Use these links to rapidly review the documentTABLE OF CONTENTS PART III



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F

(Mark One)

|o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------------------

OR

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2003

OR

|o | 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:

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AURELIA ENERGY N.V.(Exact name of Registrant as specified in its charter)

AURELIA ENERGY N.V.(Translation of Registrant's name into English)

Netherlands Antilles(Jurisdiction of incorporation or organization)

Landhuis Joonchi
Kaya Richard J Beaujun z/n
Curaçao, Netherlands Antilles
(599) 9736 6277(Address of principal executive offices)

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

|Title of each class |  | Name of each exchange
on which registered
|------------------- |  | -----------------------------------------
|None                |  | Not Applicable                           

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

None(Title of class)

Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:

101/4% Senior Notes due 2012
Senior Subordinated Guarantees(Title of class)

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Indicate
the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

34,000 Non-Profit Sharing 5% Non-Cumulative Preference A Shares, par value U.S.$1,000 per share
136,000 Common B Shares, par value U.S.$1,000 per share

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý    No o

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o    Item 18 ý



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TABLE OF CONTENTS



|                                                |  |                                                                             
|----------------------------------------------- |  | ----------------------------------------------------------------------------
|PRESENTATION OF FINANCIAL AND OTHER INFORMATION
|FORWARD-LOOKING STATEMENTS                     
|PART I                                         
|Item 1:                                         |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                       
|Item 2:                                         |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                     
|Item 3:                                         |  | KEY INFORMATION                                                             
|Item 4:                                         |  | INFORMATION ON THE COMPANY                                                  
|Item 5:                                         |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                
|Item 6:                                         |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                  
|Item 7:                                         |  | MAJOR SHAREHOLDER AND RELATED PARTY TRANSACTIONS                            
|Item 8:                                         |  | FINANCIAL INFORMATION                                                       
|Item 9:                                         |  | THE OFFER AND LISTING                                                       
|Item 10:                                        |  | ADDITIONAL INFORMATION                                                      
|Item 11:                                        |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                  
|Item 12:                                        |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                      
|PART II                                        
|Item 13:                                        |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                             
|Item 14:                                        |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|Item 15:                                        |  | CONTROLS AND PROCEDURES                                                     
|Item 16A:                                       |  | AUDIT COMMITTEE FINANCIAL EXPERT                                            
|Item 16B:                                       |  | CODE OF ETHICS                                                              
|Item 16C:                                       |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      
|Item 16D:                                       |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  
|Item 16E:                                       |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      
|PART III                                       
|Item 17:                                        |  | FINANCIAL STATEMENTS                                                        
|Item 18:                                        |  | FINANCIAL STATEMENTS                                                        
|Item 19:                                        |  | EXHIBITS                                                                    
|SIGNATURE                                      

2

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

We prepare our financial statements on a consolidated basis in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). Our
auditors conduct their audit of our consolidated financial statements in accordance with auditing standards generally accepted in the United States. We have included in this annual report selected
consolidated financial information as of and for the years ended December 31, 1999, 2000, 2001, 2002 and 2003 and audited consolidated financial statements as of and for the years ended
December 31, 2001, 2002 and 2003.

We
have included in this annual report EBITDA amounts for certain periods, because we believe that EBITDA is a useful measure for certain investors to determine our operating cash flow
and historical ability to meet debt service and capital expenditure requirements, and because we believe that it provides a useful measure of the level of profitability we achieve with our asset base.
EBITDA is not a measure of financial performance under U.S. GAAP and should not be considered as an alternative to cash flow from operating activities, a measure of liquidity or an alternative to net
income as indicators of our operating performance or any other measures of performance derived in accordance with U.S. GAAP. A reconciliation of the EBITDA amounts included herein to net income and
net cash provided by operating activities (which are U.S. GAAP measures) is set forth under "Item 3: Key Information(A) Selected Consolidated Financial DataNotes".

Certain
monetary amounts and other figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the
arithmetic aggregation of the figures which precede them, and figures expressed as percentages in the text may not total 100.0% when aggregated.

Certain
ratios included in this annual report include immaterial corrections to amounts presented in reports and other documents previously filed by us with the Securities and Exchange
Commission.

We
have prepared this annual report using a number of conventions, which you should consider when reading the information contained herein. When we use the terms "we", "us", "our" and
words of similar import, we are referring to Aurelia Energy N.V., itself, or to Aurelia Energy N.V. and its consolidated subsidiaries, as the context requires. When we refer to "Aurelia Holding N.V.",
the registered shareholder of 100.0% of our outstanding voting shares, with respect to dates on or after
January 28, 2003, we are referring to Aurelia Holding N.V. in liquidation. When we use the terms "own" and "owns", with respect to our FPSOs and FPSO hull, we are referring to:



References
to "dollars", "U.S. dollars" and "U.S.$" are to the currency of the United States, references to "euro" and "€" are to the single currency of the member states
of the European Communities that have adopted the euro as their lawful currency under the legislation of the European Community relating to the Economic and Monetary Union and references to
"£" and "sterling" are to the currency of the United Kingdom. In this annual report, we have translated certain euro amounts into U.S. dollars at an exchange rate of €1.00
to U.S.$1.2597 and certain sterling amounts into U.S. dollars at an exchange rate of £1.00 to U.S.$1.7842, which were the noon buying rates in New York City for cable transfers in those
foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2003. You should not construe these translations as representations that the euro or
sterling amounts actually represent such U.S. dollar amounts or that we could convert these amounts into U.S. dollars at the rates indicated. On March 30, 2004, the applicable noon buying rates
were €1.00 to U.S.$1.2202 and £1.00 to U.S.$1.8283.

3

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FORWARD-LOOKING STATEMENTS

This annual report includes forward-looking statements within the meaning of, and which have been made pursuant to, the U.S. Private Securities Litigation Reform
Act of 1995. All statements other than statements of historical fact contained in this annual report, including, without limitation, those regarding our future financial position and results of
operations, our strategy, plans, objectives, goals
and targets, future developments in the markets where we participate or are seeking to participate, and any statements preceded by, followed by or that include the words "believe", "expect", "aim",
"intend", "will", "may", "anticipate", "seek" or similar expressions or the negative thereof, are forward-looking statements. These forward-looking statements involve known and unknown risks,
uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements are based on numerous assumptions regarding our present and future
business strategies and the environment in which we will operate in the future. Important factors that could cause our actual results, performance or achievements to differ materially from those in
the forward-looking statements include, among others:



4

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Additional
factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under "Item 3: Key
Information(D) Risk Factors" and elsewhere in this annual report. We caution you not to place undue reliance on these forward-looking statements which reflect our management's view only
as of the date of this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of
these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might not occur.

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PART I

ITEM 1:    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2:    OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3:    KEY INFORMATION

(A)  Selected Consolidated Financial Data

The following table presents our selected financial data on a consolidated basis as at and for each of the years ended December 31, 1999, 2000, 2001, 2002
and 2003. We have extracted the following selected financial data from our audited consolidated financial statements, prepared in accordance with
U.S. GAAP, for the periods indicated. You should read the following selected consolidated financial data in conjunction with the information contained in "Item 5: Operating and Financial Review and
Prospects" and our consolidated financial statements and the notes thereto included elsewhere in this annual report.

As at and for the year ended December 31,1999

2000

2001

2002

2003(in U.S.$ thousands, except ratios and share and per share amounts)Income Statement Data:Revenues

274,918

200,197

197,317

262,799

295,780Operations expenses

154,188

67,847

83,795

145,309

185,755Selling, general and administrative expenses

6,905

7,834

9,467

9,736

9,800Other operating income

(4,113
)
(3,847
)
(3,375
)
(4,046
)
(4,014
)Depreciation of tangible fixed assets and amortization of intangible fixed assets

59,692

64,058

58,335

54,038

61,976Total operating expenses

216,672

135,892

148,222

205,037

253,517Operating income

58,246

64,305

49,095

57,762

42,263Interest income

7,219

5,638

5,188

3,447

3,530Interest expense

(32,285
)
(36,116
)
(28,776
)
(48,898
)
(45,120
)Currency exchange results

11,045

4,102

5,759

1,452

10,841Total financial income and expenses

(14,021
)
(26,376
)
(17,829
)
(43,999
)
(30,749
)Income before income taxes

44,225

37,929

31,266

13,763

11,514Income taxes

(1,169
)
(21,910
)
(32,614
)
(23,615
)
(1,063
)Net income

45,394

59,839

63,880

37,378

12,577Number of common B shares outstanding

136,000

136,000

136,000

136,000

136,000Net income per common B shares outstanding

334

440

470

275

92


6

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Balance Sheet Data:Cash and cash equivalents

21,210

25,295

15,713

23,024

32,937Fixed assets(1)

793,313

741,050

977,700

1,018,785

1,026,752Total assets

976,047

910,022

1,189,187

1,279,820

1,321,536Total debt(2)

438,976

347,754

546,577

581,103

587,455Subordinated Marenco loan

114,492

116,350

117,616

125,849

134,659Shareholders' equity (net assets)

307,487

366,951

424,704

460,191

475,388Cash Flow Data:Net cash provided by operating activities

77,095

103,835

73,719

84,420

73,665Net cash (used in) investing activities

(48,523
)
(11,884
)
(285,102
)
(95,105
)
(70,012
)Net cash provided by (used in) financing activities

(24,942
)
(87,047
)
203,275

20,018

8,932Other Financial Data and Ratios:EBITDA(3)

117,938

128,363

107,430

111,800

104,239Capital expenditures, net(4)

48,275

11,911

13,647

95,105

69,912Cash interest paid(5)

36,610

28,232

20,738

41,829

39,722Ratio of EBITDA to cash interest paid

3.22
x
4.55
x
5.18
x
2.67
x
2.62
xRatio of net debt to EBITDA(6)

3.54
x
2.51
x
4.94
x
4.99
x
5.32
xRatio of earnings to fixed charges(7)

1.76
x
2.10
x
2.14
x
1.22
x
1.15
x


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Notes:

For the year ended December 31,1999

2000

2001

2002

2003(in U.S.$ thousands)Long-term bank loans

360,000

288,000

495,162

324,733

249,108101/4% Senior Notes due 2012







256,370

338,347Short-term portion of long term-bank loans

50,514

41,797

47,828



Unsubordinated Marenco loan

7,900

7,612

3,587



Short-term bank loan

20,562

10,345





Total debt

438,976

347,754

546,577

581,103

587,455


7

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For the year ended December 31,1999

2000

2001

2002

2003(in U.S.$ thousands)EBITDA

117,938

128,363

107,430

111,800

104,239Depreciation of tangible fixed assets and amortization of intangible assets

(59,692
)
(64,058
)
(58,335
)
(54,038
)
(61,976
)Financial income and expense

(14,021
)
(26,376
)
(17,829
)
(43,999
)
(30,749
)Income taxes

1,169

21,910

32,614

23,615

1,063Net income

45,394

59,839

63,880

37,378

12,577Adjustments to reconcile net income to cash provided

60,402

44,114

27,448

26,987

54,764Changes in operating assets and liabilities, net of effect of acquisitions

(28,701
)
(118
)
(17,609
)
20,055

6,324Net cash provided by operating activities

77,095

103,835

73,719

84,420

73,665


For the year ended December 31,1999

2000

2001

2002

2003(in U.S.$ thousands)Additions to tangible fixed assets

48,551

11,911

13,647

95,105

77,978Disposals to tangible fixed assets

(842
)
(582
)




(9,874
)Accumulated depreciation of disposals of tangible fixed assets

842

582





1,808Translation result

(276
)






Capital expenditures, net

48,275

11,911

13,647

95,105

69,912


8

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(B)  Capitalization and Indebtedness

Not applicable.

(C)  Reasons for the Offer and Use of Proceeds

Not applicable.

(D)  Risk Factors

We have listed below considerations that could have a material adverse effect on our business, financial condition or results of
operations. Additional considerations not presently known to us or that we currently deem immaterial may also impair our business operations. These factors should be considered carefully, together
with the information and financial data set forth elsewhere in this annual report.

We depend on capital expenditures by the offshore oil industry and reductions in such expenditures have had and may continue to have a material adverse impact on our business.

Demand for our products and services depends to a large extent on the level of offshore exploration and production activity by oil companies and the level of
capital expenditures by the oil industry that is devoted to offshore operations. These factors in turn depend in part on prevailing oil prices, expectations about future prices, the cost of exploring
for, producing and delivering oil, the discovery rate of new oil reserves in offshore areas, domestic and international political, military, regulatory and economic conditions, technological advances
and the ability of oil companies to generate funds for capital expenditures. Prices for oil historically have been extremely volatile and have reacted to changes in the supply of and demand for oil
(including changes resulting from the ability of the Organization of Petroleum Exporting Countries to establish and maintain production quotas) and domestic and
worldwide economic conditions and political instability in oil producing countries. Uncertainties with respect to international political, military and economic conditions may exacerbate the risk of
change with respect to the foregoing.

Although
our service agreements are designed to minimize the effect of fluctuations in the price of oil and levels of exploration and production activities by oil companies, changes in
the price of oil and decreases in levels of exploration and production could affect the decisions of oil companies to extend our existing contract periods or to enter into new service agreements,
particularly in marginal fields and fields that are near the end of their productive lives, and, in the case of our current service agreement for the Munin(which we expect to terminate in August 2004),
may affect future amounts or revenues generated. Changes in oil prices that impact levels of
production could also affect the amount of tariff or bonus payments we earn under our service agreements. Furthermore, our SPM business is particularly susceptible to fluctuations in the price of oil
and levels of exploration and production activity by oil companies, because SPM systems are typically sold rather than leased. Historically, oil companies have reduced their capital expenditures on
SPM systems during periods of depressed oil prices and decreased levels of exploration and production activities. While the revenues of our SPM business have generally improved in recent years,
revenue levels have not yet returned to the levels achieved during 1998, when spending by oil companies on SPM systems was comparatively high due to positive trends in oil prices.

No
assurance can be given that current levels of exploration and production activity and capital expenditures on offshore oil operations will continue or that demand for our products and
services will continue at the same level relative to the level of those activities. We anticipate that prices for oil will continue to be volatile and affect the demand for and pricing of our products
and services. While we believe that having a flexible and scalable workforce is an important factor in managing business cycles, a material decline in oil prices or offshore exploration and production
activities could materially

9

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adversely
affect our ability to extend existing contract periods, enter into new service agreements or secure new SPM delivery contracts.

We generate the majority of our revenues from a limited number of FPSOs and customers and the loss of revenues from any of these vessels or customers could have a material
adverse effect on our financial condition and business prospects.

We generate the majority of our revenues from the contract payments that we receive for the provision of FPSOs and related services under our existing service
agreements. Our FPSO fleet currently consists of five high specification FPSOs (theBleo Holm, theUisge
Gorm, theGlas Dowr, theHaewene Brimand the Munin) that have been contracted to
oil companies pursuant to service agreements. We have entered into an additional service agreement to redeploy the Muninto the Xijiang Field in the South China Sea for a period of 160 to 190 days
following the termination of the vessel's existing service
agreement. We expect to terminate theMunin's existing service agreement in August 2004 and to
redeploy the FPSO in September 2004. Based upon the terms of our new service agreement, we believe that it will be necessary for us to enter into a new service agreement for the FPSO during
2005. The loss of revenues from any of our FPSOs or customers, whether as a result of damage or destruction of the vessel, our inability to meet production uptime requirements, the depletion of any of
the oil fields on which they operate, the termination of their service agreements for any reason after the expiration of the minimum contract period, the inability or unwillingness of customers to
make payments under any of their service agreements, or our inability to obtain new service agreements for our FPSOs (including theMunin, after the
expiration of the term of our new service agreement relating to it), could have a material adverse effect on our financial condition and results of operation.

Our projects may be subject to delays and cost overruns.

Our FPSO and SPM projects may be subject to delays and cost overruns due to delays in equipment deliveries, unforeseen engineering problems, work stoppages,
weather interference, unanticipated cost increases, shortages of materials or skilled labor or labor unrest. Our FPSO projects may be particularly susceptible to cost overruns and delays due to the
engineering and construction uncertainties inherent in the development and modification of FPSOs. Based on our experience, we believe that the cost of constructing a high specification FPSO (including
the cost of procuring and converting a hull) ranges from U.S.$250.0 million to U.S.$350.0 million, though larger and more complex FPSOs may have higher construction costs. The cost of
modifying an existing FPSO depends to a large degree on the scope and nature of the work to be performed. In the past, we have experienced cost overruns and delays in connection with the development
and modification of our FPSO fleet. While we have implemented measures to assist us in completing projects on time and within budget, we have continued to experience delays and budget overruns in
connection with some of our FPSO projects, including, most recently, the modification of theGlas Dowr. See "Item 4: Information on the
Company(B) Business OverviewFPSO BusinessFPSO Fleet and FPSO HullGlas Dowr" and "Item 5: Operating
and Financial Review and Prospects(B) Liquidity and Capital ResourcesCapital Expenditures". Some of the delays and budget overruns that we have experienced have been due to
factors beyond our control. There can be no assurances that we will not experience material cost overruns or delays in the future. Because we bid our service agreements and SPM delivery contracts at
fixed prices, any cost overruns or delays may require us, among other things, to seek to incur additional indebtedness to complete a project and may make it more difficult for us to be awarded
projects or to secure financing for projects in the future. In addition, because we generally earn contract payments after the date of first oil, material project delays could adversely affect the
timing of the revenues we receive under our new service agreements and, consequently, could affect our ability to service any indebtedness incurred in connection with the project. As a result,
significant cost overruns or delays could have a material adverse effect on our liquidity, financial condition and

10

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results
of operations. There can be no assurance that we would be able to fund any delays or overruns, through the incurrence of indebtedness or otherwise, or that such funds would be provided on
favorable terms.

We are subject to competition which could limit our ability to maintain or increase our market share or to maintain our prices at profitable levels.

We operate in markets that are highly competitive and subject to business cycles. Most of our service agreements and SPM delivery contracts are obtained through a
competitive bidding process which is standard for the industry in which we operate. We compete with both international and local companies. While price is a major factor influencing whether we are
awarded an FPSO or SPM contract, other important factors include equipment availability, service quality, technological capacity, performance, reputation (particularly with respect to safety and
performance), customer relations, long-standing relationships and experience of personnel. While we are a leader in both the FPSO and SPM markets, some of our competitors may be better
positioned to withstand and adjust more quickly to volatile market conditions, such as fluctuations in oil prices and exploration and production levels or changes in government regulations. In
addition, the FPSO market is characterized by long lead times for construction and competition in obtaining service agreements. FPSOs have few alternative uses and, because of their nature and the
environment in which they operate, have relatively high capital costs, whether or not operating. Because these costs are essentially fixed, and in order to avoid additional expenses associated with
temporarily idling or "stacking" our FPSOs, we may from time to time be required to bid our products and services for operation or delivery at unattractive rates. See "Item 4: Information on the
Company(B) Business OverviewCompetition". We cannot predict the future level of demand for our products or services.

Our business is subject to operational risks which may not be insured or insurable on economically favorable terms.

Our operations are subject to hazards inherent in the offshore oil industry, including blowouts, reservoir damage, loss of production, loss of well control,
cratering and fires, the occurrence of which could result in the suspension of production operations, substantial damage to or destruction of equipment and injury or death to personnel on board our
vessels. Damage to the environment could result from our operations, particularly through oil spillage or extensive uncontrolled fires. In addition, our operations are subject to maritime hazards,
including capsizing, grounding, collision and loss or damage from severe weather or storms.

We
maintain insurance coverage in such amounts as we believe to be prudent against normal risks in our operations, including, among other things, the risk of pollution and damage to
vessels. Certain risks (such as business interruptions and environmental liabilities in excess of certain limits), however, are either not insurable or are insurable only at rates we consider
uneconomical. The cost to obtain and maintain insurance could increase or decrease in the future for any number of reasons. Our insurance costs increased significantly following September 11,
2001. There can be no assurance that we will continue to maintain current levels of insurance and we may determine in the future to carry less insurance or not to insure at all. Moreover, our
insurance coverage does not protect against loss of revenues, although we are required under our credit facility to obtain such insurance if the number of FPSOs from which we receive revenues falls
below three.

Depending
on competitive conditions and other factors, we seek to obtain indemnity agreements from our customers which require them to hold us harmless in the event of loss of
production, reservoir damage or liability for pollution that originates below the surface of the water. We generally rely on these indemnities to protect us from risks which are uninsurable or
insurable only at rates which we believe are uneconomical. When obtained, these contractual indemnifications may include cross-indemnification provisions, and the obligations thereunder may not be
supported in all cases by

11

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adequate
insurance maintained by the customer or required to be maintained by us. We have agreed to indemnify each of Amerada Hess and Talisman in the case of theUisge
Gormand theBleo Holm, respectively, and SOI and ConocoPhillips in the case of the Munin, subject to amount limitations in the
respective service agreements, in respect of pollution emanating from our FPSOs and certain other equipment
which we have supplied. Each of Amerada Hess, Talisman and SOI has agreed to indemnify us with respect to the foregoing in excess of those amount limitations and in respect of pollution emanating from
the field, reservoir or wells (in the case of the current service agreement with SOI relating to theMunin, subject to certain exceptions). Under our
service agreements with PetroSA and ConocoPhillips, we have agreed to indemnify PetroSA and ConocoPhillips, respectively, subject to amount limitations, in respect of pollution emanating from our
FPSO, shuttle tankers and certain subsea and other equipment, and PetroSA and ConocoPhillips have each agreed to indemnify us with respect to the foregoing in excess of those amount limitations
(subject to an exclusion in the event our insurer denies coverage) and in respect of pollution emanating from wells and certain subsea and other equipment. In the case of the Haewene Brim, we have
agreed to indemnify Enterprise Oil in respect of certain pollution emanating from our FPSO (unrelated to oil from the field) and
certain other equipment we have supplied, and Enterprise Oil has agreed to indemnify us for pollution relating to oil from the field. These indemnity arrangements may not protect us in all
circumstances.

There
can be no assurance that any insurance or contractual indemnity protection will be sufficient or effective under all circumstances or against all hazards to which we may be
subject. The occurrence of a significant event not fully insured or indemnified against or the failure of a customer to meet its indemnification obligations to us could materially and adversely affect
our results of operations and financial condition. Moreover, there can be no assurance that we will be able to maintain adequate insurance in the future at commercially reasonable rates or that any
particular types of coverage will continue to be available.

We have a substantial amount of indebtedness outstanding.

We have and will continue to have a substantial amount of indebtedness outstanding. Our total debt (which excludes the subordinated Marenco loan), consolidated
total assets and shareholders' equity as of December 31, 2003 was U.S.$587.5 million, U.S.$1,321.5 million and U.S.$475.4 million, respectively, and our ratio of earnings to fixed
charges was 1.15x for the year.

Our
substantial indebtedness could have important consequences to you. For example, it could:



In
addition, certain of our financing arrangements impose operating and financial restrictions on our business. These provisions require us to maintain minimum levels of tangible net
worth and liquidity and ratios of operating income to gross interest expense and net income to dividend and interest expense above certain specified levels. These provisions may negatively affect our
ability to react to changes in market conditions, take advantage of business opportunities we believe to be

12

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desirable,
obtain future financing, fund needed capital expenditures, significantly increase research and development expenditures, or withstand a continuing or future downturn in our business.

Our internal restructuring and our Dutch tax treatment of our group companies remain subject to review.

Effective January 1, 2000, we entered into an internal restructuring process. In connection therewith, the economic interests in most of the assets and
liabilities of certain non-Dutch group companies were sold to Bluewater Holding B.V., while legal title to the assets and liabilities transferred remained with the selling companies. The
valuation of the assets and liabilities transferred was based on a valuation report prepared by an independent investment bank. The sales of these economic interests resulted for income taxes purposes
only in intercompany profits at the level of the selling companies and the creation of a corresponding amount of goodwill and intercompany indebtedness at the level of Bluewater Holding B.V. Although
extensive discussions were held with the tax authorities concerning our tax structure and the internal restructuring, our tax structure and the tax consequences of the internal restructuring have been
the subject to a tax audit and remain subject to further review by the tax authorities. See "Item 10: Additional Information(C) Material ContractsEconomic Sale Agreement".

In
May 2002, we received a draft audit report from the Dutch tax authorities. The draft tax audit report included certain proposed factual findings relating to the issue of
whether our non-Dutch companies are residents of the Netherlands for Dutch tax purposes or have a taxable presence in the Netherlands. The draft audit report, which does not represent a
final determination by the Dutch tax authorities, states that it was issued for discussion purposes. On the basis of the draft audit report, the Dutch tax authorities assessed, in June 2002,
additional taxes with respect to a Dutch group member for its 1998 and 1999 tax years and assessed, in November 2002, July 2003 and August 2003, additional taxes with respect to
certain non-Dutch group members for their 1997, 1998, 1999 and 2000 tax years. The total amount of these assessments, including interest to the date of assessment, was
€135.4 million (U.S.$170.6 million) as of December 31, 2003. We are in discussions with the Dutch tax authorities regarding these taxes and are vigorously
contesting their assessment. We believe that the findings of fact and the relevant legal and regulatory interpretations upon which the Dutch tax authorities' position is based are incomplete and
incorrect, and that the assessment of such additional taxes is contrary to certain favorable tax rulings, which we have received from them. In any event, we believe that any assessment of additional
taxes is incorrect, and that it is likely that we will prevail on the merits in any final determination of the assessments. Accordingly, in July 2003, we filed with the Dutch tax authorities a
response to their draft audit report and a transfer pricing report supporting our response. We intend to continue to contest vigorously the imposition of any additional taxes and, if necessary, to
seek administrative and judicial review of the assessments. Administrative and judicial review of the assessments in the Netherlands would likely take several years. We intend to withhold payment of
such taxes pending final resolution of the issue. Although there can be no assurance that the relevant issues will ultimately be resolved in our favor, we believe that it is not probable that
additional Dutch income taxes will be payable for the 1997, 1998, 1999 and 2000 tax years, and, accordingly, we did not accrue for the aforementioned tax assessments in the audited consolidated
financial statements included in this annual report.

In
connection with the draft tax audit report, we are also in discussions with the Dutch tax authorities concerning our internal restructuring. See "Item 10: Additional
Information(C) Material ContractsEconomic Sale Agreement". In the course of such discussions, the Dutch tax authorities have confirmed to us that they will not seek to tax
any capital gain that may be associated with the sale of the relevant economic interests in connection with our internal restructuring, but instead will focus their analysis only on the amount of
goodwill and deductible interest related to the internal restructuring and the percentage of goodwill and deductible interest from our internal restructuring

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that
should ultimately be attributed to our non-Dutch activities. The outcome of such discussions could limit our ability to take advantage of future tax savings associated with our
internal restructuring by limiting the amount of goodwill that we may amortize and the amount of interest we may deduct for tax purposes in future periods. However, based upon current facts and
circumstances, applicable tax law, regulation and precedent, discussions with relevant tax authorities and professional advisers and other relevant criteria, we estimate that it is currently probable
that we will realize benefits relating to at least U.S.$434.0 million of amortizable goodwill and at least U.S.$768.0 million of interest bearing intercompany debt in connection with our
internal restructuring at January 1, 2000 and that such amounts will result in tax losses which may be carried forward for Dutch income tax purposes. In addition, in December 2001,
U.S.$379.5 million of the intercompany indebtedness of Bluewater Holding B.V. relating to the internal restructuring was converted to share capital, thereby reducing the amount of tax benefits
that we may take advantage of in subsequent periods. Notwithstanding our current estimates, however, it is impracticable to quantify definitively at this time the effect that the outcome of such
discussions may have on our actual tax position, because any such quantification depends on a number of future events, including the specific factual findings and legal and regulatory positions that
may be taken by the Dutch tax authorities in any possible future challenge to our internal restructuring, as well as the outcome of any relevant proceedings. While we believe that it is probable that
we will realize tax benefits in amounts that are not less than the foregoing estimates as set forth above and that it is unlikely that the outcome of these discussions or any proceedings relating
thereto will have a material adverse effect on our financial position, there can be no assurance in this regard and we could lose some or all of the future anticipated tax savings associated with our
internal restructuring.

Our business is subject to governmental regulation and environmental laws with which it may be difficult or impossible to comply and which could lead to significant
liabilities.

Our operations are subject to various governmental laws and regulations, including those relating to equipping and operating offshore vessels, vessel safety,
currency conversions and repatriation, oil exploration and development, taxation of foreign earnings and earnings of expatriate personnel and the use of local employees and suppliers by foreign
contractors. In addition, we depend on the demand for our services from the offshore oil industry and, therefore, we are affected by changing taxes, price controls and other laws that affect the oil
industry generally and offshore exploration and production specifically. The adoption of laws and regulations curtailing exploration and development drilling for oil for economic or other policy
reasons or practical restrictions on our ability to provide our services to our customers could adversely affect our operations by limiting demand for offshore production
services. We cannot predict the extent to which our future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations.

Our
operations and assets are also affected by various environmental protection laws and regulations, including those relating to discharges into the air and water, the handling and
disposal of waste and the health and safety of employees. The technical requirements of these laws and regulations are becoming increasingly complex, stringently enforced and expensive to comply with.
Certain environmental laws provide for strict liability, rendering a party liable for environmental damage, personal injury and threats to health and safety without regard to its negligence or fault.
Certain environmental laws may also expose us to joint and several liability for the conduct of others or for acts that complied with all applicable laws when they were performed. Sanctions for
non-compliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. As a result, there can be no assurances that we will
be able to comply with these laws in the future or that we will not be subject to liabilities that could adversely affect our financial condition or results of operation.

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Our efforts to protect our intellectual property rights or to defend ourselves against any claims of infringement may be costly and, if unsuccessful, we may be barred from
using our technology.

Our results of operations depend in part upon our ability to develop and protect proprietary technology and operational know-how. We rely on a
combination of patents and trade secret laws to establish and protect our proprietary technology. As a result, we enter into confidentiality agreements with our employees, contractors, customers and
potential customers and limit access to and distribution of our technology. However, we cannot assure you that the actions we take will be adequate to deter the misappropriation or the independent
third party development of technology that is substantially similar to ours. In particular, loss of employees in possession of operational and technical know-how to competitors could
result in such information falling into the hands of our competitors, and it may be difficult for us to prove its use by those competitors and enforce our rights in it.

Our
strategy for filing patent applications is based principally around protecting our designs in selected jurisdictions which we consider to be important. However, ownership of our own
patents or applications does not guarantee us freedom to operate over previously filed patents of others. In addition, the laws of certain foreign countries do not protect proprietary rights to the
same extent as the laws of the Netherlands, the Netherlands Antilles or the United States. Enforcing intellectual property rights against others or defending ourselves against claims of infringement
could result in substantial costs and diversion of management and technical personnel and resources. The outcome of intellectual property proceedings could also impair our ability to develop and
commercialize products and result in the award of substantial damages against us. In the event of an unfavorable outcome in litigation, we may need to obtain licenses or redesign our technologies or
potential product to avoid infringement.

Although
we are not currently involved in any litigation regarding our intellectual property rights, or our possible infringement of intellectual property rights of others, we cannot
assure you that we will not be involved in intellectual property litigation in the future. In the past, a competitor informed us that it believed we infringed upon a number of its pending patents.
With respect to these patents, we received advice from our patent agent that our product design does not infringe upon any valid claim of the patent or application, modified our product design to one
which in the opinion of our patent agent does not infringe upon any valid claim of the patent or application or successfully commenced an opposition proceeding. In addition, we are aware of a European
patent application that is parallel to the patent application which was the subject of our successful opposition proceeding. This application has not yet been granted and we have received advice from
our patent agent that we have not infringed and do not infringe on any valid claim of the related patent should the application be granted.

We
have no registered trademarks and rely on unregistered trademark rights in the countries in which we operate, to the extent that they exist, in order to protect our business name.

We are subject to risks associated with international operations which could negatively affect our business or results of operations.

Our operations in some parts of the world are subject to certain political, economic and other uncertainties including risks of war and other international
conflicts, expropriation or nationalization of assets, renegotiation or nullification of existing contracts, changing political conditions, changing laws and policies affecting trade and investment,
changes in tax structures (including tax lease arrangements) and the general hazards associated with the assertion of foreign sovereignty over certain areas in which our operations are conducted, each
of which may limit the movement of assets or funds or result in the deprivation of contractual rights or the taking of property without fair compensation. Additionally, our ability to compete in many
foreign jurisdictions may be adversely affected by foreign governmental regulations that encourage or mandate the hiring of local contractors or by regulations that require foreign contractors to
employ nationals or purchase supplies from a particular jurisdiction. Our future

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foreign
operations could face the additional risks of fluctuating currency values, currency shortages and controls of foreign currency exchange. There can be no assurance that we will not be subject
to material adverse developments with respect to our international operations.

Our operations are dependent on certain management personnel.

Our future success will depend to a significant extent on our executive officers and other key management personnel. In addition, the success of any potential
acquisitions may depend, in part, on our ability to retain management personnel of the acquired companies. Although we have employment agreements with several of our executive officers and key
personnel, including Mr. Hugo Heerema, there can be no assurance that we will be able to attract or retain qualified management in the future. See "Item 6: Directors, Senior Management and
Employees(A) Directors and Senior Management".

Our share capital is indirectly held by a single beneficial shareholder that is prohibited from dismissing or replacing Mr. Hugo Heerema as the sole member of the
management board of Bluewater Holding B.V. without his prior written consent.

We are beneficially owned by the Jacaranda Trust, an irrevocable discretionary trust of which Mr. Hugo Heerema and certain members of his immediate family
are beneficiaries. Documentation relating to the Jacaranda Trust provides for the transfer of the Jacaranda Trust's beneficial interest in us to Mr. Heerema in certain instances and prohibits
the trustees of the Jacaranda Trust from exercising their powers in a manner that would result in Mr. Heerema being dismissed or replaced as the sole member of the management board of Bluewater
Holding B.V. without his prior written consent. The management board of Bluewater Holding B.V. is generally responsible for setting our policies and managing our general affairs and business. See
"Item 6: Directors, Senior Management and Employees" and "Item 7: Major Shareholder and Related Party Transactions". Your interests may be different from the interests of the Jacaranda Trust, its
trustees or its beneficiaries or the interests of Mr. Heerema.

ITEM 4:    INFORMATION ON THE COMPANY

(A)  History and Development of the Company

We are Aurelia Energy N.V., a holding company with no independent operations, and its subsidiaries, a group of companies that comprise a specialized service
provider to and operator in the offshore oil industry. We operate under the name "Bluewater" and are a leader in the design, development, ownership and operation of FPSOs, which we operate for oil
companies under medium- and
long-term service agreements, and the design, development, project management and delivery of SPM systems.

An
FPSO is a type of floating production unit used by oil companies to produce, process, store and offload hydrocarbons from offshore fields. FPSOs are either newly built or converted
tanker hulls upon which production equipment is mounted. Fluids (oil, gas and water) are processed onboard an FPSO, and treated crude oil is stored before being exported by an offtake system utilizing
shuttle tankers. FPSOs are generally involved in the production, rather than the exploration or drilling, of oil.

SPM
systems are used to secure a floating production unit (including an FPSO), floating storage and offloading vessel or tanker to the ocean floor while allowing the unit, vessel or
tanker to weathervane freely. Most SPM systems consist of an anchoring system that is connected to the ocean floor and a fluid transfer system that permits the transfer of fluids between fixed and
rotating parts of the mooring system. Most SPM systems are developed for sale to oil companies and contractors under SPM delivery contracts.

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Our
registered address is Landhuis Joonchi, Kaya Richard J Beaujun z/n, Curaçao, the Netherlands Antilles, and our telephone number is (599) 9736 6277. Bluewater
Offshore Productions (U.S.A.), Inc. acts as our authorized representative in the United States. Its address is 8554 Katy Freeway, Suite 327, Houston, Texas 77024, and its telephone number is
(1) 713 722 8131.

Descriptions
of recent important developments in our business and our capital expenditures are included under "(B) Business Overview" and "Item 5: Operating and Financial
Review and Prospects(B) Liquidity and Capital ResourcesCapital Expenditures". A description of our operating subsidiaries is included under "Item 10: Additional
Information(I) Subsidiary Information".

(B)  Business Overview

Overview of Operations

We conduct our operations principally through two businesses that we staff and resource according to market conditions and our business needs. These businesses
consist of our:



While
we manage FPSO and SPM projects from the initial design and engineering phase to final installation, we do not engage in the fabrication of FPSOs or SPM systems. Rather, we
outsource these requirements to qualified subcontractors.

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We earn revenues on a worldwide basis as described above. The following table presents information concerning our revenues by activity and geographical region for the periods indicated.

|               |               | For the year ended December 31, |        
|-------------- | ------------- | ------------------------------- | -------
|
|
|FPSO business: |               |                                 |        
|               | Europe        |                                 | 174,153
|               | Asia          |                                 | 3,985  
|               | Africa        |                                 |       
|               |               |                                 |        
|               | Total         |                                 | 178,138
|               |               |                                 |        
|SPM business:  |               |                                 |        
|               | Europe        |                                 | 7,287  
|               | Asia          |                                 | 4,939  
|               | Africa        |                                 | 6,953  
|               | South America |                                 |       
|               |               |                                 |        
|               | Total         |                                 | 19,179 
|               |               |                                 |        
|Total          |               | 197,317                         |        
|               |               |                                 |        

Strengths

We believe that we have the following strengths:



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Strategy

The primary elements of our strategy are to:



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FPSO Business

Service Agreements

Our FPSO business focuses on the design, development, ownership and operation of FPSOs pursuant to medium- and long-term service agreements with oil
companies. Our service agreements establish from the outset the functional specifications that our FPSOs must meet and are entered into before the FPSO development process begins. Our responsibility
is to deliver an FPSO that complies with these specifications and to install a fully operational unit. Under our service agreements, we are

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responsible
for performing the operations of the FPSO, for managing the interface between the unit and subsea facilities and offloading systems and for decommissioning the FPSO upon the cessation of
production. Oil companies are responsible for the actual drilling, completion and testing of all wells and for the performance of any subsequent well interventions. Depending on the shuttle tanker or
other arrangement, we may also be responsible for performing activities relating to offloading systems and maintaining and repairing subsea systems.

Oil
companies estimate the volume of recoverable hydrocarbon reserves in a particular field by analyzing geological and engineering data and use different probability scenarios to model
the quantity of hydrocarbons that can be extracted from a particular field. These quantities are expressed in one of three main production profiles. The P90 production profile is the most conservative
profile in the industry and indicates the level of reserves for which it is estimated that there is a 90.0% probability that the actual quantity will be more than the volume estimated and a 10.0%
probability that it will be less. Given the uncertainties in predicting the productivity of a particular field, it is in the interest of oil companies to pursue flexible arrangements with FPSO
operators in respect of contract periods. As a result, our service agreements generally provide for a minimum contract period based on the P90 production profile of a particular field and contain
rollover provisions or extension options that enable the oil company to extend the service agreement beyond the minimum term.

When
a service agreement continues beyond the minimum contract period, the subsequent contract payments are initially governed by predetermined terms that were set before the minimum
contract period began. Renegotiation of payment terms is not required during these periods. These service agreement provisions allow us to receive payments for a minimum contract period regardless of
whether actual production is terminated during the period, while they provide oil companies with certainty that the service agreement can be extended beyond the minimum contract period based on
predetermined economic terms if the field life proves to be longer. To provide additional flexibility, our service agreements also permit the oil company to terminate the service agreement prior to
the expiration of the minimum contract period, provided that termination payments are made to compensate us for the amount that we would have earned during the full minimum contract period. Depending
on the particular service agreement, the oil company is required to provide us with between three and twelve months' notice if it elects either to terminate the contract during the minimum contract
period or to extend the service agreement beyond a current contract period. In practice, we can generally anticipate the termination or extension of a service agreement prior to the commencement of
such notice period due to reserve statistics and production results. In view of the
structure of these service agreements as described above, both we and the oil company have a high level of economic predictability over our future production operations.

Generally,
under our service agreements, a majority of the payments are calculated based on defined day rates. In 2003, these day rates accounted for approximately 73.0% of the revenues
from our FPSO business. Typically, our day rates are divided into a facility fee and an operating fee. The facility fee generally relates to the provision of the FPSO and the associated risers,
umbilicals and all other equipment that are required for production. The operating fee relates primarily to the cost of manning and maintaining the vessel and normally is indexed to various factors,
including inflation. In the case of one of our service agreements, which we expect to terminate in August 2004, contract payments are linked to the price of oil. Currently, our service agreements
require our FPSOs to maintain minimum operating uptimes that exceed certain thresholds. Depending on the particular service agreement, our facility fee or our operating fee may be adjusted upward or
downward to the extent that the relevant uptime exceeds or falls below the applicable threshold. When an FPSO is removed from the field as a result of factors unrelated to operating performance (such
as was the case with theGlas Dowr), no adjustment is made based upon operating uptime. In such a case, however, our day rate may be replaced by a
lay-up rate (which could apply, among other times, in the event of poor field performance or periods of scheduled maintenance) or a force majeure rate (which could apply,

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among
other times, in the event of a natural disaster, war or industrial action), depending, in each case, on the particular service agreement. See "FPSO Fleet and FPSO Hulls".

In
addition to defined day rates, we may earn additional tariff payments under the terms of our service agreements. These payments are generally based on oil or water production or gas
lift volumes or a combination of those volumes. Oil companies have a strong economic incentive to extend operations to neighboring fields through the use of tie-backs, which have low
marginal field development costs and defray the cost of production over several fields. Tie-backs generally increase oil and water production and gas lift levels and, as a result, increase
the amount of tariff payments that we earn under our service agreements. In 2003, tariff payments accounted for approximately 6% of the total revenues from our FPSO business. In certain cases, our
FPSO contract revenues may also include bonus payments relating to the prevailing price of oil, although those payments did not contribute materially to the revenues from our FPSO business in 2003. In
addition to our day rates, tariffs and oil bonuses, our FPSO contract revenues include payments for equipment rentals, vessel modifications, work performed in connection with tie-backs,
project assistance and the provision of auxiliary services. These payments accounted for approximately 21% of the revenues from our FPSO business in 2003 and mainly related to the installation of
subsea equipment at the Sable Field and the development of water injection facilities on theHaewene Brim.

FPSO Fleet and FPSO Hull

We currently own five high specification FPSOs that we have contracted to oil companies for operation on fields in the North Sea, the South China Sea and off the
coast of South Africa. We also own a newly-built FPSO hull that we are marketing worldwide. Our current fleet is described below.

Uisge Gorm.TheUisge Gormis the fourth FPSO that we developed and the first
that we operated in the North Sea. It was
converted from a conventional product tanker with double sides and is designed to satisfy stringent safety and environmental standards. The most significant modifications included the installation of
a turret mooring system that uses a Bluewater designed swivel (which is capable of handling multiple risers and control umbilicals), a flaring system, modularized dual fuel power and generating
equipment, a stern offloading system, a helicopter deck, upgraded safety features and a processing plant. TheUisge Gormcurrently is capable of
accommodating 65 persons and has a weight of 92,000 dwt, a storage capacity of 594,000 barrels, a length of 248 meters, a breadth of 40 meters, a depth of 21 meters and a deck area of 7,390 square
meters. Fluid capacity is 110,000 barrels per day and processing capacity is 57,000 barrels per day.

We
began operating theUisge Gormin August 1995 on the Fife Field at a water depth of 72 meters pursuant to a service agreement
with Amerada Hess. The FPSO was tied back to the neighboring Fergus Field in 1996 and the neighboring Flora Field in 1998. In 2001, theUisge Gormwas
further tied back to the neighboring Angus Field. The FPSO is positioned approximately 6 kilometers from the Fergus subsea well, 8.5 kilometers from the Flora subsea well and 18 kilometers from the
Angus subsea well.

We
are currently operating theUisge Gormat pre-agreed rates pursuant to an automatic extension of our service agreement that
can be terminated with six months' notice. We believe that it is reasonably likely that the combined production profile of the Fife, Flora, Fergus and Angus Fields will extend until the fourth quarter
of 2005 (subject to certain factors, including the price of oil and overall production rates) and that theUisge Gormmay operate under the service
agreement until that time.

Under
our service agreement, we are required to provide a crew to maintain and operate theUisge Gorm. We currently receive from Amerada
Hess a defined day rate of approximately U.S.$120,000 per day that consists of a fixed facility fee for the provision of the FPSO and associated equipment and an indexed operating fee for the
operation and maintenance of the vessel. We also receive tariff payments that are linked to the actual volume of oil and water produced and the volume of gas lifted. These

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tariff
payments totaled U.S.$2.3 million in 2003. If theUisge Gormwere to be removed from the field, we would be entitled to receive a
lay-up rate that is equal to our full facility fee and 75% of our operating fee. In order to receive the full operating fee, we must ensure that theUisge
Gormachieves average oil production and water reinjection uptimes that exceed 95% and 85%, respectively, unless agreed otherwise with Amerada Hess. If the oil production and
water reinjection uptimes fall below these thresholds, our operating fee is reduced according to a predetermined schedule. In 2002, we briefly suspended the operation of the Uisge Gormwith the
agreement of Amerada Hess in May to inspect high pressure equipment and in September to install a new water treatment unit. While
these suspensions reduced our average oil production and water reinjection uptimes to 91.2% and 79.9%, respectively, for the year, they did not result in a reduction of our operating fee due to the
fact that the Amerada Hess had agreed to the downtime in order to enable us to perform the maintenance work. During 2003, theUisge Gormachieved
average oil production and water reinjection uptimes of 93.1% and 83.7%, respectively, which, however, did not have any effect on the facility fee.

Bleo Holm.TheBleo Holmis the sixth FPSO that we developed and the third that
we have operated in the North Sea. It was
converted from a newly built double hull tanker. The primary modifications included the installation of a turret mooring system that uses a Bluewater designed swivel (which is capable of handling
multiple risers and control umbilicals), a new piping system, a flaring system, a stern offloading system, a helicopter deck, upgraded safety features and a processing plant. In April 2001, we
shipped theBleo Holmto the McNulty shipyard in Newcastle, United Kingdom, for debottlenecking to allow for increased production in connection with a
tie-back arrangement and to install new gas cooling equipment. As modified, the vessel has a weight of 105,000 dwt, a storage capacity of 689,000 barrels, a length of 242 meters, a breadth
of 42 meters, a depth of 21 meters and a deck area of 7,985 square meters and can accommodate 96 persons. The vessel has a fluid capacity of 126,000 barrels per day and a crude processing capacity of
95,000 barrels per day and has sufficient free deck space to enable the tie-back of neighboring fields.

We
began operating theBleo Holmon the Ross Field in April 1999 at a water depth of 100 meters pursuant to a service agreement
with Talisman. The vessel was tied back to the Blake Field, where it achieved first oil in June 2001, and was tied back to the Blake Flank Field in September 2003.

Under
our service agreement, Talisman is obligated to continue to make payments under the service agreement until July 2004, after which time the contract will continue at
pre-agreed rates unless terminated by Talisman. Talisman may terminate the service agreement prior to July 2004 by paying the facility fees that would have been due had the service
agreement not been terminated, plus
a termination fee of U.S.$57.3 million (calculated as of the end of the minimum contract period), less any tariff payments paid or payable by Talisman from the date of first oil and the amount
of the facility fees that were paid or payable by Talisman when the vessel was tied back to the Blake Field. If such a termination were to occur and we were able to redeploy the Bleo Holmwithin a
certain timeframe pursuant to another service agreement, we would be obligated to reimburse Talisman the additional facility fee
payments to the extent that such fees were offset by new contract payments, plus a termination rebate. The termination rebate, which is currently approximately U.S.$10.7 million, will reduce on
a daily basis for the duration of the contract period. We believe that the combined production profile of the Ross, Blake and Blake Flank Fields will extend beyond 2015 (subject to certain factors,
including the price of oil and overall production rates) and that theBleo Holmmay continue to operate under the service agreement until that time.

We
are responsible for providing a crew to operate and maintain theBleo Holm, but not for offloading or transporting hydrocarbon
products. We receive from Talisman a defined day rate of approximately U.S.$174,000 that consists of a fixed facility fee for the provision of the FPSO and associated equipment and an indexed
operating fee for the operation and maintenance of the vessel. We also receive tariff payments that are linked to the actual volume of oil produced. These tariff payments, which totaled
U.S.$8.8 million in 2003, increased with the addition of production from the

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Blake
Flank Field. If a force majeure event were to occur, we would be entitled to receive a force majeure rate of U.S.$60,000 per day. In order to receive the full facility fee, we must ensure that
theBleo Holmachieves an average weighted oil production, water reinjection and gas lift uptime that exceeds a certain threshold in each quarter,
unless agreed otherwise with Talisman. If the weighted uptime exceeds or falls below this threshold, our facility fee is adjusted upward or downward on a pro rata basis. This threshold was initially
95%, but has been lowered to 92.5% as a result of the tie-back to the Blake Field.

In
connection with the tie-back to the Blake Field, we upgraded the processing capacity of theBleo Holm. Following the
completion of the upgrades and the start of production at the Blake Field, theBleo Holm's average weighted uptime improved from its historic level.
Notwithstanding this initial increase in average weighted uptime, shortly after the Blake Field came on-stream, certain elements in the Blake and Ross Fields produced fluids which caused a
chemical reaction, resulting in the production of a wax-like substance which blocked topside oil pipework on the vessel. To prevent this wax-like substance from forming, acetic
acid was injected at quantities of up to 5,000 liters a day. The injection of the acetic acid led to an increase in corrosion rates on the topside oil pipework that specifically affected welds and
weld materials. As a consequence, repairs were required, which caused additional actual downtime. During the end of 2002, we made repairs and modifications to the vessel to address this problem.
However, the repairs and modifications led to an increase in actual downtime and a decrease in actual uptime in the end of 2002. Talisman fully compensated us for the costs of the repairs and
modifications which resulted from the formation of this wax-like substance and, despite the increased actual downtime and decreased actual uptime, it continued to pay the full fixed
facility fee during the period.

During
the first seven months of 2003, we suffered additional increased actual downtime due to excessive corrosion of welds in the vessel's topsides gas pipework. Technical investigation
into this corrosion suggested that the acetic acid injected to address the formation of the wax-like substance may have contributed to the corrosion. Due to this corrosion, our average
weighted uptime for the purposes of the service agreement was 88.5% during 2003. In order to address the corrosion, we repaired and made modifications to theBleo
Holmat a cost of approximately U.S.$1.3 million. Due to the fact that our average weighted uptime was below the threshold in the service agreement, we did not receive
the full facility fee from Talisman for this period. The reduction in the fixed facility fee led to a decreased defined day rate during 2003 and a decrease in revenue of approximately
U.S.$2.0 million during the period. We are currently in discussions with Talisman regarding responsibility for the corrosion and associated downtime.

Glas Dowr.TheGlas Dowris the fifth FPSO that we developed and the second that
we operated in the North Sea. Completed in
1997, the FPSO was directly converted from a newly built double hull tanker. The main modifications included the installation of a turret mooring system with a Bluewater designed swivel (which is
capable of handling multiple risers and control umbilicals), a flaring system, an offloading system, a processing plant, a helicopter deck and upgraded safety features and the refitting of the piping
system, engine room and living quarters. During the fourth quarter of 2003, we completed upgrades to the vessel's processing and flaring facilities by installing a new Bluewater designed swivel stack,
a new gas compression module and two additional processing modules. As modified, theGlas Dowrcurrently accommodates 96 persons and has a weight of
105,000 dwt, a storage capacity of 657,000 barrels, a length of 242 meters, a breadth of 42 meters, a depth of 21 meters and a deck area of 7,895 square meters. The vessel has a fluid capacity of
70,000 barrels per day, a processing capacity of 60,000 barrels per day and a gas compression capacity of 85.0 million standard cubic feet per day.

The Glas Dowrwas initially deployed to the Durward and Dauntless Fields under a service agreement with Amerada Hess. In
November 1998, however, Amerada Hess elected to remove theGlas Dowrfrom the fields due to lower than expected reservoir returns that were
unrelated to the

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vessel's
performance. Amerada Hess continued to make payments under the service agreement during the minimum contract period notwithstanding the vessels' removal from the fields. In June 2001,
we entered into a new service agreement with PetroSA, a South African oil company, for the operation of theGlas Dowron the Sable Field in the
Bredasdorp Basin off the coast of South Africa. The Sable Field is principally owned by PetroSA and Pioneer Natural Resources South Africa (Proprietary).

To
prepare theGlas Dowrfor operation on the Sable Field, we modified the vessel's topsides and mooring system and developed the field's
subsea infrastructure in accordance with requirements set forth in our service agreement with PetroSA. Due to an unanticipated increase in the scope and complexity of the vessel modifications, labor
unrest and difficulties with project management on the part of the construction yard where the work was performed, the project experienced delays and cost overruns. The delay in the achievement of
first oil and additional work on the vessel's gas compression facilities, along with increased insurance costs, resulted in an upward revision in our costs estimates. As
of December 31, 2003, our estimate of the costs of the vessel modifications and subsea work, excluding exchange rate differences and financing costs, was approximately
U.S.$195.7 million. Of this amount, U.S.$50.4 million is reimbursable by PetroSA. As of December 31, 2003, we had expended approximately U.S.$144.4 million on the vessel
modifications and approximately U.S.$37.3 million on developing the subsea infrastructure, and we had received approximately U.S.$37.3 million in milestone payments from PetroSA for the
completion of the subsea work.

Based
upon our estimates, we believe that we have approximately U.S.$14.0 million in remaining commitments for expenditures, excluding exchange rate differences and financing
costs, relating to the project as of that date. We expect to fund U.S.$13.1 million of the expenditures with milestone payments that we will receive from PetroSA for remaining subsea work and
to fund the remaining expenditures with borrowings under our credit facility. In addition to the cost of vessel modifications and subsea work, we have capitalized U.S.$9.7 million of financing
costs, U.S.$11.0 million of costs relating to operational support prior to production and U.S.$3.0 million of expenses relating to exchange rate losses resulting from the difference
between the project exchange rate and actual exchange rates. In addition to the above-mentioned capital expenditures, we expect to spend approximately U.S.$6.1 million on offshore commissioning
and completion work. The total capitalized cost for the project, including an accrual of U.S.$13.0 million for expenditures to be made for services incurred on the project, was
U.S.$175.1 million as of December 31, 2003. We do not expect the delays or budgetary overruns to otherwise materially affect our liquidity or capital resources.

On
August 7, 2003, theGlas Dowrcommenced production. In connection with the commencement of production, we entered into a
temporary arrangement pursuant to which we began to earn defined day rates according to the service agreement with PetroSA.

The Glas Dowrachieved contractual first oil in the end of December 2003 at which time our temporary arrangement with PetroSA was
terminated and we began operating the vessel pursuant to the terms of our service agreement. Under our service agreement, we are responsible for operating and maintaining the Glas Dowrand for providing
shuttle tanker services, but not for offloading the hydrocarbon products. During the minimum contract period, PetroSA is
required to pay a minimum fee of approximately U.S.$124,000 per day plus tariff payments for each barrel of oil produced commencing on the date of first oil. The minimum fee consists of a facility
fee, an operating fee and a fee for shuttle tanker services. If theGlas Dowrwere to be removed from the field, we would be entitled to receive our
full facility fee, 80% of our operating fee and our full shuttle tanker fee. In order to receive the full facility fee, we are required to ensure that theGlas
Dowrmaintains minimum oil production and gas and water injection uptimes of at least 95%, unless otherwise agreed with PetroSA. If the operating uptimes fall below this
threshold, our facility fee will be reduced according to a predetermined schedule. To the extent that our operating uptimes exceed this threshold, we may use the excess operating uptimes to offset any
shortfalls in future periods. There is no limit to the amount of tariff payments that we can earn, and, regardless of the volume of oil produced, PetroSA has agreed

25

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to
pay us a minimum of U.S.$44.0 million in tariff payments at the expiration of the minimum contract period, less any tariff payments received up until that time. In addition, we will be
entitled to receive further tariff income above the guaranteed levels to the extent that the volume of oil produced exceeds certain volumes. PetroSA's obligations under the service agreement are fully
guaranteed by its parent company, CEF (Proprietary) Limited.

The
minimum contract period under the service agreement with PetroSA began on the date of the achievement of first oil and will last for three years. If PetroSA were to terminate the
service agreement early, we would be entitled to a termination fee equal to the balance of the total fees that would have been payable had the service agreement continued for the minimum contract
period. Following the expiration of the minimum contract period, the service agreement will continue for a further seven years unless terminated by PetroSA with 12 months' notice. As a
consequence, without termination, the contract term is ten years.

Haewene Brim.In January 2002, we entered into share purchase agreements with Aurelia Holding N.V. pursuant to which we
acquired all of the share capital of Bluewater
(Haewene Brim) N.V., the owner of theHaewene Brim, and Pierce Production Company Ltd., the
company that operates theHaewene Brim. TheHaewene Brimis a harsh environment FPSO that was converted
by APS, Bergesen and Navion in 1999 from a double hull multipurpose shuttle tanker. The main modifications included the installation of a submerged turret production system, fourteen topside modules,
two rotating deck cranes, a flaring system, a stern offloading system, a helicopter deck, upgraded safety features and a processing plant. In February 2000, theHaewene
Brimwas shipped to the McNulty shipyard in Newcastle, United Kingdom, for debottlenecking. As modified, the vessel has a fluid capacity of 70,000 barrels of crude per day and
a processing capacity of 70,000 barrels per day. With sufficient space to accommodate 75 persons, theHaewene Brimhas a weight of 103,000 dwt, a
storage capacity of 630,000 barrels, a length of 253 meters, a depth of 23 meters and a deck area of 3,200 square meters. The current configuration of the topsides of the vessel can accommodate the
installation of future modules, which would permit future upgrades.

Pierce
Production Company Ltd. began operating theHaewene Brimon the Pierce Field in March 1999 at a water depth of 85
meters pursuant to a service agreement with Enterprise Oil, which is currently owned by Shell. We assumed operation of theHaewene Brimin
November 2001 when the vessel and Pierce Production Company Ltd. were acquired by Aurelia Holding N.V.

Under
our service agreement, we are required to provide a crew to maintain and operate theHaewene Brim. We receive a defined day rate of
approximately U.S.$155,000 that consists of a facility fee for the provision of the FPSO and associated equipment (indexed to the sterling-U.S. dollar exchange rate) and an indexed
operating fee for the operation, maintenance and insurance of the vessel. If a force majeure event were to occur, we would be entitled to receive our full facility fee for the first 30 days of
the force majeure event and 90% of our facility fee thereafter. In order to receive the full facility fee, we must ensure that theHaewene Brimachieves
a minimum gas reinjection uptime of 85%, unless otherwise agreed with Enterprise Oil. If our gas reinjection uptime is reduced below this threshold, our facility fee is reduced on a pro rata basis. If
our gas reinjection uptime is above 92%, our facility fee is adjusted upward accordingly. TheHaewene Brimachieved an average gas reinjection uptime of
91.3% in 2003.

Enterprise
Oil is obligated to continue to make payments to us under our service agreement until the agreement expires in March 2014. The minimum guaranteed term of the service
agreement expired in March 2004, permitting Enterprise Oil to terminate the agreement at any time upon 12 months' written notice. Enterprise Oil has agreed to invest approximately
£60 million (U.S.$107.5 million) to install a water injection unit on board of theHaewene Brim. We will manage the project of
the development and installation of the water injection unit on a cost plus basis and will receive a management fee and potentially a bonus payment provided that certain project schedules are met.

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Enterprise
Oil will continue to pay full day rates and has agreed to deliver title to the water injection unit to us for nominal consideration upon completion of the project. We believe that the water
injection unit may increase remaining recoverable reserves at the Pierce Field by approximately 100 million barrels and, accordingly, that it is reasonably likely that the production profile of
the Pierce Field will extend beyond 2014 (subject to certain factors, including the price of oil and overall production rates) and thatHaewene Brimmay
continue to operate under the service agreement until that time.

Munin.In January 2002, we entered into a share purchase agreement with Aurelia Holding N.V. pursuant to which we acquired
all of the share capital of Bluewater
(Munin) N.V., the owner of theMunin, and with Aurelia Holding N.V. and Marenco Investments Limited,
pursuant to which we acquired all of the share capital of Lufeng Development Company, the company that operates theMunin. The Muninis a harsh environment
FPSO that was converted from a double hull multipurpose shuttle tanker by APS and Navion in 1999. The main modifications
included the installation of a submerged turret production system, nine topside modules, two rotating deck cranes, a vent tower, a stern offloading system, a helicopter deck, upgraded safety features
and a processing plant. TheMunincurrently can accommodate 75 persons, has a weight of 103,000 dwt, a storage capacity of 605,000 barrels, a length of
253 meters, a depth of 23 meters and a deck area of 3,200 square meters. Its fluid capacity is 125,000 barrels per day and its processing capacity is 60,000 barrels per day of the heavy crude oil
(with a low gas to oil ratio) found in the Lufeng Field. The vessel has a successful operating record.

Lufeng
Development Company began operating theMuninin January 1998 on the Lufeng Field at a water depth of 330 meters pursuant to
a service agreement with SOI. The service agreement was scheduled to expire in February 2004, but has been extended by SOI for a period of two years. We currently receive a day rate consisting of a
facility fee plus tariff payments linked to the actual volume of oil produced and the price of oil. This day rate averaged approximately U.S.$51,000 in 2003 and was subject to a minimum payment
guarantee by two of the parent companies of the original sellers of theMunin. The payment guarantee, which expired in February 2004, has historically
insulated our day rate under the service agreement from fluctuations in the price of oil. In order to receive the full facility fee, we are required to ensure that the Muninmaintains a minimum average
oil production uptime that exceeds 93%, unless otherwise agreed with SOI. If the oil production uptime falls below
this threshold, our facility fee is reduced according to a predetermined schedule. Since it began operating in January 1998, theMuninhas
maintained oil production uptimes that have exceeded the minimum threshold. In 2003, theMuninachieved an average oil production uptime of 96.1%. While
we do not receive an operating fee for operating theMunin, SOI must reimburse us for substantially all of our operating expenses, except for limited
marine expenses and certain taxes.

In
January 2004, we entered into a new service agreement with ConocoPhillips to deliver, install and operate theMuninon the
Xijiang Field in the South China Sea using the FPSO's dynamic positioning system, which will enable us to avoid costs associated with installing a fixed mooring system. As a consequence, we expect
that we will terminate our existing service agreement with SOI in August 2004 and redeploy theMuninto the Xijiang Oil Field in
September 2004 pursuant to the terms of the service agreement with ConocoPhillips. The new service agreement has a minimum term of 160 days and a maximum term of 190 days. Under
the new agreement, we will be required to maintain a crew and operate theMunin. We will receive a defined day rate of approximately U.S.$99,750 per day
that consists of a facility fee and a fixed operating fee. We will also receive fixed ancillary fees to reimburse us for various costs associated the performance of our duties under the agreement. In
order to receive the full facility fee, we must maintain a utilization rate of at least 50,000 barrels of oil produced per day and achieve an uptime of at least 97% in each month, unless otherwise
agreed with ConocoPhillips. If our production level or uptime is reduced below the applicable threshold, our facility fee will be reduced on a pro rata basis.

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Aoka Mizu.TheAoka Mizuis a newly-built double hull based on a similar design
to that of theBleo
Holm. Construction of the hull took place in Japan and was completed in the second half of 2000. It was delivered with a moonpool prepared to receive a Bluewater designed
turret mooring system. The hull is fully coated both internally and externally for FPSO operations and has supports for topside facilities. The hull has a weight of 105,000 dwt, a length of 242
meters, a breadth of 42 meters and a deck area of 7,985 square meters. Given its high standards, it is capable of taking advantage of opportunities in markets with stringent environmental requirements
and harsh weather conditions. We have not yet entered into a service agreement with respect to a conversion of theAoka Mizubut are marketing the hull
worldwide.

Development of New FPSOs

An important activity of our FPSO business is the development of new FPSOs under service agreements with oil companies. Our development activities consist of the
design, engineering, project management and delivery of FPSOs. Between 1985 and 1994, we developed three FPSOs based on relatively simple designs and short production lives for use in relatively
benign marine and weather conditions in offshore fields in Asia, Australia, West Africa and the Mediterranean. The last of these FPSOs was decommissioned in 1995 in line with our strategic decision to
concentrate on the production of more complex FPSO units that are suitable for use in harsh environments. Since then, we have designed, engineered and developed three high specification FPSOs with
initial design lives of 15 to 20 years and an FPSO hull that is currently available for conversion into an FPSO.

The
following table presents certain information regarding the vessels that we have designed and developed, owned and operated since 1985:

|FPSO                |  | Weight  |  | Mooring System     |  | Location of Operations                    |  | Depth |  | Oil Company       
|------------------- |  | ------- |  | ------------------ |  | ----------------------------------------- |  | ----- |  | ------------------
|
|Acqua Blu(1985)     |  | 70,000  |  | CALM Wishbone      |  | Mila Field (Italy)                        |  | 50    |  | Montedison        
|                    |  |         |  | Spread Mooring     |  | Gomber Marin Field (Gabon)                |  | 20    |  | Amoco             
|                    |  |         |  | Spread Mooring     |  | Safueiro Field (Angola)                   |  | 40    |  | Agip              
|                    |  |         |  | CALM Mooring       |  | Talisman Field (Australia)                |  | 80    |  | Marathon Petroleum
|Lan Shui(1987)      |  | 70,000  |  | CALM Mooring       |  | Liuhua Calm Field (China)                 |  | 300   |  | Amoco             
|                    |  |         |  | Spread Mooring     |  | Intan Field (Indonesia)                   |  | 42    |  | Maxus Energy      
|Ayer Biru(1990)     |  | 45,000  |  | CALM Mooring       |  | Lufeng Field (China)                      |  | 330   |  | Occidental Eastern
|Uisge Gorm(1995)(1) |  | 92,000  |  | Internal Turret(2) |  | Fife, Fergus, Flora and Angus Fields (UK) |  | 72    |  | Amerada Hess      
|Glas Dowr(1997)(1)  |  | 105,000 |  | Internal Turret(2) |  | Durward and Dauntless Fields (UK)         |  | 92    |  | Amerada Hess      
|                    |  |         |  |                    |  | Sable Field                               |  | 100   |  | PetroSA           
|Bleo Holm(1999)(1)  |  | 105,000 |  | Internal Turret(2) |  | Ross, Blake and Blake Flank Fields (UK)   |  | 100   |  | Talisman          
|Aoka Mizu(2000)(3)  |  | 105,000 |  |                   |  |                                          |  |      |  |                  

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Notes:

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We do not own any fabrication facilities and do not fabricate FPSOs. We manage our FPSO projects from the design and engineering phases to completion and enter into construction
contracts with qualified subcontractors who specialize in the various aspects of the FPSO development process. We design our FPSOs as life-of-field assets based on service
agreements with oil companies that define the design and functional specifications of the FPSO and the terms under which it will operate during the production phase. We expect any new FPSO
developments to be undertaken on a similar basis.

In
connection with a tender for a new service agreement, we may ensure the availability of a hull through the use of an option or a conditional purchase that allows us to avoid
purchasing the hull only if the bid is unsuccessful. If a service agreement is awarded, we will convert the hull into an FPSO that is designed for use on the particular field or group of fields. The
conversion process is extensive and generally takes between 18 and 24 months. The actual development of an FPSO takes place in two principal phases: the production of the hull and the topsides
at separate locations and their integration at a common location. Based on historical experience, we believe that the cost of carrying out the conversion of a high specification FPSO (including the
cost of procuring a hull) ranges from U.S.$250.0 million to U.S.$350.0 million, although larger and more complex FPSOs may have higher construction costs.

Because
quality assurance is integral to our business strategy, we have established high standards for workmanship and safety and implemented procedures that comply with the
International Safety Management Code, ISO 9001 and ISO 14001. We seek to use established subcontractors who operate under our close supervision for naval and marine engineering work and for the
fabrication of topsides. Our quality control plan includes a thorough assessment of our vendors' and subcontractors' ability to meet requirements and an inspection of all work locations. Critical
procured items are not accepted until they are formally released by one of our trained inspectors and fabrication is not contractually complete until a completion certificate is issued. In addition,
system handover and startup cannot begin until all commissioning is completed with records agreed by our operations representative. For critical safety systems, we require a certification from a
competent independent party.

The
principal terms of our agreements with subcontractors are designed to promote the completion of our projects on time and within budgetary and project requirements. We normally
require the parent companies of our subcontractors who are subsidiaries to provide guarantees under our contracts. Each guarantee must mirror the terms of the subcontract and the guarantor must be
acceptable to us. For contracts with values exceeding a certain amount, we also require a bank or financial institution to provide a letter of credit. The letters of credit allow us to fund the
transfer of work to another shipyard in the case of non-performance by the subcontractor, thereby lowering the risk of non-completion.

We
intend to further enlarge our FPSO fleet over the medium-term by building on past successes in developing our existing FPSO fleet. In developing a new FPSO, we will look
to enter into a service agreement for the FPSO on a life-of-field basis. We will typically seek to negotiate a defined day rate that compensates us both for the rental of the
vessel and associated equipment and for the cost of its operation. We will seek new developments either to complement our existing presence in the North Sea or with a view to expand into new regions
such as Norway, Brazil, China, Australia or the U.S. Gulf of Mexico.

SPM Business

Our SPM business specializes in the design, development and delivery of SPM systems for use in a variety of marine and environmental conditions. Our SPM
operations are primarily focused on the production and development of three principal types of mooring systems: turret mooring systems, buoy mooring systems and tower mooring systems. To a lesser
degree, our SPM business is involved in the

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design,
development and sale of FSOs, which are used to offload and store hydrocarbons at offshore production platforms and near shore terminals that lack sufficient storage capacities.

Most
of our SPM systems have been designed and manufactured for oil companies for use in offshore oil production, and a significant number have been developed for use in connection with
FPSOs and floating storage and offloading vessels designed and operated by us. An essential component of these systems is a swivel which permits fluids to transfer at high pressures in both directions
between fixed and rotating parts of our mooring systems. Our current swivel designs provide for multiflow paths at different pressure ratings that are suitable for use in the extraction of fluids from
high pressure fields.

The
following is a summary of the SPM systems that we design:



We
delivered eight buoy mooring systems from 2001 to 2003 and are in the process of developing three additional buoy mooring systems and one tower mooring system for delivery in 2005. We
did not deliver any turret mooring systems or tower mooring systems from 2001 to 2003 due to a lack of market demand for those types of systems during the period.

Because
SPM systems are integral to the operation of FPSOs, and because they form an important link in the oil production chain, we believe that it is important to preserve our core SPM
capabilities for use in connection with future FPSO projects. Our policy is to maintain a qualified engineering staff that is experienced in the design and development of both FPSOs and SPM systems.
To ensure flexibility and manage costs, we allocate staff members between our FPSO and SPM businesses in response to market conditions and specific project demands.

Seasonality

We believe that our business is generally insulated from seasonal weather conditions that affect some service providers to the offshore oil industry. See "Item 5:
Operating and Financial Review and Prospects(A) Operating ResultsSeasonality".

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Marketing

We obtain new business by participating in competitive tenders for FPSO service agreements and SPM delivery contracts. We believe that our successful track record
in developing and operating FPSOs and in designing SPM systems, combined with our industry presence and strong reputation, are important factors affecting our ability to identify potential business
opportunities and to secure invitations to submit bids for these contracts. A description of our FPSO service agreements and our SPM delivery contracts is included under "FPSO
BusinessFPSO Fleet and FPSO Hull" and "FPSO BusinessDevelopment of New FPSOs". A description of our revenue recognition policies under these agreements is
included under "Item 5: Operating and Financial Review and Prospects(A) Operating ResultsCritical Accounting Policies and EstimatesRevenue Recognition and
Inventory".

Intellectual Property

We rely on intellectual property protection through the use of confidentiality agreements with our employees and subcontractors, copyright law protection for our
design work and internally developed software and selective patent filings. We apply for patents in those territories which we consider to be the most important for a particular new invention.
Commonly, this is the Netherlands, the United Kingdom and certain other jurisdictions. Our strategy is to protect our inventions in a manner that provides us with the freedom to operate under these
patents in those selected territories by preventing other persons from subsequently filing an overlapping patent that would inhibit us from operating. This strategy will not necessarily afford us
freedom to operate in respect of earlier filed or, in some cases invented, patents. Our patents, copyright works and know-how collectively represent a material asset to our business.
However, no single patent, copyright work or item of know-how is of material importance to our business when taken as a whole. As of December 31, 2003, we held a number of patents
and had made multiple patent applications in respect of different products and processes in selected jurisdictions worldwide. The remaining duration of these patents varies from less than
1 year to 19 years, depending on the date each application was filed and the duration of protection granted by each selected jurisdiction.

Although
we are not currently involved in any litigation regarding our intellectual property rights, or our possible infringement of intellectual property rights of others, we cannot
assure you that we will not be involved in intellectual property litigation in the future. In the past, a competitor informed us that it believed we infringed upon a number of its pending patents.
With respect to these patents, we have received advice from our patent agent that our product design does not infringe upon any valid claim of the patent or application, modified our product design to
one which in the opinion of our patent agent does not infringe upon any valid claim of the patent or application or successfully commenced an opposition proceeding. In addition, we are aware of a
European patent application that is parallel to the patent application which was the subject of our successful opposition proceeding. This application has not yet been granted and we have received
advice from our patent agent that we have not infringed and do not infringe on any valid claim of the related patent should the application be granted.

We
have no registered trademarks and rely on unregistered trademark rights in the countries in which we operate, to the extent that they exist, in order to protect our business name.

Competition

Competition in the FPSO industry is relevant during the redeployment of existing FPSOs and during the tender process for new FPSO projects, but generally does not
play a role during the operation of an FPSO following its deployment. Nevertheless, the design, engineering, project management and delivery of new FPSOs and the awarding of new FPSO service
agreements is

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competitive
worldwide and has been impacted by changes in FPSO ownership. We estimate that there are currently 10 companies worldwide that contract FPSOs under service agreements and believe that the
largest of the companies, measured by the size of its FPSO fleet, operates nine FPSOs. There has been a recent trend among oil companies to contract FPSOs under service agreements rather than to
purchase them, which has given rise to a fragmentation of competition in the FPSO market.

FPSO
operators compete in three market segments: the high specification FPSO segment, the medium specification FPSO segment and the low specification FPSO segment. The high specification
FPSO segment consists of FPSOs that are suitable for use in areas, such as the North Sea, where harsh weather conditions and strict regulatory standards predominate. The medium specification FPSO
segment consists of less advanced FPSOs that are suitable for use in areas, such as Brazil, Australia and deepwater West Africa, that are characterized by less demanding environments. The low
specification FPSO segment consists of low specification FPSOs that are suitable for areas, such as West Africa and certain parts of Asia, where conditions are mild. We believe that there is an
increasing trend in the offshore oil industry to use high specification FPSOs due to the implementation of more stringent environmental standards and an increase in production at deepwater fields. We
believe that this trend will result in the convergence of these market segments towards the development of high specification FPSOs in the future.

We
have focused our FPSO operations on the high specification segment of the FPSO market. Our principal competitors in this market are SBM, Petroleum Geoservices, Maersk and Modec. Most
service agreements are obtained through a competitive bidding process. Important factors in awarding service agreements include equipment availability, service quality, technological capacity,
performance, reputation (particularly with respect to safety and performance), customer relations, long-standing relationships, experience of personnel and price. We believe that our
reputation of being a reliable operator of FPSOs, combined with our strong safety record in our North Sea operations, our experienced management and engineering teams and our relationships with
industry participants have enabled us to be a strong competitor.

The
SPM market is highly specialized and competitive, but dominated by a smaller number of companies than the FPSO market. We believe that technology is an important factor in competing
in this market. We have a strong position in this market and are among the three market leaders in technology. Our principal competitors are SBM and Sofec.

Regulation

Our operations are subject to various governmental and quasi-governmental laws and regulations, including those relating to equipping and operating offshore
vessels in continental waters, vessel safety and stability, environmental protection, the handling, discharge and disposal of waste, currency conversions and repatriation, oil exploration and
development, taxation of foreign earnings and earnings of expatriate personnel and the use of local employees and suppliers by foreign contractors. We are required to invest financial and managerial
resources to comply with these laws and regulations and anticipate that we will continue to do so in the future. We have or can obtain all permits, licenses and certificates necessary to conduct our
business.

Our
FPSOs are classified by one or more maritime classification societies and flagged by the Shipping Inspectorate of the Netherlands Antilles. Under the rules and regulations of these
bodies, we must ensure that our FPSOs meet minimum international standards for maritime vessels. In addition, our FPSOs are subject to regulation by a number of national regulatory bodies that have
jurisdiction over the territorial waters in which they operate. We are required to ensure that our FPSOs satisfy the additional requirements of these national bodies as described below.



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We
cannot predict all of the regulatory requirements or circumstances that will exist in the future, but anticipate that regulatory standards will become increasingly complex, more
stringently enforced and more expensive to comply with. We do not currently anticipate any material adverse effect on our business or financial position as a result of future compliance with existing
laws and regulations; however, future events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies or stricter or
different interpretations of existing laws and regulations, may require us to make additional expenditures which may be material. In addition, offshore drilling and production operations in certain
areas have been opposed by environmental groups and, in certain areas, have been restricted. To the extent laws are enacted or other governmental actions are taken that adversely affect offshore
drilling or production, impose requirements that result in increased costs to the oil industry or otherwise limit the demand for our services, our business and prospects could be adversely affected.
We cannot predict the exact extent to which our future operations and earnings may be affected by new regulatory initiatives.

Health, Safety and Environment Policy

Our policy is to conduct operations in a manner that promotes the health and safety of our employees and third parties and to ensure that our corporate actions
and the actions of our employees do not harm the environment. We consider aspects regarding health, safety and the environment to rank equally with commercial and operational factors, and we review
our health, safety and environmental practices and procedures regularly to identify new factors which may be relevant and to ensure that our performance is continuously improved. All of our employees
have the duty to act responsibly and to take precautions to protect themselves, their colleagues, contractors and third parties from injury or preventable illness, which might arise from their
actions. Our health, safety and environment policy has the support of senior managers who recognize that, without the cooperation

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and
commitment of employees and contractors at all levels, the objectives of such a policy would be unattainable.

Insurance

We maintain insurance coverage in such amounts as we believe to be prudent against normal risks in our operations, including, among other things, the risk of
pollution and damage to vessels. Certain risks (such as business interruptions and environmental liabilities in excess of certain limits), however, are either not insurable or are insurable only at
rates we consider uneconomical. The cost to obtain and maintain insurance could increase or decrease in the future for any number of reasons. Our insurance costs increased significantly following
September 11, 2001. There can be no assurance that we will continue to maintain current levels of insurance and we may determine in the future to carry less insurance or not to insure at all.
Moreover, our insurance coverage does not protect against loss of revenues, although we are required under our replacement credit facility to obtain such insurance if the number of FPSOs from which we
receive revenues falls below three.

Depending
on competitive conditions and other factors, we seek to obtain indemnity agreements from our customers which require them to hold us harmless in the event of loss of
production, reservoir damage or liability for pollution that originates below the surface of the water. We generally rely on these indemnities to protect us from risks which are uninsurable or
insurable only at rates which we believe are uneconomical. When obtained, these contractual indemnifications may include cross-indemnification provisions, and the obligations thereunder may not be
supported in all cases by adequate insurance maintained by the customer or required to be maintained by us. We have agreed to indemnify each of Amerada Hess and Talisman in the case of the Uisge Gormand theBleo Holm, respectively, and SOI and ConocoPhillips in the case of the Munin, subject to amount limitations in the respective service agreements,
in respect of pollution emanating from our FPSOs and certain other equipment
which we have supplied. Each of Amerada Hess, Talisman and SOI has agreed to indemnify us with respect to the foregoing in excess of those amount limitations and in respect of pollution
emanating from the field, reservoir or wells (in the case of theMunin, subject to certain exceptions). Under our service agreements with PetroSA and
ConocoPhillips, we have agreed to indemnify PetroSA and ConocoPhillips, respectively, subject to amount limitations, in respect of pollution emanating from our FPSO, shuttle tankers and certain subsea
and other equipment, and PetroSA and ConocoPhillips have each agreed to indemnify us with respect to the foregoing in excess of those amount limitations (subject to an exclusion in the event our
insurer denies coverage) and in respect of pollution emanating from wells and certain subsea and other equipment. In the case of theHaewene Brim, we
have agreed to indemnify Enterprise Oil in respect of certain pollution emanating from our FPSO (unrelated to oil from the field) and certain other equipment we have supplied, and Enterprise Oil has
agreed to indemnify us for pollution relating to oil from the field. These indemnity arrangements may not protect us in all circumstances.

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(C)  Organizational Structure

We are a limited liability company incorporated under the laws of the Netherlands Antilles with our corporate seat in Curaçao, the Netherlands
Antilles and registered with the trade register of Curaçao with number 65489. We were established in the Netherlands Antilles on December 6, 1993 to act as holding company for a
group of companies that provide services and products to the offshore oil industry. The following diagram illustrates our current organizational structure. Ownership of each company is 100% unless
otherwise indicated. A description of our subsidiaries is included under "Item 10: Additional Information(I) Subsidiary Information".

CHART

Note:(*) Bluewater Holding B.V. holds one share.

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(D)  Property, Plants and Equipment

Our material tangible fixed assets consist of theUisge Gorm, theGlas
Dowr, theBleo Holm, theHaewene Brim, the Muninand theAoka
Mizu. A description of these vessels is included under "(B) Business
OverviewFPSO BusinessFPSO Fleet and FPSO Hull". These assets are subject to encumbrances or limitations on use as described below.



A
description of current and recent capital expenditures relating to our vessels is included under "(B) Business OverviewFPSO BusinessFPSO Fleet
and FPSO Hull" and "Item 5: Operating and Financial Review and Prospects(B) Liquidity and Capital Resources".

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ITEM 5:    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion of our financial condition and results of operations together with the selected consolidated
financial data, audited consolidated financial statements and the notes thereto included elsewhere in this annual report. Our audited consolidated financial statements have been prepared in accordance
with U.S. GAAP. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking
statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those
described under "Item 3: Key Information(D) Risk Factors" and elsewhere in this annual report.

(A)  Operating Results

Overview

We are Aurelia Energy N.V., a holding company with no independent operations, and its subsidiaries, a group of companies that comprise a specialized service
provider to and operator in the offshore oil industry. We operate under the name "Bluewater" and are a leader in the design, development, ownership and operation of FPSOs, which we operate for oil
companies under medium- and long-term service agreements, and the design, development, project management and delivery of SPM systems.

Our
FPSO business earns revenues from the design, development and operation of FPSOs pursuant to medium- and long-term service agreements with oil companies. We treat our
service agreements as "operating leases" under U.S. GAAP and present them as such in our consolidated financial statements. Under these agreements, we generally are paid a defined day rate consisting
of a fixed facility fee that covers the rental of the FPSO and associated equipment and an indexed operating fee that covers the cost of operating, maintaining and insuring the vessel. We may also
receive
additional tariff payments based on oil or water production or gas lift volumes (or a combination of those volumes), bonus payments that relate to the prevailing price of oil and certain other fees.
Our FPSO fleet currently consists of five high specification FPSOs (theUisge Gorm, theBleo Holm, the Glas Dowr, theHaewene Brimand theMunin) that we have
contracted to oil companies under service agreements and one FPSO hull (theAoka Mizu) that we are marketing worldwide. In 2001, 2002 and 2003, our FPSO
business generated 90.3%, 83.4% and 87.3% of our revenues, respectively, 111.7%, 134.9% and 115.4% of our net income, respectively, and 106.9%, 113.1% and 102.6% of our EBITDA, respectively.

Our
SPM business earns revenues from the design, development, project management and delivery of SPM systems under our SPM delivery contracts. We have developed a number of different
types of SPM systems for oil companies and contractors around the world, resulting in the delivery of eight SPM systems since 1999 and more than 50 SPM systems since our founding. Because SPM systems
are integral to the operation of FPSOs in harsh environments, and because they form an important link in the oil production chain, we believe that it is important to preserve our core SPM capabilities
for use in connection with future FPSO projects. In 2001, 2002 and 2003, our SPM business generated 9.7%, 16.6% and 12.7% of our revenues, respectively, (11.7)%, (34.9)% and (15.4)% of our net income,
respectively, and (6.9)%, (13.1)% and (2.6)% of our EBITDA, respectively.

While
we manage FPSO and SPM projects from the initial design and engineering phase to final installation, we do not engage in the fabrication of FPSOs or SPM systems. Rather, we
outsource these requirements to qualified subcontractors. In 2001, 2002 and 2003, we had revenues of U.S.$197.3 million, U.S.$262.8 million and U.S.$295.8 million, respectively,
operating income of U.S.$49.1 million, U.S.$57.8 million and U.S.$42.3 million, respectively, net income of U.S.$63.9 million, U.S.$37.4 million and
U.S.$12.6 million, respectively, and EBITDA of U.S.$107.4 million, U.S.$111.8 million and U.S.$104.2 million, respectively.

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Operating Uptimes

We derive a substantial proportion of our total revenues from the payments that we receive from oil companies under our FPSO service agreements. The majority of
these payments consist of defined day rates (consisting of a fixed facility fee and an indexed operating fee) and tariff payments (based on oil or water production or gas lift volumes or a combination
of those volumes) whose economic terms are established prior to the commencement of operations under the service agreement. These day rates and tariff payments contributed U.S.$187.3 million
and U.S.$16.0 million, respectively, to our total revenues of U.S.$295.8 million in 2003. We believe that the most significant factor affecting the amount of these payments during a
given contract period is the level of operating uptimes that our FPSOs maintain. Our service agreements currently require our FPSOs to maintain minimum operating uptimes that exceed certain
thresholds. Depending on the particular service agreement, our facility fee or our operating fee may be adjusted to the extent that the relevant uptime exceeds or falls below the
applicable threshold, and our tariff payments may be affected by consequential changes in oil or water production or gas lift volumes. While our FPSOs generally have maintained high operating uptimes
in the past and, as a result, generally have not suffered from a decrease in revenues associated with operational downtime, we received reduced day rates for a period of 24 non-consecutive days during
the first seven months of 2003 under our service agreement for theBleo Holmas a result of downtime associated with repair and modification work that
we were required to undertake to due corrosion to the welds in the vessel's topside gas pipework. We are currently in discussions with the contract counterparty to theBleo
Holmservice agreement regarding responsibility for the corrosion and associated and believe that we will be reimbursed for the full defined day rate and the costs of repairs
and modifications during the period. See "Item 4: Information on the Company(B) Business OverviewFPSO BusinessFPSO Fleet and FPSO Hull".

Seasonality

Some service providers operating in harsh weather environments, such as the North Sea, are negatively affected in the first and fourth quarters by adverse weather
conditions that prevent or limit the full operation of their crews or vessels. Our FPSOs have been developed using high environmental and design standards that generally permit them to fulfill their
contractual uptime requirements even in harsh weather conditions. We also do not believe that our SPM business is affected by seasonal factors.

Oil Prices

Historically, our service agreements have provided for the payment of defined day rates or minimum contract payments and have included minimum contract periods
that have significantly reduced the exposure of our FPSO business to fluctuations in oil prices. The most significant exposure of our FPSO business to developments in oil price generally has related
to the impact that oil prices have on the production economics at the fields on which FPSOs operate. Because fluctuations in oil prices may affect the decision of oil companies to tie-back
marginal fields to existing production facilities or extend production at fields nearing the end of their production profiles and, if sufficiently severe, may cause oil companies to alter production
levels at producing fields, we have in certain instances been subject to potential risks relating to our ability to enter into new tie-back arrangements, to extend service agreements and
to generate revenue from tariff and bonus payments. However, due to positive developments in oil prices and other relevant factors, these risks generally have not had a material impact on our
financial condition or results of operations or adversely affected our FPSO business. We believe that, in the future, we will continue to be subject to these risks and expect that our exposure to the
price of oil will increase further in the near-term due to the expiration of a minimum payment guarantee of amounts payable under our service agreement for the Munin, which is subject to adjustment
based on oil prices. We believe that our SPM business, which accounts for a relatively smaller proportion of our
revenues, is generally more affected by fluctuations in oil price than

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our
FPSO business due to the fact that SPM systems are generally developed for sale rather than leased on a term basis. Because oil companies generally adjust their spending on SPM systems based on
trends in oil price, we would expect our SPM business to grow in response to positive developments in oil price and to decrease in response to negative developments in oil price. We believe that
having a flexible and scalable workforce is an important factor in managing the costs associated with our more cyclical SPM business.

Insurance Costs

We maintain insurance coverage in such amounts as we believe to be prudent against normal risks in our operations, including, among other things, the risk of
pollution and damage to vessels. Certain risks (such as business interruptions and environmental liabilities in excess of certain limits), however, are either not insurable or are insurable only at
rates we consider uneconomical. The cost to obtain and maintain insurance could increase or decrease in the future for any number of reasons. Our insurance costs increased significantly following
September 11, 2001. While the increase in the price of insurance following the events of September 11, 2001 has been recoverable in part under our service agreements with our customers,
we account for the cost of insurance as an expense in our consolidated financial statements and the payments that we receive in respect of such expenses as revenues. There is no assurance that we will
continue to maintain the same level of insurance coverage in the future or that we will be able to recover the cost of such coverage from our customers.

Redeployment of theGlas Dowr

We redeployed theGlas Dowrto the Sable Field off the coast of South Africa following the termination of the
vessel's original service agreement with Amerada Hess. To prepare theGlas Dowrfor operation on this field, we modified the vessel's topsides and
mooring system and developed the Sable Field's subsea infrastructure. Due to an unanticipated increase in the scope and complexity of the vessel modifications, labor unrest and difficulties with
project management on the part of the construction yard where the work was performed, the project experienced delays and cost overruns and led to a delay in the commencement of production at the Sable
Field. While theGlas Dowrcommenced production on August 7, 2003, the delay in the commencement of production and additional work on the gas
compression facilities, along with increased insurance costs resulted in an upward revision in our estimate of the costs of the vessel modifications and subsea work, excluding exchange rate
differences and financing costs, to approximately U.S.$195.7 million. Of this amount, U.S.$50.4 million is reimbursable by PetroSA. We have capitalized the cost of the modifications to
theGlas Dowr, including the financing costs relating thereto, and have suspended depreciation of theGlas
Dowrpending its redeployment. The additional revenues and income that we received from theHaewene Brimand the Muninwhile the
relevant modifications were made to theGlas Dowrwere sufficient to offset the loss of
revenues and income from theGlas Dowrduring the period. The effects of the current project delays and budget overruns on our liquidity and capital
resources are described under "(B) Liquidity and Capital ResourcesCapital Expenditures".

Interest Expense

Our financial income and expense is primarily affected by our interest expense, which principally includes interest paid or accrued in respect of our credit
facility, our 101/4% Senior Notes due 2012 and the subordinated Marenco loans and amortization charges relating to debt arrangement fees. In the past, our interest expense has included
interest incurred on a U.S.$3.6 million unsubordinated loan from Marenco, which was repaid during 2002. Our interest expense does not include interest on financial debt relating to the
construction or modification of FPSOs, which is capitalized and added to the historical cost of the FPSO to which it relates. Cash interest paid is defined as interest expense, plus capitalized
interest, less accrued interest on the subordinated and unsubordinated Marenco loans

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and
less amortization of debt arrangement fees. Our interest expense has increased since 2001 due to an increase in the amount of our outstanding indebtedness (which resulted from the incurrence of
approximately U.S.$285.9 million of additional indebtedness in connection with our acquisitions of theHaewene Brim, the Muninand their related
operating companies) and an increase in the weighted average interest rate payable in respect of our indebtedness (which
resulted from the issuance of our 101/4% Senior Notes due 2012 at a relatively higher interest rate and from an increase in amortization of debt arrangement fees). This increase does
not include our capitalized interest expense, which, in 2003, related to modifications to theGlas Dowrand amounted to U.S.$6.1 million.

To
reduce the interest expense relating to our 101/4% Senior Notes due 2012, we entered into a fixed-to-floating interest rate swap transaction,
with effect from April 25, 2003, that enabled us to swap the equivalent of the fixed rate amount of interest that is payable on U.S.$335.0 million aggregate principal amount of our
101/4% Senior Notes due 2012 for a floating rate amount of interest that would be payable on an equal amount of indebtedness. On May 27, 2003, we cancelled the swap transaction.
Under the swap, prior to the cancellation, we received interest payments that were calculated at a fixed rate of 101/4% and made interest payments that were calculated at a floating
rate that was equal to a margin over LIBOR. We received U.S.$7.6 million on May 30, 2003, which represented our net gain from the cancellation of the swap transaction. We deferred
U.S.$6.7 million of this gain, which will be credited to income over the remaining term of the 101/4% Senior Notes due 2012, and used the payment to repay outstanding indebtedness under
our credit facility. As of July 17, 2003, we entered into a new fixed-to-floating interest rate swap transaction, with terms identical to those of the previous swap
transaction, that enables us to swap the equivalent of the fixed rate amount of interest that is payable on U.S.$335.0 million aggregate principal amount of the 101/4% Senior
Notes due 2012 for a floating rate amount of interest that would be payable on an equal amount of indebtedness. Under the swap, we receive payments that are calculated at a fixed rate of
101/4% and make interest payments that are calculated at a floating rate that is equal to a margin of 6.11% over LIBOR.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements which have been prepared in
accordance with U.S. GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect reported amounts of assets and liabilities and
disclosures concerning contingent assets and liabilities as of the date of the financial statements and that impact reported amounts of revenues and expenses during the reporting period. Our
management evaluates, on an ongoing basis, its estimates and judgments, including those related to bad debts, inventories, tangible fixed assets, pensions, income taxes, contingencies and litigation.
Our management bases these estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis
for judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions. Our management believes that the following accounting policies, among others, are the most critical to understanding and evaluating our reported financial results.

Segmental Presentation

We present segmental information in our consolidated financial statements for our FPSO and SPM businesses. With effect from January 1, 2003, we have
changed our methodology for allocating certain types of expenses between our business segments, which has led to an increase in the amount of operating expenses recorded by our FPSO business and a
decrease in the amount of operating expenses recorded by our SPM business. The decision to adjust the allocation of such expenses was based upon a determination by our management as to the extent to
which the relevant expenses relate to each operating segment and has primarily involved our general overhead costs, our internal project expenses

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and
tender expenses. We believe that our current cost allocation better reflects the manner in which we conduct our business and the relative contribution of each of our operating segments to our
results of operations. Had we not changed the manner in which we allocate the expenses between our FPSO and SPM businesses, approximately U.S.$10.7 million of operating expenses recognized by
our FPSO business would have been included in the results of our SPM business during 2003.

Revenue Recognition and Inventory

Our revenues consist of the contract payments that we receive under our FPSO service agreements and our SPM delivery contracts and the payments that we earn from
the installation and mobilization of FPSOs and SPM systems. We recognize these revenues in the following manner.

Our
service agreements are treated as "operating leases" under U.S. GAAP and presented as such in our consolidated financial statements. Under these agreements, we derive revenues from
defined day rates, tariff payments, payments in respect of capital expenditures, payments for the rental of additional equipment and, in certain cases, bonus payments. Our day rates generally consist
of a fixed facility fee (for the rental of the FPSO and associated equipment) and an indexed operating fee (covering the cost of operating, maintaining and insuring the vessel) and may be adjusted
depending on the level of operating uptimes that we achieve. Under one of our service agreements, which we expect to terminate in August 2004, our days rates are currently linked to the price of oil.
See "Item 4: Information on the Company(B) Business OverviewFPSO Business". Our tariff payments are based on oil or water production or gas lift volumes or a
combination of those volumes. Our bonus payments generally relate to the prevailing price of oil. We recognize revenues under our service agreements when the FPSO is made available and the relevant
contract payments are based on a signed lease contract. We monitor changes in consumer price indices, uptime levels, production and lift volumes and oil prices on an ongoing basis and only include
payments that depend on those factors in the determination of income when the relevant index is adjusted, the level of uptime is achieved, the necessary volume has been produced or lifted or the price
of oil has changed. All other payments due
under our service agreements are recognized on a straight-line basis over the term of the service agreement.

Under
our SPM delivery contracts, we receive milestone payments from our customers for the design, engineering and management services that we provide during the progress of our SPM
projects. We recognize revenues from the development of SPM systems and auxiliary equipment based on the percentage of completion method of accounting as the project is performed. Changes in project
conditions are recognized in the period in which the revisions are determined. Our management identifies and estimates losses relating to uncompleted contracts and makes necessary provisions, if any,
in the period in which the losses are determined. Differences between the actual and estimated development of our work in progress could materially impact the results of operations. A change in the
percentage of completion would not have had a significant impact on our revenues in 2003 or in prior years.

We
recognize revenues from the installation and mobilization of FPSOs and SPM systems and from the provision of other services when the installation, mobilization or provision of
services has been accepted by the customer and the collection of the receivable relating to the work is probable.

Income Taxes Payable

Our income tax charges are based on the tax regimes that are applicable to our group companies in the countries in which they are legally seated. We have
historically benefited from low income taxes. While we believe that we will continue to benefit from a low level of income taxes in future years, as a result of the large amount of goodwill and
deductible interest reported by certain members of our group for Dutch tax purposes, we received a draft tax audit report from the Dutch tax authorities in May 2002. The draft tax audit report
included certain proposed factual findings relating to the issue of

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whether
our non-Dutch companies are residents of the Netherlands for Dutch tax purposes or have a taxable presence in the Netherlands. The draft audit report, which does not represent a
final determination by the Dutch tax authorities, states that it was issued for discussion purposes. On the basis of the draft audit report, the Dutch tax authorities assessed, in June 2002,
additional taxes with respect to a Dutch group member for its 1998 and 1999 tax years and assessed, in November 2002, July 2003 and August 2003, additional taxes with respect to
certain non-Dutch group members for their 1997, 1998, 1999 and 2000 tax years. The total amount of these assessments, including interest to the date of assessment, was
€135.4 million (U.S.$170.6 million) as of December 31, 2003. We are in discussions with the Dutch tax authorities regarding these taxes and are vigorously contesting
their assessment. We believe that the findings of fact and the relevant legal and regulatory interpretations upon which the Dutch tax authorities' position is based are incomplete and incorrect, and
that the assessment of such additional taxes is contrary to certain favorable tax rulings which we have received from them. In any event, we believe that any assessment of additional taxes is
incorrect, and that it is likely that we will prevail on the merits in any final determination of the assessments. Accordingly, in July 2003, we filed with the Dutch tax authorities a response
to their draft audit report and a transfer pricing report supporting our response. We intend to continue to contest vigorously the imposition of any additional taxes and, if necessary, to seek
administrative and judicial review of the assessments. Administrative and judicial review of the assessments in the Netherlands would likely take several years. We intend to withhold payment of such
taxes pending final resolution of the issue and have not established any accruals for these tax assessments. There can be no assurance, however, that the relevant issues will ultimately be resolved in
our favor.

Deferred Income Taxes

Deferred income taxes are temporary differences between the tax bases of assets or liabilities and their reported amounts in our consolidated financial
statements. Future tax benefits attributable to these differences are recognized to the extent that realization of the benefits is more likely than not. We recorded deferred income tax assets of
U.S.$25.9 million in 2002 and U.S.$0.9 million in 2003 relating primarily to the amortization of goodwill and the deduction of interest on intercompany loans for income tax purposes.
This goodwill and deductible interest is associated with our internal restructuring, and we are currently in discussions with the Dutch tax authorities concerning our ability to take advantage of the
tax savings associated with it. See "Income Taxes Payable". The
decrease in deferred tax assets during 2003 resulted from a change in the period over which goodwill associated with the restructuring is amortized, from 10 years to 15 years, which
brings the amortization period in line with the FPSO depreciation period. This change led to a decrease in the amount of amortization charges recorded for income tax purposes.

In
connection with the draft tax audit report that we have received from the Dutch tax authorities, we have had discussions with the Dutch tax authorities concerning our internal
restructuring. See "Item 10: Additional Information(C) Material ContractsEconomic Sale Agreement". In the course of our discussions, the Dutch tax authorities
have confirmed to us that they will not seek to tax any capital gain that may be associated with the sale of the relevant economic interests in connection with our internal restructuring, but instead
will focus their analysis only on the amount of goodwill and deductible interest related to our internal restructuring and the percentage of goodwill and deductible interest from our internal
restructuring that should ultimately be attributed to our non-Dutch activities. The outcome of such discussions could limit our ability to take advantage of future tax savings associated
with our internal restructuring by limiting the amount of goodwill that we may amortize and the amount of interest that we may deduct for tax purposes in future periods. However, based upon current
facts and circumstances, applicable tax law, regulation and precedent, discussions with relevant tax authorities and professional advisers and other relevant criteria, we estimate that it is currently
probable that we will realize benefits relating to at least U.S.$434.0 million of amortizable goodwill and at least U.S.$768.0 million of interest bearing intercompany debt in connection
with our internal

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restructuring
at January 1, 2000 and that such amounts will result in tax losses which may be carried forward for Dutch income tax purposes. Notwithstanding our current estimates, however, it
is impracticable to quantify definitively at this time the effect that the outcome of such discussions may have on our actual tax position, because such definitive quantification depends on a number
of possible future events, including the specific factual findings and legal and regulatory positions that may be taken by the Dutch tax authorities in any possible future challenge to our internal
restructuring, as well as the outcome of any relevant proceedings. In addition, in December 2001, U.S.$379.5 million of the intercompany indebtedness of Bluewater Holding B.V. relating
to the internal restructuring was converted to share capital, thereby reducing the amount of tax benefits that we may take advantage of in subsequent periods. While we believe that it is probable that
we will realize tax benefits in amounts that are not less than the foregoing estimates as set forth above and that it is unlikely that the outcome of these discussions or any proceedings relating
thereto will have a material adverse effect on our financial position, there can be no assurance in this regard and we could lose some or all of the future anticipated tax savings associated with our
internal restructuring.

We
have recorded a deferred tax asset based on our estimate of the probable result of these discussions. The carrying value of our net deferred tax assets assumes a positive outcome of
our discussions with the Dutch tax authorities and that we will be able to generate sufficient future taxable income in certain tax jurisdictions to take advantage of the benefits associated
therewith. We believe that it is more likely than not that this deferred tax asset will be realized. However, if this assessment is incorrect, we may be required to record full or partial valuation
allowances against our deferred tax assets resulting in the inclusion of additional income tax expense in our consolidated financial statements. We evaluate the realizability of the deferred tax
assets and assess the need for a valuation allowance on a quarterly basis. We did not record a valuation allowance in 2001, 2002 and 2003.

Tax Lease Benefits Liability

Our tax lease benefits liability relates to UK tax leasing transactions that we entered into from 1994 to 1999 with respect to theUisge
Gorm, theGlas Dowrand the topsides ofBleo Holmand a tax lease that we signed
in April 2003 for the topsides of theHaewene Brim. These arrangements allow the lessor to claim tax depreciation in respect of its expenditure
to acquire the vessel or the equipment, which is passed on to, or shared with, us in the form of reduced rentals. Our rental payment obligations were calculated by reference to a number of tax and
financial assumptions made at the time the leases were entered into. Payment arrangements at the inception of the lease transactions were structured, and security has been provided, such that, subject
to the adjustments described under "Item 10: Additional Information(C) Material ContractsTax Lease Arrangements", we do not have any current rental payment
obligations with respect to theUisge Gorm, theGlas Dowr, the topsides of the Bleo Holmor the topsides of
theHaewene Brim. Our tax lease benefits liability represents the amount
that we would be required to pay the lessor in the event of a voluntary termination. In the event of an involuntary termination or an adverse tax change under our tax lease arrangements (whether
prospective or retrospective), the tax lease benefits liability presented in our balance sheets may be required to be repaid to the lessor at an amount greater than the carrying value of the
liability, which could have a material adverse effect on our financial condition and results of operations.

Tangible Fixed Assets and Depreciation

Our FPSOs account for approximately 73% of our total assets, are our primary sources of revenues and, accordingly, represent our most material fixed assets. We
account for the value of these assets at their construction or acquisition cost and depreciate them on a straight-line basis over an estimated useful life of 15 years. An increase
or decrease in the actual useful lives of our FPSOs over their estimated useful lives could result in significantly higher or lower annual depreciation expenses, which could have a material effect on
our results of operations and shareholder's equity. In addition,

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our
ability to recover the book value of our FPSOs depends, to a large extent, on our ability to enter into profitable service agreements for the vessels. If we are unable to secure profitable service
agreements or if other circumstances arise indicating that the carrying amount an FPSO may not be recoverable, we may be required to record an impairment loss, which could similarly affect our results
of operations and shareholder's equity. No circumstances arose in 2001, 2002 or 2003 that indicated that our FPSOs could be impaired and, therefore, we did not record any impairment losses relating to
our fleet. An extension of the useful lives of our FPSOs by one year would have resulted in a decrease in depreciation charges of approximately U.S.$3.9 million for 2003.

Accounts Receivable

Accounts receivables are stated at face value less an allowance for possible uncollectable accounts. We continuously monitor collections and payments from our
customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. Because our accounts
receivables are concentrated in a relatively small number of customers, a significant change in the liquidity or financial position of these customers could have a material adverse effect on the
collectability of our accounts receivables and our results of operations. In 2003, we recorded a provision relating to credit losses of U.S.$0.8 million, compared to U.S.$1.2 million in
2002.

New Accounting Policies

SFAS 143

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143
("SFAS 143"), "Accounting for Asset Retirement Obligations". SFAS 143 establishes accounting standards for the recognition and measurement of legal obligations associated with the
retirement of tangible long-lived assets and requires recognition of a liability for an asset retirement obligation in the period in which it is incurred. The provisions of this statement
are effective for financial statements issued for fiscal years beginning after June 15, 2002. Adopting SFAS 143 did not have a material impact on our consolidated financial statements.

SFAS 146

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). This statement
defines the accounting and reporting for costs associated with exit or disposal activities and is effective for exit or disposal activities that are initiated after December 31, 2002. Adopting
SFAS 146 did not have a material impact on our consolidated financial statements.

SFAS 149

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities"
("SFAS 149"). This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under
Statement 133. In particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in
Statement 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS 149 will be effective for
contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. Adopting SFAS 149 did not have a material impact on our
consolidated financial statements.

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SFAS 150

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS 150"). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Specifically,
statement requires an issuer to classify the following instruments as liabilities (or assets in certain circumstances): (1) a financial instrument issued in the form of shares that is
mandatorily redeemable, (2) a financial instrument, other than an outstanding share, that, at inception, embodies an obligation to repurchase the issuer's equity shares, or is indexed to such
an obligation, and that requires or may require the issuer to settle the obligation by transferring assets, (3) a financial instrument that embodies an unconditional obligation, or a financial
instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares, if, at inception, the monetary
value of the obligation is based solely or predominantly on certain specified criteria. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Adopting SFAS 150 did not have a material inpact on our consolidated financial
statements.

EITF 00-21

In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple
Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use
assets. The provisions of
EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We do not anticipate that the adoption of EITF Issue
No. 00-21 will have a material impact on our consolidated financial statements.

FIN 45

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others" ("FIN 45"). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for interim and annual periods after December 15, 2002 and we have adopted those requirements for our financial
statements. The initial recognition and initial measurement requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The adoption of
the recognition and initial measurement requirements of FIN 45 did not have a material impact on our consolidated financial statements.

FIN 46

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of
APB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other
parties. The FASB has amended FIN 46, now known as FIN 46 Revised December 2003 ("FIN 46R"). The requirements of FIN 46 or FIN 46R are effective to those
entities that are considered to be special-purpose entities no later than as of the end of the first reporting period that ends after December 15, 2003. We do not anticipate that the adoption
of FIN 46 or FIN 46R will have a material impact on our consolidated financial statements.

45

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Results of Operations

|                                                                            |               | For year ended December 31, |         | Change  |        
|--------------------------------------------------------------------------- | ------------- | --------------------------- | ------- | ------- | -------
|
|
|Revenues                                                                    |               |                             |         |         |        
|FPSO business                                                               |               | 178,138                     |         | 219,093 |        
|SPM business                                                                |               | 19,179                      |         | 43,706  |        
|                                                                            |               |                             |         |         |        
|Total                                                                       |               | 197,317                     |         | 262,799 |        
|Operating expenses                                                          |               |                             |         |         |        
|Operations expenses:                                                        |               |                             |         |         |        
|                                                                            | FPSO business |                             | 60,289  |         | 90,147 
|                                                                            | SPM business  |                             | 23,506  |         | 55,162 
|                                                                            |               |                             |         |         |        
|                                                                            | Total         |                             | 83,795  |         | 145,309
|Selling, general and administrative expenses                                |               | 9,467                       |         | 9,736   |        
|Other operating income                                                      |               | (3,375                      | )       | (4,046  | )      
|Depreciation of tangible fixed assets and amortization of intangible assets |               | 58,335                      |         | 54,038  |        
|                                                                            |               |                             |         |         |        
|Total operating expenses                                                    |               | 148,222                     |         | 205,037 |        
|                                                                            |               |                             |         |         |        
|Operating income                                                            |               |                             |         |         |        
|FPSO business                                                               |               | 57,265                      |         | 73,476  |        
|SPM business                                                                |               | (8,170                      | )       | (15,714 | )      
|                                                                            |               |                             |         |         |        
|                                                                            | Total         |                             | 49,095  |         | 57,762 
|                                                                            |               |                             |         |         |        
|Financial income and expense                                                |               |                             |         |         |        
|Interest income                                                             |               | 5,188                       |         | 3,447   |        
|Interest expense                                                            |               | (28,776                     | )       | (48,898 | )      
|Currency exchange results                                                   |               | 5,759                       |         | 1,452   |        
|                                                                            | Total         |                             | (17,829 | )       | (43,999
|                                                                            |               |                             |         |         |        
|Income before taxes                                                         |               | 31,266                      |         | 13,763  |        
|Income taxes                                                                |               | (32,614                     | )       | (23,615 | )      
|                                                                            |               |                             |         |         |        
|Net income                                                                  |               | 63,880                      |         | 37,378  |        
|                                                                            |               |                             |         |         |        
|EBITDA(1):                                                                  |               |                             |         |         |        
|                                                                            | FPSO business |                             | 114,842 |         | 126,470
|                                                                            | SPM business  |                             | (7,412  | )       | (14,670
|                                                                            |               |                             |         |         |        
|                                                                            | Total         |                             | 107,430 |         | 111,800
|                                                                            |               |                             |         |         |        

---

Note:

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

Revenues

Revenues were U.S.$295.8 million in 2003, up 12.5% from U.S.$262.8 million in 2002. Revenues from our FPSO business were U.S.$258.2 million
in 2003, up 17.8% from U.S.$219.1 million in 2002.

46

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Revenues
from our SPM business were U.S.$37.6 million in 2003, down 14.0% from U.S.$43.7 million in 2002.

Revenues
from our FPSO business increased by U.S.$39.1 million in 2003. Of this increase, U.S.$9.7 million was attributable to payments received under our service agreement
with PetroSA, U.S.$30.5 million was attributable to the recognition of reimbursable expenses incurred in connection with the installation of subsea equipment on the Sable Field (compared to
U.S.$12.4 million in 2002), and U.S.$16.3 million was attributable to the reimbursement of expenses incurred in connection with the installation of a new water injection facility on the Haewene Brim(compared to U.S.$3.1 million incurred in connection with the produced water treatment unit on theUisge
Gormin 2002). In addition, revenues generated by theHaewene Brimincreased by U.S.$1.6 million in 2003 due to higher
incentive income and fuel discharge. These increases were in part offset by a reduction in tariff payments with respect to theBleo Holmdue to
increased downtime resulting from maintenance to its topsides gas pipework (U.S.$2.0 million) and declining production levels on theMunin(U.S.$1.3 million).

Revenues
from our SPM business decreased by U.S.$6.1 million in 2003 due to the lower level of SPM activities caused by a decreased number of accepted bids for contracts during
the period. Although we were awarded six SPM delivery contracts for the development of buoy mooring systems during 2003, we do not expect payments under the contracts to have a material effect on our
results of operations in the future.

Operations Expenses

Operations expenses were U.S.$185.8 million in 2003, up 27.8% from U.S.$145.3 million in 2002. In our FPSO business, our operations expenses were
U.S.$147.0 million in 2003, up 63.2% from U.S.$90.1 million in 2002. In our SPM business, operations expenses amounted to U.S.$38.7 million in 2003, down 29.9% from
U.S.$55.2 million in 2002.

The
U.S.$56.9 million increase in the operations expenses of our FPSO business during 2003 was primarily attributable to the recognition of U.S.$46.6 million in
reimbursable expenses relating to work performed at the Sable Field and the installation of a new water injection facility on theHaewene Brimas described above under "Revenues", compared with U.S.$15.5 million in the prior year. While we expect to be fully reimbursed for these expenses, under our accounting policies, we
include the reimbursement in our revenues and account for the associated cost in our operations expenses. The increase in operations expenses in 2003 was also attributable to U.S.$11.7 million
of expenses associated with theGlas Dowr, as well as a change in our methodology for allocating expenses between our FPSO and SPM businesses. The
latter resulted in the recognition of U.S.$10.7 million of expenses (consisting of U.S.$6.4 million in general overhead expenses and U.S.$4.3 million in internal project expenses)
that previously would have been recognized by our SPM business. Further, operations expenses increased by U.S.$4.8 million due to shutdown and maintenance costs on the Bleo Holm(U.S.$4.1 million) and increased offshore maintenance costs for theUisge Gorm(U.S.$0.7 million). The overall increase in operations expenses was in part offset by our claim for reimbursement of U.S.$1.4 million in costs relating to the topsides gas pipework on
theBleo Holm.

Operations
expenses of our SPM business decreased by U.S.$16.4 million during 2003. Operations expenses decreased by U.S.$20.7 million due to the reallocation of certain
expenses to our FPSO business during the period and the lower level of SPM activities, as described above. This decrease in operations expenses was partially offset by a U.S.$4.2 million loss
that we incurred in connection with the development of an SPM system during 2003. The loss on the SPM system was attributable to the replacement of an installation subcontractor and costs associated
with the consequential delay to the project.

47

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Selling, General and Administrative Expenses

Selling, general and administrative expenses amounted to U.S.$9.8 million in 2003, up 1.0% from U.S.$9.7 million in 2002. The increase in selling,
general and administrative expenses was due to increased pension costs in 2003.

Depreciation of Tangible Fixed Assets

Charges for depreciation of tangible fixed assets amounted to U.S.$62.0 million in 2003, up 14.7% from U.S.$54.0 million in 2002. The increase in
the amount of these charges resulted from U.S.$10.3 million in depreciation charges that we recorded in respect of theGlas Dowrfollowing
commencement of production at Sable Field on August 7, 2003, but was partly offset by the fact that we did not record depreciation charges during 2003 for the flowlines on the Uisge Gormfollowing
the full depreciation of the equipment in July 2002. During 2002, we recorded U.S.$1.9 million in depreciation
charges in respect of theUisge Gorm'sflowlines.

Operating Expenses

Due to the foregoing factors, total operating expenses were U.S.$253.5 million in 2003, up 23.7% from U.S.$205.0 million in 2002.

Operating Income

Due to the foregoing factors, operating income amounted to U.S.$42.3 million in 2003, down 26.8% from U.S.$57.8 million in 2002. Our operating
margin decreased to 14.3% of our revenues in 2003, compared to 22.0% of our revenues in 2002.

Financial Income and Expense

Net financial expense amounted to U.S.$30.7 million in 2003, down 30.2% from U.S.$44.0 million in 2002.

Our
interest expense decreased from U.S.$48.9 million in 2002 to U.S.$45.1 million in 2003 due to an increase in the amount of interest that we capitalized over the period. In 2003, we
capitalized U.S.$6.1 million of interest relating to modifications to theGlas Dowr, while in 2002 we capitalized only U.S.$3.5 million of interest
relating to modifications to theGlas Dowr. The increase in the amount of capitalized interest over the period more than offset the effects of an
increase in our total debt, which resulted primarily from our financing of the modifications to theGlas Dowrwith borrowings under our credit facility,
and an increase in the weighted average interest rate payable on our debt, which increased due to our issuance of an additional U.S.$75.0 million aggregate principal amount of 101/4%
Senior Notes due 2012 at a relatively higher interest rate. While we have been able to reduce the effective rate of interest payable on our 101/4% Senior Notes due 2012 through the use
of a fixed-to-floating rating swap, the amount of interest payable nonetheless exceeds the rate of interest that is payable under our credit facility.

Interest
income was U.S.$3.5 million in 2003, up 2.9% from U.S.$3.4 million in 2002, due to an increase in restricted cash deposits associated with our tax leases. Currency
exchange results were U.S.$10.8 million in 2003, compared to U.S.$1.5 million in 2002. The U.S.$9.3 million increase was attributable to a favorable value of our sterling and euro
foreign currency exchange contracts in 2003 (U.S.$4.4 million) compared to 2002 and the appreciation of the sterling against the U.S. dollar, which resulted in a revaluation profit on
U.S.$4.9 million in sterling cash deposits associated with our tax leases.

48

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Income before Taxes

Due to the foregoing factors, income before taxes was U.S.$11.5 million in 2003, down 16.3% from U.S.$13.8 million in 2002. As a percentage of
revenues, our income before taxes decreased from 5.2% in 2002 to 3.9% in 2003.

Income Taxes and Net Income

We recorded U.S.$1.1 million of income tax credits in 2003, down 95.5% from U.S.$23.6 million in 2002. These income tax credits consisted of current
tax charges of U.S.$1.6 million in 2003, down 30.4% from U.S.$2.3 million in 2002, and deferred tax credits of U.S.$2.7 million in 2003, down 89.6% from U.S.$25.9 million
in 2002. The deferred tax credits primarily resulted from the increase of tax loss carry-forwards which resulted from our internal restructuring. The decrease of U.S.$23.2 million in the
deferred tax credit in 2003 was primarily attributable to a change in the period over which we amortize goodwill associated with our internal restructuring for tax purposes from 10 to 15 years.
After taking into account income tax credits, net income amounted to U.S.$12.6 million in 2003, down 66.4% from U.S.$37.4 million in 2002.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Revenues

Our revenues increased 33.2% from U.S.$197.3 million in 2001 to U.S.$262.8 million in 2002. This increase in revenues was attributable to an
increase in the amount of revenues generated by both our FPSO business and our SPM business. Revenues generated by our FPSO business increased 23.0% from U.S.$178.1 million to
U.S.$219.1 million over the period, while revenues generated by our SPM business increased 127.9% from U.S.$19.2 million to U.S.$43.7 million.

The
relative increase in the revenues from our FPSO business over the period was due to the fact that 2002 was the first full financial year in which we earned revenues from the Haewene Brimand theMunin. In 2001, we earned revenues from those vessels only during the fourth
quarter. The increase in revenues attributable to theHaewene Brimand theMuninin 2002, however, was
offset in part by a loss of revenues from theGlas Dowrand a loss of bonus payments from theUisge Gormover the period. In 2001, we received contract payments for theGlas Dowruntil August, when our original service agreement was terminated, and we
received bonus payments for theUisge Gormuntil November, when we reached the maximum amount of bonus payments payable under our service agreement. We
did not receive those payments in 2002.

Revenues
from our SPM business grew from 2001 to 2002 due to an increase in the scope and the amount of work that we performed in connection with our SPM projects over the period. In
2001, our SPM business carried out work relating to the tie-back of theBleo Holmto the Blake Field and to the delivery of spare parts to
one of our customers. While we entered into three new SPM delivery contracts in the fourth quarter of 2001, significant revenues from these contracts did not begin to accrue until 2002. In 2002, we
earned revenues from the three SPM projects that we were awarded in the fourth quarter of 2001 and, to a lesser degree, from two additional SPM projects that we were awarded during the year and from a
water treatment unit that we delivered and installed on theUisge Gormin 2002.

Operations Expenses

Our operations expenses increased 73.4% from U.S.$83.8 million in 2001 to U.S.$145.3 million in 2002. Operations expenses attributable to our FPSO
business increased 49.5% from U.S.$60.3 million to U.S.$90.1 million over the period, while operations expenses attributable to our SPM business increased 134.7% from
U.S.$23.5 million to U.S.$55.2 million.

49

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The
relative increase in the operations expenses of our FPSO business over the period was due primarily to the fact that 2002 was the first full financial year in which we recorded
operations expenses from theHaewene Brimand theMunin. In 2001, we recorded expenses relating to those
vessels only during the fourth quarter. To a lesser degree, the increase in the operations expenses from our FPSO business resulted from certain work that we performed in 2002 on the Uisge Gorm's high
pressure equipment and water treatment unit and to an overall increase in our insurance costs following the events in the United
States on September 11, 2001. While our insurance costs are partially recoverable under our service agreements, we account for the cost of insurance as an expense in our consolidated financial
statements and the payments that we receive in respect of the expenses as revenues.

The
increase in the operations expenses of our SPM business resulted from the increase in the scope and the amount of work that we performed in connection with our SPM projects over the
period. Work performed in 2002 was generally more complex and extensive, resulting in relatively higher costs. To a lesser degree, the increase in our SPM business's operations expenses was caused by
an increase in the amount of tenders that we submitted for SPM projects over the period. In 2002, we submitted 31 tenders for SPM projects, compared to 15 tenders in 2001.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses increased 2.8% from U.S.$9.5 million in 2001 to U.S.$9.7 million in 2002. This
U.S.$0.2 million increase was principally attributable to inflation.

Depreciation of Tangible Fixed Assets

Our charges for depreciation of tangible fixed assets decreased 7.4% from U.S.$58.3 million in 2001 to U.S.$54.0 million in 2002. The relative
decrease in the amount of depreciation charges over the period resulted from the fact that we did not record depreciation charges in 2002 for certain equipment on theUisge
Gorm, which had been fully depreciated, or for theGlas Dowr, which was being modified for its deployment to the Sable Field.
The effect of these decreases, however, was offset in part by the introduction in 2002 of a full year of depreciation charges for theHaewene Brimand
theMunin. In 2001, we recorded depreciation charges relating to theHaewene Brimand the Muninonly during
the fourth quarter.

Operating Expenses

Due to the foregoing factors, our total operating expenses increased 38.3% from U.S.$148.2 million in 2001 to U.S.$205.0 million in 2002.

Operating Income

Due the factors described above, our operating income increased 17.7% from U.S.$49.1 million in 2001 to U.S.$57.8 million in 2002, while our
operating margin decreased from 24.9% of our revenues in 2001 to 22.0% of our revenues in 2002.

Financial Income and Expenses

Our net financial expenses increased 146.8% from U.S.$17.8 million in 2001 to U.S.$44.0 million in 2002. This relative increase was due principally
to an increase in our net interest expense over the period.

Our
net interest expense increased 92.8% from U.S.$23.6 million in 2001 to U.S.$45.5 million in 2002 due primarily to an increase in the amount and the average weighted
interest rate of our outstanding indebtedness. In 2002, we incurred approximately U.S.$285.9 million of additional indebtedness in connection with our acquisitions of the Haewene Brim, theMuninand their related

50

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operating
companies, and we issued U.S.$260.0 million aggregate principal amount of 101/4% Senior Notes due 2012. While the proceeds from the offering of the
101/4% Senior Notes due 2012 were used to repay indebtedness under our credit facility, their issuance at a relatively higher interest rate led to an increase in our weighted average
interest rate over the period. A relative decrease in our cash deposits and the rate of interest that we received on them resulted in relatively lower interest income over the period and further
contributed to the relative increase in our net interest expense.

Our
currency exchange results, while still positive, decreased 74.8% from U.S.$5.8 million in 2001 to U.S.$1.5 million in 2002. Our currency exchange gains were relatively
higher in 2001 due to the fact that we recorded a substantial gain when we converted the subordinated Marenco loan from a basket of currencies to U.S. dollars, which is our functional currency.

Income Before Taxes

Due to the factors described above, our income before taxes decreased 56.0% from U.S.$31.3 million in 2001 to U.S.$13.8 million in 2002. As a
percentage of revenues, our income before taxes decreased from 15.8% to 5.2% over the period.

Income Taxes and Net Income

We recorded U.S.$23.6 million of income tax credits in 2002, compared to U.S.$32.6 million of income tax credits in 2001. These income tax credits
consisted of current tax charges of U.S.$2.3 million in 2002, compared to current tax credits of U.S.$230,000 in 2001, and deferred tax credits of U.S.$25.9 million in 2002, compared to
deferred tax credits of U.S.$32.4 million in 2001. Our deferred tax credits decreased over the period primarily due to variances in operational results before income taxes of our group
companies that are subject to Dutch income taxes and to the conversion by Bluewater Holding B.V. of U.S.$379.5 million of interest bearing intercompany debt into share capital in
December 2001. After taking account of taxes, our net income decreased 41.5% from U.S.$63.9 million in 2001 to U.S.$37.4 million in 2002.

(B)  Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash flows generated from our operations and external debt. Our primary uses of cash are to fund working capital, to service
indebtedness and to fund investments in new FPSOs. We believe that our working capital is sufficient to satisfy current requirements.

51

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The
following table sets forth selected information concerning our consolidated cash flows during the periods indicated.

|                                           |                                                       | Year ended December 31, |        
|------------------------------------------ | ----------------------------------------------------- | ----------------------- | -------
|
|
|Provided by operations                     |                                                       | 73,719                  |        
|(Used in) investment activities            |                                                       | (285,102                | )      
|Provided by (used in) financing activities |                                                       | 203,275                 |        
|                                           | Bank debt                                             |                         | 202,848
|                                           | 101/4% Senior Notes due 2012                          |                         |       
|                                           | Debt arrangement fees                                 |                         |       
|                                           | Short-term loan to related party                      |                         | 3,433  
|                                           | Unsubordinated Marenco loan(2)                        |                         | (4,025 
|                                           | Proceeds from restricted deposits                     |                         | 1,019  
|                                           | Proceeds from fixed-to-floating interest rate swap(3) |                         |       

---

Notes:

Net Cash Flow Provided by Operations

Net cash flow provided by operations consists of operating income earned from our service agreements and our SPM delivery contracts, adjusted for investments in
working capital and non-cash items such as depreciation and amortization. Working capital is defined as our current assets less our current liabilities. Net cash flow provided by
operations were U.S.$73.7 million in 2001, U.S.$84.4 million in 2002 and U.S.$73.7 million in 2003. The increase in net cash flow provided by operations from 2001 to 2002 was
primarily due to a reduction of working capital, which was partially offset by increased interest expenses. Working capital decreased by U.S.$20.0 million in 2002, compared to an increase in
working capital of U.S.$17.6 million in 2001. The decrease in net cash flow provided by operations from 2002 to 2003 was primarily attributable to a decrease of operating results which was
partially offset by a reduction of working capital. The changes in working capital include movements in work in process, billings in excess of cost and unrealized income, other receivables, other
liabilities and accrued expenses, accounts payable and prepaid expenses. Work in process decreased from U.S.$11.8 million to U.S.$8.1 million because the level of our SPM business
activities was lower in 2003 compared to 2002. Billings in excess of cost increased from U.S.$2.0 million to U.S.$4.3 million because, as of December 31, 2003, four SPM projects
for which advance billings were sent had started as compared to two as of December 31, 2002. Other receivables increased by U.S.$14.3 million primarily because subsequent invoicing was
used as a method of invoicing for three of our FPSOs during 2003. In 2002, this method was used for only one FPSO. In 2004, we expect that subsequent invoicing will be used for two of our FPSOs. Other
liabilities and accrued expenses increased by U.S.$12.6 million, primarily because we recorded an accrual relating to services rendered by third parties in connection with the modification of
theGlas Dowr. The amounts for the services rendered by third parties are disputed and are subject to agreement with these third parties. We still have
to agree the amounts for the services rendered with the third parties involved. Accounts payable increased by

52

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U.S.$3.4 million
mainly because of increased project expenses relating to the water injection unit project of theHaewene Brim. In 2003, prepaid
expenses decreased by U.S.$2.6 million, primarily due to the lower level of advance payments, as compared to 2002, during which advance prepayments were made in connection with the modification
of theGlas Dowr.

Net Cash Flow (Used in) Investment Activities

Net cash flow (used in) investment activities depends primarily on the amount of capital expenditures that we make in connection with the construction,
modification or acquisition of FPSOs. Net cash flows (used in) investment activities totaled U.S.$(285.1) million in 2001, U.S.$(95.1) million in 2002 and U.S.$(70.0) million in 2003. The net cash
outflow in 2001 resulted primarily from our acquisition of theHaewene Brimand theMuninand initial
modifications that we made to theGlas Dowrto prepare it for operation on the Sable Field. In both 2002 and 2003, net cash flow used in investment
activities related principally to additional modifications that we made to theGlas Dowrto prepare it for operation on
the Sable Field. The cost of these modifications have been capitalized and added to the historic cost of the vessel.

Net Cash Flow Provided by Financing Activities

Net cash flow provided by financing activities are primarily driven by our borrowing activities. Net cash flow amounted to U.S.$203.3 million in 2001,
U.S.$20.0 million in 2002 and U.S.$8.9 million in 2003. Our net indebtedness typically increases while we are modifying, developing or acquiring an FPSO, while our net indebtedness tends
to decrease if we are not engaged in those activities. In 2001, our net debt increased due to approximately U.S.$279.2 million in drawdowns under a bridge credit facility used to finance our
acquisition of theHaewene Brim,theMuninand their related operating companies. In 2002, the net cash
flow provided by financing activities resulted primarily from expenditures relating to the refinancing of our former credit facility and certain other indebtedness and from the issuance of our
outstanding 101/4% Senior Notes due 2012. In connection with these financings, we incurred approximately U.S.$18.8 million in debt arrangement and professional fees. These fees
have been capitalized and will be charged to financial expenses over the term of the indebtedness in respect of which they were incurred. In 2003, the net cash flow provided by financing activities
resulted primarily from expenditures relating to the refinancing of our former credit facility and certain other indebtedness and from the issuance of an additional U.S.$75.0 million
outstanding 101/4% Senior Notes due 2012.

Financing Arrangements

As of December 31, 2003, we did not have any short-term bank debt under working capital facilities or our credit facility. We had total
long-term bank debt of U.S.$249.1 million outstanding under our credit facility and cash of U.S.$32.9 million. We also had U.S.$335.0 million aggregate principal
amount of 101/4% Senior Notes due 2012 outstanding and U.S.$134.7 million of indebtedness outstanding under the subordinated Marenco loan.

53

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Credit Facility

Our credit facility is a U.S.$600.0 million revolving credit facility that we signed in January 2002 with an international syndicate of banks led by
Barclays Capital, Fortis Bank and ING Bank. The facility has a tenor of eight years and may be used to finance the development of new FPSOs and for general corporate purposes. Its structure includes a
borrowing base, calculated according to the present value of cash flows we earn or expect to earn under our FPSO service agreements and a proportion of the residual value of our assets. The facility
may be drawn upon at any time up to the lower of the current amount of the facility limit and the borrowing base. The facility limit, which was U.S.$480.0 million as of December 31,
2003, reduces by U.S.$20.0 million per quarter and is scheduled to reach zero in December 2009. Interest is payable at a rate that is equal to a margin over LIBOR. The margin, which is
currently 1.400%, varies from 1.300% to 1.700% depending on certain factors. As of December 31, 2003, the applicable interest rate was 2.56%. A description of the principal terms of the credit
facility, including restrictions on the incurrence of indebtedness and other financial covenants, is included under "Item 10: Additional Information(C) Material
ContractsCredit Facility".

The
following table presents certain information regarding the expected availability of funding under our credit facility in its current form during the periods indicated.

|                  |  | Year ending December 31,
|----------------- |  | ------------------------
|
|
|Facility limit    |  | 480                     
|Borrowing base(1) |  | 479                     

---

Note:

Other Financing Arrangements

In addition to the credit facility described above, we also have entered into the following financing arrangements.



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Capital Expenditures

From time to time, we are required to make capital expenditures in respect of our FPSOs and our SPM development projects. During 2001, our capital expenditures
related primarily to our acquisitions of theHaewene Brim, theMuninand their related operating
companies. During 2002 and 2003, our capital expenditures related primarily to the modifications that we made to theGlas Dowrin connection with its
redeployment to the Sable Field off the coast of South Africa. Due to an unanticipated increase in the scope and complexity of the vessel modifications, labor unrest and difficulties with project
management on the part of the construction yard where the work was performed, the project experienced delays and cost overruns. The delay in the achievement of first oil and additional work on the gas
compression facilities, along with increased insurance costs, resulted in an upward revision in our costs estimates. As of December 31, 2003, our estimate of the costs of the vessel
modifications and subsea work, excluding exchange rate differences and financing costs, was approximately U.S.$195.7 million. Of this amount, U.S.$50.4 million is reimbursable by
PetroSA. As of December 31, 2003, we had expended approximately U.S.$144.4 million on the vessel modifications and approximately U.S.$37.3 million on developing the subsea
infrastructure, and we have received approximately U.S.$37.3 million in milestone payments from PetroSA for the completion of the subsea work. Based upon our estimates, we believe that we had
approximately U.S.$14.0 million in remaining commitments for expenditures, excluding exchange rate differences and financing costs, relating to the project as of that date. We expect to fund
U.S.$13.1 million of the expenditures with milestone payments that we will receive from PetroSA for remaining subsea work and to fund the remaining expenditures with borrowings under our credit
facility. In addition to the cost of vessel modifications and subsea work, U.S.$9.7 million has been capitalized for financing costs, U.S.$11.0 million for operational support prior to
production, and U.S.$3.0 million for exchange rate losses resulting from the difference between the project exchange rate and actual exchange rates. In addition to the above-mentioned capital
expenditures, we expect to spend approximately U.S.$6.1 million on offshore commissioning and completion work. The total capitalized cost for the project, including an accrual of
U.S.$13.0 million for expenditures to be made for services incurred on the project, was U.S.$175.1 million as of December 31, 2003. We do not expect the delays or budgetary
overruns to otherwise materially affect our liquidity or capital resources.

Our
future capital expenditures will depend primarily on the projects that we undertake. We anticipate that our capital expenditures during 2004 will relate primarily to modifications
that we will make to theMuninin connection with its redeployment to the Xijiang Field in the South China Sea. Due to the nature of the redeployment
and the scope of work anticipated, we believe that such capital

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expenditures
will be significantly less than the amounts that were invested in connection with the redeployment of theGlas Dowr. Nevertheless, it is
not possible to predict with certainty the extent of the capital expenditures that we will be required to make in connection with the redeployment. We expect that actual capital expenditures will
primarily be a function of the characteristics of the Xijiang Field, the requirements set forth in the our new service agreement and other relevant considerations. We intend to fund these capital
expenditures with borrowings drawn under our credit facility and payments that we will receive under the new service agreement.

(C)  Research and Development

We have focused our research and development activities on technology that is integral to our FPSO and SPM businesses. We have an in-house design and
engineering team consisting of engineers trained in a number of disciplines. We also access new sources of information or technology by entering into strategic alliances with equipment manufacturers,
oil and gas companies, universities or by participating in joint industry programs. While the market for our products and services is subject to continual technological changes, development cycles
from initial conception through introduction can extend over several years. Our efforts have resulted in the development of a number of inventions, new processes and techniques, many of which have
been incorporated as improvements to our product lines. Our research and development activity has led to a number of patents or patent applications, principally in the area of SPM systems. See "Item
4: Information on the Company(B) Business OverviewIntellectual Property". During 2001, 2002, and 2003, our research and development expenditures were U.S.$0.4 million,
U.S.$0.5 million, and U.S.$0.6 million, respectively. We expect to expend a similar amount on research and development in future periods.

(D)  Off-balance Sheet Arrangements

We are not a party to any material off-balance sheet financial arrangements.

(E)  Tabular Disclosure of Contractual Obligations

The following table presents the scheduled maturities of our contractual obligations, assuming that any available rollover provisions were inapplicable, as of
December 31, 2003.

|                            |       | Payments due by Period
|--------------------------- | ----- | ----------------------
|
|
|Long-term debt obligations  |       | 584,108               
|Capital lease obligations   |       |                      
|Operating lease obligations |       | 5,602                 
|Purchase obligations        |       |                      
|Other long-term liabilities |       |                      
|                            |       |                       
|                            | Total |                       
|                            |       |                       

ITEM 6:    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

(A)  Directors and Senior Management

Our business and general affairs are managed by the management boards of Aurelia Energy N.V. and Bluewater Holding B.V. and the executive officers of Bluewater
Energy Services B.V.

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Aurelia Energy N.V.

Aurelia Energy N.V. is a holding company that invests in companies that are specialized service providers to and operators in the offshore oil industry. These
investment activities are managed by Aurelia Energy N.V.'s management board, which is authorized to represent the company. Aurelia Energy N.V.'s management board currently consists of two managing
directors, Intertrust (Curaçao) N.V., which was elected to the management board on December 6, 1993 by a vote of the sole shareholder of Aurelia Energy N.V. for an indefinite
term, and Mr. John Collison, who was elected to the management board on December 29, 2000 by a vote of the sole shareholder of Aurelia Energy N.V. for an indefinite term.

Intertrust (Curaçao) N.V.

Intertrust (Curaçao) N.V. is a limited liability company established under the laws of the Netherlands Antilles on May 11, 1981 that
provides director nominee services on a fee basis for Netherlands Antilles companies. Intertrust (Curaçao) N.V. has served as a managing director of Aurelia Energy N.V. since the
company was established in the Netherlands Antilles in 1993. Intertrust (Curaçao) N.V. currently also serves as a managing director of a number of Aurelia Energy N.V.'s subsidiaries and
affiliates, and it provides similar services on a fee basis for a number of other companies. Mr. Gregory Elias is the managing director and chairman of Intertrust (Curaçao) N.V.
and is authorized to represent Intertrust (Curaçao) N.V. in its capacity as the sole managing director of Aurelia Energy N.V. Intertrust (Curaçao) N.V. was elected to the
management board of Aurelia Energy N.V. on December 6, 1993 at the direction of Mr. Hugo Heerema who, at the time of the election, was the beneficial owner of 100.0% of Aurelia Energy
N.V.'s outstanding share capital. See "Item 7: Major Shareholder and Related Party Transactions(A) Major Shareholder".

John Collison

Mr. Collison, 64, has served as a managing director of Aurelia Energy N.V. since December 29, 2000. Mr. Collison is a qualified accountant
and also serves as a director on the board of directors of a number of Aurelia Energy N.V.'s subsidiaries. Mr. Collison has served as a financial director of a number of multi-national
organizations operating in the Middle East, including the A.W. Aujan Group, the Abdulla Fouad Group and the Algosaibi Group. Mr. Collison has over 35 years of experience in the oil, gas
and petrochemicals industry, serving in positions of financial management, control and direction.

Bluewater Holding B.V.

Aurelia Energy N.V.'s operating activities are conducted exclusively through its operating subsidiaries in accordance with policies that are established by the
management board of Bluewater Holding B.V. The general meeting of the shareholders of Bluewater Holding B.V. determines the size of the management board, appoints and dismisses the members of the
management board and determines their compensation and benefits. Bluewater Holding B.V.'s management board currently consists of one managing director, Mr. Hugo Heerema, who is authorized to
represent the company. Mr. Heerema was elected to the management board on March 10, 2000 by a vote of the sole shareholder of Bluewater Holding B.V. for an indefinite term.

Hugo Heerema

Mr. Heerema, 51, is the sole managing director of Bluewater Holding B.V. and the founder of Aurelia Energy N.V. Mr. Heerema founded Aurelia Energy
N.V. in September 1993 in connection with his acquisition of the "Bluewater" group of companies. Prior to this acquisition, Mr. Heerema was employed by the Heerema Group, where he served
as a commercial director. Mr. Heerema holds an

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MBA
from the University of Delft and has 24 years of experience in the offshore industry. Mr. Heerema has acted as the managing director of Aurelia Energy N.V.'s various Dutch
subsidiaries since 1993. He has also held several advisory positions and non-executive directorships in affiliated companies. At the time of his appointment to the management board of
Bluewater Holding B.V., Mr. Heerema was the beneficial owner of 100.0% of Aurelia Energy N.V.'s outstanding share capital. While he has since transferred this shareholding to the Jacaranda
Trust, the trustees of the Jacaranda Trust are prohibited from exercising their power in a manner that would result in Mr. Heerema being dismissed or replaced as Bluewater Holding B.V.'s sole
managing director without his prior written consent. See "Item 7: Major Shareholder and Related Party Transactions(A) Major Shareholder".

Bluewater Energy Services B.V.

The executive officers of Bluewater Energy Services B.V. are responsible for implementing the policies established by the management board of Bluewater Holding
B.V. Under general powers of attorney, each executive officer having the title "Vice President" may individually bind Bluewater Energy Services B.V. for legal acts up to an amount of
€100,000. Two executive officers acting together may bind Bluewater Energy Services B.V. for legal acts up to an amount of €500,000. The executive officers serve in
their positions pursuant to employment agreements entered into with Bluewater Energy Services B.V. and may be appointed and dismissed in accordance with applicable employment law.

The
following table presents certain information concerning the current executives of Bluewater Energy Services B.V.

|Name                |  | Current Office                             |  | Date of Appointment
|------------------- |  | ------------------------------------------ |  | -------------------
|Michel Bonte        |  | Vice President, Business Development       |  | May 14, 1996       
|Jaap de Baan        |  | Vice President, Technology and Development |  | September 1, 1993  
|Jesse van de Korput |  | Vice President, Floating Productions       |  | November 1, 1998   
|Kees Voormolen      |  | Vice President, Finance and Administration |  | July 1, 2000       
|Maarten van Aller   |  | Vice President, Projects                   |  | November 10, 2003  

Michel Bonte

Mr. Bonte, 54, serves as Vice President of Business Development. Mr. Bonte held management positions with the Heerema Group, Seaway Heavy Lifting
and the Glenmore Group prior to joining our company in 1996. He holds a civil engineering degree from Weg en Waterbouw in Rotterdam and an MBA from the Instituut voor Bedrijfsopleidingen in Zeist. He
has 30 years of experience in the offshore sector.

Jaap de Baan

Mr. de Baan, 56, serves as Vice President of Technology and Development. Mr. de Baan joined our company in 1978 and has 31 years of
experience in managing and supervising of design and engineering of FPSOs and SPM systems. He holds a mechanical engineering degree from Rotterdam Technical College.

Jesse van de Korput

Mr. van de Korput, 46, serves as Vice President of Floating Productions. He held management positions with Elf Petroland and Fluor Daniel prior to joining
our company. Mr. van de Korput holds an engineering degree and a masters degree in management from the Vrije Universiteit of Brussels and Boston. He has 13 years of experience in the
offshore industry.

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Kees Voormolen

Mr. Voormolen, 41, serves as Vice President of Finance and Administration. He held positions with Royal Boskalis Westminster, Western Atlas Inc. and
KLM Royal Dutch Airlines prior to joining our company in 1999. Mr. Voormolen holds a masters degree in business economics from the Erasmus University of Rotterdam and has seven years of
experience in the offshore industry. Mr. Voormolen also has approximately 17 years of experience with structured financing, project financing and mergers and acquisitions.

Maarten van Aller

Mr. van Aller, 35, serves as Vice President of Projects. He held project management positions within the IHC Caland Group and sales positions within a
shipping service company prior to joining our company in 2001 as a Business Development Manager. Mr. van Aller holds a masters degree in civil engineering from the Delft University of
Technology. Mr. van Aller has 10 years of experience in the offshore sector.

(B)  Compensation

The aggregate compensation of our various managing directors and executive officers as a group was U.S.$995,000 in 2003. In 2003, we set aside or accrued
U.S.$153,000 to provide pension, retirement or similar benefits.

(C)  Board Practices

None of our managing directors or directors is a party to a contract providing for benefits upon termination of employment. We have not established an audit or
remuneration committee.

(D)  Employees

We maintain a core staff of employees that may be allocated between our FPSO and SPM businesses depending on market conditions and business needs. In addition to
the permanent members of our staff that have technical qualifications, we employ highly skilled auxiliary workers on a contractual basis according to our specific needs and outsource the more generic,
labor intensive tasks relating to the development of FPSOs and SPM systems to subcontractors. We believe that this approach to staffing provides us with substantial flexibility that enables us to
maintain our core engineering capabilities while allowing us to scale our operations and manage our cost base in response to changes in market conditions and business needs.

The
following table presents the average number of workers that we employed on a permanent and on an auxiliary basis during the periods indicated.

|                    |  | Year ended December 31,
|------------------- |  | -----------------------
|
|Permanent employees |  | 284                    
|Auxiliary employees |  | 71                     
|                    |  |                        
|Total employees     |  | 355                    
|                    |  |                        

We
have never experienced a material work stoppage by members of our staff and consider our relations with our employees to be good, although in certain instances we have been negatively
affected by labor disputes at the facilities of certain subcontractors to whom we have contracted work. A small number of our employees are members of unions; however, we are not subject to any
collective

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bargaining
agreements. We do not currently have a works council in the Netherlands or elsewhere. However, we would form such a council if requested.

(E)  Share Ownership

Mr. Heerema (with certain members of his immediate family) is a beneficiary of the Jacaranda Trust, which beneficially owns 100.0% of our outstanding
common B shares and 100.0% of our outstanding preference A shares. See "Item 7: Major Shareholder and Related Party Transactions(A) Major Shareholder". We currently do not have any
outstanding options entitling the holders thereof to acquire our common B shares or our preference A shares, nor have we entered into any arrangements for providing for the issuance of those shares to
our employees, executive officers or managing directors through the granting of options or otherwise.

ITEM 7:    MAJOR SHAREHOLDER AND RELATED PARTY TRANSACTIONS

(A)  Major Shareholder

Aurelia Holding N.V. is the registered shareholder of 136,000 of our common B shares and 34,000 of our preference A shares, representing 100.0% of our outstanding
voting shares. On January 28, 2003,
Mr. Hugo Heerema, as the holder of 100.0% of the issued and outstanding share capital of Aurelia Holding N.V., voted in an extraordinary general meeting of shareholders of Aurelia Holding N.V.
to dissolve and liquidate the company. The resolution is irrevocable and binding on all subsequent shareholders. Due to the foregoing, it is expected that, upon the expiration of a
winding-up period, the dissolution and liquidation of Aurelia Holding N.V. will be completed and the shareholder or shareholders of Aurelia Holding N.V. immediately prior to the completion
of the dissolution and liquidation will become the direct owner or owners of 100.0% of our outstanding common B shares and 100.0% of our preference A shares.

On
January 29, 2003, Mr. Heerema transferred by gift, and for no consideration, his shareholdings in Aurelia Holding N.V. to Bailhache Labesse Trustees Limited and
Mr. Graham Boxall, as trustees of the Jacaranda Trust. The Jacaranda Trust is an irrevocable discretionary trust constituted under the laws of Jersey. Mr. Heerema and certain members of
his immediate family are the current beneficiaries of the Jacaranda Trust. In connection with this transfer, the Jacaranda Trust became the beneficial owner of 136,000 of our common B shares and
34,000 of our preference A shares, representing 100.0% of our outstanding voting shares. It is expected that, upon completion of the dissolution and liquidation of Aurelia Holding N.V., Bailhache
Labesse Trustees Limited and Mr. Graham Boxall, as trustees of the Jacaranda Trust, will become the direct owner of these shares. While the transfer of Mr. Heerema's shareholdings in
Aurelia Holding N.V. resulted in a change of control for the purposes of the U.S. securities laws, it did not result in a "Change of Control" under the indenture for our 101/4% Senior
Notes due 2012.

The
documentation relating to the transfer of Mr. Heerema's shareholdings in Aurelia Holding N.V. and the settlement of the Jacaranda Trust includes certain provisions affecting
the potential for a future change of control for the purposes of the U.S. securities laws and the election of managing directors that are generally responsible for setting policies and managing the
general affairs and business of our operating subsidiaries. In particular, the documentation providing for the transfer to the Jacaranda Trust of Mr. Heerema's shareholdings in Aurelia Holding
N.V. will be revoked and annulled, and ownership of Aurelia Holding N.V., or, after the liquidation of Aurelia Holding N.V., ownership of us, will revert back to Mr. Heerema if his death occurs
within certain periods of time and is subject to certain Belgian or Dutch tax consequences. In addition, while the documentation relating to the settlement of the Jacaranda Trust generally provides
its trustees with discretion in determining the manner in which our outstanding shares may be voted, it prohibits them from exercising their powers in a manner that would result in Mr. Heerema
being dismissed or replaced as the sole member of the

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management
board of Bluewater Holding B.V. without his prior written consent. The management board of Bluewater Holding B.V. is generally responsible for setting the policies of our operating
companies.

(B)  Related Party Transactions

Acquisitions of theHaewene Brim, theMuninand their Related Operating
Companies

In January 2002, we acquired theHaewene Brim, theMuninand their related operating companies from unconsolidated affiliates owned by our sole beneficial shareholder. These acquisitions were structured as share purchases pursuant to which we acquired:



The
purchase price of these acquisitions was U.S.$285.9 million, which included the assumption of certain indebtedness. We financed these acquisitions and refinanced the
indebtedness incurred in connection therewith with funds drawn under our credit facility and used additional funds drawn under our credit facility to concurrently refinance a former credit facility.
In February 2002, we used a portion of the net proceeds from the initial issuance of our 101/4% Senior Notes due 2012 to repay approximately U.S.$248.5 million of the then
outstanding indebtedness under our credit facility.

Marenco Loans

We currently have indebtedness outstanding under a subordinated loan from Marenco Investments Limited, an unconsolidated affiliate that is owned by our sole
beneficial shareholder. Interest on the loan is fixed at a rate of 7.0% per annum; however, cash payments may only be paid in certain instances. The largest amount of indebtedness outstanding under
this loan during the last three years was U.S.$134.7 million. This is the amount of indebtedness that was outstanding as of December 31, 2003. Marenco Investments Limited loaned these
funds to us in a series of transactions to enable us to finance the construction and modification of FPSOs. In 2003, we accrued approximately U.S.$8.8 million of interest on the loan.

During
2002, we also had indebtedness outstanding under an unsubordinated loan from Marenco Investments Limited, which we accounted for as a "short-term loan from related
party".
However, this indebtedness, which bore interest at a rate of 7.0% per annum, was repaid in full prior to the end of the year and, accordingly, is not reflected on our balance sheet as of
December 31, 2002. The total amount of payments made under this loan during 2002 was U.S.$3.6 million. Marenco Investments Limited loaned these funds to us in a series of transactions to
enable us to finance the construction and modification of FPSOs.

ITEM 8:    FINANCIAL INFORMATION

(A)  Consolidated Statements and Other Financial information

Financial Statements

Please refer to Item 18.

Legal and Arbitration Proceedings

From time to time, we are involved in litigation arising in the ordinary course of our business. We are currently involved in arbitration proceedings involving
claims alleging aggregate damages of

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U.S.$50.0 million.
We have consulted external legal advisers regarding these claims and believe that they lack merit. We intend to contest these claims vigorously and believe that we will
prevail on the merits in any final determination of the claims. However, there can be no assurance in this regard. We are not currently involved in, and have not recently been involved in, any legal
or other arbitration proceedings that we believe may have, or in the recent past have had, a significant effect on our financial condition or results of operations. We are currently not engaged in any
legal or arbitration proceeding in which any of our managing directors, directors, executive officers or affiliates is an adverse party or has an interest that is materially adverse to us.

Dividends and Dividend Policy

Under our articles of incorporation, we may pay dividends from our net profit at the discretion of a general meeting of shareholders. Any declared dividends are
paid first to preference A shareholders to the extent of their preference. The remaining dividends are paid to common B shareholders in proportion to the amount of common B shares held by them. Unless
the entire preferred dividend is declared on our preference A shares over the fiscal year, a resolution to reserve profits may be adopted only during a general meeting of shareholders, during which
all preference A shares must vote in favor of such a resolution. Our management board is authorized at any time to pay out interim dividends in prepayment of expected dividends. No dividend may be
paid if any loss has been sustained during the year that cannot be covered by reserves or compensated in any other way. Notwithstanding the foregoing, our ability to pay dividends in respect of our
preference A shares and our common B shares is limited by the terms and conditions of certain of our financing arrangements, including the indenture relating to our outstanding 101/4%
Senior Notes due 2012 and our credit facility. Our dividend policy has historically been to add our net income to retained earnings rather than to pay it out in the form of dividends. In the future,
we may elect to pay dividends to the extent that we are not involved in any significant projects and the payment of such dividends is permitted by our financing arrangements.

(B)  Significant Changes

There have not been any significant changes to our business or financial condition since December 31, 2003.

ITEM 9:    THE OFFER AND LISTING

(A)  Offer and Listing Details

We are a privately held company that is owned by a single beneficial shareholder and, accordingly, there is no established or liquid trading market for our
preference A shares or our common B shares.

(B)  Plan of Distribution

Not applicable.

(C)  Markets

Neither our outstanding preference A shares nor our outstanding common B shares are listed on a securities exchange or otherwise quoted. Our outstanding
101/4% Senior Notes due 2012 are listed on the Luxembourg Stock Exchange and trade under the symbol "BLUWAT".

(D)  Selling Shareholders

Not applicable.

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(E)  Dilution

Not applicable.

(F)   Expenses of the Issuer

Not applicable.

ITEM 10:    ADDITIONAL INFORMATION

(A)  Share Capital

Not applicable.

(B)  Articles of Incorporation

Organization, Registration and Objectives

We are a limited liability company established under the laws of the Netherlands Antilles with our corporate seat in Curaçao, the Netherlands
Antilles and registered with the trade register of Curaçao with number 65489. Our articles of incorporation govern our operations. We have no by-laws. Our objectives state
that we are a holding company and participate in other corporations and enterprises. These objectives include:



Summary of Provisions Relating to our Management Board and Managing Directors

We are managed by a management board comprised of one or more managing directors, who are appointed by an absolute majority of shareholders during a general
meeting of shareholders and who can at any time be suspended or removed by the shareholders at an annual or special meeting. There are no age limits on acting as a managing director. The activities of
the management board are governed by our articles of incorporation.

We
are represented by one managing director in all matters, including court matters, against third parties. In the case of a conflict of interest between ourselves and one or more
managing directors, we shall be represented by another managing director, or in the absence of another managing director, a person designated by the general meeting of shareholders. The general
meeting of shareholders has the right at all times to designate a person to represent us in the event of a conflict of interest. In the event of an impediment or default by one or more of the managing
directors, the remaining managing directors have all management powers vested in them. In the case of an impediment or default by all managing directors, we shall be managed temporarily by a person
designated by a general meeting of the shareholders. Such a designated person is authorized only to act in matters that cannot be delayed

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and
has an obligation to immediately convene a general meeting to provide for a definite management board.

Our
management board is authorized, without instructions from a general meeting of shareholders, to represent and bind us when negotiating and entering into agreements, including,
without limitation, entering into and executing and delivering such agreements, documents and instruments as shall be necessary or appropriate and consistent with our corporate objectives. Our
articles of incorporation do not contain any restrictions applicable to the managing directors in this respect.

Description of Share Capital: Rights, Restrictions and Preferences

Our authorized share capital is U.S.$170,000,000, divided into 34,000 preference A shares and 136,000 common B shares, each with a par value U.S.$1,000 per share.
Each share is entitled to one vote on all matters duly presented to a general meeting of shareholders for adoption. Cumulative voting is not permitted. Shares are issued by the management board and
new shares may be issued from time to time by the management board, provided that the price of any newly issued shares may not be below par. New shares shall be issued to existing shareholders, in
proportion to the shares held by them at the time. We may acquire fully-paid up shares for our own capital, provided that at least 20% of our authorized share capital remains issued and
outstanding with other shareholders after any acquisitions. We may not vote or make a claim on any shares held by us and any shares held by us may not participate in any profit or liquidation balance.
Neither our articles of incorporation nor Netherlands Antilles law provides for any right of the shareholders to have their shares redeemed.

Our
net profit according to our duly adopted income statement may be reserved or paid out as a dividend, at the discretion of a general meeting of shareholders. Insofar as the profit
permits, any declared dividends will be paid to preference A shareholders first to the extent for which those preference A shares have preference, over the amount paid up on the preference A shares.
The remaining profit declared for dividends will be paid to common B shareholders in proportion to the amount of common B shares held by them. Unless the entire preferred dividend has been declared on
the preference A shares over the fiscal year, a resolution to reserve profits can only be adopted by a general meeting of shareholders if for all issued preference A shares votes have been cast in
favor of such resolutions. The management board is authorized at any time to pay out interim dividends in prepayment on the dividends expected. No dividends may be paid according to our profit and
loss account if any loss has been sustained during the year that cannot be covered by the reserves or compensated for in any other way.

Under
our articles of incorporation, resolutions for our dissolution may only be passed at a general meeting of shareholders at which at least two-thirds of the issued
capital is represented and three-fourths of those present vote for dissolution. Under Netherlands Antilles law, our shareholders are entitled to all of our assets upon liquidation and dissolution
after all creditors have been paid. Any remaining profits will be paid to preference A shareholders first, equal to the percentage to which the preference A shareholders have preference over the
amount paid up on the preference A shares. If there are no common B shares outstanding after a dissolution is declared, all profits will be paid to the preference A shareholders. If there are common B
shareholders, the balance of the profits will be paid to common B shareholders in proportion to their percentage of common B shares held. No profits will be paid out upon dissolution if a loss has
been sustained during the year that cannot be covered by the reserves or compensated for in some other way. If a dissolution is effected, the liquidation will be effected under such provisions as the
shareholders decide at the general meeting.

Modifications of Shareholders' Rights

The rights of our shareholders against us are determined by Netherlands Antilles law and our articles of incorporation. The manner in which these rights may be
exercised may be further stipulated in an agreement between ourselves and our shareholders. Resolutions to amend our articles of incorporation may only be passed by means of a vote of three-fourths of
the votes cast in a general meeting of shareholders at which at least two-thirds of the issued capital is represented.

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Shareholders' Meetings

The annual general meeting of shareholders shall be held in Curaçao, the Netherlands Antilles within nine months after the end of our financial
year. During this annual meeting, a report regarding our course of business and conduct of affairs during the past financial year is given by the management board and a balance-sheet and profit and
loss account must be adopted.

Each
managing director and any shareholder jointly representing at least 10.0% of our issued share capital may call a meeting. All meetings must be convened by an advertisement in a
widely read newspaper in Curaçao, the Netherlands Antilles at least five days prior to the meeting. The advertisement must contain the agenda for the meeting or state the agenda has
been deposited at our office for the shareholders' inspection. If the meeting is being convened to deal with proposed amendments to our articles of incorporation, the advertisement must include a
statement to that effect. Even if the above provisions are not abided by, resolutions will nevertheless be valid if they are adopted by unanimous vote at a meeting in which our entire share capital is
represented.

Holders
of shares in bearer form must identify themselves to our satisfaction in order to participate in a meeting. Share certificates, held for the duration of the meeting, will be
sufficient identification. Shareholders may be represented by proxies at the annual meeting. All resolutions at an annual or special general meeting will be adopted by absolute majority, except those
pertaining to amendments to our articles of incorporation.

Limitations on Rights to Hold Shares, Changes of Control and Changes in Capital

There are no limitations on holding our shares under Netherlands Antilles law, and our articles of incorporation do not contain any provisions that would delay,
defer or prevent a change in control. Our articles of incorporation also do not contain any provisions regarding changes in capital that are more stringent than required by law, except that a
resolution to increase the authorized share capital pursuant to an amendment of the articles of incorporation may be passed only by a vote of three-fourths of the votes cast at the general meeting of
shareholders at which at least two-thirds of the issued share capital is represented.

Disclosure of Share Ownership

Our articles of incorporation do not require disclosure of any shareholding, irrespective of the level of shareholding.

(C)  Material Contracts

Service Agreements

We currently operate our FPSOs on offshore oil fields pursuant to five service agreements that we have entered into with oil companies and have entered into a
sixth service agreement pursuant to which we have agreed to redeploy one of our FPSOs to another oil field. These service agreements consist of the documents included as Exhibits 4.1 to 4.14,
Exhibit 4.59 and Exhibit 4.62 of this annual report. The principal terms and conditions of these agreements are described under "Item 4: Information on the
Company(B) Business OverviewFPSO BusinessFPSO Fleet and FPSO Hull".

Credit Facility

We are a party to a revolving credit facility agreement, dated January 15, 2002, among Bluewater Holding B.V., Bluewater Energy Services B.V., Bluewater
Offshore Production Systems Ltd., Bluewater (Haewene Brim) N.V., Bluewater (Munin) N.V.,
Ranberger Holding N.V., Luludia Asset Finance B.V. and Refugio B.V., as borrowers, Barclays Bank PLC, Fortis Bank (Nederland) N.V. and ING Bank N.V., as arrangers, and ING Bank N.V., as facility
agent, Barclays Bank PLC, as technical bank and facility

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security
trustee, and certain financial institutions, as lenders. Obligations under the credit facility are guaranteed by Aurelia Energy N.V. and its subsidiaries other than the borrowers and,
Bluewater Finance Limited pursuant to a facility guarantee, dated January 28, 2002.

Structure

The credit facility is a U.S.$600.0 million reducing revolving credit facility. See "Maturity and Amortization". Subject to certain conditions
the facility can be used to finance the construction of new FPSOs and for general corporate purposes. The structure of the facility includes a borrowing base, calculated according to the present value
of cash flows we will or may earn under our FPSO service agreements and a certain amount of residual asset value. The facility can be drawn at any time up to the lower of the limit and the borrowing
base amount at that time. The borrowing base amount consists of the sum of three tranches. Tranche 1 consists of 100.0% of the net present value of the contracted facility fee income under our
FPSO service agreements during the minimum contract periods. Tranche 2 consists of 65.0% of the net present value of the contracted facility fee income during expected contract extensions.
Tranche 3 consists of 50.0% of the net present value of the market value of the FPSOs at the end of the expected contract term, up to a maximum amount of U.S.$20.0 million per vessel and
U.S.$100.0 million in total. A new borrowing base is recalculated every six months subject to majority bank approval or, if such approval is not obtained, subject to an independent expert.
During the six-month period, the borrowing base may be redetermined following certain events, including the termination of our service agreements, the total loss of an FPSO or a change in
the deployment period of an FPSO as confirmed by the oil company.

Interest Rates and Fees

Advances under the credit facility bear interest at a rate per annum equal to LIBOR plus a margin of 1.300% for the first five years of the credit facility and
1.500% for the remainder of the life of the credit facility. There is a margin adjustment mechanism under which the applicable margin is increased by up to 0.200% during each such
five-year period if the amount of credit that is drawn exceeds certain percentages of the borrowing base. Pursuant to the margin adjustment mechanism, the applicable margin is also reduced
if our rating by Standard & Poor's reaches a certain level. Commitment commissions are 50.0% of the applicable margin.

Guarantees and Security

The borrowers' obligations under the credit facility are guaranteed by Aurelia Energy N.V. and each of its direct and indirect subsidiaries other than the
borrowers and Bluewater Finance Limited. Together, the borrowers and the guarantors have granted security interests over substantially all of their assets, including mortgages over all FPSOs, fixed
charges over certain of their properties, debts, bank accounts, insurance proceeds and specified agreements. In addition, the shares of each FPSO-owning company have been pledged in favor
of the facility security trustee for the lenders under the credit facility, and the operating income relating to our FPSO service agreements has been pledged to the lenders to secure the credit
facility.

Covenants

The credit facility contains certain customary negative covenants that restrict the borrowers (subject to certain agreed exceptions) from, among other things,
changing their jurisdiction of organization, engaging in certain mergers or consolidations, incurring additional debt, creating security interests on their assets and disposing of assets other than in
the ordinary course. The facility further requires us to observe certain customary covenants, including, but not limited to, covenants relating to the provision of information, maintenance of
government approvals and licenses, ranking of the advances, compliance with law, maintenance of corporate existence and line of business.

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Additional
covenants provide that we must do the following:



Maturity and Amortization

The credit facility had a remaining term of six years as of December 31, 2003. The facility limit, which reduces by U.S.$20.0 million per quarter, was
U.S.$480.0 million as of December 31, 2003 and is scheduled to reach zero by December 2009.

Prepayments

Subject to an indemnity for broken funding costs, the borrowers under the credit facility may voluntarily prepay amounts outstanding without penalty or premium,
at any time in whole or in part, in minimum amounts of U.S.$5.0 million. In the case of a total loss, the FPSO will be excluded from the borrowing base and we will be required to prepay within
90 days the lesser of the amount by which our outstanding indebtedness at that time exceeds the borrowing base and the amount by which the borrowing base is reduced due to the total loss.

Events of Default

The credit facility currently contains certain events of default customary for senior bank financings, the occurrence of which would allow the lenders to
accelerate all outstanding loans and terminate their commitments.

101/4% Senior Notes due 2012, Indenture and Associated Swap

We are a party to an indenture, dated as of February 22, 2002, among Bluewater Finance Limited, each of the guarantors party thereto and The Bank of New
York, as trustee, pursuant to which we issued U.S.$260.0 million aggregate principal amount of 101/4% Senior Notes due 2012 on February 22, 2002 and an additional
U.S.$75.0 million aggregate principal amount of 101/4% Senior Notes due 2012 on April 23, 2003. The 101/4% Senior Notes due 2012 were issued by our finance
subsidiary, Bluewater Finance Limited, and were initially guaranteed by each of: Aurelia Energy N.V.,Bleo HolmStandby Purchaser N.V., Bluewater
(Bleo Holm) N.V., Bluewater Brasil Ltda., Bluewater Energy N.V., Bluewater Energy Services B.V., Bluewater Equipment Leasing Ltd.,
Bluewater Floating Production B.V., Bluewater (Floating Production) Ltd., Bluewater (Glas Dowr) N.V., Bluewater (Haewene
Brim) N.V., Bluewater Holding B.V., Bluewater International B.V., Bluewater (Malta) Ltd., Bluewater (Munin) N.V.,
Bluewater (New Hull) N.V., Bluewater (Norway) ANS, Bluewater Offshore Production Systems Ltd., Bluewater Offshore Production Systems Nigeria Ltd., Bluewater Offshore Production Systems
N.V., Bluewater Offshore Production Systems (U.S.A.), Inc., Bluewater Operations (UK) Ltd., Bluewater Services (UK) Ltd., Bluewater (UK) Ltd., Bluewater Terminal Systems
N.V., Lufeng Development Company ANS and Pierce Production Company Ltd. Pursuant to a supplemental indenture, dated as of

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March
31, 2004, Bluewater Oil & Gas Investments Ltd. has acceded to the indenture as an additional guarantor of the 101/4% Senior Notes due 2012.

Ranking

The 101/4% Senior Notes due 2012 are general unsecured obligations of Bluewater Finance Limited and rank equal in right of payment with all future
unsecured and unsubordinated obligations of Bluewater Finance Limited. The guarantees of the 101/4% Senior Notes due 2012 are unsecured senior subordinated obligations of the
guarantors, are subordinated in right of payment to certain senior indebtedness of the guarantors and are effectively subordinated to existing and future secured obligations the guarantors. The
guarantees rank equal in right of payment with all existing and future trade payables and senior subordinated obligations of the guarantors.

Interest

Interest is payable semi-annually in arrears on February 15 and August 15 of each year and is payable at a rate of 101/4%
per annum. On July 17, 2003, we entered into a fixed-to-floating interest rate swap transaction, with terms that are identical to the
fixed-to-floating interest rate swap transaction that
enables us to swap the equivalent of the fixed rate amount of interest that is payable on U.S.$335.0 million aggregate principal amount of our 101/4% Senior Notes due 2012 for a
floating rate amount of interest that would be payable on an equal amount of indebtedness. Under the swap, we receive payments that are calculated at a fixed rate of 101/4% and makes
interest payments that are calculated at a floating rate that is equal to a margin of 6.11% over LIBOR. Substantially all of the guarantors of our 101/4% Senior Notes due 2012 have
guaranteed obligations under the swap.

Maturity and Redemption

The 101/4% Senior Notes due 2012 mature on February 15, 2012. Other than out of the proceeds of certain public equity offerings prior to
February 15, 2005, or for certain tax reasons, the 101/4% Senior Notes due 2012 may not be redeemed prior to February 15, 2007. On or after February 15, 2007, the
101/4% Senior Notes due 2012 may be redeemed in whole or in part at certain predetermined prices. In addition, each holder of 101/4% Senior Notes due 2012 will have the
right to have its 101/4% Senior Notes due 2012 repurchased at 101% of their principal amount plus accrued and unpaid interest, if any, and any other amounts due upon a "Change of
Control" as defined in the indenture.

Covenants

The indenture contains certain covenants that, among other things, limit our ability to incur additional indebtedness, make certain payments with respect to our
share capital, make certain investments, prepay subordinated debt, create certain liens, enter into certain sale and leaseback transactions, enter into certain transactions with affiliates, issue or
sell share capital, engage in certain asset sales, consolidate, merge or transfer all or substantially all our assets and enter into other lines of business. These covenants are subject to a number of
important limitations and exceptions that are set forth in the indenture.

Events of Default

The indenture contains certain events of default that are customary for high yield debt securities, the occurrence of which would allow the holders to accelerate
the payment of their outstanding 101/4% Senior Notes due 2012.

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Subordinated Marenco Loan

We are a party to an amended and restated subordinated loan agreement, dated November 21, 2001, between Aurelia Energy N.V., as borrower, and our
affiliate, Marenco Investments Limited, as lender. Under the amended and restated loan agreement, the subordinated Marenco loan bears interest on an annual basis at a rate of 7.0% per annum with
effect from January 1, 2000. The subordinated Marenco loan will not mature and may not be repaid, mandatorily redeemed or repurchased prior to the date on which the 101/4% Senior
Notes due 2012 mature or are fully repaid in cash. No cash interest payments may be made prior to the full repayment of our 101/4% Senior Notes due 2012 other than as permitted under
the restricted repayment covenant of the indenture. In addition, the agreement prohibits Marenco Investments Limited from taking any enforcement action under the subordinated Marenco loan prior to the
satisfaction by payment in cash of all obligations in respect of the 101/4% Senior Notes due 2012 or from transferring the subordinated Marenco loan to any person other than Aurelia
Energy N.V.

Intercompany Loan

In connection with our issuance of 101/4% Senior Notes due 2012 in February 2002, Bluewater Holding B.V., as borrower, entered into an intercompany
loan agreement dated February 22, 2002 with Bluewater Finance Limited, as lender, pursuant to which Bluewater Finance loaned Bluewater Holding the U.S.$256.4 million gross proceeds from
the sale of the 101/4% Senior Notes due 2012. In connection with our issuance of additional 101/4% Senior Notes due 2012 in April 2003, Bluewater Holding B.V. and
Bluewater Finance Limited amended and restated the intercompany loan agreement to enable Bluewater Finance Limited to loan Bluewater Holding B.V. the U.S.$75.4 million of the gross proceeds
from the issuance (excluding accrued interest from and including February 15, 2003, to but excluding the issue date) on the same basis as the original loan. The intercompany loan bears interest
at a rate of 101/4% per annum. Interest is payable in same day funds two business days prior to each date on which interest is payable on the 101/4% Senior Notes due 2012
and is payable to such account or accounts with such person or persons as Bluewater Finance Limited may designate to Bluewater Holding B.V. The maturity date of each is February 15, 2012.
Bluewater Holding B.V.'s obligation under the intercompany loan are subordinated on the same basis and to the same extent as the guarantees.

All
payments under the intercompany loan are made without deductions for or on account of tax. In the event that Bluewater Holding B.V. is required to make any such deduction, it will be
required to gross-up each payment to Bluewater Finance Limited to ensure that Bluewater Finance Limited receives and retains a net sum equal to the sum which it would have received had no
such deduction or withholding been made or required to be made. Further, all payments under the intercompany loan agreement must be made on a timely basis in order to ensure that Bluewater Finance
Limited may satisfy its payment obligations under the indenture and the 101/4% Senior Notes due 2012 when due, in each case, taking into account the administrative and timing concerns
and limitations on making payments due on the 101/4% Senior Notes due 2012.

Tax Lease Arrangements

We entered into certain tax lease arrangements for theUisge Gorm, theGlas
Dowrand the topsides of theBleo Holmfrom 1994 to 1999 and, in April 2003, signed a new tax lease for the topsides of
theHaewene Brim, in each case with Hill Samuel Leasing No. 4 Ltd, a UK lessor, that was able under UK tax law to obtain tax depreciation
on the capital expenditure incurred by it on acquiring the leased assets. These arrangements are principally comprised of the documents included as Exhibits 4.48 to 4.55 of this annual report.
Pursuant to these arrangements:



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We
own legal title to both the hull and topsides of each of theUisge Gormand theGlas
Dowrand to the hull of theBleo Holmand theHaewene Brim. The UK lessor holds
legal title to the topsides of theBleo Holmand theHaewene Brim. In each case, the UK lessor has
leased its interest in those asset to us pursuant to lease arrangements that provide us with the right to use, operate, posses and enjoy the leased assets without interference and entitle us to the
full economic benefit of the operation of the leased assets.

These
arrangements allow the lessor to claim tax depreciation in respect of its expenditure to acquire the vessel or the equipment, which is passed on to, or shared with, us in the form
of reduced rentals. Our rental payment obligations were calculated by reference to a number of tax and financial assumptions made at the time the leases were entered into. Payment arrangements at the
inception of the lease transactions were structured, and security has been provided, such that, subject to the adjustments described below, we do not have any current rental payment or termination
payment obligations with respect to theUisge Gorm, theGlas Dowr, the topsides of the Bleo Holmor the
topsides of theHaewene Brim. If certain of these assumptions prove to be incorrect,
the rental payments under the tax lease arrangements would be adjusted by the lessor to preserve the lessor's agreed after-tax rate of return on its acquisition of the leased assets and,
in the case of an increase in such rentals or anticipated termination sums, we would be liable for the excess above the realizable value of the security held by the lessor and the lessor would be
entitled to require the provision of additional security. See "Item 5: Operating and Financial Review and Prospects(A) Operating ResultsCritical Accounting
Policies and EstimatesTax Lease Benefits Liability".

Each
tax lease arrangement contains:



In
addition to termination as a result of a default, each tax lease arrangement terminates automatically upon termination of the related sub-lease or head lease under which
we control the leased assets, upon notice by the lessor not earlier than 12 or 15 years (depending on the tax lease) after the inception of the tax lease or upon notice by the relevant lessee
(subject to certain conditions). Upon termination, a termination sum becomes payable and would be calculated in accordance with the methodology set forth in the rental payment schedules in each lease.
Upon termination the lessor would, upon payment of a nominal sum, be entitled, in relation to each of theUisge Gormand the Glas Dowr, to require that
legal title to the vessel be transferred to it (or to its nominee) to facilitate disposal. From any disposal (or loss)
proceeds, the lessor would be entitled to retain any amounts due to it from us which remain unpaid together with a small percentage of the disposal proceeds, with the remainder of any such proceeds
remitted to us.

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Economic Sale Agreement

Effective January 1, 2000, we entered into an internal restructuring process. In connection therewith, the economic interests in most of the assets and
liabilities of certain non-Dutch group companies were sold to Bluewater Holding B.V. pursuant to an economic sale agreement, while legal title to those assets and liabilities remained with
the selling companies. The companies making such dispositions to Bluewater Holding B.V. were: Bluewater (Bleo Holm) N.V., Bluewater Energy N.V.,
Bluewater Equipment Leasing Ltd., Bluewater (Glas Dowr) N.V., Bluewater (Malta) Ltd., Bluewater (New Hull) N.V., Bluewater Offshore
Production Systems Ltd., Bluewater Offshore Production Systems N.V., Bluewater (Malta) Ltd. and Brightfield Corporation. The valuation of the assets and liabilities transferred was based
on a valuation report prepared by an independent investment bank. This sale resulted for income tax purposes only in intercompany profits (estimated at €589.0 million
(U.S.$742.0 million)) at the level of the selling companies, and the creation of goodwill and intercompany indebtedness at the level of Bluewater Holding B.V. Depreciation of the goodwill and
the accrual of interest expense at the level of Bluewater Holding B.V. over time is expected to generate tax losses which may be available to reduce our amount of taxable income in the future.
Although extensive discussions were held with the tax authorities concerning our tax structure and the internal restructuring, our tax structure and the tax consequences of the internal restructuring
have been the subject to a tax audit and remain subject to further review by the tax authorities. See "Item 3: Key Information(D) Risk FactorsOur internal
restructuring and our Dutch tax treatment of our group companies remain subject to review" and "Item 5: Operating and Financial Review and Prospects(A) Operating
ResultsCritical Accounting Policies and Estimates". Because only the economic interests of the selling companies in the covered assets and liabilities have been sold to Bluewater Holding
B.V., the internal restructuring has not affected any of our existing contractual arrangements with third parties. The selling companies may continue to exercise their rights against, and must
continue to perform their obligations and discharge their liabilities in favor of, such third parties.

(D)  Exchange Controls

There are no legislative or other legal provisions currently in force in the Netherlands Antilles or arising under our articles of incorporation that currently
restrict our ability to transfer capital to or from the Netherlands Antilles (because we have obtained the relevant licenses under applicable foreign exchange control ordinances) or that affect the
availability of cash or cash equivalents for use by our member companies. There are also no legislative or other legal provisions currently in force in the Netherlands Antilles or arising under our
articles of incorporation that affect our ability to remit dividends, interest or other payments to non-resident holders of our securities, except as described under "Item 10:
Additional Information(B) Articles of IncorporationDescription of Share Capital: Rights, Restrictions and Preferences".

(E)  Taxation

Netherlands Antilles Taxation

The following is a general discussion of certain Netherlands Antilles tax considerations relating to our 101/4% Senior Notes due 2012. The
discussion is based upon the tax laws of the Netherlands Antilles in force and in effect as of the date of this annual report. The discussion does not consider any investor's particular circumstances
and is not intended as tax advice.

Withholding Tax

All payments under the 101/4% Senior Notes due 2012 may be made free of withholding or deduction of, for or on account of any taxes of whatsoever
nature imposed, levied, withheld or assessed by the Netherlands Antilles, or any political subdivision or taxing authority thereof or therein.

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Taxes on Income and Capital Gains

An individual holder of 101/4% Senior Notes due 2012 will not be subject to Netherlands Antilles taxes on income or capital gains in respect of any
payment under the 101/4% Senior Notes due 2012 or in respect of any gain realized on the sale, redemption, exchange or conversion of the 101/4% Senior Notes due 2012,
provided that:



A
holder which has not been organized under the laws of the Netherlands Antilles, will not be subject to any Netherlands Antilles taxes on income or capital gains in respect of any
payment under the 101/4% Senior Notes due 2012 or in respect of any gain realized on the sale, redemption, exchange or conversion of the 101/4% Senior Notes due 2012,
provided that:



Gift, Estate or Inheritance Taxes

No gift, estate or inheritance taxes will arise in the Netherlands Antilles with respect to an acquisition of 101/4% Senior Notes due 2012 by way
of gift by, or on the death of, a holder who is neither resident
nor deemed to be resident in the Netherlands Antilles. A holder will not be deemed to be resident in the Netherlands Antilles by reason only of the holding of 101/4% Senior Notes due
2012.

Sales Tax

No sales tax (omzetbelasting), expenditure tax (algemene
bestedingsbelasting), turnover tax (belasting op bedrijfsomzetten) or similar tax will arise on the invoicing or payment of
principal, premium and interest on the 101/4% Senior Notes due 2012.

Other Taxes and Duties

No Netherlands Antilles registration tax, custom duty, transfer tax, stamp duty or any similar documentary tax or duty, other than court fees, will be payable in
the Netherlands Antilles in respect of or in connection with the execution, delivery and/or enforcement by legal proceedings of the 101/4% Senior Notes due 2012 or the Guarantees or the
performance by the Issuer of its obligations thereunder, provided these actions take place outside the Netherlands Antilles, with the exception of stamp duty which is payable in case of registration
in the Netherlands Antilles of the 101/4% Senior Notes due 2012 and/or Guarantees or if such documents are brought into the courts of the Netherlands Antilles.

A
holder will not incur or become liable for any registration tax, custom duty, transfer tax, stamp duty or any other similar documentary tax or duty by reason only of the acquisition,
ownership or disposal of the 101/4% Senior Notes due 2012.

U.S. Federal Income Taxation

The following is a summary of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our 101/4% Senior
Notes due 2012 by a U.S. Holder (as

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defined
below). This summary deals only with initial purchasers of our 101/4% Senior Notes due 2012 at the issue price that are U.S. Holders and that will hold our 101/4%
Senior Notes due 2012 as capital assets. This discussion does not cover all aspects of U.S. federal income taxation that may be relevant to, or the actual tax effect that any of the matters described
herein will have on, the acquisition, ownership or disposition of our 101/4% Senior Notes due 2012 by particular investors, and does not address state, local, foreign or other tax laws.
In particular, this summary does not address tax considerations applicable to investors that own (directly or indirectly) 10% or more of the voting stock of Bluewater Finance Limited, nor does this
summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the U.S. federal income tax laws (such as banks, insurance
companies, investors liable for the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, tax-exempt organizations, dealers in securities or
currencies, investors that will hold our 101/4% Senior Notes due 2012 as part of straddles, hedging transactions or conversion transactions for U.S. federal income tax purposes or
investors whose functional currency is not the U.S. dollar).

As
used herein, the term "U.S. Holder" means a beneficial owner of our 101/4% Senior Notes due 2012 that is (i) a citizen or resident of the United States for U.S.
federal income tax purposes, (ii) a corporation, partnership, or other entity, created or organized under the laws of the United States or any State thereof, (iii) an estate the income
of which is subject to U.S. federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration
of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.

The
summary is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder,
published rulings and court decisions, all as currently in effect and all subject to change at any time, possibly with retroactive effect.

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE 101/4% SENIOR NOTES DUE 2012, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND
POSSIBLE CHANGES IN TAX LAW.

Payments of Interest

Interest on a note will be taxable to a U.S. Holder as ordinary income at the time it is received or accrued, depending on the holder's method of accounting for
tax purposes. Interest paid by Bluewater Finance Limited on the 101/4% Senior Notes due 2012 constitutes income from sources outside the United States. Prospective purchasers should
consult their tax advisors concerning the applicability of the foreign tax credit and source of income rules regarding income attributable to our 101/4% Senior Notes due 2012.

Pre-Issuance Accrued Interest.U.S. Holders that purchased in our initial offering may elect to exclude pre-issuance accrued
interest from the issue price of our
101/4% Senior Notes due 2012. In that event, a portion of the first interest payment will be treated as a nontaxable return of the pre-issuance accrued interest. Otherwise,
the full amount of this first interest payment will be taxable, and the pre-issuance accrued interest will be included in the issue price and taken into account in determining the U.S.
Holder's purchase premium. See "101/4% Senior Notes due 2012 Purchased at a Premium".

101/4% Senior Notes due 2012 Purchased at a Premium.A U.S. Holder that purchases our
101/4%
Senior Notes due 2012 for an amount in excess of their stated redemption price at maturity may elect to treat the excess as "amortizable bond premium", in which case the amount required to be included

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in
the U.S. Holder's income each year with respect to interest on our 101/4% Senior Notes due 2012 will be reduced by the amount of amortizable bond premium allocable (based on our
101/4% Senior Notes due 2012's yield to maturity) to that year. Any election to amortize bond premium applies to all bonds (other than bonds the interest on which is excludible from
gross income for U.S. federal income tax purposes) held by the U.S. Holder at the beginning of the first taxable year to which the election applies or thereafter acquired by the U.S. Holder, and is
irrevocable without the consent of the IRS.

Market Discount.Our 101/4% Senior Notes due 2012 generally will be treated as purchased at a market
discount ("Market Discount Notes") if the principal amount on
our 101/4% Senior Notes due 2012 exceeds the amount for which the U.S. Holder purchased our 101/4% Senior Notes due 2012 by at least 0.25 per cent. of the principal
amount on our 101/4% Senior Notes due 2012 multiplied by the number of complete years from the date acquired by the U.S. Holder to the maturity on our 101/4% Senior Notes
due 2012. If this excess is not sufficient to cause our 101/4% Senior Notes due 2012 to be Market Discount Notes, then the excess constitutes "de minimis market discount".

Under
current law, any gain recognised on the maturity or disposition of a Market Discount Note will be treated as ordinary income to the extent that the gain does not exceed the accrued
market discount on the Note. Alternatively, a U.S. Holder of a Market Discount Note may elect to include market discount in income currently over the life of the Note. This election applies to all
debt instruments with market discount acquired by the electing U.S. Holder on or after the first day of the first taxable year for which the election is made. This election may not be revoked without
the consent of the Internal Revenue Service (the "IRS"). A U.S. Holder of a Market Discount Note that does not elect to include market discount in income currently generally will be required to defer
deductions for interest on borrowings incurred to purchase or carry a Market Discount Note that is in excess of the interest on the Note includible in the U.S. Holder's income, to the extent that this
excess interest expense does not exceed the portion of the market discount allocable to the days on which the Market Discount Note was held by the U.S. Holder.

Under
current law, market discount on a Market Discount Note will accrue on a straight-line basis unless the U.S. Holder elects to accrue the market discount on a
constant-yield method. This election applies only to the Market Discount Note with respect to which it is made and is irrevocable.

Purchase, Sale and Retirement of our 101/4% Senior Notes due 2012

A U.S. Holder's tax basis in our 101/4% Senior Notes due 2012 will generally be the U.S. dollar cost of our 101/4% Senior Notes due
2012 increased by the amount of any market discount included in the U.S. Holder's income with respect to our 101/4% Senior Notes due 2012 and reduced by (i) the amount of any
principal paid on such Notes, and (ii) the amount of any amortisable bond premium applied to reduce interest on such Notes.

A
U.S. Holder will generally recognise gain or loss on the sale or retirement of our 101/4% Senior Notes due 2012 equal to the difference between the amount realised on
the sale or retirement and the tax basis of our 101/4% Senior Notes due 2012. Except to the extent described under "Market Discount" above or attributable to accrued but unpaid interest
gain or loss recognised by a U.S. Holder on the sale or retirement of our 101/4% Senior Notes due 2012 will be capital gain or loss and will be long-term capital gain or
loss if our 101/4% Senior Notes due 2012 were held by the U.S. Holder for more than one year.

Gain
or loss realised by a U.S. Holder on the sale or retirement of our 101/4% Senior Notes due 2012 generally will be U.S. source. Prospective purchasers should consult
their tax advisers as to the foreign tax credit implications of the sale or retirement of such Notes.

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Early Redemption

In the event of a change of control, the holders of our 101/4% Senior Notes due 2012 will have the right to require Bluewater Finance to purchase
our 101/4% Senior Notes due 2012 at 101% of their principal amount plus accrued and unpaid interest. Treasury regulations provide that the right of holders of our 101/4%
Senior Notes due 2012 to require redemption of our 101/4% Senior Notes due 2012 upon the occurrence of a change of control will not affect the yield or maturity date of the
101/4% Senior Notes due 2012 if, based on all the facts and circumstances as of the issue date, it is significantly more likely than not that a change of control giving rise to the
redemption right will not occur. Bluewater Finance does not intend to treat this redemption provision of the 101/4% Senior Notes due 2012 as affecting the computation of the yield or
maturity date of the 101/4% Senior Notes due 2012.

Backup Withholding and Information Reporting

Payments of principal, and interest on, and the proceeds of sale or other disposition of 101/4% Senior Notes due 2012, by a U.S. paying agent or
other U.S. intermediary will be reported to the U.S. Internal Revenue Service and to the U.S. Holder as may be required under applicable regulations. Backup withholding may apply to these payments if
the U.S. Holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report all interest and dividends required to be shown on its U.S. federal
income tax returns. Certain U.S. Holders (including, among others, corporations) are not subject to backup withholding. U.S. Holders should consult their tax advisors as to their qualification for
exemption from backup withholding and the procedure for obtaining an exemption.

(F)   Dividends and Paying Agents

Not applicable.

(G)  Statement by Experts

Not applicable.

(H)  Documents on Display

We file reports, including annual reports on Form 20-F and current reports on Form 6-K, with the Commission. As a foreign
private issuer, we are not subject to the proxy rules under Section 14 or the short-swing insider profit disclosure rules under Section 16 of the U.S. Securities Exchange Act of 1934.
You may obtain copies of the reports that we file with the Securities and Exchange Commission and other information by sending a written request to Bluewater Finance Limited, c/o Bluewater Holding
B.V., Marstraat 33, 2132 HR Hoofddorp, the Netherlands, Attn: Vice President, Finance & Administration, Telephone: (31) 23 568 2800. You may also inspect and copy these
reports at the Public Reference Room of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and may obtain copies of these materials at prescribed rates by calling
the Securities and Exchange Commission at (1) 800 SEC 0330. Some of our filings may also be viewed on the Commission's website at www.sec.gov. All information referred to above
will, for so long as our 101/4% Senior Notes due 2012 are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, also be available, without
charge, at the specified office of our paying agent in Luxembourg during usual business hours on any weekday that is not a public holiday. The Bank of New York (Luxembourg) S.A. currently acts as our
paying agent in Luxembourg and maintains offices at Aerogolf Centre, 1A, Hoehenhof, L-1736, Senningerberg, Luxembourg.

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(I)   Subsidiary Information

The following is a description of the subsidiaries of Aurelia Energy N.V.:



76

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77

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78

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ITEM 11:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the ordinary course of our business, we are exposed to a variety of market risks arising from fluctuations in interest rates and foreign currency exchange
rates but generally are not exposed under our service agreements to any material risks relating to the price of oil. To manage the market risks to which we are exposed, we enter into market sensitive
instruments based on internal policies and guidelines that are designed to mitigate our exposure to any adverse effects of changes in market conditions. We do not enter into market sensitive
instruments for trading or speculative purposes. While we do not anticipate that the use of market sensitive instruments will have a material adverse effect on our consolidated financial position,
results of operation or prospects, we cannot guarantee that our mitigation strategy will be effective.

Interest Rate Sensitivity

The majority of our indebtedness consists of advances under our credit facility and our outstanding 101/4% Senior Notes due 2012. We expect that in
the future we will continue to have significant indebtedness under our credit facility and that our 101/4% Senior Notes due 2012 will continue to be outstanding. Advances under the
credit facility bear interest at rates typically expressed as a margin over the appropriate interbank rate. Under the documentation of the credit facility, we are required at any time to have the net
present value of the proportion of the facility fee income that we expect to receive during the minimum contract period of our service agreements swapped to fixed rates. As of December 31,
2003, this represented approximately 46.1% of the outstanding indebtedness under the facility. To reduce the interest expense relating to our 101/4% Senior Notes due 2012, we have
entered into a fixed-to-floating interest rate swap transaction that enables us to swap the equivalent of the fixed rate amount of interest that is payable on
U.S.$335.0 million aggregate principal amount of our 101/4% Senior Notes due 2012 for a floating rate amount of interest that would be payable on an equal amount of indebtedness.
Under the swap, we receive payments that are calculated at a fixed rate of 101/4% and make interest payments that are calculated at a floating rate that is equal to a margin of 6.11%
over LIBOR. In the future, we expect to manage our interest rate risk exposure through the use of a combination of fixed and floating rate debt and interest rate swaps.

The
table below provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate
swaps and debt obligations, that were outstanding as of December 31, 2003. For debt obligations, the tables present our principal cash flows and related weighted average interest rates by
expected maturity dates under our existing debt arrangements. For interest rate swaps, the tables present notional amounts and weighted average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged under the swap. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting
date. The information is

79

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presented
in U.S. dollars, which is our reporting currency. The instrument's actual cash flows are also denominated in U.S. dollars.

|                      |                       | Expected Maturity Date |        
|--------------------- | --------------------- | ---------------------- | -------
|
|
|
|Long-Term Debt        |                       |                        |        
|Fixed rate debt       |                       |                       |        
|                      | Average interest rate |                        | 7.0    
|Variable rate debt(1) |                       |                       |        
|                      | Average interest rate |                        | LIBOR+M
|Variable rate debt(2) |                       |                       |        
|                      | Average interest rate |                        | LIBOR+M
|Interest Rate Swaps   |                       |                        |        
|Variable to Fixed     |                       | 35,990                 |        
|                      | Average pay rate      |                        | 6.7225 
|                      | Average receive rate  |                        | LIBOR  
|Variable to Fixed     |                       | 36,821                 |        
|                      | Average pay rate      |                        | 3.463  
|                      | Average receive rate  |                        | LIBOR  

---

Note:

Exchange Rate Sensitivity

Our revenues are primarily denominated in U.S. dollars and, to a lesser extent, sterling. In 2003, our sterling revenues accounted for approximately 11.3%, or
£18.7 million (U.S.$33.4 million), of our total revenues. Our expenses are denominated primarily in U.S. dollars and to a lesser degree, euro, sterling and rand. We are
exposed to fluctuations in foreign currency exchange rates, because a portion of our expenses and financial indebtedness is denominated in currencies that are different from our revenues. Our policy
is to match through our FPSO service agreements, to the extent possible, the revenues in a particular currency with our operating costs in that currency, thereby minimizing the risk associated with
fluctuations in foreign currency exchange rates. We also match our indebtedness denominated in U.S. dollars with our revenues denominated in U.S. dollars. We purchase foreign currency exchange
contracts from financial institutions to assist us in minimizing any residual exposure. We manage our outstanding currency exposure on a regular basis and net these exposures across our operations as
a group. Gains and losses related to specific currency transactions are recognized as part of our income from financing activities. We did not have any material forward currency exchange contracts
outstanding as of December 31, 2003.

ITEM 12:    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

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PART II

ITEM 13:    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14:    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

There have been no material modifications in the rights of our security holders and there are no specific assets securing any class of our securities.

ITEM 15:    CONTROLS AND PROCEDURES

The information included in this section concerns the evaluation of disclosure controls and procedures and internal controls referred to
in the Certifications included in this annual report under "Certifications". This information should be read in conjunction with the statements set forth in the "Certifications" for a more complete
understanding of the topics presented.

(A)  Disclosure Controls and Procedures

Controls Evaluation and Related Certifications

As of the end of the period covered by this annual report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures.
Disclosure controls are procedures designed to ensure that information is accumulated, recorded, processed, summarized and communicated to our management, including Mr. Hugo Heerema (our
principal executive officer) and Mr. Kees Voormolen (our principal financial officer), in a manner that enables our management to make timely decisions regarding required disclosures and to
ensure that our annual reports and other filings with the Securities and Exchange Commission are filed within required time periods. In connection with this evaluation, we also reviewed our internal
controls, because we believe that those controls are important to the efficacy of our disclosure controls and procedures and because such a review is necessitated in connection with the Certifications
set forth herein under "Certifications". Internal Controls are procedures designed to provide reasonable assurance that our transactions are properly authorized, our assets are safeguarded against
unauthorized or improper use and our transactions are properly recorded and reported, in each case to permit the preparation of our financial statements in conformity with U.S. GAAP.

Definition of Disclosure Controls and Scope of Controls Evaluation

The establishment and evaluation of our disclosure controls and procedures and our internal controls was performed under the supervision and with the
participation of our managing directors and executive officers, including Mr. Heerema and Mr. Voormolen, and included a review of the controls' objectives and design, our implementation
of the controls and the effect of the controls on the information generated for use in this annual report. In the course of evaluation, we sought to identify data errors, problems with our controls
and procedures and acts of fraud, if any, and to confirm, if necessary, that any appropriate corrective actions, including process improvements, were being undertaken. Our finance administration has,
with the assistance of other members of our management, begun conducting this evaluation on a regular basis.

Limitations on the Effectiveness of Controls

In connection with our evaluation, we sought, among other things, to determine whether there were any "significant deficiencies" or "material weaknesses" in our
internal controls and whether there were any identifiable acts of fraud involving personnel with a significant role in our internal controls.

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We
believe that these inquiries are important to conducting a proper evaluation. They are also essential for enabling our principal executive officer and our principal financial officer to report any
deficiencies to our independent auditors and our managing directors. In professional auditing literature, "significant deficiencies" are referred to as "reportable conditions," which are control
issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in our consolidated financial statements. Auditing literature defines
"material weakness" as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur
in amounts that would be material in relation to the financial statements and the risk that such misstatements would not be detected within a timely period by employees in the normal course of
performing their assigned functions. We also sought to identify other control issues in connection with our evaluation and to consider whether it is necessary to make any revision, improvement or
correction to our procedures.

Conclusions

Based upon our evaluation, Mr. Heerema and Mr. Voormolen have concluded that our disclosure controls are effective to ensure that material
information relating to us is made known to management,
including Mr. Heerema and Mr. Voormolen, particularly during the period when our filings with the Securities and Exchange Commission are being prepared, and that our internal controls
are effective to provide reasonable assurance that our financial statements are fairly presented in all material respects in conformity with U.S. GAAP.

(B)  Management's Annual Report on Internal Control Over Financial Reporting

Not applicable.

(C)  Attestation Report of the Registered Public Accounting Firm

Not applicable.

(D)  Changes in Internal Control Over Financial Reporting

Not applicable.

ITEM 16A:    AUDIT COMMITTEE FINANCIAL EXPERT

Neither our outstanding preference A shares nor our outstanding common B shares are listed on a securities exchange or otherwise quoted in the United States or
elsewhere and, accordingly, we are not required by any applicable law, regulation or rule to establish or maintain an audit committee. Our articles of association and by-laws do not
require us to establish or maintain an audit committee.

ITEM 16B:    CODE OF ETHICS

We have adopted a code of ethics applicable to the managing directors and executive officers of Aurelia Energy N.V. and Bluewater Energy Services B.V. On
April 1, 2004, we expect Bluewater Holding B.V. to adopt the same code of ethics, which will be applicable to its sole managing director. When adopted by Bluewater Holding B.V., the code
of ethics will include the persons who act as our principal executive officer, principal financial officer and principal accounting officer. See "Item 6: Directors, Senior Management and Employees". A
copy of the code of ethics has been filed as Exhibit 11.1 to this to this annual report.

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ITEM 16C:    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Deloitte Accountants has served as our independent public accountants for each of the years ended in the three-year period ended December 31,
2003. The following table presents the aggregate fees for professional audit services and other services rendered by Deloitte Accountants in 2002 and 2003.

|                   |  | 2002(1) |  | 2003(1)
|------------------ |  | ------- |  | -------
|
|Audit fees         |  | 521     |  | 407    
|Audit-related fees |  |        |  | 66     
|Tax fees           |  |        |  |       
|All other fees     |  |        |  |       
|Total              |  | 521     |  | 473    

---

Note:

Audit Fees

Audit fees primarily relate to the audit of our annual financial statements included in our annual report on Form 20-F, agreed upon procedures
work on our quarterly financial results, services related to statutory and regulatory filings or our subsidiaries, services provided in connection with accounting consultations and the service
provided in connection with our issuance of our 101/4% Senior Notes due 2012.

Audit-related fees

Audit related fees primarily relate to services provided in connection with consultations on implementing the requirements of Section 404 of the
Sarbanes-Oxley Act.

ITEM 16D:    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E:    PURCHASES OF EQUITY SECURITIES BY ISSUER AND AFFILIATED PURCHASERS

Not applicable.

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PART III

ITEM 17:    FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this Item 17.

ITEM 18:    FINANCIAL STATEMENTS

The following consolidated financial statements, together with the report of Deloitte & Touche Accountants, are filed as part of this annual report.

Index to Consolidated Financial Statements



|                                                          
|----------------------------------------------------------
|Report of Independent Auditors                            
|Consolidated Balance Sheets                               
|Consolidated Statements of Income                         
|Consolidated Statements of Changes in Shareholder's Equity
|Consolidated Cash Flow Statements                         
|Notes to Consolidated Financial Statements                

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ITEM 19:    EXHIBITS

The following instruments and documents are included as exhibits to this annual report.

|Exhibit
Number |  | Description                                                                                                                                                                                                                              
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1*           |  | Articles of Incorporation of Aurelia Energy N.V.                                                                                                                                                                                         
|2.1*           |  | Indenture, dated as of February 22, 2002, between the Registrants and The Bank of New York, as trustee, which includes the form of 101/4% Senior Note due 2012 as an exhibit thereto.                                                    
|2.2****        |  | Supplemental Indenture, dated as of March 31, 2004, between the Registrants and The Bank of New York, as trustee, which includes the form of 101/4% Senior Note due 2012 as an exhibit
thereto.                                          
|3.1**          |  | Settlement Constituting the Jacaranda Trust, dated January 29, 2003, by and between Hugo Jan Heerema and Bailhache Labesse Trustees Limited and Graham Radford Boxall.                                                                   
|4.1*          |  | Agreement for a Floating Production, Storage and Offtake Facility for the Fife Field Development, dated March 24, 1994, between Amerada Hess Ltd. and Bluewater Offshore Production Systems Ltd.                                         
|4.2*           |  | Variation Order No. P03, dated June 19, 1996, between Bluewater Offshore Production Systems Ltd. and Amerada Hess Ltd.                                                                                                                   
|4.3*          |  | Variation Order No. P09, dated July 12, 1996, between Bluewater Offshore Production Systems Ltd. and Amerada Hess Ltd.                                                                                                                   
|4.4*          |  | Variation Order No. P13, dated September 27, 1996, between Bluewater Offshore Production Systems Ltd. and Amerada Hess Ltd.                                                                                                              
|4.5*          |  | Variation Order No. P15, dated April 7, 1997, between Bluewater Offshore Production Systems Ltd. and Amerada Hess Ltd.                                                                                                                   
|4.6*           |  | Variation Order No. P40, dated January 10, 2000, between Bluewater Offshore Production Systems Ltd. and Amerada Hess Ltd.                                                                                                                
|4.7*          |  | Variation Order No. P42, dated January 29, 2001, between Bluewater Offshore Production Systems Ltd., and Amerada Hess Ltd.                                                                                                               
|4.8*          |  | Agreement for the Provision and Operation of a Floating Production, Storage and Offloading Vessel for the Ross Field and the Blake Field, dated June 29, 2001, between Talisman Energy (UK) Ltd. and Bluewater (Floating
Production) Ltd.
|4.9*          |  | Agreement for a Floating Production, Storage and Offtake Facility for the Sable Field Development, dated June 12, 2001, between Soekor E & P (PTY) Ltd. and Bluewater (UK) Ltd.                                                          
|4.10*         |  | Contract for the Provision of Production, Storage, Offtake and Transportation Services for the Pierce Field, dated February 22, 1997, between Enterprise Oil plc and Den Norske Stats Oljeslkap A.S.                                     
|4.11*          |  | Novation Agreement, dated September 8, 1998, between Enterprise Oil plc and Pierce Production Company Ltd.                                                                                                                               
|4.12*         |  | Supplementary Agreement Relating to Facilities Upgrades, dated December 22, 1999, between Enterprise Oil plc and Pierce Production Company Ltd.                                                                                          
|4.13*         |  | Contract ANS022731, dated September 24, 1996, between Statoil Orient Inc. and Lufeng Development Company.                                                                                                                                
|4.14*         |  | Amendment No. 3 to Contract ANS022731, dated January 31, 2001, between Statoil Orient Inc. and Lufeng Development Company.                                                                                                               
|4.15*          |  | Memorandum of Agreement, dated August 31, 2001, among Navion Offshore AS, Navion Hugin AS, Bergesen d.y. Hugin Shipping AS and Aurelia Holding N.V.                                                                                      
|               |  |                                                                                                                                                                                                                                          

85

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|4.16*   |  | Partnership Shares Purchase Agreement, dated August 31, 2001, between Advanced Production Systems DA, Navion ASA, Aurelia Holding N.V. and Marenco Investments Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.17*  |  | Memorandum of Agreement, dated August 31, 2002, among Navion Maritime AS, Advanced Petroleum DA, Navion ASA and Aurelia Holding N.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.18*   |  | Share Purchase Agreement, dated August 31, 2001, between Advanced Production Systems DA, Navion ASA, Bergesen d.y ASA, and Aurelia Holding N.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.19*   |  | Share Purchase Agreement, dated January 28, 2002, between Aurelia Holding N.V. and Bluewater Services (UK) Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.20*   |  | Share Purchase Agreement, dated January 28, 2002, between Aurelia Holding N.V. and Bluewater Floating Production B.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.21*   |  | Deed of Transfer of Shares, dated January 28, 2002, between Aurelia Holding N.V. and Bluewater Floating Production B.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.22*   |  | Share Purchase Agreement, dated January 28, 2002, between Aurelia Holding N.V., Marenco Investments Ltd., Bluewater International B.V. and Bluewater Holding B.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.23*   |  | Agreement of the Sale and Purchase of the Economic Entitlement to the Assets of the Bluewater Group, dated as of January 1, 2000, between Bluewater Holding B.V., Aurelia Energy N.V. and other Group Companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.24*   |  | Amendment to the Agreement of the Sale and Purchase of the Economic Entitlement to the Assets of the Bluewater Group, dated September 2001, between Bluewater Holding B.V., Aurelia Energy N.V. and other Group
Companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.25*** |  | Amended and Restated Intercompany Loan Agreement, dated April 30, 2003, between Bluewater Finance Limited and Bluewater Holding B.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.26*   |  | Unsubordinated Marenco Loans (included in the Schedule to Exhibit 10.27).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.27*   |  | Amended and Restated Marenco Loan Agreement, dated November 21, 2001, between Aurelia Holding N.V. and Marenco Investments Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4.28*   |  | Guarantee Facility, dated February 24, 1997, among Lloyds Bank Plc, Bluewater Terminal Systems N.V., and Bluewater Energy N.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.29*   |  | Guarantee Facility, dated December 19, 2001, among ING Bank N.V., Bluewater Holding B.V., Bluewater Energy Services B.V. and Bluewater Terminal Systems N.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.30*   |  | Revolving Credit Facility Agreement, dated January 15, 2002, between Bluewater Holding B.V., Bluewater Energy Services B.V., Bluewater Offshore Production Systems Limited, Bluewater (Haewene Brim) N.V., Bluewater (Munin)
N.V., Ranberger Holding N.V., Luludia Asset Finance B.V., Refugio B.V., Barclays Capital, Fortis Bank (Nederland) N.V. and ING Bank N.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.31*   |  | Facility Guarantee, dated January 28, 2002, among Aurelia Energy N.V., Bluewater (Bleo Holm) N.V., Bluewater (Floating Production) Ltd., Bluewater (Glas Dowr) N.V., Bluewater (Malta) Ltd., Bluewater (New Hull) N.V.,
Bluewater (UK) Ltd., Bluewater Brasil Ltda., Bluewater Energy N.V., Bluewater Equipment Leasing Ltd., Bluewater Floating Productions B.V., Bluewater International B.V., Bluewater Offshore Production Systems N.V., Bluewater Offshore Production Systems
Nigeria Ltd., Bluewater Offshore Production Systems (USA), Inc., Bluewater Operations (UK) Ltd., Bluewater Services (UK) Ltd., Bluewater Terminal Systems N.V., Bluewater Norway ANS, Lufeng Development Company ANS, Pierce Production Company Ltd., Bleo
Holm Standby Purchaser N.V., Barclays Bank PLC and Bluewater Energy Services B.V.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|4.32*   |  | Trust Deed and Deed of Proceeds and Priorities, dated January 28, 2002, between Bluewater Holding B.V., Bluewater Energy Services B.V., Bluewater Offshore Production Systems Limited, Bluewater (Haewene Brim) N.V.,
Bluewater (Munin) N.V., Ranberger Holding N.V., Luludia Asset Finance B.V., Refugio B.V., Barclays Capital, Fortis Bank (Nederland) N.V. and ING Bank N.V.                                                                                                          
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.33*   |  | Deed of Amendment, dated January 28, 2002, between Bluewater Holding B.V., Bluewater Energy Services B.V., Bluewater Offshore Production Systems Limited, Bluewater (Haewene Brim) N.V., Bluewater (Munin) N.V., Ranberger
Holding N.V., Luludia Asset Finance B.V., Refugio B.V., Barclays Capital, Fortis Bank (Nederland) N.V. and ING Bank N.V.                                                                                                                                       
|4.34*   |  | Uisge Gorm Mortgage, dated January 25, 2002, between Bluewater Offshore Production Systems N.V. and Barclays Bank PLC.                                                                                                                                                                                                                                                                                                                                                                    
|4.35*   |  | Glas Dowr Mortgage, dated January 25, 2002, between Bluewater (Glas Dowr) N.V. and Barclays Bank PLC.                                                                                                                                                                                                                                                                                                                                                                                     
|4.36*   |  | Bleo Holm Mortgage, dated January 25, 2002, between Bluewater (Bleo Holm) N.V. and Barclays Bank PLC.                                                                                                                                                                                                                                                                                                                                                                                     
|4.37*   |  | Haewene Brim Mortgage, dated January 25, 2002, between Bluewater (Haewene Brim) N.V. and Barclays Bank PLC.                                                                                                                                                                                                                                                                                                                                                                               
|4.38*   |  | Munin Mortgage, dated January 25, 2002, between Bluewater (Munin) N.V. and Barclays Bank PLC.                                                                                                                                                                                                                                                                                                                                                                                             
|4.39*   |  | Recognition of Rights Deed, dated January 28, 2002, between Barclays Bank PLC, Bluewater (Floating Production) Limited, Bluewater (Bleo Holm) N.V., Bluewater (Malta) Limited, Bluewater Energy N.V., Bluewater Energy
Services B.V., Hill Samuel Leasing (No.4) Limited, Asterix Exploration Foundation, Bleo Holm Standby Purchaser N.V., Alice Exploration Foundation, Ariel Exploration Foundation and ING Bank N.V.                                                                  
|4.40*** |  | Recognition of Rights Deed, dated June 12, 2003, in relation to the floating production, storage and off-loading unit "Haewene Brim" between Bluewater (Haewene Brim) N.V., Pierce Production Company Limited, Barclays Bank
PLC, Bluewater Energy N.V., Bluewater Holding B.V., Hill Samuel Leasing (No. 4) Limited, Ola Dunk II Foundation, Asterix Exploration Foundation, Alice Exploration Foundation, Ariel Exploration Foundation, ING Bank N.V. and Bluewater Energy Services
B.V.
|4.41*   |  | Notice of Assignment in Relation to AHL, dated January 28, 2002, between Bluewater (UK) Limited, Barclays Bank PLC and Amerada Hess Limited.                                                                                                                                                                                                                                                                                                                                              
|4.42*   |  | Notice of Assignment in Relation to Soekor, dated January 28, 2002, between Soekor E&P (PTY) Limited and Bluewater (UK) Limited.                                                                                                                                                                                                                                                                                                                                                          
|4.43*   |  | Notice of Assignment in Relation to Talisman, dated January 28, 2002, between Bluewater (Floating Production) Limited, Barclays Bank PLC and Talisman Energy (UK) Limited.                                                                                                                                                                                                                                                                                                                
|4.44*   |  | Notice of Assignment in Relation to Talisman Parent dated, January 28, 2002, between Bluewater (Floating Production) Limited, Barclays Bank PLC and Talisman Energy (UK) Limited.                                                                                                                                                                                                                                                                                                         
|4.45*   |  | Notice of Assignment in Relation to Statoil, dated January 28, 2002, between Lufeng Development Company ANS, ING Bank N.V., and Statoil (Orient) Inc.                                                                                                                                                                                                                                                                                                                                     
|4.46*   |  | Notice of Assignment in Relation to Enterprise, dated January 28, 2002, between Enterprise Oil PLC, Pierce Production Company Limited and ING Bank N.V.                                                                                                                                                                                                                                                                                                                                   
|4.47*   |  | Berge Hugin Field Contract dated, January 28, 2002, between Enterprise Oil PLC, Pierce Production Company Limited, Bluewater (Haewene Brim) N.V., Ranberger Holding N.V., Aurelia Holding N.V., and Aurelia Energy
N.V.                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|4.48*       |  | Conditional Sale and Conversion Agreement, dated April 27, 1998, between Bluewater Offshore Production Systems Limited and Hill Samuel Leasing (No. 4) Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.49*       |  | Head Lease, dated April 27, 1998, between Hill Samuel Leasing (No. 4) Limited and Refugio B.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.50*       |  | Sub-Lease, dated April 27, 1998, between Refugio B.V. and Bluewater Operations (UK) Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.51*       |  | Conditional Sale and Conversion Agreement, dated April 27, 1998, between Bluewater (Glas Dowr) N.V., Hill Samuel Leasing (No. 4) Limited, and Brightfield Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.52*       |  | Head Lease, dated April 27, 1998, between Hill Samuel Leasing (No. 4) Limited and Luludia Asset Finance B.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.53*       |  | Sub-Lease, dated April 27, 1998, between Luludia Asset Finance B.V. and Bluewater (UK) Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.54*       |  | Head Lease, dated January 29, 1999, between Hill Samuel Leasing (No. 4) Limited, Bluewater (Malta) Limited and Bluewater Energy N.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.55*       |  | Berge Hugin Topside Contract, dated August 31, 2001, between Advanced Production Systems DA, Ranberger Holding N.V. and Aurelia Holding N.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.56***     |  | Lease Relating to Topsides Processing Plant for the FPSO "Haewene Brim", dated April 8, 2003, between Pierce Production Company Limited, Hill Samuel Leasing (No. 4) Limited and Bluewater Energy N.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.57**      |  | Deed of Amendment, Release and Consent, dated 21 February 2003, in relation to a Revolving Credit Facility Agreement of up to U.S.$600,000,000 to Bluewater Holding B.V., Bluewater Energy Services B.V.,
Bluewater Offshore Production Systems Limited, Bluewater (Haewene Brim) N.V., Ranberger Holding N.V., Luludia Asset Finance B.V., Refugio B.V., Barclays Capital, Fortis Bank Nederland N.V. and ING Bank N.V.                                                                                                                                                                                                                                                                                                      
|4.58***     |  | Deed of Consent and Amendment, dated June 12, 2003, in respect of the financing of FPSO "Haewene Brim", between Bluewater Holding B.V., Bluewater Energy Services B.V., Bluewater Offshore Production Systems Limited,
Bluewater (Haewene Brim) N.V., Bluewater Energy N.V., Aurelia Energy N.V., Ranberger Holding N.V., Luludia Asset Finance B.V., Refugio B.V., Barclays Bank PLC, Barclays Capital, Pierce Production Company Limited, Fortis Bank Nederland N.V., Hill
Samuel Leasing (No. 4) Limited, Alice Exploration Foundation, Ariel Exploration Foundation, Asterix Exploration Foundation, Ola Dunk II Foundation, ING Bank N.V. and the Banks and Financial Institutions listed in Schedule 6 included
therein.
|4.59***   |  | Supplementary Agreement Relating to Contract No. 97.22.02 For the Provision of Production, Storage, Offtake and Transportation vices for the Pierce Field, dated 28 January 2003, between Enterprise Oil plc and Pierce
Production Company Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.60***     |  | Standby Sub-Lease Agreement for Topside Facilities relating to the topsides processing plant for the Floating Production, Storage and Off-Loading Facility "Haewene Brim", dated April 8, 2003, between Bluewater Holding
B.V. and Pierce Production Company Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|4.61***     |  | Standby Lease Agreement relating to the topsides processing plant for the Floating Production, Storage and Off-Loading Facility "Haewene Brim", dated April 8, 2003, between Ola Dunk II Foundation, Bluewater Holding B.V.
and Pierce Production Company Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4.62**** |  | Xijiang Oil South China Sea FPSO Lease Contract relating to the "Munin", dated October 20, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.63***     |  | Purchase Agreement, dated April 23, 2003, among the Registrants, Morgan Stanley & Co. International Limited and ING Bank N.V., London Branch.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

88

---

|4.64***  |  | Registration Rights Agreement, dated as of April 30, 2003, among the Registrants, Morgan Stanley & Co. International Limited and ING Bank N.V., London Branch.                        
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|7.1****  |  | Statement Regarding Computation of Ratios.                                                                                                                                            
|8.1****  |  | Subsidiaries of Aurelia Energy N.V.                                                                                                                                                   
|11.1**** |  | Code of Ethics.                                                                                                                                                                       
|12.1**** |  | Certification of principal executive officer pursuant to Rule 15d- 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|12.2**** |  | Certification of principal financial officer pursuant to Rule 15d- 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|13.1**** |  | Certification by principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                
|13.2**** |  | Certification by principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                

---

|Notes:
|------
|*     
|**    
|***   
|****  
|     
|    
|   

89

---



SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.

| |  | AURELIA ENERGY N.V.(Registrant)                                                                       
| |  | ------------------------------------------------------------------------------------------------------
| |  | /s/GREGORY ELIASIntertrust (Curaçao) N.V.,
Represented by Gregory Elias Managing Director and Chairman

Date:
March 31, 2004

90

---



INDEPENDENT AUDITORS' REPORT

To
the Shareholder of Aurelia Energy N.V.

We
have audited the accompanying consolidated balance sheets of Aurelia Energy N.V., Willemstad (Curaçao), Netherlands Antilles and subsidiaries as of December 31,
2003 and 2002 and the related consolidated statements of income, changes in shareholder's equity, and cash flows for each of the three years in the period ended December 31, 2003. 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 of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Aurelia Energy N.V. and its subsidiaries as at
December 31, 2003 and 2002 and of the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.

Deloitte
Accountants
Amsterdam, The Netherlands
March 31, 2004

F-1

---



Aurelia Energy N.V.    Consolidated Balance Sheets

|                          |                            |                             |    | At December 31,
|------------------------- | -------------------------- | --------------------------- | -- | ---------------
|
|
|ASSETS                    |                            |                             |    |                
|Current assets            |                            |                             |    |                
|Cash and cash equivalents |                            | 6                           |    |                
|                          | Cash                       |                             |    |                
|                          | Deposits                   |                             |    |                
|                          |                            |                             |    |                
|                          |                            |                             |    | 32,937         
|                          |                            |                             |    |                
|Accounts receivable       |                            | 7                           |    |                
|                          | Trade, net                 |                             |    |                
|                          | Related party              |                             |    |                
|Other receivables         |                            | 8                           |    | 24,395         
|Prepaid expenses          |                            |                             |    | 2,744          
|                          |                            |                             |    |                
|                          |                            |                             |    | 56,292         
|                          |                            |                             |    |                
|Inventory                 |                            |                             |    |                
|                          | Work in process            |                             | 9  |                
|                          |                            |                             |    |                
|                          |                            |                             |    | 97,297         
|                          |                            |                             |    |                
|Non current assets        |                            |                             |    |                
|Restricted deposits       |                            | 11                          |    | 89,513         
|Loan                      |                            | 10                          |    | 100            
|Fixed assets              |                            |                             |    |                
|                          | Tangible fixed assets, net |                             | 12 |                
|                          |                            | FPSOs                       |    |                
|                          |                            | Other tangible fixed assets |    |                
|Income tax receivable     |                            |                             |    | 3,111          
|Deferred income taxes     |                            | 25,29                       |    | 85,905         
|Debt arrangement fees     |                            | 13                          |    | 18,858         
|                          |                            |                             |    |                
|                          |                            |                             |    | 1,224,239      
|                          |                            |                             |    |                
|                          |                            |                             |    | 1,321,536      
|                          |                            |                             |    |                

The
accompanying notes are an integral part of these consolidated financial statements.

F-2

---

Aurelia Energy N.V.    Consolidated Balance Sheets

|                                                                                                                                                                              |  |       |  | At December 31, |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | --------------- | -
|
|
|LIABILITIES AND SHAREHOLDER'S EQUITY                                                                                                                                          |  |       |  |                 |  
|Current liabilities                                                                                                                                                           |  |       |  |                 |  
|Accounts payable                                                                                                                                                              |  |       |  | 24,993          |  
|Related party                                                                                                                                                                 |  |       |  | 125             |  
|Income taxes                                                                                                                                                                  |  | 25,29 |  | 1,866           |  
|Wage taxes and social security contributions                                                                                                                                  |  |       |  | 1,954           |  
|Other liabilities and accrued expenses                                                                                                                                        |  | 14    |  | 48,478          |  
|Billings in excess of cost and unrealized income                                                                                                                              |  | 9     |  | 4,321           |  
|                                                                                                                                                                              |  |       |  |                 |  
|                                                                                                                                                                              |  |       |  | 81,737          |  
|                                                                                                                                                                              |  |       |  |                 |  
|Non current liabilities                                                                                                                                                       |  |       |  |                 |  
|Long term bank loans                                                                                                                                                          |  | 15,16 |  | 249,108         |  
|101/4% Senior Notes due 2012                                                                                                                                                  |  | 17    |  | 338,347         |  
|Long term loans, related party                                                                                                                                                |  | 18    |  | 134,659         |  
|Tax lease benefits liability                                                                                                                                                  |  | 19    |  | 38,607          |  
|Interest rate swaps                                                                                                                                                           |  | 27    |  | 2,713           |  
|Pensions                                                                                                                                                                      |  | 20    |  | 977             |  
|                                                                                                                                                                              |  |       |  |                 |  
|                                                                                                                                                                              |  |       |  | 764,411         |  
|                                                                                                                                                                              |  |       |  |                 |  
|Shareholder's equity                                                                                                                                                          |  |       |  |                 |  
|Non profit sharing 5% non cumulative preference shares, U.S.$1,000 par value, 34,000 shares authorized, issued and outstanding as of December 31, 2003 and 2002, respectively |  |       |  | 34,000          |  
|Common shares, U.S.$1,000 par value, 136,000 shares authorized, issued and outstanding as of December 31, 2003 and 2002, respectively                                         |  |       |  | 136,000         |  
|Retained earnings                                                                                                                                                             |  | 30    |  | 328,515         |  
|Accumulated other comprehensive loss                                                                                                                                          |  |       |  | (23,127         | )
|                                                                                                                                                                              |  |       |  |                 |  
|                                                                                                                                                                              |  |       |  | 475,388         |  
|                                                                                                                                                                              |  |       |  |                 |  
|                                                                                                                                                                              |  |       |  | 1,321,536       |  
|                                                                                                                                                                              |  |       |  |                 |  

The
accompanying notes are an integral part of these consolidated financial statements.

F-3

---



Aurelia Energy N.V.    Consolidated Statements of Income

|                                                     |  |       |  | For the years ended December 31, |  
|---------------------------------------------------- |  | ----- |  | -------------------------------- | -
|
|
|Revenues                                             |  | 26    |  | 295,780                          |  
|                                                     |  |       |  |                                  |  
|Operating expenses                                   |  |       |  |                                  |  
|Operations expenses                                  |  | 21    |  | 185,755                          |  
|Selling, general and administrative                  |  | 22    |  | 9,800                            |  
|Depreciation of tangible fixed assets                |  | 12    |  | 61,976                           |  
|Other operating income                               |  | 24    |  | (4,014                           | )
|                                                     |  |       |  |                                  |  
|                                                     |  |       |  | 253,517                          |  
|                                                     |  |       |  |                                  |  
|Operating income                                     |  |       |  | 42,263                           |  
|                                                     |  |       |  |                                  |  
|Financial income and expense                         |  |       |  |                                  |  
|Interest income                                      |  |       |  | 3,530                            |  
|Interest expense                                     |  |       |  | (45,120                          | )
|Currency exchange results                            |  |       |  | 10,841                           |  
|                                                     |  |       |  |                                  |  
|                                                     |  |       |  | (30,749                          | )
|                                                     |  |       |  |                                  |  
|Income before income taxes                           |  |       |  | 11,514                           |  
|Income tax benefits                                  |  | 25,29 |  | (1,063                           | )
|                                                     |  |       |  |                                  |  
|Net income                                           |  | 30    |  | 12,577                           |  
|                                                     |  |       |  |                                  |  
|Basic and diluted earnings per common share          |  |       |  | 92                               |  
|                                                     |  |       |  |                                  |  
|Weighted average number of common shares outstanding |  |       |  | 136,000                          |  
|                                                     |  |       |  |                                  |  

The
accompanying notes are an integral part of these consolidated financial statements.

F-4

---

Aurelia Energy N.V.    Consolidated Statements of Changes in Shareholder's Equity

|                                                                                 |  | For the years ended December 31, 2003, 2002 and 2001 | 
|-------------------------------------------------------------------------------- |  | ---------------------------------------------------- | 
|
|
|Balance at January 1, 2001                                                       |  | 170,000                                              | 
|                                                                                 |  |                                                      | 
|Net income 2001                                                                  |  |                                                     | 
|Implementation of SFAS 133 January 1, 2001                                       |  |                                                     | 
|Decrease in fair value of cash flow hedges                                       |  |                                                     | 
|Translation result                                                               |  |                                                     | 
|                                                                                 |  |                                                      | 
|Comprehensive income for the year                                                |  |                                                     | 
|                                                                                 |  |                                                      | 
|Balance at December 31, 2001                                                     |  | 170,000                                              | 
|                                                                                 |  |                                                      | 
|Net income 2002                                                                  |  |                                                     | 
|Decrease in fair value of cash flow hedges                                       |  |                                                     | 
|Translation result                                                               |  |                                                     | 
|                                                                                 |  |                                                      | 
|Comprehensive income for the year                                                |  |                                                     | 
|                                                                                 |  |                                                      | 
|Balance at December 31, 2002                                                     |  | 170,000                                              | 
|                                                                                 |  |                                                      | 
|Net income 2003                                                                  |  |                                                     | 
|Increase in fair value of cash flow hedges                                       |  |                                                     | 
|Reclassification adjustments for settled portion of hedge realized in net income |  |                                                      | 
|Translation result                                                               |  |                                                     | 
|                                                                                 |  |                                                      | 
|Comprehensive income for the year                                                |  |                                                      | 
|                                                                                 |  |                                                      | 
|Balance at December 31, 2003                                                     |  | 170,000                                              | 
|                                                                                 |  |                                                      | 

The
accompanying notes are an integral part of these consolidated financial statements.

F-5

---

Aurelia Energy N.V.    Consolidated Statements of Cash Flows

|                                                                          |  | For the years ended December 31 |  
|------------------------------------------------------------------------- |  | ------------------------------- | -
|
|Cash flows from operating activities                                      |  |                                 |  
|Net income                                                                |  | 12,577                          |  
|Adjustments to reconcile net income to cash provided                      |  |                                 |  
|Depreciation of tangible fixed assets                                     |  | 61,976                          |  
|Amortization of debt arrangement fees                                     |  | 2,651                           |  
|Increase in deferred income tax assets                                    |  | (2,668                          | )
|Accrued interest on long-term loan from related party                     |  | 8,809                           |  
|Amortization of discount on 101/4% Senior Notes due 2012                  |  | 371                             |  
|Amortization benefit from unwinding swap                                  |  | (447                            | )
|Change in pension provision                                               |  | (506                            | )
|Increase/(decrease) in provision for uncollectable accounts receivable    |  | 759                             |  
|Gain on foreign currency forward contracts                                |  | (4,396                          | )
|Interest on restricted deposits                                           |  | (11,785                         | )
|Change in operating assets and liabilities, net of effect of acquisitions |  |                                 |  
|(Increase)/decrease income taxes receivable                               |  | (1,743                          | )
|(Increase)/decrease in work in process                                    |  | 3,721                           |  
|(Increase)/decrease in trade receivables                                  |  | (1,847                          | )
|(Increase)/decrease in related party receivables                          |  | (13                             | )
|(Increase)/decrease in other receivables                                  |  | (14,297                         | )
|(Increase)/decrease in prepaid expenses                                   |  | 2,632                           |  
|(Decrease)/increase in accounts payable                                   |  | 3,439                           |  
|Increase in related party payable                                         |  |                                |  
|(Decrease)/increase in other liabilities and accrued expenses             |  | 12,580                          |  
|Increase in other short term liabilities other than loans                 |  | 277                             |  
|(Decrease)/increase in billings in excess of cost and unrealized income   |  | 2,363                           |  
|Decrease of non current liabilities, other than loans                     |  | (788                            | )
|                                                                          |  |                                 |  
|Net cash provided by operating activities                                 |  | 73,665                          |  
|                                                                          |  |                                 |  
|Cash flows from (used in) investing activities                            |  |                                 |  
|Additions to tangible fixed assets                                        |  | (77,978                         | )
|Disposals of tangible fixed assets                                        |  | 8,066                           |  
|Loans provided                                                            |  | (100                            | )
|AcquisitionMuninBusiness, net of cash acquired                            |  |                                |  
|AcquisitionHaewene BrimBusiness, net of cash acquired                     |  |                                |  
|Repayments on notes receivable                                            |  |                                |  
|                                                                          |  |                                 |  
|Net cash used in investing activities                                     |  | (70,012                         | )
|                                                                          |  |                                 |  
|Cash flows provided by (used in) financing activities                     |  |                                 |  
|Proceeds from long term and short term loans from banks and third parties |  | 249,998                         |  
|Proceeds from issuance 101/4% Senior Notes due 2012                       |  | 75,375                          |  
|Proceeds from restricted deposits                                         |  | 4,763                           |  
|Proceeds from unwinding swap transaction                                  |  | 6,680                           |  
|Redemption of loans and short term bank liabilities                       |  | (325,624                        | )
|Redemption of long term and short term loans from related party           |  |                                |  
|Debt arrangement fees                                                     |  | (2,260                          | )
|Redemption of short term loans to related parties                         |  |                                |  
|                                                                          |  |                                 |  
|Net cash provided by financing activities                                 |  | 8,932                           |  
|                                                                          |  |                                 |  
|Translation differences                                                   |  | (2,672                          | )
|Net increase/(decrease) in available cash and cash equivalents            |  | 9,913                           |  
|                                                                          |  |                                 |  
|Cash and cash equivalents at beginning of the year                        |  | 23,024                          |  
|                                                                          |  |                                 |  
|Cash and cash equivalents at end of the year                              |  | 32,937                          |  
|                                                                          |  |                                 |  
|Additional cash flow disclosures                                          |  |                                 |  
|Interest Paid                                                             |  | 39,722                          |  
|Taxes Paid                                                                |  | 2,382                           |  

The accompanying notes are an integral part of these consolidated financial statements.

F-6

---



Aurelia Energy N.V.    Notes to Consolidated Financial Statements  at December 31, 2003, 2002 and 2001  (all amounts in U.S.$ thousands, except share and per share amounts)

1      General

(a)   Structure

Aurelia Energy N.V. (the "Company") has its legal seat in Willemstad (Curaçao), Netherlands Antilles. The Company's principal activity is to act as
a holding company for the Bluewater group.

All
common shares and preference shares of the Company are held by Aurelia Holding N.V., Willemstad (Curaçao), Netherlands Antilles, which is currently in the process of
dissolution and liquidation, of which all shares are directly held by the Jacaranda Trust, an irrevocable discretionary trust constituted under the laws of Jersey.

Its
major investment is Bluewater Energy N.V., the holding company of a group of companies engaged in the field of the supply of services and products to the oil industry. Bluewater
Energy N.V. together with its group companies are further referred to as Bluewater.

The
registrant's office address is Landhuis Joonchi, Kaya Richard J. Beaujun z/n, Curaçao, the Netherlands Antilles.

(b)   Activities

Bluewater is a specialized service provider to, and operator in, the offshore oil industry. Bluewater (i) designs, develops, owns and operates floating
production storage and offloading units ("FPSOs") which are leased to oil companies under medium and long-term lease contracts, and (ii) designs, develops, performs project
management and constructs single point mooring systems ("SPMs").

An
FPSO is a type of floating production unit used by oil companies to produce, process, store and offload hydrocarbons from offshore fields. FPSOs are either newly built or converted
tankers upon which production equipment is mounted. The fluids (oil, gas and water) are processed onboard the FPSO vessel, and the treated crude oil is stored before being exported by an offtake
system utilizing shuttle tankers. Bluewater's fleet of FPSOs is involved in the production, rather than the exploration or drilling, of oil. The FPSOs are leased to oil companies under medium and
long-term contracts.

SPMs are
used to transfer fluids to and from a floating production unit, an offshore storage vessel or shuttle tanker while securing the unit, vessel or tanker to the ocean floor.
Most SPMs consist of an anchoring system that is connected to the ocean floor and a fluid transfer system that permits the transfer of fluids between fixed and rotating parts of the mooring
system. SPMs are generally developed and constructed for oil companies and contractors.

Revenues
are earned from the fixed day rates consisting of a facility fee and an indexed operating fee that are received from the operation of FPSOs pursuant to leases with oil
companies, supplemented primarily with fees from predetermined thresholds on volumes produced (oil production, water injection, and gas uplift) and predetermined levels of uptime, and from the design,
engineering and management services that are provided in the various FPSO and SPM projects being managed. FPSO and SPM projects are being managed from the initial design and engineering phase to final
installation. Further Bluewater engages subcontractors in the fabrication of FPSOs, SPMs and auxiliary equipment.

F-7

---

2      Principles of Consolidation

All significant intercompany balances and transactions are eliminated in consolidation. The consolidated financial statements integrally include the financial
statements of the Company and the following group companies, which are controlled by the Company:

Name

Legal SeatBluewater Energy N.V.

Willemstad, CuraçaoBluewater Offshore Production Systems Ltd.

Valletta, MaltaBluewater Holding B.V.

Hoofddorp, The NetherlandsBluewater Finance Ltd.

George Town, Cayman IslandsBluewater Terminal Systems N.V.

Willemstad, CuraçaoBluewater Floating Production B.V.

Hoofddorp, The NetherlandsBluewater Energy Services B.V.

Haarlemmermeer, The NetherlandsBluewater International B.V.

Hoofddorp, The NetherlandsBluewater (Malta) Ltd.

Valletta, MaltaBluewater Offshore Production Systems N.V.

Willemstad, CuraçaoBluewater Equipment Leasing Ltd.

Valletta, MaltaBluewater (Glas Dowr) N.V.

Willemstad, CuraçaoBluewater Services (UK) Ltd.

London, United KingdomBluewater Operations (UK) Ltd.

London, United KingdomBluewater (UK) Ltd.

London, United KingdomBluewater (Floating Production) Ltd.

London, United KingdomBluewater Offshore Production Systems Nigeria Ltd.

Lagos, NigeriaBluewater (Bleo Holm) N.V.

Willemstad, CuraçaoBluewater (Munin) N.V.

Willemstad, CuracaoBluewater (Haewene Brim) N.V.

Willemstad, CuracaoLufeng Development Company ANS

Oslo, NorwayPierce Production Company Ltd.

London, United KingdomBluewater (New Hull) N.V.

Willemstad, CuraçaoBluewater Oil & Gas Investments Ltd.

Lagos, NigeriaBluewater Norway ANS and certain non-operating or dormant entities.

Oslo, Norway


All
consolidated group companies are 100% owned by the Company.

3      Accounting Principles

(a)   General

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as summarized
below. These accounting principles have all been applied consistently throughout all years presented. Certain reclassifications have been made to the comparative figures in order to conform to the
current year's presentation.

The
financial statements have been prepared under the historical cost convention.

(b)   Use of estimates and reclassifications

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results can differ from those estimates.

F-8

---

Certain
classifications have been made to prior year balances to conform to current year's presentation.

(c)   Foreign currencies

i.  Reporting currency

Because
of the international nature of the Company's activities and the fact that the Company's transactions are primarily denominated in U.S. dollars, the financial statements are
prepared in U.S. dollars.

ii.  Functional currency

Consolidated
group companies having other functional currencies than U.S. dollars are the group companies legally seated in the Netherlands having Euros and the group companies legally
seated in the United Kingdom having pound sterling as functional currency.

iii.  Foreign currency assets, liabilities and transactions

Monetary
assets and liabilities denominated in foreign currencies are remeasured into the respective functional currencies at the rate of exchange prevailing at year-end.
Transactions in foreign currencies are remeasured into the respective functional currencies at the exchange rate in effect at the time of the transaction. The exchange results are recorded under
financial income and expense in the statement of income.

iv.  Foreign entities

Assets
and liabilities of foreign group companies not denominated in U.S. dollars are for consolidation purposes translated into U.S. dollars at the rates of exchange prevailing at
year-end. Each month, income and expenses are translated at the average rates of exchange for the month.

Gains
and losses resulting from the translation are recorded directly in shareholder's equity, as a foreign currency translation reserve.

(d)   Cash and cash equivalents

Cash includes cash on hand and cash with banks. Cash equivalents are short-term deposits with original maturities of three months or less.

(e)   Accounts receivable

Accounts receivable are stated at face value, less an allowance for possible uncollectable accounts.

(f)    Inventory

Work in process for construction of SPM and auxiliary equipment projects are accounted for on the basis of percentage of completion (see note 3(n)
Recognition of income).

Project
cost includes materials, direct labor and an attributable proportion of manufacturing overheads based on normal levels of activity. Anticipated losses on projects because net
realizable value is lower than budgeted cost are fully provided for. Net realizable value is based on estimated selling price, less further costs expected to be incurred for completion and disposal.
The provision for anticipated losses on contracts is presented under other liabilities and accrued expenses.

F-9

---

(g)   Tangible fixed assets

Tangible fixed assets are stated at the construction or the acquisition cost, less straight-line depreciation. The construction cost includes interest
cost from interest bearing debts. The depreciation is calculated on the basis of acquisition cost less residual value and the estimated useful life of the related asset.

The
estimated useful lives are:

Buildings

33 yearsFPSOs

15 yearsMachinery and other equipment

3-12 yearsOffice equipment and other tangible fixed assets

4-10 years


Tangible
fixed assets operated by the Company under a financial lease agreement are capitalized.

(h)   Impairment of long-lived assets

The Company periodically evaluates the recoverability of the carrying amount of its long-lived assets in accordance with SFAS No. 144,
"Accounting for the Impairment of Long-Lived Assets". Whenever events or changes in circumstances indicate that the carrying amounts of those assets may not be recoverable, the Company
will compare undiscounted net cash flows estimated to be generated by those assets to the carrying amount of those assets. When these undiscounted cash flows are less than the carrying amounts of the
assets, the Company will record impairment losses to write the asset down to fair value, measured by the discounted estimated net future cash flows expected to be generated from the assets. During the
3 years ended December 31, 2003, no impairment losses have been recorded by the Company.

(i)    Debt arrangement fees

Debt arrangement fees represent costs incurred in arranging a corporate borrowing facility and costs incurred in the issuance of 101/4% Senior
Notes due 2012 and are amortized on a straight line basis to interest expenses over the term of the facility and the term of the 101/4% Senior Notes due 2012, respectively. Amortization
on a straight-line basis approximates the effective interest rate method over the duration of the related debt.

(j)    Accounting for leases

i.  Finance lease (lessee)

The
Company accounts for finance leases by capitalizing the related asset and by recognizing the related debt at amounts equal to the fair value of the leased asset and related debt,
respectively, at inception of the lease.

ii.  Operating lease (lessor)

Income
from operating leases is recognized in income on a straight-line basis over the duration of the contracts.

Direct
operating costs incurred specifically to earn revenues from an operating lease are recognized as an expense in the income statement in the period in which they are incurred.

(k)   Tax lease benefits liability

Tax lease benefits liability represents the amount that would need to be repaid to the lessor in the event of a voluntary termination of the leaseback arising
from the tax lease structures of the FPSO

F-10

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Uisge Gorm, the FPSOGlas Dowr, the process facilities on board of the FPSOBleo
Holmand the process facilities on board of the FPSOHaewene Brim. The liability declines as the tax benefits are recognized by
the lessor.

(l)    Pensions

i.  Defined benefit plan

The
Company provides defined benefit pension plans for all employees in the Netherlands. The funds are valued every year by professionally qualified independent actuaries. The
obligations and costs of pension benefits are determined using a projected unit credit method. The projected unit credit method considers each period of service as giving rise to an additional unit of
benefit entitlement and measures each unit separately to build up the final obligation.

Actuarial
gains or losses are amortized based on the expected average remaining working lives of the employees, when these gains or losses exceed the 10% corridor of the pension benefit
obligation.

The
pension obligation is measured at the present value of estimated future cash flows using a discount rate that is similar to the interest rate of Dutch government bonds, where the
currency and terms of the government bond are consistent with the currency and estimated terms of the defined benefit obligation.

ii.  Defined contribution plan

In
addition to the defined benefit plans described above, the group companies in the United Kingdom sponsor defined contribution plans based on local practice and regulations. The plans
provide for contributions amounting to 5% of salary. The contributions relating to defined contribution plans are charged to income in the year to which they relate.

(m)  Financial instruments

Derivative instruments are recorded in the balance sheet as either an asset or liability measured at its fair value. Changes in the derivative instrument's fair
value are recognized currently in earnings unless specific hedge accounting criteria are met.

SFAS
No. 133 prescribes requirements for designation and documentation of hedging relationships and ongoing retrospective and prospective assessments of effectiveness in order to
qualify for hedge accounting. Hedge accounting is considered to be appropriate if the assessment of hedge effectiveness indicates that the change in fair value of the designated hedging instrument is
80 to 125% effective at offsetting the change in fair value due to the hedged risk of the hedged item or transaction. Measurement of amounts to be recorded in income due to ineffectiveness of hedges
are based on the dollar-offset method as required by SFAS No. 133. No hedge ineffectiveness was recorded in 2003, 2002, or 2001.

If
a hedged forecasted transaction is no longer probable of occurring, application of hedge accounting ceases and amounts previously deferred in accumulated other comprehensive income
are reclassified into income in the same period in which the previously hedged transaction affects earnings. However, if it is probable that the originally forecast transaction will not occur by the
end of the originally specified time period, the unrealized gain or loss in accumulated other comprehensive income is reclassified immediately to income.

For
derivative financial instruments designated and that qualify as cash flow hedges, changes in the fair value of the effective portion of the derivative financial instruments are
recorded as a component of accumulated other comprehensive income in shareholder's equity until the hedged item is recognized in earnings. The ineffective portion of the change in fair value of the
derivative financial instruments is immediately recognized in earnings.

F-11

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For
derivative financial instruments designated and that qualify as fair value hedges, changes in the fair value of the financial instrument and the change in the fair value of the
hedged component offset each other in the balance sheet and income statement. The net result of the interest rate swap is recognized in the income statement.

Currently,
the Company actively uses both interest rate swaps and foreign currency exchange contracts to mitigate its potential exposures to movements in interest rates and currency
exchange rates. However, the Company elected only to designate the interest rate swaps as hedging instruments. Accordingly, the foreign currency exchange contracts are marked to market at each
reporting date with the gains and losses being recognized under other liabilities and accrued expenses in the balance sheet and under currency exchange results in the income statement. The net gains
and losses on the revaluation of the derivative instruments that are designated and qualify as cash flow hedges are reported as a separate component of accumulated other comprehensive income (loss) to
the extent the hedge is effective.

(n)   Recognition of income

In general, the Company recognizes revenues from operating lease arrangements of FPSOs and from the construction (design, engineering and project management) of
SPMs and the installation and mobilization of FPSOs and SPMs.

i.  Operating lease arrangements for FPSOs

Revenues
under operating lease arrangements are recognized when the FPSO is made available to the lessee and the fee is due based on a signed lease contract.

Income
under the lease agreements for FPSOs comprises, depending on the vessel, the following:



The
contingent payments that depend on changes in the price index, the volume produced (typically the volume of oil produced and in certain instances, the volume of water produced and
the volume of gas lifted), and the price of oil are only included in the determination of income when the relevant index is adjusted or the specified volume has been produced or the price of oil has
changed. All other payments due under the lease are recognized on a straight line basis over the lease term.

For
more specific disclosure with respect to the material terms of the operating lease arrangements and the related revenue recognition policies by FPSO, reference is made to
note 4.

ii.  Construction of SPMs and auxiliary equipment

Revenue
from construction (design, engineering and project management) of SPMs and auxiliary equipment are recognized under the percentage of completion method of accounting as
the project is performed. Percentage of completion is measured by the labor and material cost incurred to total estimated labor and material cost method.

Billings
issued to and cash payments received from customers in excess of estimated earnings are not shown as sales revenues, but deducted without effect on income from cost and
estimated earnings in excess of billings on uncompleted contracts or added to billings in excess of cost and estimated earnings on uncompleted contracts.

F-12

---

Changes
in project conditions may result in revisions to previously recorded costs and revenues for a particular project. These changes are recognized in the period in which the
revisions are determined; this generally occurs when formal change orders are signed between a group company and the customer. Furthermore, provisions for estimated losses of uncompleted contracts are
made in the period in which such losses are determined.

iii.  Installation, mobilization and other services

In
connection with FPSOs and SPMs, the Company recognizes revenues from installation, mobilization and other services when the services are provided based on written service agreements,
the services have been accepted by the customer and the collectability of the receivable is reasonable assured.

(o)   Research and development costs

Research and development costs are expensed in the period in which they are incurred. Research and development expenditures for the years 2003, 2002 and 2001
amount to approximately U.S.$450, and U.S.$400 and U.S.$400, respectively.

(p)   Income taxes

The income tax charge is based on the tax regime applicable to the various group companies in the countries in which they are legally seated. These tax regimes
charge income taxes based on operating profits or on the basis of other criteria as agreed upon by the group in specific tax rulings. Deferred taxation is considered in accounting for the income tax
charge for the year.

Deferred
income taxes are accounted for using the balance sheet liability method. Deferred income taxes are provided for temporary differences between the tax bases of assets or
liabilities and their reported amounts in the financial statements. Future tax benefits attributable to these differences, if any, are recognized to the extent that realization of such benefits is
more likely than not.

(q)   Provisions

Provisions are recognized when a present obligation as a result of a past event exists, it is probable that an outflow of resources will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.

(r)   Contingencies

Contingent assets are not recognized in the financial statements.

(s)   New Accounting Principles

SFAS 143

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 143, "Accounting for Asset
Retirement Obligations." SFAS 143 establishes accounting standards for the recognition and measurement of legal obligations associated with the retirement of tangible long-lived
assets and requires recognition of a liability for an asset retirement obligation in the period in which it is incurred. The provisions of this statement are effective for financial statements issued
for fiscal years beginning after June 15, 2002. Adopting SFAS 143 did not have a material impact on the consolidated financial statements.

F-13

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SFAS 146

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement defines the accounting
and reporting for costs associated with exit or disposal activities and is effective for exit or disposal activities that are initiated after December 31, 2002. Adopting SFAS 146 did not
have a material impact on the consolidated financial statements.

SFAS 149

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities ("SFAS 149"). This
Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. In
particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in Statement 133. In addition, it
clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS 149 will be effective for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June 30, 2003. Adopting SFAS 149 did not have a material inpact on the consolidated financial statements

SFAS 150

In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity("SFAS 150"). This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of
both liabilities and equity. Specifically, this Statement requires an issuer to classify the following instruments as liabilities (or assets in some circumstances): (1) a financial instrument
issued in the form of shares that is mandatorily redeemable, (2) a financial instrument, other than an outstanding share, that, at inception, embodies an obligation to repurchase the issuer's
equity shares, or is indexed to such an obligation, and that requires or may require the issuer to settle the obligation by transferring assets, (3) a financial instrument that embodies an
unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its
equity shares, if, at inception, the monetary value of the obligation is based solely or predominantly on certain specified criteria. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Adopting SFAS 150 did not have a
material inpact on the consolidated financial statements.

EITF 00-21

In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple
Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not
anticipate that the adoption of EITF Issue No. 00-21 will have a material impact on the consolidated financial statements.

FIN 45

In November 2002, the FASB issued Interpretation Number 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under
certain guarantees that it has issued. It also

F-14

---

clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements
of FIN 45 are effective for interim and annual periods after December 15, 2002 and we have adopted those requirements for our financial statements. The initial recognition and initial
measurement requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The adoption of the recognition and initial measurement requirements of
FIN 45 did not have a material impact on the consolidated financial statements.

F-15

---



FIN 46

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of APB
No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The FASB has
amended FIN 46, now known as FIN 46 Revised December 2003 ("FIN 46R"). The requirements of FIN 46 or FIN 46R are effective to those entities that are considered to be special-purpose entities
no later than as of the end of the first reporting period that ends after December 15, 2003. The adoption of FIN 46 and FIN 46R did not have a material impact on the consolidated financial
statements with respect to special-purpose entities. The Company does not anticipate that the adoption of FIN 46 and FIN 46-R for entities other than special purpose entities will have a
material impact on the consolidated financial statements.

4      Operating Lease Arrangements for FPSOs

The material terms of the Company's FPSO agreements and the related revenue recognition policies are as follows:

(a)   FPSO Uisge Gorm

The FPSOUisge Gormfees earned consist of:



(b)   FPSO Bleo Holm

The FPSOBleo Holmfees earned consist of:



F-16

---



(c)   FPSO Glas Dowr

The FPSOGlas Dowrfees earned consist of:



(d)   FPSO Haewene Brim

The FPSOHaewene Brimfees earned consist of:



F-17

---



(e)   FPSO Munin

The FPSOMuninfees earned consist of:



(f)    Contingent payments

Contingent payments for the years 2003, 2002 and 2001 amounted to U.S.$72,639, U.S.$34,366 and U.S.$30,677, respectively.

(g)   Guaranteed day rates

Uisge Gorm.The Company receives from Amerada Hess a defined day rate of approximately U.S.$114 per
day that consists of a fixed facility fee for the provision of the FPSO
and associated equipment and an indexed operating fee for the operation and maintenance of the vessel. The Company is currently operating theUisge Gorm(at pre-agreed rates) pursuant to an automatic extension of the existing service agreement that has no specific duration, but which can be terminated with six months' notice.

Bleo Holm.The Company receives from Talisman a defined day rate of approximately U.S.$162 that consists of a fixed facility
fee for the provision of the FPSO and associated
equipment and an indexed operating fee for the operation and maintenance of the vessel. Under the terms of the existing service agreement, Talisman is obligated to continue to make payments under the
service agreement until July 2004, after which the contract will continue at pre-agreed rates unless terminated by Talisman.

Glas Dowr.During the minimum contract period of three years, PetroSA will be required to pay a minimum fee of approximately
U.S.$124 per day plus guaranteed tariff payments
for each barrel of oil produced commencing on the date of first oil, which was achieved in the end of December 2003. The minimum fee per day consists of a fixed facility fee, a fixed operating
fee and a fee for shuttle tanker services. The minimum guaranteed tariff payments until the end of the minimum contract period amount to U.S.$44,000. The minimum contract period under the service
agreement commences on the date of first oil and will last for three years. Following the expiration of the minimum contract period,

F-18

---

the
service agreement will continue for a further seven years unless terminated by PetroSA with 12 months' notice. As a consequence, without termination, the contract term is ten years.

Haewene Brim.The Company receives from Enterprise Oil a defined day rate of approximately U.S.$155 that consists of a facility
fee for the provision of the FPSO and associated
equipment (indexed to the pound sterlingU.S.$ exchange rate) and an indexed operating fee for the operation, maintenance and insurance of the vessel. Enterprise Oil is obligated to
continue to make payments to the Company under its service agreement until the agreement expires in March 2014. The minimum guaranteed term of the service agreement expired in March 2004,
permitting Enterprise Oil to terminate the agreement at any time upon 12 months' written notice.

Munin.Under its current service agreement, the Company receives from SOI a day rate consisting of a facility fee plus tariff
payments linked to the actual volume of oil
produced and the price of oil. In connection with the sale of theMunin, two of the parent companies of the original sellers of the Munininitially
guaranteed, on a pro rata basis, the payment of a minimum average day rate of U.S.$50 per day until the date until the expiration of the
minimum contract period, irrespective of a potential early termination of the service agreement by SOI or disappointing returns from the Lufeng Field. The guarantees were not applicable in the event
of a reduction in the average day rate due to a technical malfunction of theMuninor inclement weather, and the guaranteed payments were subject to
reduction to the extent that SOI utilized theMuninduring demobilization. The guarantee also provided that it would be null and void if the service
agreement was to be amended in a manner that reduced the applicable day rates or if it was to be terminated due to a force majeure event or for reasons under the Company's or SOI's control. The
Company was the beneficiary of this guarantee. The minimum contract period under the service agreement and the payment guarantees expired in March 2004 at which time the service agreement was extended
for two years. In January 2004, a new service agreement was signed to operate theMuninon the Xijiang field. The Company expects the contract to begin
in September 2004. As a consequence, the Company expects that it will terminate the existing service agreement in August 2004.

5      Tax Lease Structures for FPSOsUisge Gorm,Glas Dowr,Bleo HolmandHaewene Brim

The Company has entered into tax lease structures with a leasing subsidiary of a UK bank ("the lessor"). The Company leases the FPSOs Uisge GormandGlas Dowrand the process facilities on board the FPSOBleo
Holmand on board of the FPSOHaewene Brimfrom the lessor for a period of 15 years commencing for the Uisge Gormin
August 1995, for the FPSOGlas Dowrin August 1997 and for the process
facilities on board the FPSOBleo Holmin April 1999 and for the process facilities on board the FPSOHaewene
Brimin April 2003. Substantially, all risks and rewards relating to the assets, including the proceeds in case the assets are sold, are for the account of the Company.
As a consequence, the Company owns the full future economic rights to these assets. The above is reflected in the Company's balance sheet by continuing to reflect the FPSOs as tangible fixed assets,
at historical cost.

The
composition of these assets under financial lease is as follows:

|                         |  | 2003     |   | 2002     |  
|------------------------ |  | -------- | - | -------- | -
|
|FPSOs                    |  | 913,555  |   | 661,161  |  
|Accumulated depreciation |  | (246,105 | ) | (203,668 | )
|                         |  |          |   |          |  
|Balance December 31      |  | 667,450  |   | 457,493  |  
|                         |  |          |   |          |  

At
inception of the lease, the Company funded the future lease installments to a third party bank, which will pay the future lease installments to the lessor. Further, it is agreed that
the lessor is not

F-19

---

legally
entitled to hold the Company liable in case the bank does not fulfill its obligations against the lessor. Accordingly, the Company's balance sheet does not include a lease liability against
the lessor for these leases.

Under
these tax lease structures:



The
tax lease benefits liability represents the amount that would need to be repaid to the lessor in the event of a voluntary termination of the leaseback arising from the tax lease
structures of the FPSOUisge Gorm, the FPSOGlas Dowr, the process facilities on board of the FPSO Bleo Holmand the process facilities on board of theHaewene Brimand the liability declines as the tax
benefits are recognized by the lessor.

6      Cash and Cash Equivalents

No restrictions on usage of cash exist. Deposits represent primarily receipts from operating leases which are dedicated to redeem the loans under the corporate
bank facility.

7      Accounts Receivable

Accounts receivable are specified as follows:

|                                          |  | 2003   |  | 2002  
|----------------------------------------- |  | ------ |  | ------
|
|Trade                                     |  | 30,282 |  | 28,435
|Less provision for uncollectable accounts |  | 1,231  |  | 472   
|                                          |  |        |  |       
|                                          |  | 29,051 |  | 27,963
|Related party                             |  | 102    |  | 89    
|                                          |  |        |  |       
|                                          |  | 29,153 |  | 28,052
|                                          |  |        |  |       

F-20

---

The
movement in the provision for uncollectable accounts is as follows:

|            |  | 2003  |   | 2002   |   | 2001 |  
|----------- |  | ----- | - | ------ | - | ---- | -
|
|January 1   |  | 472   |   | 954    |   | 950  |  
|Additions   |  | 816   |   | 1,161  |   | 56   |  
|Release     |  | (50   | ) | (4     | ) |     |  
|Write offs  |  | (7    | ) | (1,639 | ) | (52  | )
|            |  |       |   |        |   |      |  
|December 31 |  | 1,231 |   | 472    |   | 954  |  
|            |  |       |   |        |   |      |  

Accounts
receivable as presented under current assets mature within one year.

8      Other Receivables

Other receivables are specified as follows:

|                                                             |  | 2003   |  | 2002 
|------------------------------------------------------------ |  | ------ |  | -----
|
|Accrued income                                               |  | 12,340 |  | 2,555
|Accrued gain on forward currency exchange contracts          |  | 4,396  |  |     
|Accrued interest in the fixed-to-floating interest rate swap |  | 3,706  |  |     
|Other                                                        |  | 3,953  |  | 2,161
|                                                             |  |        |  |      
|Total                                                        |  | 24,395 |  | 4,716
|                                                             |  |        |  |      

9      Work in Process

Work in process in excess of billings arises when revenues have been recorded but the amounts cannot be billed under the terms of the contracts. Such amounts are
recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. Work in process contains
directly allocable costs (labor costs of services provided by third parties) as well as the appropriate portion of overheads including pro rata administrative expenses.

Also
included in work in process are amounts the Company seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract
change orders in dispute or unapproved as to both scope and price, or other customer related causes of unanticipated additional contract costs claims and pending change orders. These amounts are
recorded at their estimated net realizable value when realization is probable and can be reasonably estimated. No profit is recognized on the costs incurred in connection with these amounts. Pending
change orders involve the use of estimates and it is reasonably possible that revisions to the estimated recoverable amounts or recorded pending change orders may be made in the near term.

F-21

---

Work
in process is specified as follows:

|                                                      |  | 2003    |   | 2002    |  
|----------------------------------------------------- |  | ------- | - | ------- | -
|
|Cost incurred on projects                             |  | 39,148  |   | 42,319  |  
|Profit/(Loss) recognized, less loss provisions taken  |  | (1,551  | ) | 1,386   |  
|                                                      |  |         |   |         |  
|Revenues recognized                                   |  | 37,597  |   | 43,705  |  
|Invoiced to customers                                 |  | (33,850 | ) | (33,874 | )
|                                                      |  |         |   |         |  
|                                                      |  | 3,747   |   | 9,831   |  
|                                                      |  |         |   |         |  
|Which is specified as follows:                        |  |         |   |         |  
|Cost incurred in excess of billings (work in process) |  | 8,068   |   | 11,789  |  
|Billings in excess of cost and unrealized income      |  | (4,321  | ) | (1,958  | )
|                                                      |  |         |   |         |  
|                                                      |  | 3,747   |   | 9,831   |  
|                                                      |  |         |   |         |  

10    Loan

The loan was provided to a third party on November 13, 2003 and repayment is due on November 13, 2005. The loan bears an interest at a margin of
2.5% over Libor.

11    Restricted Deposits

The restricted deposits at December 31, 2003 and 2002 represent UK pound sterling deposits and are dedicated to act as security, primarily for the tax
leasing structures entered into with respect to the FPSOsUisge GormandGlas Dowrand the process
facilities on board the FPSOBleo Holm(see note 5). These deposits are released to free cash based on an agreed upon scheme between the contract
parties.

The
deposits secure rent and termination payments under the leasing transactions. Subject to certain conditions under which the lessor must be satisfied that the value of its overall
security is maintained (as described in the various lease documents) and the lessees and sub lessees are not in breach of their lease obligations, the Company shall be entitled periodically to a
return of cash surplus to the required collateral amount. The required collateral amount is based on a cash flow driven by financial assumptions. Those are revised from time to time. The assumptions
include, but are not limited to: the borrowing investment rate of the lessor; reserve asset costs; the lessor's year end; corporation tax level; VAT recoverability and zero rating on lease supplies;
25% writing down allowances; rental payment dates; the sale of the leased asset at the higher of fair market value and tax written down value; receipt of stipulated loss value in the same period as
the sale and for a price at least equal to its then tax written down value; the lessor's interest on funding its net investment is available as a trading deduction; no change in the nature, method or
application of UK tax laws or accounting practice; the period over which corporation tax relief is given to the lessor; the lessor's after tax profit; the rate of reinvestment; risk asset weighting
percentage; method of accrual; pooling tax benefits; and others.

F-22

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12    Tangible Fixed Assets

|                                               |  | Land and
Buildings |   | FPSOs     |   | Hulls  |   | Machinery
and
Equipment |   | Office
Equipment
and Other
Tangible
Fixed Assets |  
|---------------------------------------------- |  | ------------------ | - | --------- | - | ------ | - | ----------------------- | - | ------------------------------------------------ | -
|
|Cost                                           |  |                    |   |           |   |        |   |                         |   |                                                  |  
|January 1                                      |  | 636                |   | 1,221,806 |   | 60,410 |   | 54,198                  |   | 4,497                                            |  
|Additions                                      |  |                   |   | 76,014    |   | 348    |   |                        |   | 678                                              |  
|Disposal                                       |  | (636               | ) | (242      | ) | (5,961 | ) | (2,528                  | ) | (507                                             | )
|Translation result                             |  |                   |   |          |   |       |   |                        |   | 121                                              |  
|                                               |  |                    |   |           |   |        |   |                         |   |                                                  |  
|December 31                                    |  | 0                  |   | 1,297,578 |   | 54,797 |   | 51,670                  |   | 4,789                                            |  
|                                               |  |                    |   |           |   |        |   |                         |   |                                                  |  
|Accumulated depreciation and impairment losses |  |                    |   |           |   |        |   |                         |   |                                                  |  
|January 1                                      |  | 134                |   | 267,051   |   |       |   | 52,574                  |   | 3,327                                            |  
|Depreciation for the year                      |  | 14                 |   | 61,167    |   |       |   | 274                     |   | 521                                              |  
|Disposal                                       |  | (148               | ) |          |   |       |   | (1,178                  | ) | (482                                             | )
|Translation result                             |  |                   |   |          |   |       |   |                        |   | 90                                               |  
|                                               |  |                    |   |           |   |        |   |                         |   |                                                  |  
|December 31                                    |  | 0                  |   | 328,218   |   |       |   | 51,670                  |   | 3,456                                            |  
|                                               |  |                    |   |           |   |        |   |                         |   |                                                  |  
|Net book value                                 |  | 0                  |   | 969,360   |   | 54,797 |   |                        |   | 1,333                                            |  
|                                               |  |                    |   |           |   |        |   |                         |   |                                                  |  

|                                               |  | Fixed Assets
under
Construction |  | Total 2003 |   | Total 2002 |  
|---------------------------------------------- |  | ------------------------------- |  | ---------- | - | ---------- | -
|
|Cost                                           |  |                                 |  |            |   |            |  
|January 1                                      |  | 324                             |  | 1,341,871  |   | 1,246,764  |  
|Additions                                      |  | 938                             |  | 77,978     |   | 95,105     |  
|Disposal                                       |  |                                |  | (9,874     | ) |            |  
|Translation result                             |  |                                |  | 121        |   | 2          |  
|                                               |  |                                 |  |            |   |            |  
|December 31                                    |  | 1,262                           |  | 1,410,096  |   | 1,341,871  |  
|                                               |  |                                 |  |            |   |            |  
|Accumulated depreciation and impairment losses |  |                                 |  |            |   |            |  
|January 1                                      |  |                                |  | 323,086    |   | 269,064    |  
|Depreciation for the year                      |  |                                |  | 61,976     |   | 54,038     |  
|Disposal                                       |  |                                |  | (1,808     | ) |           |  
|Translation result                             |  |                                |  | 90         |   | (16        | )
|                                               |  |                                 |  |            |   |            |  
|December 31                                    |  |                                |  | 383,344    |   | 323,086    |  
|                                               |  |                                 |  |            |   |            |  
|Net Book Value                                 |  | 1,262                           |  | 1,026,752  |   | 1,018,785  |  
|                                               |  |                                 |  |            |   |            |  

During
2003, one hull was sold and the other one was not in service and was therefore not depreciated. The hull is held for use in future FPSO projects. Considering the tight ship yard
capacity for new built hulls around the world, and considering the level of tender activity for new FPSO projects, the hull is stated at historic cost and is not impaired.

As
of December 31, 2003, an amount of U.S.$55,588 (2002U.S.$49,526) relating to capitalized interest is included in the cost value of the FPSOs and the hulls.
Interest capitalized for the years 2003, 2002 and 2001 amounts to U.S.$6,062, U.S.$3,549 and U.S.$0, respectively.

F-23

---

All
FPSOs are subject to operating leases as disclosed in note 4.

Certain
FPSOs are held under tax lease structures as described in note 5.

As
of December 31, 2003, the gross carrying amount of certain machinery and equipment amounting to U.S.$51,670 and of certain office equipment amounting to U.S.$1,018 are fully
depreciated. As of December 31, 2003, all these items are still in active use.

The
carrying amount of tangible fixed assets retired from the active use and held for disposal amounted to U.S.$0 of December 31, 2003 (2002U.S.$502). The carrying
amount of tangible fixed assets sold during December 31, 2003 amounted to US$7,824 (2002U.S.$0).

13    Debt Arrangement Fees

Debt arrangement fees as of December 31, 2003 represent costs incurred relating to arranging and refinancing the long term corporate credit facility and
the issuance of the 101/4% Senior Notes due 2012. At December 31, 2003, the net book value of the debt arrangement fees relating to the corporate credit facility and the
101/4% Senior Notes due 2012 amounts to U.S.$9,277 and U.S.$9,581, respectively. These fees are amortized on a straight line basis to interest expenses over the term of the facilities,
8 years for the corporate credit facility and 10 years for the 101/4% Senior Notes due 2012, respectively.

14    Other liabilities and accrued expenses

Other liabilities and accrued expenses are specified as follows:

|                                        |  | 2003   |  | 2002  
|--------------------------------------- |  | ------ |  | ------
|
|Accrued interest                        |  | 13,160 |  | 10,290
|Deferred revenues                       |  | 6,181  |  | 4,720 
|Accrued expenses                        |  | 25,156 |  | 18,045
|Short term portion of pension liability |  | 2,410  |  | 1,153 
|Other                                   |  | 1,571  |  | 1,418 
|                                        |  |        |  |       
|Total                                   |  | 48,478 |  | 35,626
|                                        |  |        |  |       

15    Lines of Credit

The Company has lines of credit with banks available amounting to U.S.$480,000 (2002U.S.$560,000), which are substantially denominated in U.S.
dollars. At December 31, 2003, these facilities were unused to an amount of U.S.$230,892 (2002U.S.$235,267). The used portion of these credit facilities is presented as
long-term loans in the balance sheet.

The
conditions to the lines of credit are disclosed with the related borrowings as presented under note 16.

16    Long-Term Bank Loans

Long-term bank loans at December 31, 2003 and 2002 represent loans as part of the lines of credit described under note 15, granted by a
bank consortium for financing Bluewater's ownership of the FPSO's.

At
January 28, 2002, the Company refinanced its outstanding debt under a U.S.$450,000 revolving credit facility with funds drawn under an 8-year, U.S.$600,000
corporate credit facility. The corporate credit facility can be used to finance the construction of new FPSOs and, to a limited extent, for

F-24

---

general
corporate purposes. Interest is payable at a rate that is equal to a specified margin over LIBOR. The margin, which is currently 1.400%, varies from 1.300% to 1.700% depending, among other
factors, on the amount outstanding under the facility. At December 31, 2003 the interest rate was 2.56%. The costs incurred in arranging the corporate credit facility have been capitalized as
debt arrangement fees under non-current assets and will be amortized over the term of the facility.

The
facility is primarily secured with mortgages over the FPSOs and assignments of incoming cash flows generated from contracts with clients concerning the FPSOs.

17    101/4% Senior Notes due 2012

In February 2002, the Company issued U.S.$260,000 aggregate principal amount of 101/4% Senior Notes due 2012 through its finance subsidiary,
Bluewater Finance Limited, at a price of 98.47% of the principal amount thereof. The Company used the gross proceeds from the issuance to repay approximately U.S.$248,500 of indebtedness outstanding
under its corporate credit facility and to pay approximately U.S.$7,500 of costs relating to the issuance. The Company and each of its direct and indirect subsidiaries (other than Bluewater Finance
Limited and Brightfield Corporation (a subsidiary in liquidation with no material assets, liabilities or operations)) have fully and unconditionally guaranteed the 101/4% Senior Notes
due 2012 on a joint and several basis.

In
April 2003, the Company issued an additional U.S.$75,000 aggregate principal amount of 101/4% Senior Notes due 2012 through its finance subsidiary, Bluewater
Finance Limited, at a price of 100.5% of the aggregate principal amount thereof plus accrued interest from and including February 15, 2003 to but excluding the issue date. The Company used
approximately U.S.$75,400 of the gross proceeds from the issuance, excluding the accrued interest from and including February 15, 2003 to but excluding the issue date, to repay approximately
U.S.$73,400 of indebtedness outstanding under its corporate credit facility and to pay an estimated U.S.$2,000 of costs relating to the issuance.

Bluewater
Finance Limited is a wholly owned finance subsidiary of the Company and each other subsidiary of the Company is wholly-owned, directly or indirectly, by the Company. The
Company has no independent assets or operations. There are no significant restrictions on the ability of the Company or any other guarantor of the 101/4% Senior Notes due 2012 to obtain
funds from its subsidiaries by dividend or loan. Neither Bluewater Finance Limited nor any of the guarantors of the 101/4% Senior Notes due 2012 (other than the Company) are restricted
by any third party in their ability to transfer funds within the meaning of Rule 4-08(e)(3) of Regulation S-X. As a result, the guarantees of the
101/4% Senior Notes due 2012 meet the conditions of Rule 3-10(d) of Regulation S-X. The fair value of the 101/4% Senior Notes due
2012 at December 31, 2003 amounts to U.S.$338,347 and is based on the quoted market price.

To
reduce the interest expense relating to the 101/4% Senior Notes due 2012, the Company entered into a fixed-to-floating interest rate swap
transaction, with effect from April 25, 2003, that enabled the Company to swap the equivalent of the fixed rate amount of interest that is payable on U.S.$335,000 aggregate principal amount of
the 101/4% Senior Notes due 2012 for the floating rate amount of interest that would be payable on an equal amount of indebtedness. On May 27, 2003, the Company cancelled the
swap transaction. Under the swap, prior to the cancellation, the Company received interest payments that were calculated at a fixed rate of 101/4% and made interest payments that were
calculated at a floating rate that was equal to a margin over LIBOR. The Company received U.S.$6,680 on May 30, 2003, which represented its net gain from the cancellation of the swap
transaction. The Company deferred this gain, which will be credited to income over the remaining duration of the 101/4% Senior Notes due 2012, and used this payment to repay outstanding
indebtedness under its replacement credit facility.

As
of July 17, 2003 the Company entered into a fixed-to-floating interest rate swap transaction, with terms identical to those of the previous swap
transaction, that enables the Company to swap the

F-25

---

equivalents
of the fixed rate amount of interest that is payable on U.S.$335,000 aggregate principal amount of the 101/4% Senior Notes due 2012 for a floating rate amount of interest
that would be payable on an equal amount of indebtedness. Under the swap, the Company will receive payments that are calculated at a fixed rate of 101/4% and makes interest payments
that are calculated at a floating rate that is equal to a margin of 6.11% over LIBOR.

The
unamortized premium and discount of the 101/4% Senior Notes due 2012 amounts to U.S.$3,347 as of December 31, 2003.

18    Long-Term Loans Related Party

The long-term loans from a related party represent a long-term loan from Marenco Investment Limited, a company of which all the shares are
ultimately owned by the President of the Company. The Jacaranda Trust is the indirect owner of 100% of the Company's outstanding shares. The major conditions of these loans are as follows:



The
fair value of these loans at December 31, 2003 and 2002 amounted to U.S.$153,716 and U.S.$160,612, respectively. The fair value as of December 31, 2003 and 2002 has
been determined by an independent bank, based on the discounted cash flow method assuming redemption in 5 equal annual installments as from December 2012.

19    Tax Lease Benefits Liability

For the year ended December 31, 2003, the liability to repay tax lease benefits declined by U.S.$7,484 (2002U.S.$7,211). Other movements in
the tax lease benefits liability result from the addition of the process facilities on board the FPSOHaewene Brimand fluctuations in currency exchange
rates and market interest rates.

20    Employee Benefits Obligations

(a)   Defined Benefit Plan

The group companies in the Netherlands provide defined benefit pension plans for all its employees. Provisions for pension obligations are established for
benefits payable in the form of retirement and surviving dependant pensions. Benefits are dependent on years of service and the respective employee's compensation.

The
group determined its transitional liability for defined benefit plan as the present value of the obligation at the date of adoption minus the fair value of plan assets minus past
service cost. The resulting transitional liability was more than the liability that had been recognized on the same date under the enterprise's previous accounting policy. The companies have chosen to
recognize that increase as an expense on a straight-line basis over 5 years. As of January 1, 1998, the entire transitional liability was expensed as pension costs in prior
years.

F-26

---

The
obligation resulting from defined benefit pension plans is determined using the projected unit credit method. Unrecognized gains and losses resulting from changes in actuarial
assumptions are recognized as income (expense) over the expected remaining service life of the active employees, when these gains or losses exceed the 10% corridor of the pension benefit obligation.
There were no plan terminations, curtailments or settlements for the year ended December 31, 2003 or 2002.

Plan
assets are incorporated in the insurance company's profit sharing plan, which is based on the fictitious yield of Dutch State Bonds. The insurer guarantees a minimum yield of 4%.

The
movement in the defined benefit obligations is as follows:

|                                  |  | 2003   |   | 2002  |  
|--------------------------------- |  | ------ | - | ----- | -
|
|Benefit obligation at January 1   |  | 9,943  |   | 5,059 |  
|Service cost                      |  | 1,267  |   | 1,166 |  
|Interest cost                     |  | 532    |   | 305   |  
|Plan participants' contributions  |  | 46     |   |      |  
|Actuarial gain                    |  | 2,367  |   | 2,138 |  
|Benefits paid                     |  | (51    | ) | (14   | )
|Translation result                |  | 2,473  |   | 1,289 |  
|                                  |  |        |   |       |  
|Benefit obligation at December 31 |  | 16,577 |   | 9,943 |  
|                                  |  |        |   |       |  

The
movement in plan assets is as follows:

|                                         |  | 2003   |   | 2002  |  
|---------------------------------------- |  | ------ | - | ----- | -
|
|Fair value of plan assets at January 1   |  | 8,531  |   | 4,621 |  
|Actual return on plan assets             |  | 453    |   | 1,951 |  
|Employer contribution                    |  | 2,371  |   | 813   |  
|Plan participants' contributions         |  | 46     |   |      |  
|Benefits paid                            |  | (51    | ) | (14   | )
|Translation result                       |  | 4,456  |   | 1,160 |  
|                                         |  |        |   |       |  
|Fair value of plan assets at December 31 |  | 15,806 |   | 8,531 |  
|                                         |  |        |   |       |  

The
following table reconciles the funded items of defined benefit plans to the amounts recognized in the balance sheet:

|                                |  | 2003    |   | 2002   |  
|------------------------------- |  | ------- | - | ------ | -
|
|Benefit obligation              |  | 16,577  |   | 9,943  |  
|Fair value of plan assets       |  | (15,806 | ) | (8,531 | )
|                                |  |         |   |        |  
|Funded status                   |  | 771     |   | 1,412  |  
|Unrecognized net actuarial loss |  | 2,616   |   | 2,481  |  
|                                |  |         |   |        |  
|Accrued benefit cost            |  | 3,387   |   | 3,893  |  
|                                |  |         |   |        |  

F-27

---

Components
of net periodic benefit cost:

|                               |  | 2003  |   | 2002  |   | 2001  |  
|------------------------------ |  | ----- | - | ----- | - | ----- | -
|
|Service cost                   |  | 1,267 |   | 1,166 |   | 1,398 |  
|Interest cost                  |  | 532   |   | 305   |   | 330   |  
|Expected return on plan assets |  | (453  | ) | (319  | ) | (99   | )
|Recognized net actuarial gain  |  | (113  | ) | (155  | ) | (144  | )
|                               |  |       |   |       |   |       |  
|Net periodic benefit cost      |  | 1,233 |   | 997   |   | 1,485 |  
|                               |  |       |   |       |   |       |  

Principal
actuarial assumptions used to determine pension obligations as of December 31, 2003 and 2002 were as follows:

|                               |  | 2003 |   | 2002 |  
|------------------------------ |  | ---- | - | ---- | -
|Discount rate                  |  | 5.0  | % | 5.0  | %
|Expected return on plan assets |  | 4.5  | % | 4.5  | %
|Wage and salary increases      |  |      |   |      |  
|2534                          |  | 3.5  | % | 4.5  | %
|3544                          |  | 3.0  | % | 4.0  | %
|4554                          |  | 2.5  | % | 3.5  | %
|5564                          |  | 2.0  | % | 3.0  | %
|Retirement benefit increases   |  | 1.75 | % | 2.5  | %
|Average employee turnover      |  |      |   |      |  
|2535                          |  | 7.0  | % | 7.0  | %
|3545                          |  | 6.0  | % | 6.0  | %
|4555                          |  | 4.0  | % | 4.0  | %
|5565                          |  | 0.0  | % | 0.0  | %

The
accumulated benefit obligation as at December 31, 2003 amounted to U.S.$14,805 (2002U.S.$9,252), of which U.S.$11,221 (2002U.S.$7,007) is for active
members. The benefits to be paid in the next five years amount to U.S.$67 annually, and for the following five years together U.S.$352. All measurement dates are December 31, 2003. The expected
contribution for 2004 amounts to U.S.$2,795. All benefits are insured conform Dutch pension law and no significant transactions have occurred between the Company and the plan during the period.

(b)   Defined Contribution Plan

The group companies in the United Kingdom sponsor defined contribution plans based on local practice and regulations. The plans provide for contributions
amounting to 5% of salary. The contributions relating to defined contribution plans are charged to income in the year to which they
relate. For the years 2003, 2002 and 2001 contributions charged to income amount to U.S.$453, U.S.$370 and U.S.$266 respectively.

21    Operations Expenses

Operations expenses are specified as follows:

|               |  | 2003    |  | 2002    |  | 2001  
|-------------- |  | ------- |  | ------- |  | ------
|
|SPM contracts  |  | 38,720  |  | 55,162  |  | 23,506
|FPSO contracts |  | 147,035 |  | 90,147  |  | 60,289
|               |  |         |  |         |  |       
|               |  | 185,755 |  | 145,309 |  | 83,795
|               |  |         |  |         |  |       

F-28

---

22    Selling, General and Administrative Expenses

Selling, general and administrative expenses are specified as follows:

|                           |  | 2003  |  | 2002  |  | 2001 
|-------------------------- |  | ----- |  | ----- |  | -----
|
|Personnel                  |  | 5,842 |  | 5,582 |  | 5,626
|Marketing/Advertising      |  | 573   |  | 612   |  | 432  
|Professional advisory fees |  | 1,171 |  | 1,395 |  | 953  
|Rent                       |  | 362   |  | 376   |  | 353  
|Other                      |  | 1,852 |  | 1,771 |  | 2,103
|                           |  |       |  |       |  |      
|                           |  | 9,800 |  | 9,736 |  | 9,467
|                           |  |       |  |       |  |      

23    Personnel Expenses and Number of Personnel

Personnel expenses are specified as follows:

|                                        |                                     | 2003   |        | 2002   |        | 2001  
|--------------------------------------- | ----------------------------------- | ------ | ------ | ------ | ------ | ------
|
|Personnel on payroll:                   |                                     |        |        |        |        |       
|                                        | Wages and salaries                  |        | 26,311 |        | 20,368 |       
|                                        | Pension costs                       |        | 2,334  |        | 1,367  |       
|                                        | Other social security contributions |        | 2,282  |        | 2,196  |       
|                                        |                                     |        |        |        |        |       
|                                        |                                     | 30,927 |        | 23,931 |        | 19,377
|Personnel costs from temporary agencies |                                     | 12,111 |        | 10,632 |        | 5,957 
|                                        |                                     |        |        |        |        |       
|                                        |                                     | 43,038 |        | 34,563 |        | 25,334
|                                        |                                     |        |        |        |        |       

The
average number of personnel employed by the group was 532 (2002501, 2001355) and is specified as follows:

|                      |                            | 2003 |     | 2002 |     | 2001
|--------------------- | -------------------------- | ---- | --- | ---- | --- | ----
|
|Personnel on payroll: |                            |      |     |      |     |     
|                      | Engineers                  |      | 289 |      | 238 |     
|                      | Sales                      |      | 20  |      | 20  |     
|                      | General and administrative |      | 104 |      | 116 |     
|                      |                            |      |     |      |     |     
|                      |                            | 413  |     | 374  |     | 284 
|Temporary agencies    |                            | 119  |     | 127  |     | 71  
|                      |                            |      |     |      |     |     
|                      |                            | 532  |     | 501  |     | 355 
|                      |                            |      |     |      |     |     

24    Other Operating Income

Other operating income represents primarily the release of the tax lease benefits liability as disclosed in note 19.

25    Income Taxes

The income tax receivable relates to prepaid income taxes in the United Kingdom primarily, originating from 1995 which are collectable from the local tax
authorities.

F-29

---

The
income tax liability at December 31, 2003 and 2002 is specified as follows:

|          |                                                  | 2003  |       | 2002 
|--------- | ------------------------------------------------ | ----- | ----- | -----
|
|Current:  |                                                  |       |       |      
|          | The Netherlands Antilles                         |       | 1,480 |      
|          | United Kingdom                                   |       |      |      
|          | Other countries (the Netherlands, Malta, Norway) |       | 386   |      
|          |                                                  |       |       |      
|          |                                                  | 1,866 |       | 1,871
|Deferred: |                                                  |      |       |     
|          |                                                  |       |       |      
|          |                                                  | 1,866 |       | 1,871
|          |                                                  |       |       |      

The
provision for income taxes is as follows:

|                |                                      | 2003   |        | 2002    |         | 2001    |        
|--------------- | ------------------------------------ | ------ | ------ | ------- | ------- | ------- | -------
|
|Current taxes:  |                                      |        |        |         |         |         |        
|                | Domestic                             |        | 123    |         | 582     |         |       
|                | Foreign                              |        | 1,482  |         | 1,688   |         | (230   
|                |                                      |        |        |         |         |         |        
|                |                                      | 1,605  |        | 2,270   |         | (230    | )      
|Deferred taxes: |                                      |        |        |         |         |         |        
|                | Foreignoperating loss carry forward |        | (2,900 | )       | (24,863 | )       | (30,114
|                | Foreignother                        |        | 232    |         | (1,022  | )       | (2,270 
|                |                                      |        |        |         |         |         |        
|                |                                      | (2,668 | )      | (25,885 | )       | (32,384 | )      
|                |                                      |        |        |         |         |         |        
|Total provision |                                      | (1,063 | )      | (23,615 | )       | (32,614 | )      
|                |                                      |        |        |         |         |         |        

The
reconciliation of the computation of the provision for income taxes at statutory tax rates to the effective provision for income taxes is as follows:

|                                                          |  | 2003    |   | 2002    |   | 2001    |  
|--------------------------------------------------------- |  | ------- | - | ------- | - | ------- | -
|
|Income before income taxes:                               |  |         |   |         |   |         |  
|Domestic                                                  |  | 88,473  |   | 86,002  |   | 100,687 |  
|Foreign                                                   |  | (76,959 | ) | (72,239 | ) | 69,421  |  
|                                                          |  |         |   |         |   |         |  
|                                                          |  | 11,514  |   | 13,763  |   | 31,266  |  
|The Netherlands Antilles statutory tax rate               |  | 3       | % | 3       | % | 3       | %
|                                                          |  |         |   |         |   |         |  
|Expected provision for income taxes at statutory tax rate |  | 345     |   | 413     |   | 938     |  
|Increase (reduction) in income taxes from:                |  |         |   |         |   |         |  
|Difference between statutory tax rate and tax ruling      |  | (222    | ) | 169     |   | (938    | )
|Foreign taxes                                             |  | 1,482   |   | 1,688   |   | (230    | )
|Deductions in foreign jurisdictions                       |  | (2,668  | ) | (25,885 | ) | (32,384 | )
|                                                          |  |         |   |         |   |         |  
|Provision for income taxes                                |  | (1,063  | ) | (23,615 | ) | (32,614 | )
|                                                          |  |         |   |         |   |         |  

Deductions
in foreign jurisdictions relate primarily to the amortization of goodwill and interest expense on intercompany debt which resulted from the internal restructuring as disclosed
in note 29(c). The change in 2003 resulted primarily from a change in amortization period of goodwill from 10 to 15 years.

F-30

---

The
effective tax rate for financial statement purposes differs from the statutory tax rate in the Netherlands Antilles as the Company is subject to taxation in various countries with
different statutory tax rates and taxable results vary in the various countries involved. Further, some group companies have specific tax rulings with local tax authorities and other group companies
are registered as operating or non-operating offshore companies in the countries where they are legally seated. Consequently, taxable results of various group companies are not related to
the operating results of these companies.

At
December 31, 2003 and 2002, the tax effects of temporary differences and carry forwards that gave rise to the Company's deferred income tax assets and liabilities are as
follows:

|                        |  | 2003   |  | 2002  
|----------------------- |  | ------ |  | ------
|
|Tax loss carry forwards |  | 83,800 |  | 80,900
|Pensions                |  | 1,169  |  | 1,362 
|Interest rate swaps     |  | 936    |  | 2,708 
|                        |  |        |  |       
|Net deferred tax assets |  | 85,905 |  | 84,970
|                        |  |        |  |       

The
tax loss carry forwards available to the Company relate primarily to the group companies in the Netherlands and do not expire. These tax loss carry forwards result primarily from the
amortization of goodwill and interest expense on intercompany debt which resulted from the internal restructuring as disclosed in note 29(c). While the internal restructuring and Dutch tax
treatment of the group companies remains subject to review by the Dutch tax authorities, based on ongoing discussions with the Dutch tax authorities, as disclosed in note 29(c), the amount of
goodwill that will ultimately result from the internal restructuring and be amortized for income tax purposes, and the amount of interest bearing intercompany debt relating thereto, is potentially
subject to decrease from the amounts that were originally applied in connection with the restructuring. Although the Company believes that its position with respect to the tax consequence of the
internal restructuring remains strong, and while it continues to contend that it should be entitled to take advantage of the full amount of goodwill and deductible interest relating to the internal
restructuring, the Company cannot record the full amount of the tax loss carry forwards relating thereto. Accordingly, the Company has recorded the minimum amount of tax loss carry forwards that it
considers probable to result from its discussions with the Dutch tax authorities. No assurance can be given, however, that the Company will ultimately be able to realize the estimated amounts. Based
on the Company's history of earnings, and because the tax loss carry forwards do not expire, the Company believes that it is more likely than not that the estimated amount of tax loss carry forwards
and the deferred tax asset relating thereto will be fully realized and, accordingly, has not accounted for a valuation allowance.

F-31

---

26    Segment Information

The Company considers that the business segments, FPSOs and SPMs, are strategically and operationally interrelated and provide similar services to the same client
base. The Company's officers and directors regularly review the operating results of these two segments in resource allocation decisions and performance assessments based on internal management
information from which the following data have been derived.

For
internal and external reporting purposes, the accounting principles applied are identical.

The
segment information per business segment is as follows:

|             |                               | 2003 |           | 2002 |           | 2001 |          
|------------ | ----------------------------- | ---- | --------- | ---- | --------- | ---- | ---------
|
|FPSO         |                               |      |           |      |           |      |          
|             | Revenues                      |      | 258,182   |      | 219,093   |      | 178,138  
|             | Segment net income            |      | 14,519    |      | 50,426    |      | 71,373   
|             | Identifiable assets           |      | 1,273,136 |      | 1,248,772 |      | 1,158,006
|             | Capital expenditures          |      | 76,611    |      | 89,206    |      | 292,044  
|             | Depreciation and amortization |      | 61,653    |      | 52,994    |      | 57,616   
|             | Interest income and (expense) |      | (41,576   | )    | (45,587   | )    | (21,354  
|             | Income taxes                  |      | (831      | )    | (21,560   | )    | (29,777  
|SPM          |                               |      |           |      |           |      |          
|             | Revenues                      |      | 37,598    |      | 43,706    |      | 19,179   
|             | Segment net loss              |      | (1,942    | )    | (13,048   | )    | (7,493   
|             | Identifiable assets           |      | 47,770    |      | 30,525    |      | 30,855   
|             | Capital expenditures          |      | 1,367     |      | 5,899     |      | 2,948    
|             | Depreciation and amortization |      | 323       |      | 1,044     |      | 719      
|             | Interest income and (expense) |      | (14       | )    | 136       |      | (2,234   
|             | Income taxes                  |      | (232      | )    | (2,055    | )    | (2,837   
|Other        |                               |      |           |      |           |      |          
|             | Revenues                      |      |          |      |          |      |         
|             | Segment net income            |      |          |      |          |      |         
|             | Identifiable assets           |      | 630       |      | 523       |      | 326      
|             | Capital expenditures          |      |          |      |          |      |         
|             | Depreciation and amortization |      |          |      |          |      |         
|             | Interest income and expense   |      |          |      |          |      |         
|             | Income taxes                  |      |          |      |          |      |         
|Consolidated |                               |      |           |      |           |      |          
|             | Revenues                      |      | 295,780   |      | 262,799   |      | 197,317  
|             | Segment net income            |      | 12,577    |      | 37,378    |      | 63,880   
|             | Identifiable assets           |      | 1,321,536 |      | 1,279,820 |      | 1,189,187
|             | Capital expenditures          |      | 77,978    |      | 95,105    |      | 294,992  
|             | Depreciation and amortization |      | 61,976    |      | 54,038    |      | 58,335   
|             | Interest income and (expense) |      | (41,590   | )    | (45,451   | )    | (23,588  
|             | Income taxes                  |      | (1,063    | )    | (23,615   | )    | (32,614  

Included
in the SPM revenues is the revenue generated by the sale of the hull Paradise for an amount of U.S.$9,714.

With
effect from 1 January 2003, the Company has changed its methodology of allocating certain types of expenses between the business segments, which has led to an increase in the
amount of operating expenses by the FPSO business and a decrease in the amount of operating expenses recorded by the SPM business. The decision to adjust the allocation of such expenses was based upon
a

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determination
of the management of the Company as to the extent to which the relevant expenses relate to each operating segment and has primarily involved the Company's general overhead costs, the
Company's internal project expenses and tender expenses. The Company believes that the current cost allocation better reflects the manner in which the Company conducts business and the relative
contribution to each of the Company's operating segments to the Company's results of operations. Had the Company not changed the manner in which the Company allocates the expenses between FPSO and SPM
businesses, approximately U.S.$10,700 of operating expenses recognized by the FPSO business would have been included in the results of the SPM business during 2003.

The
reconciliation of capital expenditures in tangible fixed assets to the consolidated cash flow statement for the segment information is as follows:

|                                                                                    |  | 2003   |  | 2002   |  | 2001   
|----------------------------------------------------------------------------------- |  | ------ |  | ------ |  | -------
|
|Capital expenditure for FPSOMuninincluded in acquisitionMuninBusiness               |  |       |  |       |  | 91,057 
|Capital expenditure for FPSOHaewene Brimincluded in acquisitionHaewene BrimBusiness |  |       |  |       |  | 190,288
|Additions to tangible fixed assets                                                  |  | 77,978 |  | 95,105 |  | 13,647 
|                                                                                    |  |        |  |        |  |        
|Capital expenditures per segment information                                        |  | 77,978 |  | 95,105 |  | 294,992
|                                                                                    |  |        |  |        |  |        

Customers
accounting for 10% or more of consolidated revenue all relate to the FPSO segment and are as follows:

|               |  | 2003   |  | 2002 |  | 2001  
|-------------- |  | ------ |  | ---- |  | ------
|
|Amerada Hess   |  | 46,204 |  | 16   |  | 48,659
|Talisman       |  | 73,063 |  | 25   |  | 74,227
|Enterprise Oil |  |       |  |     |  | 57,757
|Shell          |  | 75,514 |  | 26   |  |      
|Petro(SA)      |  | 40,261 |  | 14   |  |      

Revenues
per geographical area are as follows:

|              |  | 2003    |  | 2002    |  | 2001   
|------------- |  | ------- |  | ------- |  | -------
|
|FPSO          |  |         |  |         |  |        
|Europe        |  | 197,000 |  | 183,690 |  | 174,153
|Asia          |  | 20,921  |  | 23,030  |  | 3,985  
|Africa        |  | 40,261  |  | 12,373  |  |       
|              |  |         |  |         |  |        
|Total FPSO    |  | 258,182 |  | 219,093 |  | 178,138
|              |  |         |  |         |  |        
|SPM           |  |         |  |         |  |        
|Europe        |  | 11,004  |  | 4,869   |  | 7,287  
|Asia          |  | 16,473  |  | 14,070  |  | 4,939  
|Africa        |  | 8,440   |  | 24,767  |  | 6,953  
|South America |  | 1,681   |  |        |  |       
|              |  |         |  |         |  |        
|Total SPM     |  | 37,598  |  | 43,706  |  | 19,179 
|              |  |         |  |         |  |        
|Total         |  | 295,780 |  | 262,799 |  | 197,317
|              |  |         |  |         |  |        

The
basis of attributing revenues to geographic areas is determined by the location of the vessel for FPSO revenues and the location of the customer for SPM revenues.

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Long-lived
assets per geographical area are as follows:

|       |  | 2003      |  | 2002     
|------ |  | --------- |  | ---------
|
|Europe |  | 545,036   |  | 595,015  
|Asia   |  | 78,059    |  | 85,784   
|Africa |  | 403,657   |  | 337,986  
|       |  |           |  |          
|Total  |  | 1,026,752 |  | 1,018,785
|       |  |           |  |          

27    Financial Instruments

The Company uses (in the normal course of business) various types of financial instruments. Financial instruments include those recognized in the balance sheet
(on-balance sheet) and off-balance sheet financial instruments.

The
fair value of a financial instrument is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length
transaction. Fair values are determined from listed market prices, price quotations from banks or from pricing models.

The
Company has procedures and policies in place to control risks related to financial instruments. These policies and procedures include a clear segregation of duties between operating,
settlement, accounting and controlling of all financial instruments used. The spread of the Company's activities limits exposure to concentrations of credit or market risk. The Company's management is
involved in the risk management process.

The
Company attempts to minimize the counterparty credit risk associated with the financial instruments used by selecting counterparties that it believes to be creditworthy.

(a)   On-balance sheet instruments

Financial instruments in the balance sheet substantially include long-term receivables, accounts receivable trade, cash, deposits,
long-term loans, short-term loans and accounts payable trade. The fair value of these financial instruments approximates their carrying value, unless indicated otherwise.

(b)   Interest Rate Swaps

The Company has entered into interest rate swap agreements to mitigate interest rate risks on specific external debt. Interest rate swap agreements which convert
floating interest rate exposures into fixed interest rate are designated as cash flow hedges. The cash flow hedge contracts outstanding at December 31, 2003 are a fixed interest rate
payable6.72%and a U.S.$ denominated floating interest rate receivable which will mature in December 2004 and a fixed interest rate
payable3.46%and a U.S.$ denominated floating interest rate receivable which will mature in January 2006. Its fair value amounts to an obligation of U.S.$2,713. A
corresponding amount is recorded as a negative component of accumulated other comprehensive income at December 31, 2003 which will be reclassified as a charge to income in the future as
interest is paid on the underlying debt. Based on the fair value of the swap at December 31, 2003, U.S.$4,414 is expected to be recorded as a charge to interest expense in the income statement
for the year ending December 31, 2004. The fair value of the interest rate swap is based on quotes from an independent bank.

In
connection with the cash flow hedging activities, the Company has recorded a net transitional loss of U.S.$2,500 in other comprehensive income on adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), at January 1, 2001. There was no significant ineffectiveness relating to
designated cash flow hedges during 2003, 2002 and 2001, and no component of the derivative instruments' gain or loss was excluded from

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the
assessment of hedge effectiveness. As of July 17, 2003 the Company entered into a fixed-to-floating interest rate swap transaction, with terms identical to those of
the previous swap transaction, that enables the Company to swap the equivalents of the fixed rate amount of interest that is payable on U.S.$335,000 aggregate principal amount of the
101/4% Senior Notes due 2012 for a floating rate amount of interest that would be payable on an equal amount of indebtedness. Under the swap, which is designated and accounted for as a
fair value hedge, the Company receives payments that are calculated at a fixed rate of 101/4% and makes interest payments that are calculated at a floating rate that is equal to a
margin of 6.11% over LIBOR. For derivative financial instruments designated and that qualify as fair value hedges, changes in the fair value of the financial instrument and the change in the fair
value of the hedged component offset each other in the balance sheet and income statement. The net result of the interest rate swap is recognized in the income statement. There was no significant
ineffectiveness relating to the designated fair value hedge during 2003 and no component of the derivative instruments' gain or loss was excluded from the assessment of hedge effectiveness.

(c)   Exchange Rate Sensitivity

The Company's revenues are primarily denominated in U.S. dollars and, to a lesser extent, sterling. In 2003, approximately £18,709 (U.S.$46,874) of
the Company's revenues was denominated in sterling. Our expenses are denominated primarily in U.S. dollars and to a lesser degree, euro and sterling. The Company is exposed to fluctuations in foreign
currency exchange rates, because a portion of its expenses and financial indebtedness is denominated in currencies that are different from our revenues. The Company's policy is to match, through our
FPSO service agreements, the revenues in a particular currency with its operating costs in that currency, thereby minimizing the risk associated with fluctuations in foreign currency exchange rates.
The Company also matches its indebtedness denominated in U.S. dollars with its revenues denominated in U.S. dollars. The Company purchases foreign currency exchange contracts from financial
institutions to the extent of any residual exposure. The Company manages its outstanding currency exposure on a regular basis and net these exposures across its operations as a group. Gains and losses
related to specific currency transactions are recognized as part of its income from financing activities.

We
did not have any material forward currency exchange contracts as of December 31, 2002. The total contract/notional amount and the value of our foreign currency exchange
contracts as of December 31, 2003 are as follows:

|                            |                  | Expected Maturity Date
As of December 31, 2003
|--------------------------- | ---------------- | ----------------------------------------------
|
|
|Forward Exchange Agreements |                  |                                               
|(Receive €/Pay U.S.$)       |                  |                                               
|                            | Aggregate Amount |                                               
|(Receive £/Pay U.S.$)       |                  |                                               
|                            | Aggregate Amount |                                               

These
foreign currency exchange contracts mature on various dates through fiscal year 2004.

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(d)   Repayment schedule for debt

The
following is a schedule of future repayments of debt for the next 5 years:

|           |  | Year ending
December 31,
2003
|---------- |  | -----------------------------
|2004       |  | 0                            
|2005       |  | 0                            
|2006       |  | 9,108                        
|2007       |  | 80,000                       
|2008       |  | 80,000                       
|Thereafter |  | 340,508                      
|           |  |                              
|Total      |  | 509,616                      

28    Commitments

(a)   Rent obligations and operational lease agreements

The Company leases buildings, office space and cars under various operating lease agreements extending through fiscal year 2007.

The
following is a schedule of future minimum rental payments for the next 5 years:

|     |  | Year Ending
December 31,
2003
|---- |  | -----------------------------
|
|2004 |  | 2,270                        
|2005 |  | 1,955                        
|2006 |  | 1,080                        
|2007 |  | 297                          
|2008 |  |                             
|     |  |                              
|     |  | 5,602                        
|     |  |                              

Lease
expenses for the years ended December 31, 2003, 2002 and 2001 under all operating leases amounted to approximately U.S.$2,330, U.S.$1,905 and U.S.$1,275 respectively. No
contingent rental payments or clauses regarding any terms of renewal, purchase options, escalation clause or restrictions exist.

(b)   Guarantees

The Company has guarantee facilities with banks available amounting to U.S.$48,870. At December 31, 2003, these facilities were used for a total amount of
U.S.$12,348 (2002-U.S.$3,560) to provide bank guarantees to certain third parties.

(c)   Purchase commitments

The Company has in its ordinary course of business activities entered into purchase commitments for the operations of the FPSOs and the activities in the SPM
segment. As of December 31, 2003 there are no significant purchase commitments in connection with the acquisition of tangible fixed assets.

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29    Loss Contingencies

(a)   Tax lease structure

Under certain specific events (involuntary termination or a successful challenge to the tax lease structure by the UK tax authorities), the tax lease benefits
liability described in notes 5 and 19 and referred to in notes 11 and 24 may need to be repaid to the lessor at an amount greater than the carrying value of the liability. The likelihood that such
specific events will occur is considered to be remote.

(b)   Claims

From time to time, the Company is subject to various claims arising out of the ordinary course of business. At December 31, 2003, two significant claims
existed against the Company. One claim relates to the alleged breach of a contract for the design of equipment. Another claim relates to the alleged failure of the company to pay for additional work.
Since the outcome of these claims is uncertain the Company cannot estimate a possible loss or range of loss. While the ultimate result of all such matters is not presently determinable, based upon
current knowledge and facts, management does not expect that their resolution will have a material adverse effect on the Company's consolidated financial position or results of operation.

(c)   Internal restructuring and tax audit

Effective January 1, 2000, Bluewater entered into an internal restructuring process. In connection therewith, the economic interests in most of the assets
and liabilities of certain non-Dutch consolidated group companies (the "selling companies") were sold to the Company, while legal title to the assets and liabilities transferred remained
with the selling entities. The valuation of the assets and liabilities transferred was based on a valuation report prepared by an independent investment bank. The sales of these economic interests
resulted for income taxes purposes only in intercompany profits at the level of the selling companies and the creation of a corresponding amount of goodwill and intercompany indebtedness at the level
of the Company. Although extensive discussions were held with the tax authorities on the tax structure of Bluewater and the internal restructuring, Bluewater's tax structure and the tax consequences
of the internal restructuring became subject to a tax audit and remain subject to further review by the tax authorities.

In
May 2002, the Company received a draft audit report from the Dutch tax authorities. The draft tax audit report included certain proposed factual findings relating to the issue
of whether our non-Dutch group companies are residents of the Netherlands for Dutch tax purposes or have a taxable presence in the Netherlands. The draft audit report, which does not
present a final determination by the Dutch tax authorities, states that it was issued for discussion purposes. On the basis of the draft tax report, the Dutch tax authorities assessed, in
June 2002, additional taxes with respect to a Dutch group member for its 1998 and 1999 tax years and assessed, in November 2002, July 2003 and August 2003, additional taxes
with respect to certain non-Dutch group members for their 1997, 1998, 1999 and 2000 tax years. The total amount of these assessments, including interest to their respective dates, was
€52,900 (U.S.$66,638) as of December 31, 2002 and €135,400 (U.S.$170,563) as of December 31, 2003. The Company is in discussions with the Dutch tax
authorities regarding these taxes and is vigorously contesting their assessment. The Company believes that the findings of fact and the relevant legal and regulatory interpretations upon which the
Dutch tax authorities' position is based are incomplete and incorrect, and that the assessment of such additional taxes is contrary to certain favorable tax rulings, which it has received from them.
In any event, the Company believes that any assessment of additional taxes is incorrect, and that it is likely that it will prevail on the merits in any final determination of the assessments.
Accordingly, in July 2003, the Company filed with the Dutch tax authorities a response to their draft audit report and a transfer pricing report supporting the Company's response. The Company

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intends
to continue to contest vigorously the imposition of any additional taxes and, if necessary, to seek administrative and judicial review of the assessments. Administrative and judicial review of
the assessments in the Netherlands would likely take several years. The Company intends to withhold payment of such taxes pending final resolution of the issue. Although there can be no assurance that
the relevant issues will ultimately be resolved in its favor, the Company believes that it is not probable that additional Dutch income taxes will be payable for the 1997, 1998, 1999 and 2000 tax
years, and, accordingly, the Company did not accrue for the aforementioned tax assessments in these consolidated financial statements.

In
connection with the draft tax audit report, the Company is also in discussions with the Dutch tax authorities concerning its internal restructuring. In the course of such discussions,
the Dutch tax authorities have confirmed to the Company that they will not seek to tax any capital gain that may be associated with the sale of relevant economic interests in connection with the
Company's internal
restructuring, but instead will focus their analysis only on the amount of goodwill and deductible interest related to the internal restructuring and the percentage of goodwill and deductible interest
from the Company's internal restructuring that should ultimately be attributed to the Company's non-Dutch activities. The outcome of such discussions could limit the Company's ability to
take advantage of future tax savings associated with its internal restructuring by limiting the amount of goodwill that the Company may amortize and the amount of interest it may deduct for tax
purposes in future periods. However, based upon current facts and circumstances, applicable tax law, regulation and precedent, discussions with relevant tax authorities and professional advisers and
other relevant criteria, the Company estimates that it is currently probable that it will realize benefits relating to at least U.S.$434,000 of amortizable goodwill and at least U.S.$768,000 of
interest-bearing intercompany debt in connection with its internal restructuring at January 1, 2000 and that such amounts will result in tax losses which may be carried forward for Dutch income
tax purposes. In addition, in December 2001, U.S.$379,500 of the intercompany indebtedness of Bluewater Holding B.V. relating to the internal restructuring was converted to share capital,
thereby reducing the amount of tax benefits that the Company may take advantage of in subsequent periods. Notwithstanding the Company's current estimate, however, it is impracticable to quantify
definitively at this time the effect that the outcome of such discussions may have on the Company's actual tax position, because any such definitive quantification depends on a number of future
events, including the specific factual findings and legal and regulatory positions that may be taken by the Dutch tax authorities in any possible future challenge to the Company's internal
restructuring, as well as the outcome of any relevant proceedings. While the Company believes that it is probable that the Company will realize tax benefits in amounts that are not less than the
foregoing estimates as set forth above and that it is unlikely that the outcome of these discussions or any proceedings relating thereto will have a material adverse effect on the Company's financial
position, there can be no assurance in this regard and the Company could lose some or all of the future anticipated tax savings associated with the Company's internal restructuring.

(d)   Operational risksnot insured or insurable on economically favorable terms

The Company maintains insurance coverage in such amounts as it believes to be prudent against normal risks in operations, including, among other things, the risk
of pollution and damage to FPSOs. Certain risks (such as business interruptions and environmental liabilities in excess of certain limits), however, are either not insurable or are insurable only at
rates the Company considers uneconomical. The Company's insurance coverage does not protect against loss of revenues, although the Company is required under its corporate credit facility to obtain
such assurance if the number of FPSOs from which it receives revenues falls below three.

At
December 31, 2003, no uninsured events existed that will have a material adverse effect on the consolidated financial position or operations of the Company.

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30    Shareholder's Equity and Appropriation of Net Income

The Articles of Incorporation provide that the result for the year is subject to a disposition to be decided at the Annual General Meeting of Shareholders. Each
share (common and non-profit sharing five percent non-cumulative preference share) is entitled to cast one vote. The preference shares do not have preference rights in case of
liquidation of the Company. Directors of the Company are authorized to decide upon the payment of an interim dividend by way of an advance on dividends expected. No dividend is proposed to be paid for
2003.

Management
proposes to add the net income for the year to retained earnings. This proposal has been reflected in the accompanying financial statements.

There
were no dividends declared in 2002 and 2001.

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