31, 2000, the Company
acquired 109,000 shares of its own stock for approximately $1.7 million.

13.     SUBSEQUENT EVENTS

In February 2002, the Company took scheduled delivery of the Chiles Discovery in
Singapore. The rig will remain in Singapore through commissioning, at which time
the Chiles Discovery will be mobilized to the East Timor Gap Zone of
Cooperation, between East Timor and Australia. The Company anticipates the rig
will be placed in service in the second quarter of 2002. In connection with the
delivery of the rig, the Company cancelled the financing available under the
Discovery Facility (see Note 5).

14.     QUARTERLY FINANCIAL INFORMATION DATA (UNAUDITED)

Selected financial information for interim periods is presented below in
thousands of dollars, except per share data.

Earnings per share are computed independently for each of the quarters
presented; therefore, the sums of quarterly earnings per share do not
necessarily equal the total for the year.
<TABLE>
<CAPTION>
                                                                 Quarters ended,
                                          -------------------------------------------------------------
                                          Dec. 31,         Sept. 30,         June 30,          Mar. 31,
                                          --------         ---------         --------          --------
<S>                                     <C>               <C>              <C>               <C>
2001
Operating revenue...................    $     20,844      $     15,102     $     19,628      $     18,610
Operating income....................    $      7,718      $      6,872     $      7,438      $      7,660
Other income, net...................    $      3,861      $         96     $        145      $        371
Income before income taxes..........    $     11,579      $      6,968     $      7,583      $      8,031
Net income..........................    $      7,642      $      4,599     $      5,005      $      5,300

Basic income per common share ......    $       0.38      $       0.24     $       0.28      $       0.30

Diluted income per common share.....    $       0.38      $       0.23     $       0.28      $       0.30
</TABLE>


                                      F-22
<PAGE>

                      CHILES OFFSHORE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
                                                                       Quarters ended,
                                                   ---------------------------------------------------------
                                                   Dec. 31,         Sept. 30,       June 30,        Mar. 31,
                                                   --------         ---------       --------        --------
<S>                                              <C>          <C>              <C>              <C>
2000
Operating revenue.........................       $   16,752   $     16,217     $     14,508     $      8,529
Operating income..........................       $    5,866   $      6,165     $      5,928     $      2,803
Other income (expense), net...............       $      801   $     (1,948)    $     (2,678)    $     (2,960)
Income (loss) before income
  taxes and extraordinary item............       $    6,668   $      4,217     $      3,250     $       (157)
Income (loss) before extraordinary item...       $    4,401   $    (23,397)    $      3,250     $       (157)
Net income (loss).........................       $    4,401   $    (25,217)    $      3,250     $       (157)

Basic income (loss) per common
  share--
  Income (loss) before
    extraordinary item....................       $     0.25   $      (2.49)    $       0.42     $      (0.03)
  Extraordinary item......................       $       --   $      (0.20)    $         --     $         --
  Net income (loss).......................       $     0.25   $      (2.69)    $       0.42     $      (0.03)

Diluted income (loss) per common share--
  Income (loss) before extraordinary item.       $     0.25   $      (2.49)    $       0.42     $      (0.03)
  Extraordinary item......................       $       --   $      (0.20)    $         --     $         --
  Net income (loss).......................       $     0.25   $      (2.69)    $       0.42     $      (0.03)
</TABLE>











                                      F-23
<PAGE>

                              CHILES OFFSHORE INC.
                                INDEX TO EXHIBITS
                        ANNUAL REPORT ON FORM 10-K FISCAL
                          YEAR ENDED DECEMBER 31, 2001

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 to Chiles Offshore Inc.'s Current
                Report on Form 8-K filed with the Commission August 9, 2001).

3.1*            Second Amended and Restated Operating Agreement of Chiles
                Offshore, LLC, dated as of May 1, 2000 (incorporated herein by
                reference to exhibit 3.1 to the Registration Statement on Form
                S-1 (No. 333-39418) filed with the Commission on June 15, 2000).

3.2*            Amendment, dated as of June 14, 2000, to Second Amended and
                Restated Operating Agreement of Chiles Offshore LLC
                (incorporated herein by reference to exhibit 3.2 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on June 15, 2000).

3.3*            Form of Certificate of Incorporation of Chiles Offshore Inc.
                (incorporated herein by reference to exhibit 3.3 to Amendment
                No. 2 to the Registration Statement on Form S-1 (No. 333-39418)
                filed with the Commission on July 24, 2000).

3.4*            Form of Bylaws of Chiles Offshore Inc. (incorporated herein by
                reference to exhibit 3.4 to Amendment No. 3 to the Registration
                Statement on Form S-1 (No. 333-39418) filed with the Commission
                on August 11, 2000).

3.5*            Certificate of Formation of Chiles Offshore LLC, dated as of
                July 31, 1997 (incorporated herein by reference to exhibit 3.5
                to Amendment No. 1 to the Registration Statement on Form S-1
                (No. 333-39418) filed with the Commission on July 7, 2000).

3.6*            Form of Certificate of Conversion (incorporated herein by
                reference to exhibit 3.6 to Amendment No. 3 of the Registration
                Statement on Form S-1 (No. 333-39418) filed with the Commission
                on August 11, 2000).

3.7*            Certificate of Amendment to the Certificate of Incorporation of
                Chiles Offshore Inc., effective as of August 13, 2001
                (incorporated herein by reference to Exhibit 3.1 to Chiles
                Offshore Inc.'s Quarterly Report on Form 10-Q for the period
                ended June 30, 2001 filed with the Commission on August 14,
                2001).

3.8*            Amended and Restated By-Laws of Chiles Offshore Inc., effective
                as of July 10, 2001 (incorporated herein by reference to Exhibit
                3.2 to Chiles Offshore Inc.'s Quarterly Report on Form 10-Q for
                the period ended June 30, 2001 filed with the Commission on
                August 14, 2001).

4.1*            Form of Specimen Certificate of Common Stock of Chiles Offshore
                Inc. (incorporated herein by reference to exhibit 4.1 to
                Amendment No. 2 to the Registration Statement on Form S-1 (No.
                333-39418) filed with the Commission on July 24, 2000).

<PAGE>

Exhibit No.                                 Description
-----------                                 -----------
10.1*           Platform Construction Agreement, dated April 6, 2000, by and
                between Keppel FELS Limited and Chiles Offshore LLC relating to
                the Chiles Discovery (incorporated herein by reference to
                exhibit 10.1 to the Registration Statement on Form S-1 (No.
                333-39418) filed with the Commission on June 15, 2000).

10.2*           Platform Construction Agreement, dated April 6, 2000, by and
                between AMFELS, Inc. and Chiles Offshore LLC related to the
                Chiles Galileo, including the Letter regarding Platform
                Construction Agreement, dated October 3, 2000 and related
                material (incorporated herein by reference to exhibit 10.2 to
                the Annual Report on Form 10-K for the year ended December 31,
                2000).

10.3*           Master Option Agreement, dated April 6, 2000, by and among
                Chiles Offshore LLC, Keppel FELS Limited and AMFELS, Inc.
                (incorporated herein by reference to exhibit 10.3 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on June 15, 2000).

10.5*           Commission Agreement, dated April 1, 2000, between Bassoe
                Offshore (USA), Inc. and Chiles Offshore LLC (incorporated
                herein by reference to exhibit 10.5 to the Registration
                Statement on Form S-1 (No. 333-39418) filed with the Commission
                on June 15, 2000).

10.6*           Commission Agreement, dated April 1, 2000, among Bassoe Offshore
                (USA), Inc., SEACOR SMIT Inc. and Chiles Offshore LLC
                (incorporated herein by reference to exhibit 10.6 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on June 15, 2000).

10.7*           Amended and Restated Management and Administrative Services
                Agreement, dated as of July 18, 2000, by and between SEACOR SMIT
                Inc. and Chiles Offshore LLC (incorporated herein by reference
                to exhibit 10.7 to Amendment No. 2 to the Registration Statement
                on Form S-1 (No. 333-39418) filed with the Commission on July
                24, 2000).

10.8*, **       Employment Agreement, dated November 1, 1997, by and between
                William E. Chiles and Chiles Offshore LLC (incorporated herein
                by reference to exhibit 10.8 to the Registration Statement on
                Form S-1 (No. 333-39418) filed with the Commission on June 15,
                2000).

10.9*, **       Extension of Term under Employment Agreement, dated November 1,
                1997, between Chiles Offshore LLC and William E. Chiles
                (incorporated herein by reference to exhibit 10.9 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on June 15, 2000).

10.10*, **      2000 Stock Option Plan (incorporated herein by reference to
                exhibit 10.10 to Amendment No. 2 to the Registration Statement
                on Form S-1 (No. 333-39418) filed with the Commission on July
                24, 2000).

10.11*, **      Severance Benefits Agreement, dated June 12, 2000, among Chiles
                Offshore LLC and Gabriel Padilla, William H. Hopkins, William A.
                Thorogood, Donald B. Gregg and George Bruce Brumley
                (incorporated herein by reference to exhibit 10.11 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on June 15, 2000).


<PAGE>

Exhibit No.                                 Description
-----------                                 -----------
10.12*          Registration Rights Agreement, dated as of June 15, 2000 among
                Chiles Offshore LLC and the Holders named therein (incorporated
                herein by reference to exhibit 10.16 to Amendment No. 2 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on July 24, 2000).

10.13*          Letter Agreement, dated August 5, 1997, between Chiles Offshore
                LLC and Bassoe Rig Partners Ltd. (incorporated herein by
                reference to exhibit 10.19 to the Registration Statement on Form
                S-1 (No. 333-39418) filed with the Commission on June 15, 2000).

10.14*          Commitment Letter, dated April 4, 2000, by Keppel TatLee Bank
                (incorporated herein by reference to exhibit 10.20 to Amendment
                No. 1 to the Registration Statement on Form S-1 (No. 333-39418)
                filed with the Commission on July 7, 2000).

10.15*          Agreement with Respect to Ownership of the Tonala, dated as of
                July 20, 2000, by and between Chiles Offshore LLC, Perforadora
                Central, S.A. de C.V., Grupo Industrial Atlantida, S.A. de C.V.,
                Patricio Alvarez Morphy, Javier Alvarez Morphy, Luis Alvarez
                Morphy and Enrique Chaves Quintana (incorporated herein by
                reference to exhibit 10.22 to Amendment No. 2 to the
                Registration Statement on Form S-1 (No. 333-39418) filed with
                the Commission on July 24, 2000).

10.16*          Amendment No. 1 to the Chiles Offshore Inc. 2000 Stock Option
                Plan (incorporated herein by reference to exhibit 10.1 to the
                Quarterly Report on Form 10-Q for the fiscal quarter ending
                September 30, 2000 filed with the Commission on November 14,
                2000).

10.17*          Amendment to Bareboat Charter, dated November 10, 2000, between
                Chiles Offshore Inc. and Perforadora Central, S.A. de C.V.
                (incorporated herein by reference to exhibit 10.2 to the
                Quarterly Report on Form 10-Q for the fiscal quarter ending
                September 30, 2000 filed with the Commission on November 14,
                2000).

10.18*          Amendment No. 1 to Agreement with Respect to Ownership of the
                Tonala, dated November 10, 2000, among Chiles Offshore Inc.,
                Perforadora Central, S.A. de C.V., Grupo Industrial Atlantida,
                S.A. de C.V., Patricio Alvarez Morphy, Javier Alvarez Morphy,
                Luis Alverez Morphy and Enrique Chavez Quintana (incorporated
                herein by reference to exhibit 10.3 to the Quarterly Report on
                Form 10-Q for the fiscal quarter ending September 30, 2000 filed
                with the Commission on November 14, 2000).

10.19*          Amended and Restated Credit Agreement, dated as of December 7,
                2000 among Chiles Offshore Inc. and Fortis Capital Corp, Nedship
                Bank N.V. and Den norske Bank ASA (incorporated herein by
                reference to exhibit 10.25 to the Annual Report on Form 10-K for
                the year ended December 31, 2000).

10.20*          Rig Finance Agreement, dated as of November 22, 2000, by and
                among Chiles Discovery LLC, the financial institutions listed
                therein and Keppel Tatlee Bank Limited, as agent (incorporated
                herein by reference to exhibit 10.26 to the Annual Report on
                Form 10-K for the year ended December 31, 2000).

10.21*          Commitment Letter, dated December 22, 2000, by Citibank, N.A.
                (incorporated herein by reference to exhibit 10.27 to the Annual
                Report on Form 10-K for the year ended December 31, 2000)


<PAGE>

Exhibit No.                                 Description
-----------                                 -----------

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

10.23+          Drilling Contract, dated June 21, 2001, between Phillips
                Petroleum (91-12) Pty Ltd. ABN 73 064 963 346 and Chiles
                Offshore Inc.

10.24+          Separation and Release Agreement, dated January 31, 2002,
                between William A. Thorogood and Chiles Offshore Inc.

10.25+          Drill Pipe Rental Agreement, dated February 25, 2002, by and
                between Chiles Offshore Inc. and Hercules Offshore Corporation.

10.26+          Credit Agreement, dated as of October 31, 2001, between Chiles
                Galileo LLC, Citibank, N.A. and the other lenders set forth on
                the signature pages thereof.

10.27+          Trust Indenture, dated as of October 31, 2001, between Chiles
                Galileo LLC and U.S. Bank National Association.

10.28+          $81,000,000 United States Government Guaranteed Export Ship
                Financing Note, dated October 31, 2001, by Chiles Galileo LLC.

10.29+          Security Agreement, dated October 31, 2001, between Chiles
                Galileo LLC and the United States of America.

10.30+          Title XI Reserve Fund and Financial Agreement, dated October 31,
                2001, between Chiles Galileo LLC and the United States of
                America.

10.31+          Subordinated Loan Commitment, dated October 31, 2001, made by
                Chiles Offshore Inc. to Chiles Galileo LLC.

10.32+          Subordination Agreement dated October 31, 2001, among Chiles
                Offshore Inc., Chiles Galileo LLC and the United States of
                America.

10.33+          Amendment No. 1 to Platform Construction Agreement, dated
                October 31, 2001, between AMFELS, Inc. and Chiles Offshore Inc.

10.34+          Assignment and Assumption of Construction Contract, dated
                October 31, 2001, among AMFELS, Inc., Chiles Offshore Inc. and
                Chiles Galileo LLC.

10.35+          Trust Indenture, dated as of November 5, 1998, between
                Perforadora Central, S.A. de C.V. (predecessor in interest to
                Chiles Coronado Inc.) and Bank One Trust Company, N.A.

10.36+          Security Agreement, dated as of November 5, 1998, between
                Perforadora Central, S.A. de C.V. (predecessor in interest to
                Chiles Coronado Inc.) and the United States of America.

10.37+          Amendment No. 1 to Security Agreement, dated as of January 21,
                2000, between Perforadora Central, S.A. de C.V. (predecessor in
                interest to Chiles Coronado Inc.) and the United States of
                America.

10.38+          Amendment No. 2 to Security Agreement, dated as of July 30,
                2001, between Chiles Coronado Inc. and the United States of
                America.

<PAGE>
Exhibit No.                                 Description
-----------                                 -----------

10.39+          Title XI Reserve Fund and Financial Agreement, dated November 5,
                1998, between Perforadora Central, S.A. de C.V. (predecessor in
                interest to Chiles Coronado Inc.) and the United States of
                America.

10.40+          Amendment No. 1 to Title XI Reserve Fund and Financial
                Agreement, dated as of January 21, 2000, between Perforadora
                Central, S.A. de C.V. (predecessor in interest to Chiles
                Coronado Inc.) and the United States of America.

10.41+          Amendment No. 2 to Title XI Reserve Fund and Financial
                Agreement, dated July 30, 2001, between Chiles Coronado Inc. and
                the United States of America.

10.42+          Master Assumption Agreement, Supplemental Indenture No. 1 and
                Amendment to Title XI Finance Agreements, dated as of March 15,
                2001, among Perforadora Central, S.A. de C.V., PC2 S.A. de C.V.,
                the United States of America and Bank One Trust Company N.A.

10.43+          Intervention of Grupo Industrial Atlantida, S.A. de C.V. into
                Master Assumption Agreement, Supplemental Indenture No. 1 and
                Amendment to Title XI Finance Agreement, dated June 6, 2001,
                among Grupo Industrial Atlantida, S.A. de C.V., the United
                States of America and Bank One Trust Company.

10.44+          Intervention of GIA 2 S.A. de C.V. into the Master Assumption
                Agreement, Supplemental Indenture No. 1 and Amendment to Title
                XI Finance Agreements, dated as of June 6, 2001, among GIA 2
                S.A. de CV, the United States of America and Bank One Trust
                Company N.A.

10.45+          Intervention of Tonala, Inc. (now Chiles Coronado Inc.) into the
                Master Assumption Agreement, Supplemental Indenture No. 1 and
                Amendment to Title XI Finance Agreements, dated as of July 13,
                2001, among Tonala, Inc. the United States of America and Bank
                One Trust Company N.A.

10.46+          Release, dated July 30, 2001, between the United States of
                America and Bank One Trust Company, N.A.

21.1+           Subsidiaries of Chiles Offshore Inc.

23.1+           Consent of Arthur Andersen LLP.

99.1+           Letter from Chiles Offshore Inc. to the Securities and Exchange
                Commission regarding representations by Arthur Andersen LLP.

-----------
*        Incorporated herein by reference as indicated.
**       Management contracts or compensatory plans or arrangements required to
         be filed as exhibits to this Annual Report on Form 10-K by Item 14 (c)
         of the rules governing the preparation of this Annual Report on Form
         10-K.
+        Filed as an exhibit herewith.