CHILES OFFSHORE LLC, 10-K405, 1999-03-29

CHILES OFFSHORE LLC
10-K405, 1999-03-29
OIL & GAS FIELD MACHINERY & EQUIPMENT

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

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

COMMISSION FILE NUMBER 333-57325

CHILES OFFSHORE LLC
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 76-0547408
(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification No.)

<TABLE>
<S> <C> <C>
File No. 333-57325-01 File No. 333-57325-02 File No. 333-57325-03
CHILES OFFSHORE FINANCE CORP. CHILES COLUMBUS LLC CHILES MAGELLAN LLC
(Exact name of registrant as (Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter) specified in its charter)
DELAWARE DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization) incorporation or organization)
76-0568691 76-0568690 76-0568689
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
</TABLE>

11200 WESTHEIMER, SUITE 410, HOUSTON, TEXAS 77042-3227
(Address of principal executive offices) (Zip Code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None

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

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

The aggregate market value of the voting and non-voting common equity
held by non-affiliates is indeterminable as there is no established public
trading market for the common equity.

As of March 1, 1999, 1,000 shares of the common stock of Chiles
Offshore Finance Corp. were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None

HO1:\145394\11\346Q11!.DOC\73293.0016
<PAGE>
CHILES OFFSHORE LLC
CHILES OFFSHORE FINANCE CORP.
CHILES COLUMBUS LLC
CHILES MAGELLAN LLC

FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
No.

PART I
<S> <C> <C>
Item 1. Business.................................................................................. 3
Item 2. Properties................................................................................ 10
Item 3. Legal Proceedings......................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders....................................... 10

PART II

Item 5. Market for Registrants' Common Equity and Related Stockholder Matters..................... 11
Item 6. Selected Financial Data................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................ 15
Item 8. Financial Statements and Supplementary Data............................................... 16
Consolidated Financial Statements................................................ 17
Notes to Consolidated Financial Statements....................................... 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 27

PART III

Item 10. Directors and Executive Officers of the Registrants....................................... 27
Item 11. Executive Compensation.................................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 34
Item 13. Certain Relationships and Related Transactions............................................ 36

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 40
Signatures .......................................................................................... 41

</TABLE>

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PART I

ITEM 1. BUSINESS

THE COMPANY

Chiles Offshore LLC, a Delaware limited liability company ("Chiles
Offshore"), was formed in August 1997 for the purpose of constructing, owning
and operating state-of-the-art premium offshore jackup drilling rigs. Unless the
context otherwise requires, references herein to the "Company" shall mean Chiles
Offshore together with its wholly owned subsidiaries, Chiles Columbus LLC, a
Delaware limited liability company formed in April 1998, and Chiles Magellan
LLC, a Delaware limited liability company formed in April 1998 (each an
"Owner"), and Chiles Offshore Finance Corp., a Delaware corporation incorporated
in April 1998.

In 1997, the Company commenced construction of two state-of-the-art
premium offshore jackup drilling rigs at the AMFELS, Inc. ("AMFELS") shipyard in
Brownsville, Texas under fixed-price contracts. The first rig, the Chiles
Columbus, is a LeTourneau Enhanced 116-C design and the second, the Chiles
Magellan, is a LeTourneau Super 116 design (together, the "Rigs"). The Company
expects that it will pay, net of capitalized interest, $83.5 million and $87.8
million, respectively, in total construction and outfitting costs for the Rigs.
The Company and AMFELS have scheduled the Rigs for delivery in April and
September 1999, respectively. See "--The Construction Contracts" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General."

SEACOR SMIT Inc. ("SEACOR"), operator of the second largest fleet of
offshore service vessels in the world, has invested $35.0 million, through
SEACOR Offshore Rigs Inc. ("SEACOR Rigs"), a wholly owned subsidiary of SEACOR,
for approximately 55.4% of the outstanding equity interests in the Company.
SEACOR is a Delaware corporation whose common stock is listed for trading on the
New York Stock Exchange under the symbol "CKH." The remaining equity interests
in the Company are held by private investors, including the original founders
and senior management. See "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Relationships and Related Transactions."

THE RIGS

Jackup rigs are the largest category of mobile offshore drilling units,
representing approximately 60% of such units. A mobile offshore drilling unit
consists of a drilling package mounted on a hull, which is maintained at a
specific location during drilling operations. The drilling package typically
consists of a power plant, hoisting equipment, a rotary system, tubulars and
systems for mud treating and pumping, well control and the handling of bulk
materials. The specifications of the drilling package determine the capability
of the rig to drill to various depths and penetrate certain sub-surface
environments. The drilling unit also includes the living quarters, heliport,
cranes and other equipment necessary to support the drilling operations. The

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design of the particular drilling unit determines the marine environment in
which it can operate.

Several factors determine the type of rig most suitable for a
particular project, the more significant of which are the marine environment,
water depth and seabed conditions at the proposed drilling location, whether the
drilling is being done over a platform or other structure, the intended well
depth and variable deck load and well control requirements. Considerable
variation in utilization and dayrates often exists for different types of rigs,
primarily as a function of their capabilities and location.

Jackup rigs are mobile, self-elevating drilling platforms equipped with
legs that are lowered to the ocean floor until a foundation is established to
support the drilling platform. A jackup rig consists of the hull, jacking
system, drilling equipment, crew quarters, loading and unloading facilities,
storage areas, heliport and other related equipment. Oil and gas exploration
companies use jackup rigs extensively for offshore drilling in water depths from
20 feet to 350 feet. A jackup rig is towed to the drillsite with its hull riding
in the sea and its legs retracted. At the drillsite, the legs are jacked down to
the ocean floor until the hull has been elevated a sufficient distance above the
water to allow storm waves to pass beneath. After completion of drilling
operations, the hull is lowered until it rests in the water and then the legs
are retracted for relocation to another drillsite.

The nature of the seabed at a particular drilling location dictates the
appropriate rig-leg configuration of the jackup rig to be used. Some jackup rigs
have a lower hull (mat) attached to the bottom of the rig legs, while others
have independent legs. A mat-supported rig provides a stable foundation in flat
soft-bottom areas, while independent-leg rigs are better suited for harder or
uneven seabed conditions.

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

Jackup rigs vary a great deal in size and capability. The Company
defines premium jackup rigs as cantilevered, independent-leg, jackup rigs
capable of operating in water depths of 300 feet or greater, excluding (due to
their substantially higher construction cost) the class of jackup rigs built for
service in "harsh environments," such as the North Sea and Eastern Canada.

The Rigs being constructed by the Company consist of one LeTourneau
Enhanced 116-C jackup rig and one LeTourneau Super 116 jackup rig, both of which
are improved versions of the most versatile and popular design in the worldwide
jackup rig fleet (the LeTourneau 116-C). The hulls, machinery and outfitting are
identical on the two Rigs and are based on the larger LeTourneau Super 116
design. The only difference is that the LeTourneau Super 116 design has a leg
that has been designed to a higher specification while the LeTourneau Enhanced
116-C design is based on a LeTourneau 116-C design that has subsequently been
strengthened to carry the larger LeTourneau Super 116 hull and longer legs. The
Rigs will have capabilities that exceed those of typical existing premium jackup
rigs, including increased engine horsepower, increased hydraulic horsepower and
an enlarged mud handling and solids control system. The Rigs will also
incorporate such features as digital drilling controls, dual pipe handling, pipe
handling robotics, and a drillpipe identification and tracking system.

It is anticipated that the Rigs will fly the Panamanian flag, with an
"A1--Self Elevating Drilling Unit" certification from the American Bureau of
Shipping.

MARKET OVERVIEW

The offshore contract drilling business is influenced by a number of
factors, including the current and anticipated prices of oil and natural gas,
the expenditures by oil and gas companies for exploration and development and
the availability of drilling rigs. In addition, demand for drilling services
remains dependent on a variety of political and economic factors beyond the
Company's control, including worldwide demand for oil and natural gas, the
ability of the Organization of Petroleum Exporting Countries ("OPEC") to set and
maintain production levels and pricing, the level of production of non-OPEC
countries and the policies of the various governments regarding exploration and
development of their oil and natural gas reserves.

The Company expects to focus its operations initially on the Gulf of
Mexico market, which is the largest single market for jackup rigs in the world
and which features the presence of an established pipeline and production
infrastructure. Due to the Company's initial focus on the Gulf of Mexico, the
Company's business and operations will be particularly dependent upon the
condition of the oil and natural gas industry in the Gulf of Mexico and on the
exploration and production expenditures of oil and gas companies there.

Historically, the offshore contract drilling industry has been highly
competitive and cyclical, with periods of high demand, short rig supply and high
dayrates followed by periods of low demand, excess rig supply and low dayrates.
During the latter half of 1998, the decline in product prices in the oil and gas
industry resulted in reduced dayrates and decreased utilization. These
conditions have negatively impacted most markets worldwide, particularly the
Gulf of Mexico jackup market. Sustained weak commodity prices, economic problems

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in countries outside the United States, or a number of other factors beyond the
Company's control could further curtail spending by oil and gas companies.
Therefore, the Company cannot predict whether or not current market conditions
will improve or deteriorate further, or to what extent. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Outlook."

The Rigs currently are under construction and the Company will not
receive any material revenues unless and until the Rigs achieve commercial
operation. As with any major construction undertaking, completion of the Rigs
could be delayed or prevented, or cost overruns could be incurred, as a result
of numerous factors, many of which are beyond the Company's control. No
assurance can be given that the Rigs will be successfully constructed or, if
constructed, completed on time. If the Rigs are not completed on time or are not
capable of operating according to their respective design specifications, in
certain circumstances, the applicable Scheduled Delivery Date (as hereinafter
defined) may be extended and, in certain other circumstances, termination of the
applicable Construction Contract (as hereinafter defined) may be the Company's
sole remedy for such failure. See "- The Construction Contracts." As of the date
of this Report, the Company is actively marketing the Rigs although it has not
executed a drilling contract for either of the Rigs. In addition, there is no
assurance that any drilling contract that may be signed will be a term contract,
i.e., any such contract or contracts may be "well-to-well," and the Company may
market the Rigs on that basis at any time and from time to time. Thus, there may
be periods in the future when one or both of the Rigs are not under contract and
thus, not producing revenues. Moreover, during any such period, the Company will
continue incurring the expense of maintaining the affected Rig in the "stacked"
mode pending execution of a contract. Finally, if a Rig is not working because
of adverse demand conditions in the local market, the Company may incur
unreimbursed expenses to mobilize the Rig from that market to another where
demand conditions are more favorable.

THE CONSTRUCTION CONTRACTS

Shipyard. The AMFELS shipyard, originally built and operated by
Marathon LeTourneau, Inc., has a long-term commitment to the offshore drilling
industry and many of the key personnel who designed and built LeTourneau jackup
rigs in the past are currently working there. The shipyard's newbuilding
construction experience includes 24 jackup rigs and two semisubmersibles. AMFELS
is 100% owned by Keppel FELS, Ltd., an established international shipyard and
engineering group based in Singapore.

Scheduled Delivery Dates. The scheduled delivery dates (each, a
"Scheduled Delivery Date") of the Rigs are staggered. The Scheduled Delivery
Date of the Chiles Columbus is April 30, 1999 and the Scheduled Delivery Date of
the Chiles Magellan is September 10, 1999; provided, however, that the Scheduled
Delivery Date will be extended by the applicable period in the event of any
delay caused by an act or omission of the Company, including failure to timely
deliver to AMFELS any equipment to be furnished by the Company, delays caused by
the American Bureau of Shipping or any governmental agency, changes, events of
force majeure under the applicable Platform Construction Contract with AMFELS
for each Rig (the "Construction Contract"), or inability or failure of
LeTourneau, Inc. ("LeTourneau") to perform its obligations under the applicable
(i) License Agreement or (ii) Kit Construction Agreement, in each case between
AMFELS and LeTourneau and dated April 30, 1997 (with respect to the Chiles
Columbus) and August 1, 1997 (with respect to the Chiles Magellan)
(collectively, the "LeTourneau Agreements"), or if all subjects and conditions
under the applicable LeTourneau Agreements are not fully and timely met, and the
Scheduled Delivery Date may be extended if a customer requires alterations to
the existing Rig specifications for a particular job requirement. In addition,
the Company has procured "delay-in-delivery" insurance that provides for
coverage of $30,000 per day per Rig up to a maximum of 360 days for delays in
excess of 30 days, up to a total combined limit of $21.6 million for both Rigs.
Generally, such insurance provides coverage in the event of delays resulting
from certain events, including physical loss or damage to the Rigs or the AMFELS
shipyard during construction as a result of named perils, including labor
disturbances; delays in delivery of materials required for construction as a
result of such events; and delays resulting from restricted access to the
shipyard as a result of such events. However, the coverage provided under such
insurance is subject to significant exceptions and would not provide protection
against certain delays in delivery. Such exceptions include exclusion of
coverage for any loss, damage or liability arising from operations in or with
certain countries or from activities prohibited by U.S. law and regulations;
certain radiation hazards; repair or alteration of design faults; certain
losses, damages and liabilities associated with collision liability; certain
losses, damages and liabilities arising with respect to cargo or property of
others on board the Rigs; certain losses, damages and liabilities arising as a
result of strikes, terrorists and war risks; certain punitive or exemplary

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damages; and certain losses arising out of abandonment and/or non-commencement
of construction.

Construction Costs. The construction costs for the Chiles Columbus are
expected to be approximately $83.5 million and the construction costs for the
Chiles Magellan are expected to be approximately $87.8 million, in each case net
of capitalized interest.

Termination of the Construction Contracts. The Company may terminate a
Construction Contract upon the occurrence of certain events of default by
AMFELS. The events of default include the failure by AMFELS to perform, or the
breach by AMFELS of, any of its covenants, agreements or undertakings under the
applicable Construction Contract that AMFELS has failed to commence diligently
to cure within thirty (30) days or which remains uncured for ninety (90) days,
in each case after notice thereof by the Company to AMFELS, including such a
failure to deliver the respective Rig by its Scheduled Delivery Date. In
addition, a Construction Contract will be automatically terminated if, prior to
delivery of the related Rig, an actual or constructive total loss occurs with
respect to such Rig.

Warranty of Quality. For a period of 12 months following the date of
delivery of a Rig, AMFELS warrants to the Company that (i) AMFELS's workmanship
and materials shall be free from material defects, (ii) systems designed,
supplied and installed by AMFELS will perform the functions intended by the
applicable Construction Contract and the specifications thereunder and (iii) the
components of the equipment manufactured by LeTourneau shall be free from
material defects in LeTourneau's workmanship and material and shall perform in
accordance with the applicable LeTourneau Agreement and the related
specifications (the "Warranty"). The Warranty commences on the date of delivery
of the applicable Rig to the Company and expires 12 months thereafter (provided,
however, that if any of the equipment of the applicable Rig is put into service
prior to such delivery, the Warranty period begins with the commencement of such
service or operation insofar as such equipment is concerned) and is subject to
certain limitations set forth in the applicable Construction Contract. The
Warranty does not apply to any part of a Rig which has been misused, or
structurally repaired or altered by anyone other than AMFELS or its duly
authorized representative, or has been damaged because of its use, or the use of
any other materials or equipment, after the Company (or any other person or firm
operating the Rig or its equipment) has knowledge of such defect. Except for
certain components of the equipment manufactured by LeTourneau, equipment or
other components of the Rig sold to the Company pursuant to the Construction
Contract but not manufactured by AMFELS are not warranted to any extent by
AMFELS.

Pursuant to the Assignment, Assumption, Acknowledgement and Consent
Agreement, dated as of April 23, 1998, among the Company, the Owners and AMFELS,
the Company assigned to Chiles Columbus LLC the Construction Contract for the
Chiles Columbus, and to Chiles Magellan LLC the Construction Contract for the
Chiles Magellan.

COMPETITION

The contract drilling industry is highly competitive. Customers
sometimes award contracts on a competitive bid basis, and although a customer
selecting a rig may consider, among other things, a contractor's safety record,
crew quality and quality of service and equipment, price is the major factor in
determining the selection of a drilling contractor. The Company believes that
competition for drilling contracts will continue to be intense for the
foreseeable future because of the ability of contractors to move rigs from areas
of low utilization and dayrates to areas of greater activity and relatively
higher dayrates. Such movement or a decrease in drilling activity in any major
market could further depress dayrates and could adversely affect utilization of
the Company's Rigs. Substantially all of the Company's competitors are much
larger and more established companies with greater financial resources than the
Company. See "--Offshore Contract Drilling Services."

OFFSHORE CONTRACT DRILLING SERVICES

The Company's contracts to provide offshore drilling services are
expected to vary in their terms and provisions. The Company expects that it may
obtain contracts through competitive bidding, although the Company may also be
awarded drilling contracts without competitive bidding. Drilling contracts
generally provide for a basic drilling rate on a fixed dayrate basis regardless
of whether such drilling results in a successful well. Drilling contracts may

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also provide for lower rates during periods when a rig is being moved or when
drilling operations are interrupted or restricted by equipment breakdowns,
adverse weather or water conditions or other conditions beyond the control of
the Company. Under dayrate contracts, the Company would generally expect to pay
the operating expenses of the Rig, including wages and the cost of incidental
supplies. Revenues from dayrate contracts are expected to account for a
substantial portion of the Company's revenues. In addition, the Company may work
a Rig under dayrate contracts pursuant to which the customer also agrees to pay
the Company an incentive bonus based upon performance.

A dayrate drilling contract generally extends over a period of time
covering either the drilling of a single well, a group of wells (a "well-to-well
contract") or a stated term (a "term contract") and may be terminated by the
customer in the event the drilling unit is destroyed or lost or if drilling
operations are suspended for a specified period of time as a result of a
breakdown of major equipment or in some cases due to other events beyond the
control of either party. In addition, it is expected that certain of the
Company's contracts may permit the customer to terminate the contract early by
giving notice and in some circumstances may require the payment of an early
termination fee by the customer. The contract term in many instances may be
extended by the customer exercising options for the drilling of additional wells
at fixed or mutually agreed terms, including dayrates.

The duration of offshore drilling contracts is generally determined by
market demand and the respective management strategy of the offshore drilling
contractor and its customers. In periods of rising demand for offshore rigs,
contractors typically prefer well-to-well contracts that give contractors the
flexibility to profit from increasing dayrates. In contrast, during these
periods customers with reasonably definite drilling programs typically prefer
longer term contracts to maintain drilling prices at the lowest level possible.
Conversely, in periods of decreasing demand for offshore rigs, contractors
generally prefer longer term contracts to preserve dayrates at existing levels
and ensure utilization, while the customers prefer well-to-well contracts that
allow them to obtain the benefit of lower dayrates. In general, the Company
intends to seek a reasonable balance of single well, well-to-well and term
contracts to minimize the downside impact of a decline in the market while still
participating in the benefit of increasing dayrates in a rising market.

The Company's operations will be subject to the many hazards inherent
in the offshore drilling business, including blowouts, craterings, fires,
collisions and groundings of drilling equipment, which could cause substantial
damage to the environment, and damage or loss from adverse weather and sea
conditions. These hazards could also cause personal injury and loss of life,
suspend drilling operations or seriously damage or destroy the property and
equipment involved and, in addition to environmental damage, could cause
substantial damage to producing formations and surrounding areas. The Company's
offshore drilling equipment will also be subject to hazards inherent in marine
operations, such as capsizing, grounding, collision, damage from weather or sea
conditions or unsound location. In addition, the Company may be subject to
liability for oil spills, reservoir damage and other accidents that could cause
substantial damages.

Although as of the date of this Report the Company has received no
revenues from external customers attributable to foreign countries, and the
Company's long-lived assets are currently located in the United States, in the
future all or a portion of the revenues from operation of the Rigs may be
derived from foreign operations and be subject, in varying degrees, to risks
inherent in doing business abroad. The Company's non-U.S. operations will be
subject to certain political, economic and other uncertainties not encountered
in U.S. operations, including risks of war and civil disturbances (or other
risks that may limit or disrupt markets), expropriation and the general hazards
associated with the assertion of national sovereignty over certain areas in
which operations are conducted. The Company's operations outside the United
States may face the additional risk of fluctuating currency values, hard
currency shortages, controls of currency exchange and repatriation of income or
capital.

GOVERNMENTAL REGULATION

The Company's operations will be subject to numerous federal, state and
local environmental laws and regulations that relate directly or indirectly to
its operations, including certain regulations controlling the discharge of
materials into the environment, requiring removal and clean-up under certain
circumstances, or otherwise relating to the protection of the environment. For
example, the Company may be liable for damages and costs incurred in connection
with oil spills for which it is held responsible. Laws and regulations
protecting the environment have become increasingly stringent in recent years
and may in certain circumstances impose "strict liability" and render a company

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liable for environmental damage without regard to negligence or fault on the
part of such company. Such laws and regulations may expose the Company to
liability for the conduct of or conditions caused by others, or for acts of the
Company that were in compliance with all applicable laws at the time such acts
were performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on the Company.

The United States Oil Pollution Act of 1990 ("OPA '90") and similar
legislation enacted in Texas, Louisiana and other coastal states address oil
spill prevention and control and significantly expand liability exposure across
all segments of the oil and gas industry. OPA '90, such similar legislation and
related regulations impose a variety of obligations on the Company related to
the prevention of oil spills and liability for damages resulting from such
spills. OPA '90 imposes strict, and with limited exceptions, joint and several
liability upon each responsible party for oil removal costs and a variety of
public and private damages. OPA '90 also imposes ongoing financial
responsibility requirements on a responsible party. A failure to comply with
such ongoing requirements or inadequate cooperation in a spill may subject a
responsible party, including in some cases the Company, to civil or criminal
enforcement action. OPA '90 also requires the U.S. Minerals Management Service
to promulgate regulations to implement the financial responsibility requirements
for offshore facilities. If implemented as written, the financial responsibility
requirements of OPA '90 could have the effect of significantly increasing the
amount of financial responsibility that oil and gas operators must demonstrate
to comply with OPA '90. While industry groups and marine insurance carriers are
seeking modification of these requirements, implementation of these requirements
in their current form could adversely affect the ability of some of the
Company's prospective customers to operate in U.S. waters, which could have a
material adverse effect on the Company.

The Federal Water Pollution Control Act of 1972, commonly referred to
as the Clean Water Act ("CWA"), prohibits the discharge of certain substances
into the navigable waters of the U.S. without a permit. The regulations
implementing the CWA require permits to be obtained by an operator before
certain exploration or drilling activities occur. Violations of monitoring,
reporting and permitting requirements can result in the imposition of civil and
criminal penalties. The provisions of the CWA can also be enforced by citizens'
groups. Many states have similar laws and regulations.

The Outer Continental Shelf Lands Act authorizes regulations relating
to safety and environmental protection applicable to lessees and permittees
operating on the Outer Continental Shelf. Specific design and operational
standards may apply to Outer Continental Shelf vessels, rigs, platforms,
vehicles and structures. Violation of lease terms relating to environmental
matters or regulations issued pursuant to the Outer Continental Shelf Lands Act
can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.

The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), currently exempts crude oil, and the
Resource Conservation and Recovery Act, as amended ("RCRA"), currently exempts
certain drilling materials, such as drilling fluids and production waters, from
the definitions of hazardous substances and hazardous wastes. However, the
Company's operations may involve the generation, use or handling of other
materials, such as fracturing fluids or acids, that may be classified as
environmentally hazardous substances or waste, and that are subject to RCRA and
comparable state statutes. There can be no assurance that such exemptions will
be preserved in future amendments of such acts, if any, or that more stringent
laws and regulations protecting the environment will not be adopted. The
Environmental Protection Agency ("EPA") and various state agencies have limited
the disposal options for certain hazardous and nonhazardous wastes and are
considering the adoption of stricter handling and disposal standards for
nonhazardous wastes. CERCLA assigns strict liability to each responsible party,
as defined, for all response and remediation costs, as well as natural resource
damages. Few defenses exist to the liability imposed by CERCLA.

The operations of the Company are subject to the Clean Air Act, as
amended, and comparable state statutes. Traditional air quality programs
relating to the prevention of significant deterioration of air quality in areas
with unacceptable pollution levels ("nonattainment areas") restrict drilling in
affected areas. Amendments to the Clean Air Act were adopted in 1990 and contain
provisions that may result in the imposition over the next decade of certain
requirements with respect to air emissions, which requirements may require

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capital expenditures by the Company. Any greater degree of regulation in
nonattainment areas would increase the cost associated with operation in those
areas.

INDEMNIFICATION AND INSURANCE

The Company generally expects to be able to obtain contractual
indemnification pursuant to which the Company's customers would agree to protect
and indemnify the Company to some degree from liability for reservoir, pollution
and environmental damages, but there can be no assurance that the Company can
obtain such indemnities in all of its contracts, that the level of
indemnification that can be obtained will be meaningful, that such
indemnification agreements will be enforceable or that the customer will be
financially able to comply with its indemnity obligations. In addition, the
Company expects to maintain insurance coverage against "loss-of-hire," property
damage, war risk (in the case of certain operations outside the U.S.), general
liability and environmental liabilities, including pollution caused by sudden
and accidental oil spills, but there can be no assurance that such insurance
will continue to be available or carried by the Company or if available and
carried will be adequate to cover the Company's loss or liability in many
circumstances. Moreover, any such insurance is expected to be subject to
substantial deductibles and to provide for premium adjustments based on claims.

SENIOR NOTES

In September 1998, in a registered exchange offer (the "Exchange
Offer"), Chiles Offshore and Chiles Offshore Finance Corp. (collectively, the
"Issuers") issued $110,000,000 in aggregate principal amount of the 10% Senior
Notes due 2008 (the "Notes") of the Issuers in exchange for a like principal
amount of the issued and outstanding 10% Senior Notes due 2008 (the "Old Notes")
of the Issuers. The Old Notes were issued in a private placement in April 1998.
The Company received net proceeds of $105.5 million from the issuance and sale
of the Old Notes. All of such proceeds were deposited with an escrow agent and
may be withdrawn from escrow solely to pay interest on the Notes through the
first two semi-annual interest payment dates (November 1, 1998 and May 1, 1999),
to pay a portion of the construction costs of the Rigs and to provide working
capital. In the Exchange Offer, all of the Old Notes issued in the private
placement were exchanged for substantially identical Notes that were registered
under the Securities Act of 1933, as amended (the "Securities Act"). The Owners
(in their capacity as guarantors of the Notes, the "Guarantors") fully and
unconditionally guaranteed the Notes (the "Guarantees") on an unsecured senior
basis. The Bank Facility described below is secured by substantially all of the
assets of the Company, including the Rigs, other than the escrowed proceeds of
the Notes offering. The Notes and Guarantees were offered under an Indenture
dated as of April 29, 1998 (the "Indenture") among the Issuers, the Guarantors
and U.S. Bank Trust National Association, as Trustee.

The Indenture contains covenants that, among other things, limit the
ability of the Company to (i) incur any additional indebtedness, (ii) pay
dividends or make certain other similar payments, (iii) restrict distributions
from subsidiaries, (iv) sell assets, (v) enter into transactions with
affiliates, (vi) sell or issue capital stock of subsidiaries, (vii) incur liens
other than permitted liens, (viii) enter into sale/leaseback transactions, (ix)
enter into certain mergers and consolidations, (x) conduct certain business
activities, (xi) impair the security interest in the escrowed proceeds of the
Notes offering and (xii) amend the escrow agreement pursuant to which the
offering proceeds are escrowed. The Indenture also contains a covenant requiring
the Company to maintain certain levels of insurance on the Rigs.

DESCRIPTION OF BANK FACILITY

The following description of certain material provisions of certain
indebtedness of the Company does not purport to be complete, and is subject to,
and is qualified in its entirety by reference to, the forms of such instruments,
copies of which are filed as exhibits to this Report.

The Company entered into a $25.0 million bank credit agreement (the
"Bank Facility"), which was arranged by Nederlandse Scheepshypotheek Bank N.V.
and MeesPierson Capital Corp., effective as of April 29, 1998. The Bank Facility
provides for a $25.0 million revolving credit facility maturing December 31,
2004. Borrowings under the Bank Facility may be repaid and reborrowed during the
term thereof and will bear interest at a per annum rate equal to LIBOR plus a
margin of 1.25%. Subject to satisfaction of customary conditions precedent,

9
<PAGE>
including that there shall have occurred no material adverse change with respect
to the Company or its business, assets, properties, condition (financial or
otherwise) or prospects since the date of execution of the Bank Facility,
availability under the Bank Facility will commence upon the first delivery of a
Rig. Until the commencement of availability, the Company is required to pay
quarterly in arrears a commitment fee equal to 0.25% per annum on the undrawn
amount of the Bank Facility, thereafter increased to 0.50% per annum.

The Bank Facility is guaranteed by the Owners and such guarantees are
secured by first priority mortgages on the Rigs, assignments of earnings of the
Rigs (which may continue to be collected by the Company unless there occurs an
event of default) and assignments of insurance proceeds.

The Bank Facility contains customary affirmative covenants,
representations and warranties and is cross-defaulted to the Notes; provided,
however, should there occur an event of default under the Bank Facility (other
than arising from enforcement actions undertaken by a holder of other
indebtedness of the Company, enforcement actions arising from in rem claims
against either of the Rigs or bankruptcy events with respect to the Company or
an Owner), the lenders under the Bank Facility have agreed on a one-time basis
not to enforce remedies for a period of 60 days during which the holders of the
Notes ("Noteholders") or the Company may cure such event of default or prepay
all of the indebtedness outstanding under the Bank Facility. The Bank Facility
also contains certain negative covenants applicable to the Company and the
Guarantors, including prohibitions against the following: certain liens on the
collateral under the Bank Facility; material changes in the nature of their
business; sale or pledge of any Guarantor's membership interests; sale or
disposition of any Rig or other substantial assets; certain changes in office
locations; consolidations or mergers; certain Restricted Payments (as defined in
the Bank Facility), including distributions on membership interests in Chiles
Offshore (the "Membership Interests"); the exercise of a right to call the
Notes; or any material amendment or modification of the Indenture. The Bank
Facility further requires the Company to prevent the Guarantors from making
certain loans and advances, except in their normal course of business or to
certain affiliates; assuming, guaranteeing or (except in their ordinary course
of business) otherwise becoming liable in connection with any obligations other
than guaranties for the benefit of the lenders under the Bank Facility,
guaranties in favor of the Noteholders or pre-existing guaranties; paying out
any funds, except in their ordinary course of business for the business of the
Company or service of certain indebtedness permitted under the Bank Facility;
and issuing or disposing of any of their own membership interests (except to the
Company). In addition, the Bank Facility requires that the fair market value of
the Rigs, as determined by appraisers appointed by the lenders thereunder, at
all times equals or exceeds an amount equal to 130% of outstanding indebtedness
under the Bank Facility.

EMPLOYEES

As of March 1, 1999, the Company had 53 employees. The Company believes
that its employee relations are good.

ITEM 2. PROPERTIES

The Company leases approximately 5,345 square feet of office space
located at 11200 Westheimer, Suite 410, Houston, Texas 77042-3227, where its
telephone number is (713) 339-3777. See "Certain Relationships and Related
Transactions - Guarantee of Office Lease."

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any litigation as of the date of this
Report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders of any of
the Registrants during the fourth quarter of 1998.

10
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Membership Interests in Chiles Offshore are not publicly traded,
and therefore have no established market price. On March 1, 1999, there were 73
Members (as hereinafter defined) of Chiles Offshore. Chiles Columbus LLC, Chiles
Magellan LLC and Chiles Offshore Finance Corp. are each wholly owned
subsidiaries of Chiles Offshore. No cash dividends have been declared on the
Membership Interests, and no retained earnings are available for the payment of
dividends as of December 31, 1998.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data are derived from the financial
statements of the Company as of and for the periods presented. The selected
financial data below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Financial
Statements (including the Notes thereto) included elsewhere in this Report.

<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
SIX MONTHS ENDED YEAR ENDED (AUGUST 5, 1997)
PERIOD FROM INCEPTION DECEMBER 31, 1998 TO DECEMBER 31, 1997
----------------- --------------------
TO DECEMBER 31,1997
<S> <C> <C>
INCOME STATEMENT DATA:
Total revenues........................................... $ -- $ --
Operating expenses:
Contract drilling................................... -- --
General and administrative.......................... 766,744 376,089
Depreciation........................................ 56,235 5,953
Operating loss........................................... 822,979 382,042
Interest expense, net of interest capitalized............ 2,386,645 --
Interest income.......................................... 3,382,883 72,930
Net income (loss)........................................ 173,259 (309,112)

OTHER FINANCIAL DATA:
Cash provided by (used in) operating activities.......... $ 924,735 $3,571,349
Cash used in investing activities........................ (76,552,137) (5,215,116)
Cash provided by financing activities.................... 105,499,797 33,984,884

DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
BALANCE SHEET DATA:
Working capital.......................................... $ 9,676,935 $ 28,401,504
Rigs under construction and equipment, net............... 111,724,637 35,020,091
Total assets............................................. 178,432,724 67,398,320
Members' equity.......................................... 63,594,854 63,421,595

</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company (including the Notes thereto)
included elsewhere in this Annual Report on Form 10-K.

11
<PAGE>
The Company is a development stage company formed in August 1997 for
the purpose of constructing, owning and operating a fleet of state-of-the-art
premium offshore jackup drilling rigs. At formation of the Company, COI, LLC
(a Delaware limited liability company formed by members of management of the
Company and certain other investors) ("COI") contributed $0.36 million in cash
to the capital of the Company and assets with an agreed-upon value of $8.5
million and a historical cost of $2.3 million. The difference of $6.2 million
between such agreed-upon value and historical cost has been recorded on the
balance sheet of the Company as "Rigs under construction and equipment". At
formation of the Company and in the final phase of the Company's equity
financing, which was completed in December 1997 (the "Equity Financing"),
SEACOR Rigs contributed an aggregate of $35.0 million in cash. Other
accredited investors contributed $20.0 million in cash in the Equity
Financing.

In April 1998, the Company completed the private placement of $110.0
million of the Old Notes. The Company received net proceeds of $105.5 million
from the issuance and sale of the Old Notes. Also in April 1998, the Company
entered into the $25.0 million Bank Facility. In September 1998, the Company
completed the registered Exchange Offer for the Old Notes issued in the
private placement. In the Exchange Offer, all of the Old Notes issued in the
private placement were exchanged for substantially identical Notes that were
registered under the Securities Act.

The Company is constructing the Rigs at the AMFELS shipyard in
Brownsville, Texas. The Company is currently engaged in rig-related design,
engineering, procurement and construction activities and is preparing for the
commencement of business operations of the Rigs. As of December 31, 1998, the
Company had approximately $62.2 million of cash on hand, substantially all of
which was restricted for construction of the Rigs and the second semi-annual
interest payment on the Notes. The Company has been informed by the shipyard
that, as of December 31, 1998, construction of the Chiles Columbus was
approximately 79% complete and construction of the Chiles Magellan was
approximately 36% complete.

DEVELOPMENT STAGE COMPANY

The Company has operated as a development stage company since inception
by devoting substantially all of its efforts to designing, engineering and
contracting with shipyards and vendors for the Rigs, raising capital, employing
personnel and securing contracts for the Rigs. The Company has not generated
operating revenues, nor is there any assurance that the Company will generate
significant operating revenues until the Rigs are placed in service. In
addition, there can be no assurance that the Company will successfully complete
the transition from a development stage company to successful operations.
Additional risk factors associated with the Company's operations include, but
are not limited to, oil and gas prices, capital expenditure plans of oil and gas
operators, access to capital, completion of construction of the Rigs and
competition. As a result of the aforementioned factors and the related
uncertainties, there can be no assurance of the Company's future success.

Since inception, the Company has had a loss from operations of
approximately $1.2 million through December 31, 1998. The Company's management
is currently pursuing a business strategy that includes obtaining drilling
contracts with oil and gas operators, employment of rig personnel, completing
the construction of the Rigs and the purchase of drilling equipment, and
overseeing the construction of the Rigs and installation of the drilling
equipment. There can be no assurance that this business strategy will be
achieved. While pursuing this business strategy, the Company will experience
cash flow deficits until construction is completed and the Rigs are placed in
operation. As a result of these conditions, a doubt exists as to the Company's
ability to continue as a going concern until the Rigs are placed in service and
the Company is able to achieve successful operations. The Company's financial
statements included elsewhere herein do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be unable
to continue as a going concern.

RESULTS OF OPERATIONS

Since inception, the Company has engaged in no operations other than
managing construction of the Rigs and related matters. The Company has not
generated any operating revenues to date. From inception to December 31, 1998,
the Company has had a net loss of approximately $0.14 million as a result of
general and administrative expenses, interest expense and depreciation in excess
of interest income. For the year ended December 31, 1998, the Company had net

12
<PAGE>
income of approximately $0.17 million as a result of interest income in excess
of general and administrative expenses, interest expense and depreciation. From
inception to December 31, 1997, the Company had a net loss of approximately $0.3
million as a result of general and administrative expenses and depreciation in
excess of interest income.

OUTLOOK

The Company's business and operations are materially dependent upon the
condition of the oil and natural gas industry and, specifically, the exploration
and production expenditures of oil and gas companies. Due to the Company's
initial focus on the Gulf of Mexico, the Company's business and operations will
be particularly dependent upon the condition of the oil and natural gas industry
in the Gulf of Mexico and on the exploration and production expenditures of oil
and gas companies there. The offshore contract drilling industry historically
has been and is expected to continue to be highly competitive and cyclical.
During 1998, the decline in product prices in the oil and gas industry resulted
in significantly reduced dayrates and decreased utilization, particularly in the
Gulf of Mexico jackup market, and excess supply in such market. Sustained weak
commodity prices, economic problems in countries outside the United States, or a
number of other factors beyond the Company's control could further curtail
spending by oil and gas companies. Although the Company is presently marketing
the Rigs, as of the date of this Report the Company has not yet executed a
contract with any oil and gas company for use of either of the Rigs upon
delivery from the shipyard. While the Company anticipates that it will obtain
drilling contracts for the Rigs, no assurance can be given that drilling
contracts will be obtained, or obtained on a timely basis, nor can the Company
predict that the dayrates payable under any drilling contract will be equal to
or greater than the operating costs of the Rigs and other fixed costs, and
current payment liabilities, including interest payable with respect to the
Notes and drawings under the Bank Facility. In such event, the Company expects
to use the Bank Facility, subject to the terms and conditions of the Bank
Facility, to meet operating cost requirements and other current payment
liabilities until market conditions improve. If depressed market conditions
continue and availability under the Bank Facility is fully drawn or for any
reason is unavailable, the Company would need to raise additional liquidity to
sustain its operations and there is no assurance that the Company would be able
to do so. The Company cannot predict whether or not current market conditions
will improve or deteriorate further, or to what extent. The current trends in
market conditions, if continued, would have a material adverse effect on the
Company's future results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has had negative cash flow, excluding
interest income, and has financed its operations with a combination of the sale
of equity interests in the Company and the issuance and sale of the Old Notes.
From January 1, 1999 through the scheduled delivery dates of the Rigs, the
Company expects to incur approximately $69.0 million in aggregate costs to
complete construction and outfitting of the Rigs, including internal
construction costs and excluding net capitalized interest. The shipyard
construction contracts are fixed-price contracts, except for any approved change
orders, and approximately 95% of the aggregate cost of owner furnished equipment
is fixed under firm delivery contracts with various vendors. The Company expects
to finance these costs with the net cash proceeds of the Equity Financing
completed in l997, the net proceeds from the issuance and sale of the Old Notes
and the Bank Facility. Although availability under the Bank Facility will not
commence prior to the delivery of the first of the two Rigs, the Company expects
that with the net cash proceeds from the sale of equity interests and the Old
Notes, in combination with the Bank Facility, it will be able to finance the
construction and outfitting costs required to place the Rigs in service. As of
December 31, 1998, the Company had approximately $62.2 million cash on hand, all
of which was restricted for construction of the Rigs and the second semi-annual
interest payment on the Notes. As of December 31, 1998, the Company had $110.0
million of long term debt related to the Notes. Additionally, when the first Rig
is placed in operation, borrowings under the Bank Facility are expected to be
available, subject to the terms and conditions of the Bank Facility, together
with any cash flow from operations of such Rig, to cover the remaining
construction, outfitting and overhead costs and working capital requirements
associated with the second Rig. See "Business--Description of Bank Facility."

Because the Rigs are newbuilds, the Company does not expect to incur
material additional capital expenditures associated with the Rigs in the
foreseeable future. The Company has not budgeted for any mobilization of either
Rig from the shipyard into the operating area of the Gulf of Mexico, or to
another market which, if it occurs, could materially increase Rig operating
expense levels and reduce revenues while either Rig is in transit and not

13
<PAGE>
working. Any unanticipated capital expenditures or mobilizations could adversely
affect cash flow from operations and operating income in the period incurred.
Due to the current depressed industry market conditions, no assurance can be
given that drilling contracts will be obtained for the Rigs, or obtained on a
timely basis, or if obtained, that dayrates payable under such drilling
contracts will be equal to or greater than the operating costs of the Rigs and
other fixed costs and current payment liabilities, including interest payable
with respect to the Notes and drawings under the Bank Facility. In such event,
the Company expects to use the Bank Facility, subject to the terms and
conditions of the Bank Facility, to meet operating cost requirements and other
current payment liabilities until market conditions improve. The Company
believes that the Bank Facility should be adequate to address any short-term
liquidity needs created by such events. However, if depressed market conditions
continue and availability under the Bank Facility is fully drawn or for any
reason is unavailable, the Company would need to raise additional liquidity to
sustain its operations and there is no assurance that the Company would be able
to do so.

In addition to capital requirements associated with Rig construction,
the Company has significant debt service obligations, principally with respect
to the Notes. As the Notes bear interest at a rate of 10% per annum, the Company
will require $11.0 million per year to cover interest payments on the Notes as
long as all of the Notes are outstanding. Semi-annual interest payments on the
Notes are due on May 1 and November 1 and commenced on November 1, 1998.
Interest on the Notes through May 1, 1999 will be paid from amounts held in
restricted cash accounts. Thereafter, the Company expects to finance debt
service on the Notes and on borrowings outstanding under the Bank Facility with
cash flow from operations and, if necessary, additional borrowings under the
Bank Facility. If cash flow from operations is insufficient to service the
Company's debt, the Company would need to raise additional liquidity to sustain
its operations and there is no assurance it would be able to do so.

YEAR 2000 ISSUES

The Company has initiated and is in the process of carrying out an
assessment of Year 2000 ("Y2K") compliance issues. Although the Company has been
in existence only since August 1997, and since its inception the Company has
acquired only new systems, equipment, components and related software, a full
assessment of the Company's Y2K compliance is now underway. The Y2K assessment
being undertaken by the Company is designed to review all of the Company's
systems and equipment with respect to Y2K compliance. This assessment includes a
review of both information technology ("IT") systems (e.g., computer hardware
and software) and non-information Technology ("non-IT") systems (e.g., embedded
technology such as microcontrollers). As part of the assessment, the Company is
seeking to obtain certification of Y2K compliance from its vendors and
suppliers. The Company's administrative IT systems are stand-alone, standard
products that have not been custom developed or modified. The Company will seek
to obtain certifications from the vendors of such systems as to their Y2K
compliance. The Company will also acquire certain specialized IT systems and
expects to obtain certification of their Y2K compliance prior to acquisition and
installation of such specialized IT systems. Those vendors that are unable to
provide Y2K compliance certification, if any, will be requested to provide
replacement components or systems that are Y2K compliant under warranty
provisions of the Company's purchase agreements. This phase of the Company's Y2K
assessment is expected to be completed, with respect to the Company's currently
existing vendor relationships, during the second quarter of 1999. The Company
also has a program underway requesting Y2K compliance certifications from its
suppliers. This program is expected to be completed during the second quarter of
1999.

As the Company is a development stage company, it presently does not
have any operating revenues or customers. The Company will initiate a program to
identify any other third parties with whom a material relationship exists. The
Company will seek to obtain certification of Y2K compliance from any such third
parties. If any such third parties are unable to provide such certification, the
Company will seek to minimize any negative effect of such non-compliance on the
Company until the third party becomes Y2K compliant or until an alternative
relationship is established.

As of December 31, 1998, the Company has incurred nominal
administrative cost in conducting its Y2K compliance program. Early results of
this program have not identified any system, equipment, component or software
owned or used by the Company that is not Y2K compliant. Although the total cost
to complete the Company's Y2K program cannot be determined at this time, it is
not expected to be material because all of the Company's IT and non-IT equipment
has been purchased within the last two years, and the procurement arrangements
of the Company for such equipment require vendors to provide only Y2K compliant

14
<PAGE>
items. Such procurement arrangements also require that any such equipment that
is not Y2K compliant be replaceable under the applicable warranty provisions.

The Company is in the process of developing contingency plans that are
intended to address worst-case business interruptions, such as future
interruptions of drilling services aboard the Rigs after they begin operations
or interruptions in the delivery of equipment and materials to be utilized in
the Company's future drilling operations. The Company anticipates that its
contingency planning phase will be completed by mid-1999. The Company's failure
to fully implement its Y2K program or the occurrence of an unexpected Y2K
problem could result in the disruption of normal business activities or
operations and have a material adverse effect on the Company's results of
operations, liquidity or financial condition. However, based upon the work
performed to date and the anticipated completion of the Company's Y2K program by
mid-1999, the Company does not believe that such matters will have a material
adverse effect on its results of operations. With respect to third parties,
there can be no assurance that their systems will be rendered Y2K complaint on a
timely basis or that any resulting Y2K issues would not have a material adverse
effect on the results of operations of the Company.

FORWARD-LOOKING STATEMENTS

Certain written and oral statements made or incorporated by reference
from time to time by the Company or its representatives are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include, without limitation, any statement
that may project, indicate or imply future results, performance or achievements,
and may contain the words "expect," "intend," "plan," "anticipate," "estimate,"
"believe," "will be," "will continue," "will likely result," and similar
expressions. Such statements inherently are subject to a variety of risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, among others, general economic
and business conditions, operating difficulties arising from shortages of
equipment or qualified personnel or as a result of other causes, casualty
losses, industry fleet capacity, changes in foreign and domestic oil and gas
exploration and production activity, competition, changes in foreign political,
social and economic conditions, regulatory initiatives and compliance with
governmental regulations, the ability to attract and retain qualified personnel,
customer preferences and various other matters, many of which are beyond the
Company's control. The list of risks included here is not exhaustive. Other
sections of this Report and the Company's other filings with the Securities and
Exchange Commission include additional factors that could adversely affect the
Company's business and financial performance. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements. The forward-looking statements in this Report speak only as of the
date of this Report. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statement to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any
forward-looking statement is based.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to changes in interest rates with respect to the
Bank Facility, if and when it is drawn upon. The market value of the Notes,
which were originally issued (i.e., the Old Notes) on April 29, 1998, is
sensitive to changes in interest rates. The Notes, which are due May 1, 2008,
have a stated interest rate of 10% and an effective interest rate of 10.4%. At
December 31, 1998, the fair value of the Notes, based on quoted market prices,
was approximately $90.2 million, as compared to a carrying amount of $110.0
million. The Company is also exposed to changes in the prices of oil and natural
gas. The offshore contract drilling industry is dependent upon the exploration
and production programs of oil and gas companies, which in turn are influenced
by the price of oil and natural gas. See "Business--Market Overview."

15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Members of
Chiles Offshore LLC:

We have audited the accompanying consolidated balance sheets of Chiles
Offshore LLC (a Delaware limited liability company in the development stage) as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, members' equity and cash flows for the period from inception (August
5, 1997) to December 31, 1998, the year ended December 31, 1998 and for the
period from inception (August 5, 1997) to December 31, 1997. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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 also 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 audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Chiles
Offshore LLC as of December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for the period from inception (August 5, 1997)
to December 31, 1998, the year ended December 31, 1998 and for the period from
inception (August 5, 1997) to December 31, 1997, in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the accompanying
financial statements, the Company is a development-stage enterprise with no
significant operating results to date. The factors discussed in Note 1 to the
financial statements raise substantial doubt about the ability of the Company to
continue as a going concern. Management's plans in regards to those matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

ARTHUR ANDERSEN LLP

Houston, Texas
February 5, 1999

16
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents - Restricted......................... $ 8,739,497 $ 32,341,117
Cash restricted for interest payments.......................... 5,500,000 --
Prepaid expenses............................................... 12,308 37,112
Interest receivable............................................ 263,000 --
---------------- ----------------
Total current assets....................................... 14,514,805 32,378,229
---------------- ----------------
RIGS UNDER CONSTRUCTION AND EQUIPMENT............................... 111,786,825 35,026,044
Less accumulated depreciation.................................. (62,188) (5,953)
---------------- ----------------

Net rigs under construction and equipment.................. 111,724,637 35,020,091
---------------- ----------------
CASH RESTRICTED FOR CONSTRUCTION.................................... 47,974,015 --
---------------- ----------------
Deferred Debt Issuance Costs and Other ............................. 4,219,267 --
---------------- ----------------
Total Assets............................................... $ 178,432,724 $ 67,398,320
================ ================
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................... $ 2,660,950 $ 3,950,236
Accrued liabilities............................................ 2,176,920 26,489
---------------- ----------------
Total current liabilities.................................. 4,837,870 3,976,725

LONG TERM DEBT...................................................... 110,000,000 --
---------------- ----------------

Total liabilities.......................................... $ 114,837,870 $ 3,976,725
================ ================

MEMBERS' EQUITY:
Capital contributions, net of offering costs................... 63,730,707 63,730,707
Cumulative losses since inception.............................. (135,853) (309,112)
---------------- ----------------

Total members' equity...................................... 63,594,854 63,421,595
---------------- ----------------
Total Liabilities and Members' Equity...................... $ 178,432,724 $ 67,398,320
================ ================
</TABLE>

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

17
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM INCEPTION FOR THE YEAR FROM INCEPTION
(AUGUST 5, 1997) TO ENDED (AUGUST 5, 1997) TO
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
OPERATING EXPENSES:
General and administrative
expenses...................... $ (1,142,833) $ (766,744) $ (376,089)
Depreciation.................... (62,188) (56,235) (5,953)
-------------------- ------------------- ---------------------
Operating Loss.............. (1,205,021) (822,979) (382,042)

INTEREST INCOME...................... 3,455,813 3,382,883 72,930

INTEREST EXPENSE, NET OF INTEREST
CAPITALIZED..................... (2,386,645) (2,386,645) --
-------------------- ------------------- ---------------------

NET INCOME (LOSS).................... $ (135,853) $ 173,259 $ (309,112)
==================== ================== =====================

</TABLE>

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

18
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)

CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
SEACOR OFFSHORE GROUP C
RIGS INC. COI, LLC MEMBERS TOTAL
--------------------- --------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
INITIAL CAPITAL CONTRIBUTIONS,
August 5, 1997................. $ 8,850,000 $ 8,850,000 $ -- $ 17,700,000

CAPITAL CONTRIBUTIONS,
December 16, 1997.............. 26,150,000 -- 20,000,000 46,150,000

OFFERING COSTS...................... (66,065) (16,522) (36,706) (119,293)

NET LOSS for year ended December
31, 1997....................... (158,733) (126,491) (23,888) (309,112)
----------------- --------------- ---------------- -----------------

BALANCE, December 31, 1997.......... 34,775,202 8,706,987 19,939,406 63,421,595

NET INCOME for year ended December
31, 1998....................... 95,951 23,996 53,312 173,259
---------------- -------------- --------------- ----------------

BALANCE, December 31, 1998.......... $ 34,871,153 $ 8,730,983 $ 19,992,718 $ 63,594,854
================ ============== =============== ================

</TABLE>

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

19
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM INCEPTION FOR THE FROM INCEPTION
(AUGUST 5, 1997) YEAR ENDED (AUGUST 5, 1997)
TO DECEMBER 31, 1998 DECEMBER 31, 1998 TO DECEMBER 31, 1997
---------------------- -------------------- ---------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss).................... $ (135,853) $ 173,259 $ (309,112)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities--
Depreciation..................... 62,188 56,235 5,953
Amortization of deferred expenses.... 76,442 76,442 --
Increase (decrease) in operating cash
flows resulting from--
Interest Receivable............ (263,000) (263,000) --
Accounts Payable............... 2,593,348 (1,289,286) 3,882,634
Accrued liabilities............ 2,176,920 2,150,431 26,489
Prepaid expenses and other... (13,961) 20,654 (34,615)
------------------- ---------------- --------------------
Net cash provided by (used
in) operating activities.. 4,496,084 924,735 3,571,349
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.. (81,767,253) (76,552,137) (5,215,116)
------------------- ----------------- --------------------
Net cash used in investing
activities.............. (81,767,253) (76,552,137) (5,215,116)
------------------- ----------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Membership capital contributions, net 33,984,884 -- 33,984,884
Net proceeds from issuance of senior
notes.............................. 105,499,797 105,499,797 --
------------------ ---------------- --------------------
Net cash provided by financing
activities......................... 139,484,681 105,499,797 33,984,884
------------------ ---------------- --------------------
Restricted cash, beginning of period. -- -- --
Net increase (decrease) in restricted
cash................................. 62,213,512 62,213,512 --
Restricted cash, end of period....... (62,213,512) (62,213,512) --
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. -- (32,341,117) 32,341,117
CASH AND CASH EQUIVALENTS, beginning of
period.................................. -- 32,341,117 --
------------------ ---------------- --------------------
CASH AND CASH EQUIVALENTS, end of period.. $ -- $ -- $ 32,341,117
================== ================ ====================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Noncash investing activities--
Purchase of property in exchange for
membership interest.............. $ 21,260,000 $ -- $ 21,260,000
Noncash financing activities--
Receipt of net assets in exchange
for membership interest.......... $ 8,486,000 $ -- $ 8,486,000
Cash paid for interest--
net of capitalized interest........ $ 436,318 $ 436,318 $ --

</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.

20
<PAGE>
CHILES OFFSHORE LLC
(A DELAWARE LIMITED LIABILITY COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS AND INDUSTRY CONDITIONS:

Chiles Offshore LLC ("Chiles" or the "Company") is engaged in the
construction of offshore drilling rigs which will be contracted to oil and gas
operators upon completion of construction. The Company was formed under the laws
of the state of Delaware on August 5, 1997. The duration of the Company is 35
years from the date of formation.

On August 5, 1997, two members, SEACOR Offshore Rigs Inc. ("SEACOR
Rigs"), a wholly owned subsidiary of SEACOR SMIT Inc. ("SEACOR"), and COI, LLC
("COI") entered into the Operating Agreement of Chiles Offshore LLC (the
"Operating Agreement") for the purpose of forming the Company. SEACOR Rigs and
COI each made capital contributions of $8,850,000 and received a 50 percent
percentage interest, as defined in the Operating Agreement, in the Company.
Additionally, the president of COI was hired as president of the Company.

SEACOR Rigs's capital contribution consisted of $8,850,000 in cash,
which was paid directly to third parties on behalf of the Company. COI's capital
contribution consisted of $364,000 in cash and net assets with an agreed-upon
value of $8,486,000. The value of COI's net assets was mutually agreed upon by
SEACOR Rigs and COI based upon COI's construction contract rights, construction
in progress and shipyard slots secured through such construction contracts. The
historical cost of such net assets contributed by COI was $2,256,000.
Accordingly, the difference between the agreed-upon value and historical cost of
COI's net assets, $6,230,000, has been recorded in the accompanying balance
sheet as rigs under construction and equipment.

On December 16, 1997, in accordance with the Amended and Restated
Operating Agreement of Chiles Offshore LLC (the "Agreement"), another member
group, Group C, contributed capital of $20,000,000 in cash for a percentage
interest in the Company. Also on December 16, 1997, SEACOR Rigs contributed
additional capital of $26,150,000 consisting of $12,158,284 in cash and advances
SEACOR Rigs had made to the Company in the amount of $13,991,716. In accordance
with the Agreement and effective December 16, 1997, the percentage interests in
the Company were 55.38 percent, 13.85 percent and 30.77 percent for SEACOR Rigs,
COI and Group C, respectively. SEACOR controls the Company through its 55.38
percentage interest and accordingly consolidates the Company for SEACOR
reporting purposes.

The contributions of SEACOR Rigs, COI and Group C resulted in the
issuance to these members of membership interests in the Company. Membership
interest is the member's limited liability company interest in the Company which
refers to all of a member's rights and interest in the Company in such member's
capacity as a member, all as provided in the Agreement and the Delaware Limited
Liability Company Act. In conjunction with the issuance of the membership
interest to a member, the member received a percentage interest in the Company.
The percentage interest of a member means the aggregate limited liability
company percentage interest set forth in the Agreement, as modified from time to
time.

The Company has operated as a development stage company since its
inception by devoting substantially all of its efforts to designing, engineering
and contracting with shipyards and vendors for two offshore drilling rigs,
raising capital and securing contracts for the rigs. The Company has not
generated revenues, nor is there any assurance that the Company will generate
significant revenues in the future. In addition, there can be no assurance that
the Company will successfully complete the transition from a development stage
company to successful operations. Additional risk factors associated with the
Company's operations include, but are not limited to, oil and gas prices,
capital expenditure plans of oil and gas operators, access to capital,
completion of construction of the rigs and competition. As a result of the
aforementioned factors and the related uncertainties, there can be no assurance
of the Company's future success.

The Company has a loss from operations of $1,205,021 for the period
from inception (August 5, 1997) to December 31, 1998. Management is currently
pursuing a business strategy which includes obtaining drilling contracts with

21
<PAGE>
oil and gas operators, employment of rig personnel, and overseeing the
construction of the rigs and installation of the drilling equipment. There are
no assurances that this business strategy will be achieved. While pursuing this
business strategy, the Company will experience cash flow deficits until the rig
construction is completed and the rigs are placed in operation. As a result of
the aforementioned factors and related uncertainties, there is substantial doubt
as to the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.

The Company's business and operations are materially dependent upon the
condition of the oil and natural gas industry and, specifically, the exploration
and production expenditures of oil and gas companies. Due to the Company's
initial focus on the Gulf of Mexico, the Company's business and operations will
be particularly dependent upon the condition of the oil and natural gas industry
in the Gulf of Mexico and on the exploration and production expenditures of oil
and gas companies there. The offshore contract drilling industry historically
has been and is expected to continue to be highly competitive and cyclical. The
decline in product prices since 1997 in the oil and gas industry resulted in
significantly reduced dayrates and decreased utilization, particularly in the
Gulf of Mexico shallow water market, and excess supply in the current jackup
market. Sustained weak commodity prices, economic problems in countries outside
the United States, or a number of other factors beyond the Company's control
could further curtail spending by oil and gas companies. Although the Company is
presently marketing the Rigs, the Company has not yet entered into a contract
with any oil and gas company for use of either of the Rigs upon delivery from
the shipyard. Any unanticipated capital expenditures or mobilizations could
adversely affect cash flows from operations and operating income in the period
incurred. There is no assurance that drilling contracts will be obtained, or
obtained on a timely basis, nor can the Company predict that the dayrates
payable under any drilling contract will be equal to or greater than the
operating costs of the rigs, including interest payable with respect to the
Notes and drawings under the Bank Facility as discussed in Note 8. In such
event, the Company expects to use the Bank Facility, subject to the terms and
conditions of the Bank Facility, to meet operating cost requirements until
market conditions improve. If depressed market conditions continue and
availability under the Bank Facility is fully drawn or for any reason is
unavailable, the Company would need to raise additional liquidity to sustain its
operations. The Company cannot predict whether or not current market conditions
will improve or deteriorate further, or to what extent. The current trends in
market conditions, if continued, would have a material adverse effect on the
Company's future results of operations.

2. SIGNIFICANT ACCOUNTING POLICIES:

CONSOLIDATION

The financial statements include the accounts of the Company and its
wholly owned subsidiaries.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, all liquid investments with
maturities at the date of purchase of three months or less are considered cash
equivalents. The Company's Cash and Cash Equivalents are currently restricted to
supporting the operations and construction of the rigs and the May 1999 Interest
Payment.

USE OF ESTIMATES

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

PROPERTY, EQUIPMENT AND REALIZATION OF LONG-LIVED ASSETS

Property and equipment includes costs incurred for the construction of
the rigs, including internal expenditures relating to construction support. All
expenditures not related to construction are expensed in the accompanying
Statements of Operations. Disposals are removed at cost less accumulated

22
<PAGE>
depreciation, and any resulting gain or loss is reflected in the accompanying
statement of operations. Depreciation is calculated from the date the asset is
placed in service, using the straight-line method over the estimated useful
lives of the depreciable assets, which range from three to 25 years. The Company
capitalizes interest applicable to the construction of the rigs as a cost of
such assets. Interest capitalized for the year ended December 31, 1998 was $5.1
million. The Company has included in the property and equipment account all
costs incurred to support the construction of the rigs. Depreciation expense for
the periods ended December 31, 1998 and 1997, was $56,235 and $5,953,
respectively.

In March 1995, Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," was issued. SFAS No. 121, which became effective in
1996, requires that certain long-lived assets be reviewed for impairment
whenever events indicate that the carrying amount of an asset may not be
recoverable and that an impairment loss be recognized under certain
circumstances in the amount by which the carrying value exceeds the fair value
of the asset. The Company adopted SFAS No. 121 in 1997, and the adoption had no
effect on the Company's results of operations or consolidated financial
position. As of December 31, 1998, management does not believe any of its assets
are impaired.

NEWLY ISSUED ACCOUNTING STANDARDS

In June 1997, Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130") was issued. SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. Comprehensive income is
the total of net income and all other non-owner changes in equity. The Company
has no non-owner changes in equity during the twelve months ended December 31,
1998 and therefore, no reporting and display of comprehensive income was
required.

In June 1997, Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related Information ("SFAS 131")
was issued. SFAS 131 requires that companies report financial and descriptive
information about their reportable operating segments. The Company adopted SFAS
131 in 1998; however, the Company is still in the development stage and has no
material operating information to report.

INCOME TAXES

No provision for income taxes is made since the Company is treated as a
partnership for tax purposes, and such taxes are liabilities of the individual
equity members, and the amounts thereof depend on their respective income tax
situations.

Capital accounts included in the accompanying financial statements
differ from amounts in the Company's federal income tax return primarily because
of differences in accounting policies adopted for financial and tax reporting
purposes.

The tax returns, the qualification of the Company as a partnership for
tax purposes and the amount of distributable partnership income or loss are
subject to examination by federal taxing authorities. If such examinations
result in changes with respect to the partnership qualification or in changes to
distributable partnership income or loss, the tax liability of the partners
could be changed accordingly.

3. RELATED-PARTY TRANSACTIONS:

The Company and SEACOR entered into a Management and Administrative
Services Agreement, dated as of February 27, 1998 (the "Services Agreement"),
pursuant to which SEACOR agreed to continue to perform certain administrative
and technical services on behalf of the Company. Such services include general
management and financial services, including periodic advice and consultation in
connection with corporate, legal, finance, accounting, tax, marketing,
operations and other matters that may be required for the Company's day-to-day
operations. Under the Services Agreement, the Company agreed to pay a fee to
SEACOR not to exceed $15,000 per month and such other fees for services of

23
<PAGE>
others not to exceed the reasonable value thereof and to reimburse SEACOR for
all out-of-pocket expenses related to the provision of such services. The
Services Agreement may be terminated at either party's option upon 60 days'
notice to the other party. Management believes the fees charged by SEACOR for
such services rendered under the Services Agreement approximate the rate that
would be charged by outside non-related parties. The Company paid SEACOR
$194,000 in 1998 and $50,000 in 1997 related to this agreement. In addition,
SEACOR purchased $17.1 million principal amount of the Company's Notes on the
open market in 1998. The Notes were purchased on the open market at fair market
value on the date of purchase. SEACOR continues to hold these Notes and their
acquisition has minimal impact on the Company's financial statements. The
Company will pay a brokerage fee of $505,000 to Bassoe Rig Partners Ltd.
("Bassoe") upon the delivery of each rig. Jonathan B. Fairbanks is a director of
Bassoe and serves on the Management Committee of Chiles Offshore. Bassoe, in its
capacity as broker, assisted the Company in securing construction slots with the
shipyard.

4. RIGS UNDER CONSTRUCTION AND EQUIPMENT:

Rigs under construction and equipment at December 31, 1998 and 1997
consists of the following:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Rigs under construction and rig equipment..................... $ 111,430,739 $ 34,861,269
Furniture and fixtures........................................ 356,086 164,775
------------------ -------------------
111,786,825 35,026,044
Less accumulated depreciation................................. (62,188) (5,953)
------------------- -------------------
Net rigs under construction and equipment............... $ 111,724,637 $ 35,020,091
=================== ===================
</TABLE>

5. COMMITMENTS AND CONTINGENCIES:

The Company has entered into agreements with a shipyard and various
equipment vendors for delivery of two mobile offshore drilling rigs, the Chiles
Columbus and Chiles Magellan, for a total estimated cost of approximately $171.3
million, net of capitalized costs. The Company had purchase commitments of
approximately $63 million and $128 million for the years ended December 31, 1998
and 1997, respectively, for the rigs and equipment. These amounts will become
payable in future periods in accordance with terms of the construction contract
and vendor agreements. The Chiles Columbus is scheduled for delivery during the
second quarter of 1999, and Chiles Magellan is scheduled for delivery during the
third quarter of 1999. As discussed further in Note 8, in April 1998, the
Company completed a debt offering of Senior Notes and obtained a revolving bank
credit facility. Management believes the proceeds from the debt offering, the
capital contributions received in 1997, and the revolving bank credit facility
will enable the Company to finance the construction and delivery of the rigs.

The Company occupies an administrative office and leases certain
equipment under operating leases from unaffiliated third parties. Rent expense
for 1998 was $69,000 and for 1997 was $9,800. Lease terms range in length from
one to five years. The Company has an option to extend the present
administrative office lease, which expires in the year 2002, for five additional
years, at the then current market rates. Aggregate minimum future annual rental
commitments under operating leases with lease terms in excess of one year as of
December 31, 1998, are as follows:

1999................................................... $83,708
2000................................................... 48,689
2001................................................... --
2002................................................... --
Thereafter............................................. --

The Company has entered in to an employment agreement with its
President. This agreement has two years remaining. The Agreement provides, among
other things, the amount of compensation and other benefits to be provided to
the President as well as other conditions of the employment term.

24
<PAGE>
6. MEMBERS' EQUITY:

ALLOCATION OF NET INCOME OR LOSS

In accordance with the Operating Agreement and the Agreement
(collectively referred to herein as the "Agreements"), profits or losses for any
taxable year were allocated in proportion to percentage interests, on a monthly
basis and after giving effect to special allocations set forth in the
Agreements.

The special allocations primarily result from the effect of U.S.
federal income tax rules for certain types of events that may occur to the
Company. If there is a Minimum Gain or Member Nonrecourse Debt Minimum Gain, as
defined in the IRS code, then the Agreements provide specific allocations to
members in order to comply with the IRS regulations. The Agreements provide that
in the event a member unexpectedly receives any adjustments, allocations or
distributions resulting from the special allocation rules of IRS regulations as
noted in the Agreements, then Company income and losses shall be specifically
allocated to such member, in an amount and manner sufficient to eliminate, to
the extent provided by the IRS regulations, the adjusted capital account deficit
of the member. The Agreements provide that, in the event any member has a
deficit capital account at the end of any taxable year, which is in excess of
the sum of the amount such member is obligated to restore pursuant to any
provisions of the Agreements and the amount such member is obligated to restore
pursuant to the IRS code sections noted in the Agreements, each such member
shall be specially allocated items of the Company income and gain in the amount
of such excess as quickly as possible and to the extent allowed in the
Agreements. The Agreements provide that Nonrecourse Deductions, as defined in
the Agreements, for any taxable year shall be specially allocated to the members
in proportion to their respective percentage interests and that any member
Nonrecourse Deductions for any taxable year shall be specially allocated to the
Member who bears the economic loss with respect to the member nonrecourse debt
to which such member Nonrecourse Deductions are attributable in accordance with
the regulations. In the event some, but not all, of the members would have
adjusted capital account deficits as a consequence of the special allocation
rules, then losses not allocable to any member due to such limitation shall be
allocated to other members pro rata in accordance with the balance of such
members' capital accounts.

DISTRIBUTIONS

The Agreements provide for quarterly cash distribution, upon the
approval by the Management Committee, as defined in the Agreements, of Net Cash
Flow, as defined in the Agreements, to members in proportion to, and to the
extent of, their relative percentage interests, an amount not in excess of the
Tax Distribution, as defined in the Agreements, for the taxable year.

7. OPTIONS PLAN:

The Company has adopted the Chiles Offshore LLC 1998 Equity Option Plan
(the "Option Plan"). The Option Plan authorizes the issuance of Options to key
employees and consultants of the Company to acquire up to 5.0% of the then
outstanding membership interests on a fully diluted basis. As of December 31,
1998, there were 4,612 options, vesting ratably over three years, outstanding
under the Option Plan with an exercise price per unit of $650, which the
Management Committee believes approximates the fair market value per unit on the
date of grant.

<TABLE>
<CAPTION>
Number of Exercise Price Weighted Average
Option Units Range Price Per Unit
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Outstanding at December 31, 1997......... -- -- --
Granted.................................. 4,612 $650.00 $650.00
Canceled................................. -- -- --
Expired.................................. -- -- --
Exercised................................ -- -- --
----------------- ----------------- ---------------------
Outstanding at December 31, 1998......... 4,612 $650.00 $650.00
================= ================= =====================

Options exercisable at year end.......... 0
Weighted average fair value of options
granted during the year.................. $163.04

</TABLE>
25
<PAGE>
The Company accounts for its stock compensation programs in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. The
Company has adopted the Financial Accounting Standard Board's SFAS No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), which requires entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS 123 allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
disclosures for employee stock option grants made as if the fair value-based
method defined in SFAS 123 had been applied.

The fair value of each grant since January 1, 1998 was estimated as of
the date of the grant using the minimum value option pricing model. The
following weighted-average assumptions were used for the options granted
pursuant to the Option Plan: risk-free interest rate of 5.95%, an expected life
of 5 years and expected volatility of 0%. The resulting fair market value of
such options granted was $163.04. Had compensation costs of these plans been
determined consistent with SFAS 123, the Company's net income (loss) would have
been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
For the Period from Inception For Year ended
(August 5, 1997) to December 31, 1998 December 31, 1998
----------------------------------------- -----------------------
<S> <C> <C>
Net income (loss) applicable to option holders:
As Reported............................ (135,853) 173,259
Pro Forma.............................. (460,169) (151,057)

</TABLE>

8. DEBT:

In 1998, the Company formed three wholly owned subsidiaries, Chiles
Magellan LLC, Chiles Columbus LLC and Chiles Offshore Finance Corp. The Company
and Chiles Offshore Finance Corp. ("Issuers") co-issued Senior Notes with a
principal amount of $110.0 million ("Notes") on April 29, 1998. Prior to the
issuance of the Notes, the Company's three wholly owned subsidiaries were
nominally capitalized. The rig construction contracts, formerly owned by Chiles
Offshore LLC, for the Chiles Magellan and Chiles Columbus have been assigned to
Chiles Magellan LLC and Chiles Columbus LLC ("Rig Owners"), respectively.

As a result, the Issuers received net proceeds of approximately
$105,500,000 after deducting estimated offering-related expenses. The Notes bear
an interest rate of 10%, payable semiannually on May 1 and November 1,
commencing on November 1, 1998 and mature in full in the year 2008. The net
proceeds of the Notes have been placed in escrow for use to partially fund the
construction of the two rigs and pay the first two semi-annual interest
installments. The Notes are redeemable in May, 2003, except that until May,
2001, up to 35% of the notes may be redeemable with the proceeds of a public
equity offering, both at the option of the Issuers. The Notes are guaranteed by
the Rig Owners, jointly and severally, on an unsecured basis. Debt issuance
costs of approximately $4,500,000 related to the Notes are being deferred and
will be amortized over the life of the Notes, 10 years. Amortization for the
year ended for December 31, 1998 was $284,000. In connection with the issuance
of the Notes, the net proceeds were deposited into two escrow accounts, the
Interest Escrow Account and the Construction Escrow Account. The Interest Escrow
Account restricts a cash balance to provide for payment in full of the first
year of scheduled payments on the Notes, approximately $11,000,000. An interest
payment of $5,561,000 was made on November 1, 1998 from these restricted funds.
The Construction Escrow Account holds the remaining net proceeds and restricts
these funds to construction usage. As of December 31, 1998, funds deposited in
the Interest Escrow Account and Construction Escrow Account were $5,500,000 and
$47,974,000 respectively. Capitalized Interest was $5,125,000 in 1998. The fair
market value of the Senior Notes, as of December 31, 1998, was $90,200,000,
based on quoted market prices, compared to a related carrying amount of
$110,000,000.

26
<PAGE>
margin of 1.25%. Subject to satisfaction of customary conditions precedent,
including that there shall have occurred no material adverse change with respect
to the Company or its business, assets, properties, condition (financial or
otherwise) or prospects since the date of execution of the Bank Facility,
availability under the Bank Facility will commence upon the first delivery of a
rig. Until the commencement of availability, the Company is required to pay
quarterly in arrears a commitment fee equal to 0.25% per annum on the undrawn
amount of the Bank Facility, thereafter increased to 0.50% per annum.

The Bank Facility is guaranteed by the Owners and such guarantees are
secured by first priority mortgages on the rigs, assignments of earnings of the
rigs (which may continue to be collected by the Company unless there occurs an
event of default) and assignments of insurance proceeds.

GUARANTOR FINANCIAL STATEMENTS

No separate financial statements of Chiles Offshore Finance Corp.,
Chiles Magellan LLC or Chiles Columbus LLC have been presented. Chiles Offshore
LLC and all of its wholly owned subsidiaries are committed to the Senior Notes
either by being an issuer of the Senior Notes or a Guarantor on a full,
unconditional and joint and several basis. Therefore, no guarantor financial
statements are appropriate.

9. EMPLOYEE 401(K) AND PROFIT SHARING PLAN:

During 1998, the Company adopted a 401(k) Profit Sharing Plan (the
"Plan"), covering substantially all of its employees. The Company will match
employees' contributions to the Plan in an amount equal to 50%, up to 6% of
eligible compensation. The Company incurred $24,460 in expense related to the
Plan in 1998.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

MANAGEMENT COMMITTEE

The management committee (the "Management Committee") of Chiles
Offshore presently consists of seven managers (the "Managers"). Other than
Messrs. Chiles, Blank, Fairbanks and Fagerstal, none of the Managers is an
officer or employee of the Company. Up to four Managers may be designated by a
majority in interest of the Group A Members (at the date hereof, SEACOR Rigs, a
wholly owned subsidiary of SEACOR), up to two Managers may be designated by a
majority in interest of the Group B Members (at the date hereof, COI) and up to
one Manager may be designated by a majority in interest of the Group C Members
(each as hereinafter defined). See "Certain Relationships and Related
Transactions--Operating Agreement--Governance." Managers are elected by the
respective Group A Members, Group B Members or Group C Members to serve until
their successors are duly elected and qualified, or until their earlier death,
resignation, disqualification or removal from office. Information with respect
to the current Managers of Chiles Offshore is set forth below.

27
<PAGE>
<TABLE>
<CAPTION>
AGE AS OF MANAGER
NAME MARCH 1, 1999 SINCE POSITION
- ----------------------------- --------------------- ------------- ----------------------------------------
<S> <C> <C> <C>
Charles Fabrikant........... 54 1997 Chairman of the Management
Committee
Randall Blank............... 48 1997 Manager, Vice President and Treasurer
William E. Chiles........... 50 1997 Manager, President and Chief Executive
Officer
Dick H. Fagerstal........... 38 1997 Manager, Senior Vice President, Chief
Financial Officer and Secretary
Jonathan B. Fairbanks....... 32 1997 Manager and Vice President
Timothy J. McKeand.......... 49 1997 Manager
Robert J. Pierot, Jr........ 40 1997 Manager

</TABLE>

Charles Fabrikant has been the Chairman of the Management Committee
since August 1997 and has served as a director of Chiles Offshore Finance Corp.
since its formation in April 1998. Mr. Fabrikant has been Chairman of the Board
and Chief Executive Officer of SEACOR, the parent of the Company, since December
1989, and has served as a director of certain of SEACOR's subsidiaries since
December 1989. He has been President of SEACOR since October 1992 and a director
and President of SEACOR Rigs since August 1997. For more than the past five
years, Mr. Fabrikant has been the Chairman of the Board and Chief Executive
Officer of SCF Corporation and President of Fabrikant International Corporation,
each a privately owned corporation engaged in marine operations and investments.
Mr. Fabrikant is a licensed attorney admitted to practice in the State of New
York and in the District of Columbia.

Randall Blank has served as Vice President and Treasurer and a Manager
of Chiles Offshore since August 1997 and has served as a director of Chiles
Offshore Finance Corp. since its formation in April 1998. Mr. Blank has been
Executive Vice President and Chief Financial Officer of SEACOR since December
1989 and has been its Secretary since October 1992. In addition, Mr. Blank has
been a director of certain of SEACOR's subsidiaries since January 1990. Mr.
Blank has served as a director and Vice President of SEACOR Rigs since August
1997.

William E. Chiles has served as the President and Chief Executive
Officer and a Manager of Chiles Offshore since August 1997. He has also served
as the President and Chief Executive Officer of each of Chiles Offshore Finance
Corp., Chiles Columbus LLC and Chiles Magellan LLC, and as a director of Chiles
Offshore Finance Corp., since their formation in April 1998. In March 1997, Mr.
Chiles and Donald B. Gregg led the formation of COI. Mr. Chiles has extensive
management experience in offshore drilling operations and until March 1997, was
Senior Vice President--Drilling Operations of Cliffs Drilling Company,
responsible for the operation of its worldwide fleet, and President and CEO of
Southwestern Offshore Corporation, its wholly owned subsidiary. From 1992 to May
1996, Mr. Chiles was President and Chief Executive Officer of Southwestern
Offshore Corporation, a company he founded in 1992 and which was acquired by
Cliffs Drilling Company in 1996. Mr. Chiles co-founded Chiles Offshore
Corporation in 1987 and in 1977 he co-founded Chiles Drilling Company, each of
which was an offshore contract drilling company.

Dick H. Fagerstal has served as the Senior Vice President and Chief
Financial Officer and a Manager of Chiles Offshore since August 1997. Mr.
Fagerstal has also served as the Secretary of Chiles Offshore since February
1998. He has also served as the Senior Vice President, Chief Financial Officer
and Secretary of each of Chiles Offshore Finance Corp., Chiles Columbus LLC and
Chiles Magellan LLC, and as a director of Chiles Offshore Finance Corp., since
their formation in April 1998. Mr. Fagerstal serves as Vice President, Finance
of SEACOR but devotes a substantial portion of his time to the financial affairs
of the Company. Until the end of July 1997 and for the previous 12 years, Mr.
Fagerstal worked as a bank officer with Den norske Bank ASA, New York Branch
(and its predecessor Den norske Creditbank AS), which is one of the world's
largest lenders to companies involved in the offshore service industry. During
the last seven years in such position, Mr. Fagerstal had primary responsibility
for offshore and shipping client relationships in the North American market
covering many of the offshore drilling rig and offshore supply vessel companies.

28
<PAGE>
Jonathan B. Fairbanks has been a Manager of Chiles Offshore since
August 1997 and a director of Chiles Offshore Finance Corp. since its formation
in April 1998. He served as Secretary of Chiles Offshore from August 1997 until
February 1998 and has served as Vice President of Chiles Offshore since February
1998. Mr. Fairbanks has been a partner in Bassoe Offshore A/S, a brokerage firm
serving the offshore drilling and service industry, since 1990.

Timothy J. McKeand has been a Manager of Chiles Offshore since December
1997 and a director of Chiles Offshore Finance Corp. since its formation in
April 1998. Mr. McKeand has been Vice President, Marketing of SEACOR since 1989
and has been Vice President of certain of SEACOR's subsidiaries that are active
in domestic operations.

Robert J. Pierot, Jr. has been a Manager of Chiles Offshore since
December 1997 and a director of Chiles Offshore Finance Corp. since its
formation in April 1998. Mr. Pierot is a director of Jacq. Pierot Jr. & Sons,
Inc., a private corporation engaged in marine brokerage and marine appraisals.
Mr. Pierot also serves as President of Pierot Enterprises, Inc., a closely held
corporation engaged in marine advisory services, including sales and purchases
of marine assets and marine asset appraisals.

EXECUTIVE OFFICERS

The executive officers of Chiles Offshore are elected by the Management
Committee, and the executive officers of each of Chiles Columbus LLC and Chiles
Magellan LLC are elected by its sole member and manager (Chiles Offshore), in
each case to serve until their successors are duly elected and qualified, or
until their earlier death, resignation, disqualification or removal from office.
The executive officers of Chiles Offshore Finance Corp. are elected annually by
its board of directors to serve until the next annual meeting of the board of
directors, or until their successors are duly elected and qualified, or until
their earlier death, resignation, disqualification or removal from office.
Information with respect to the current executive officers of the Company is set
forth below.

<TABLE>
<CAPTION>
AGE AS OF
NAME MARCH 1, 1999 POSITION
- -------------------------------- --------------- -------------------------------------------------------
<S> <C> <C>
William E. Chiles............... 50 President and Chief Executive Officer
Dick H. Fagerstal............... 38 Senior Vice President, Chief Financial Officer and
Secretary
Donald B. Gregg ................ 60 Senior Vice President--Operations and Engineering
William H. Hopkins.............. 57 Vice President--Human Resources
William A. Thorogood............ 54 Vice President--Controller and Assistant Secretary

</TABLE>

29
<PAGE>
their formation in April 1998. Mr. Fagerstal serves as Vice President, Finance
of SEACOR but devotes a substantial portion of his time to the financial affairs
of the Company. Until the end of July 1997 and for the previous 12 years, Mr.
Fagerstal worked as a bank officer with Den norske Bank ASA, New York Branch
(and its predecessor Den norske Creditbank AS), which is one of the world's
largest lenders to companies involved in the offshore service industry. During
the last seven years in such position, Mr. Fagerstal had primary responsibility
for offshore and shipping client relationships in the North American market
covering many of the offshore drilling rig and offshore supply vessel companies.

Donald B. Gregg has served as the Senior Vice President--Operations and
Engineering of Chiles Offshore since August 1997 and of Chiles Offshore Finance
Corp., Chiles Columbus LLC and Chiles Magellan LLC since their formation in
April 1998. He joined with Mr. Chiles in the formation of COI in March 1997. In
1994, Mr. Gregg formed and served as the President of International Renovators,
Inc., a company which provided technical assistance, engineering and regulatory
consulting services to the offshore drilling industry, until March 1997. Until
May 1994, Mr. Gregg was employed in various positions at Chiles Drilling Company
and its successors, including Vice President--Engineering, Vice
President--Operations and Vice President--Marketing.

William H. Hopkins has served as the Vice President--Human Resources of
Chiles Offshore since August 1997 and of Chiles Offshore Finance Corp., Chiles
Columbus LLC and Chiles Magellan LLC since their formation in April 1998. From
1995 to 1997, Mr. Hopkins served as an area executive and senior consultant for
Right Management Consultants, an international human resources management
consulting firm providing services to the contract drilling and other oilfield
service industries. From 1992 to 1995, Mr. Hopkins was Director of Safety,
Training and Environmental Management of Tidewater, Inc., a major oilfield
service company.

William A. Thorogood has served as the Vice President--Controller of
Chiles Offshore since December 1997 and as Assistant Secretary of Chiles
Offshore since February 1998. He has also served as the Vice
President--Controller and Assistant Secretary of each of Chiles Offshore Finance
Corp., Chiles Columbus LLC and Chiles Magellan LLC since their formation in
April 1998. From December 1993 until March 1997, Mr. Thorogood served as Vice
President--Finance of Southwestern Offshore Corporation, which became a
subsidiary of Cliffs Drilling Company in May 1996. Mr. Thorogood is a certified
public accountant.

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

The following table shows for the fiscal year ended December 31, 1998
(and, in the case of the Chief Executive Officer, the fiscal year ended December
31, 1997) the cash compensation paid by the Company, and a summary of certain
other compensation paid, earned or accrued for such year, to its Chief Executive
Officer and each of the Company's three other most highly compensated executive
officers as of December 31, 1998 (collectively, the "Named Executive Officers")
for service in all capacities with the Company, including its subsidiaries.

30
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
AWARDS
-----------------
ANNUAL
COMPENSATION(2)(3) SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS OPTIONS (#)(4) COMPENSATION(5)
--------------------------------------- -------- ------------ ---------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
William E. Chiles 1998 $200,000 $16,667 630 Units $6,247
President and Chief Executive 1997 97,984 -- -- 639
Officer
Donald B. Gregg 1998 120,000 10,000 630 Units 2,606
Senior Vice President -
Operations and Engineering
William H. Hopkins 1998 100,200 8,350 440 Units 1,378
Vice President - Human
Resources
William A. Thorogood 1998 100,000 8,333 440 Units 2,231
Vice President - Controller
and Assistant Secretary

</TABLE>

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

(1) The services of Dick H. Fagerstal, an executive officer of the Company,
are provided by SEACOR pursuant to the Services Agreement (as
hereinafter defined). Pursuant to the Services Agreement, the Company
pays a management fee to SEACOR for Mr. Fagerstal's services. The
Company does not pay Mr. Fagerstal directly for his services as an
executive officer of the Company. See "Certain Relationships and
Related Transactions--Services Agreement."
(2) Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total
annual salary reported for the Named Executive Officer.
(3) Amounts include salary and bonus earned, as well as all deferred
portions of bonuses based on service during the respective year
indicated by the Named Executive Officers.
(4) Options were granted to the Named Executive Officers in March 1998
pursuant to the Option Plan referred to below. One "unit" is equivalent
to a .001 Membership Interest in Chiles Offshore on a fully diluted
basis. See "--Membership Interest Option Plan."
(5) The amounts shown for 1998 include (i) the Company's contributions
under the Retirement Plan referred to below in the following amounts on
behalf of the following Named Executive Officers: Mr. Chiles, $3,333;
Mr. Gregg, $2,606; Mr. Hopkins, $1,378; and Mr. Thorogood, $2,231 and
(ii) life insurance premiums paid by the Company on behalf of Mr.
Chiles in the amount of $2,914.

RETIREMENT PLAN

Effective May 1, 1998, the Company adopted a defined contribution plan
(the "Retirement Plan"), designed to qualify under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"), covering substantially
all of its employees. Pursuant to the Retirement Plan, the Company matches
employees' contributions to the Retirement Plan in an amount equal to 50% of
such contributions, up to 6% of the participant's eligible compensation, subject
to a vesting schedule that entitles the employee to a percentage of the matching
contributions based upon years of service.

EMPLOYMENT AGREEMENT

William E. Chiles is presently serving as President and Chief Executive
Officer of the Company under an Employment Agreement, effective as of November
1, 1997, between Mr. Chiles and the Company (the "Employment Agreement"),

31
<PAGE>
pursuant to which Mr. Chiles will continue to serve in such capacity until
November 2000 at his current base salary of $200,000 per annum. The Employment
Agreement also provides Mr. Chiles severance benefits, disability and health
insurance, approximately $1.2 million in term life insurance, reimbursement for
various expenses and such other compensation, including bonuses, that may be
agreed to by the Management Committee of Chiles Offshore, in its sole
discretion. The Employment Agreement provides that if Mr. Chiles's employment is
terminated by the Company without Cause (as therein defined), including any
termination that is deemed to constitute a constructive termination without
Cause thereunder, the Company will be obligated, subject to certain early
termination provisions, to pay Mr. Chiles (i) two times the Average Compensation
(as therein defined) (which amount shall be payable in 24 equal monthly
payments) and (ii) any unpaid incentive bonuses and benefits awarded or accrued
up to the date of termination (which amount shall be payable within 30 days
after the date of termination). If the Company so terminates Mr. Chiles's
employment without Cause within nine months before or after a Change of Control
(as therein defined) of the Company, the Employment Agreement provides that the
amount due to Mr. Chiles pursuant to clause (i) of the preceding sentence shall
be increased to three times the Average Compensation (which amount shall be
payable in 36 equal monthly payments). Under the Employment Agreement, Mr.
Chiles's salary will be reviewed for adjustment annually in accordance with
industry standards, taking into account his performance, the Company's scope of
operations, industry conditions and the overall performance of the Company
relative to its peers.

MANAGER COMPENSATION

Managers of Chiles Offshore and directors of Chiles Offshore Finance
Corp. currently are not paid any fees or additional compensation for service as
members of the Management Committee or any committee thereof or the board of
directors or any committee thereof, respectively, irrespective of whether or not
they are employees of the Company or of SEACOR or any other affiliated
companies. Each Manager of Chiles Offshore who is not an employee of the Company
is paid the reasonable costs and expenses incurred by such Manager in relation
to his services as such.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal year 1998, the compensation committee of the Management
Committee of Chiles Offshore (the "Compensation Committee") consisted of three
Managers, Charles Fabrikant, the Chairman of the Management Committee, Jonathan
B. Fairbanks and Robert J. Pierot, Jr. None of the members of the Compensation
Committee serves as an executive officer of the Company, although Jonathan B.
Fairbanks serves as Vice President of Chiles Offshore and previously served as
Secretary of Chiles Offshore from August 1997 until February 1998. Mr. Fabrikant
is also the Chairman, President and CEO of SEACOR and a director and President
of SEACOR Rigs. In addition, Mr. Fairbanks serves as a director of Bassoe Rig
Partners Ltd. ("Bassoe"), which will be paid a brokerage fee of $505,000 upon
delivery of each Rig and which has an exclusive right to broker future sale,
purchase and charter transactions with respect to the Rigs, provided that its
rates are not in excess of rates charged by unrelated third parties in similar
transactions. See "Certain Relationships and Related Transactions--Brokerage
Fee."

MEMBERSHIP INTEREST OPTION PLAN

The Company has adopted the Chiles Offshore LLC 1998 Equity Option Plan
(the "Option Plan"). The objectives of the Option Plan are (i) to attract and
retain management personnel with the training, experience and ability to enable
them to make a substantial contribution to the success of the Company's
business, (ii) to motivate management personnel by means of growth-related
incentives to achieve long range goals and (iii) to further the alignment of
interests of participants with those of the Company's equity holders through
opportunities for increased equity or equity-based ownership in the Company.

The Option Plan authorizes the issuance of options to acquire up to
5.0% of the then outstanding Membership Interests on a fully diluted basis,
without triggering pre-emptive rights under the Operating Agreement (as
hereinafter defined) of Chiles Offshore, so long as such options are exercisable
at a price that is not less than the price per percentage Membership Interest
paid in the Equity Financing. The Option Plan is administered by an Option
Committee of the Management Committee of Chiles Offshore (the "Option
Committee"). Pursuant to the Option Plan, the Company may grant to key employees
and consultants of the Company or any of the Company's subsidiaries options to
acquire Group D Membership Interests. Such options are not considered incentive

32
<PAGE>
stock options under Section 422 of the Code. The terms of any such grant will be
determined by the Option Committee and set forth in a separate grant agreement
except for such options that were granted to employees under an Initial Grant
(as defined in the Option Plan). The Option Plan sets forth the exercise price
and maximum amount of the Initial Grant. Other than the Initial Grant, the
exercise price will be at least equal to 100% of the fair market value of the
Membership Interests on the date of grant.

The Option Committee may provide that an optionee may pay for shares
upon exercise of an option: (i) in cash; (ii) by certified bank check; (iii) by
immediately available federal funds delivered to an account designated by the
Company; or (iv) by personal check of the optionee, provided that such check
will not be deemed to have been received until the Company shall have collected
thereon. The options expire ten years after the date of grant. No options
granted under the Option Plan may be transferred except under limited exceptions
to family members or trusts for the benefit of family members. See "Certain
Relationships and Related Transactions--Option Repurchase Obligation."

The following table sets forth information concerning the options to
acquire Membership Interests in Chiles Offshore that were granted during fiscal
1998 under the Option Plan to the Named Executive Officers, all of which
constitute Initial Grants under the Option Plan:

INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------------- VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL MEMBERSHIP INTEREST
UNITS OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/UNIT)(3) DATE(4) 5% 10%
- --------------------------- -------------- ------------------- ------------ ------------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
William E. Chiles......... 630 13.66% $650 March 31, 2008 $257,576 $652,702
Donald B. Gregg........... 630 13.66% 650 March 31, 2008 257,576 652,702
William H. Hopkins........ 440 9.54% 650 March 31, 2008 179,894 455,855
William A. Thorogood...... 440 9.54% 650 March 31, 2008 179,894 455,855

</TABLE>

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

(1) One "unit" is equivalent to a .001 Membership Interest in Chiles
Offshore on a fully diluted basis. The Option Plan authorizes the
issuance of options to acquire up to 5,000 such "units" which, in the
aggregate, are equivalent to 5.0% of the Membership Interests in the
Company on a fully diluted basis. As of March 1, 1999, options for 56
"units" were reserved for future Rig supervisors and options for 119
"units" were reserved for other future personnel.
(2) The percentage is based on the total of 4,612 "units" for which options
were granted to employees under the Option Plan during fiscal 1998. As
of March 1, 1999, options for 56 "units" were reserved for issuance to
future Rig supervisors and options for 119 "units" were reserved for
issuance to other future personnel.
(3) The exercise price is approximately equivalent to the price per "unit"
paid by investors on December 16, 1997 in connection with the final
phase of the Equity Financing.
(4) The options vest at a rate of 1/3 of the "units" granted per year,
beginning on the first anniversary of the date of grant. No option may
be exercised unless and until both of the Rigs are delivered by AMFELS
and accepted by the Company.

33
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth certain information with respect to each
beneficial owner, directly or indirectly, of more than five percent of the
outstanding Membership Interests in Chiles Offshore as of the date of this
Report.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER PERCENTAGE OF BENEFICIAL OWNERSHIP
- ------------------------------------------------------------------------ ----------------------------------
<S> <C>
SEACOR Offshore Rigs Inc. (1) 55.38%
1370 Avenue of the Americas
25th Floor
New York, NY 10019-4602

COI, LLC 13.85%
11200 Westheimer
Suite 410
Houston, TX 77042-3227

</TABLE>

- --------------------------
(1) SEACOR Offshore Rigs Inc. is a wholly owned subsidiary of SEACOR.

SECURITY OWNERSHIP OF MANAGEMENT AND MANAGERS

Chiles Offshore. The following table shows the amount and nature of
beneficial ownership of the Membership Interests in Chiles Offshore beneficially
owned by each Manager, each Named Executive Officer and all Managers and
executive officers of the Company as a group, as of the date of this Report.
Except as otherwise noted, the named beneficial owner has sole voting power and
sole investment power, except to the extent that authority is shared by a spouse
under applicable law, with respect to the Membership Interests shown below.

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER PERCENTAGE OF BENEFICIAL OWNERSHIP
IN CHILES OFFSHORE
- ----------------------------------------------------------------------- ---------------------------------------
<S> <C>
William E. Chiles.................................................... -- (1)
Dick H. Fagerstal.................................................... --
Charles Fabrikant.................................................... *
Randall Blank........................................................ *
Timothy J. McKeand................................................... *
Jonathan B. Fairbanks................................................ * (2)
Robert J. Pierot, Jr................................................. *
Donald B. Gregg...................................................... -- (3)
William H. Hopkins................................................... -- (4)
William A. Thorogood................................................. -- (5)
All Managers and Executive Officers as a Group....................... 2.48%

</TABLE>

- --------------------------
* Less than one percent.

(1) Mr. Chiles owns 23.01% of the equity interests of COI, which owns 13.85% of
the Membership Interests in Chiles Offshore.

(2) Mr. Fairbanks also owns 15.64% of the equity interests of COI, which owns
13.85% of the Membership Interests in Chiles Offshore.

(3) Mr. Gregg owns 7.5% of the equity interests of COI, which owns 13.85% of
the Membership Interests in Chiles Offshore.

(4) Mr. Hopkins owns 1.7% of the equity interests of COI, which owns 13.85% of
the Membership Interests in Chiles Offshore.

34
<PAGE>
(5) Mr. Thorogood owns 1.7% of the equity interests of COI, which owns 13.85%
of the Membership Interests in Chiles Offshore.

SEACOR. The following table shows the amount and nature of beneficial
ownership of the common stock, $.01 par value (the "SEACOR Common Stock"), of
SEACOR beneficially owned by each Manager, each Named Executive Officer and all
Managers and executive officers of the Company as a group, as of March 1, 1999.
Except as otherwise noted, the named beneficial owner has sole voting power and
sole investment power, except to the extent that authority is shared by a spouse
under applicable law, with respect to the SEACOR Common Stock shown below.

<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) OF CLASS
- ----------------------------------------------------- ------------------------------- -------------
<S> <C> <C>
William E. Chiles................................... -- --
Dick H. Fagerstal(2)................................ 83 *
Charles Fabrikant(3)................................ 628,600 5.10%
Randall Blank(4).................................... 54,773 *
Timothy J. McKeand(5)............................... 5,550 *
Jonathan B. Fairbanks............................... 750 *
Robert J. Pierot, Jr.(6)............................ 201,848 1.67%
Donald B. Gregg....................................... -- --
William H. Hopkins.................................... -- --
William A. Thorogood.................................. -- --
All Managers and Executive Officers as a Group........ 891,604 7.22%

</TABLE>

- --------------------------
* Less than one percent.

(1) Beneficial ownership information reflected in the table above includes
shares of SEACOR Common Stock issuable upon the exercise of outstanding
stock options exercisable within 60 days or upon conversion of SEACOR's
5-3/8% Convertible Subordinated Notes due November 15, 2006.
(2) All such shares of SEACOR Common Stock are issuable upon the exercise
of options exercisable within 60 days.
(3) Includes 397,171 shares of SEACOR Common Stock which Mr. Fabrikant may
be deemed to own through his interest in, and control of (i) Fabrikant
International Corporation ("FIC"), the record owner of 214,464 shares
of SEACOR Common Stock, (ii) Fabrikant International Profit Sharing
Trust (the "Fabrikant Trust"), the record owner of 13,120 shares of
SEACOR Common Stock, and (iii) SCF Corporation ("SCF"), the record
owner of 169,587 shares of SEACOR Common Stock. Mr. Fabrikant is the
President of FIC, a beneficiary of the Fabrikant Trust, and is the
Chairman, Chief Executive Officer and a 47% stockholder of SCF. Also
includes 196,111 shares of SEACOR Common Stock issuable upon the
exercise of options exercisable within 60 days and 20,073 shares of
restricted stock over which Mr. Fabrikant exercises sole voting power.
(4) Does not include 169,587 shares of SEACOR Common Stock owned by SCF, of
which Mr. Blank serves as President and Chief Operating Officer and
holds an approximate 7% equity interest. Mr. Blank disclaims beneficial
ownership of such shares of SEACOR Common Stock owned by SCF. Includes
37,666 shares of SEACOR Common Stock issuable upon the exercise of
options exercisable within 60 days and 5,786 shares of restricted stock
over which Mr. Blank exercises sole voting power.
(5) Includes 250 shares of SEACOR Common Stock issuable upon the exercise
of options exercisable within 60 days.
(6) All such shares of SEACOR Common Stock are owned of record by Pierot
Enterprises, Inc. ("PEI"). Mr. Pierot is the President of PEI and may
be deemed to beneficially own such shares of SEACOR Common Stock
through his interest in, and control of, PEI.

OPERATING AGREEMENT

Chiles Offshore is managed pursuant to an Amended and Restated
Operating Agreement among its Members. See "Certain Relationships and Related
Transactions--Operating Agreement."

35
<PAGE>
THE EQUITY FINANCING

At the formation of Chiles Offshore, SEACOR Rigs contributed $8.85
million in cash to the capital of the Company (which amount was paid directly to
third parties on behalf of the Company) and COI contributed $0.36 million in
cash to the capital of the Company, together with the Construction Contracts,
construction in progress, certain office equipment and other rights, properties
and liabilities with an agreed-upon value of $8.49 million. The historic cost of
such assets contributed by COI was $2.26 million. The difference between the
$8.49 million agreed-upon value and the historic cost of COI's contributed
assets, $6.23 million, has been recorded in the accompanying balance sheet as
rigs under construction and equipment. COI and a predecessor (formed in March
1997) had been organized by Mr. Chiles and its other owners for the purpose of
entering into the Construction Contracts, engaging in related rig design,
engineering, procurement and financing activities and preparing for commencement
of business operations. Pursuant to the final phase of the Equity Financing,
SEACOR Rigs contributed an additional $12.15 million in cash to the Company and
$14.0 million in cash advances previously made to the Company by SEACOR Rigs,
and the Company accepted cash subscriptions for the purchase of equity interests
from institutional and individual accredited investors aggregating $20.0
million.

CONTROLLING MEMBER

As of the date of this Report, SEACOR Rigs beneficially owns 55.38% of
the Membership Interests in Chiles Offshore. By virtue of its ownership of a
majority of the Membership Interests in Chiles Offshore, SEACOR Rigs, which is
controlled by SEACOR, will be in a position to control actions that require
consent of a Majority in Interest (as defined in the Operating Agreement) of the
Members of Chiles Offshore, and, by virtue of the terms of the Operating
Agreement, SEACOR Rigs has the right to designate the Group A Managers (as
hereinafter defined), and thus a majority of the members of the Management
Committee of Chiles Offshore. In addition, certain officers, directors or
employees of SEACOR and SEACOR Rigs serve on the Management Committee of Chiles
Offshore. See "Directors and Executive Officers of the Registrants--Management
Committee" and "--Executive Officers."

SEACOR is a major provider of offshore marine services to the oil and
gas exploration and production industry and is one of the leading providers of
oil spill response services to owners of tank vessels and oil storage,
processing and handling facilities. As of March 1, 1999, SEACOR operated a
diversified fleet of 304 vessels primarily dedicated to servicing offshore oil
and gas exploration and production facilities in the U.S. Gulf of Mexico, the
North Sea, offshore West Africa, Mexico, the Far East, Latin America and the
Mediterranean. SEACOR's offshore service vessels deliver cargo and personnel to
offshore installments, handle anchors for drilling rigs and other marine
equipment, support offshore construction and maintenance work and provide
standby support. SEACOR also furnishes vessels for special projects such as well
stimulation, seismic data gathering, freight hauling and line handling. In
connection with its offshore marine services, SEACOR, through Energy Logistics,
Inc., a joint venture with Baker Energy, a unit of the Michael Baker
Corporation, a U.S. public company, also offers logistics services for the
offshore industry, including the coordination and provision of marine, air and
land transportation, materials handling and storage, inventory control and
"just-in-time" procurement. The principal executive offices of SEACOR are
located at 11200 Westheimer, Suite 850, Houston, Texas 77042, where its
telephone number is (713) 782-5990.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Senior Vice President, Chief Financial Officer and Secretary of the
Company, Dick H. Fagerstal, who is also a Manager of Chiles Offshore and a
director of Chiles Offshore Finance Corp., serves as Vice President, Finance of
SEACOR. Mr. Fagerstal has extensive experience in arranging and structuring
financing for companies in the offshore industry. Mr. Fagerstal is primarily
responsible for managing the capitalization of the Company and the Company pays
SEACOR a management fee for the value of Mr. Fagerstal's services (together with
reimbursement of all related out-of-pocket expenses) based on a formula which,
among other things, takes into account the typical compensation for this
position and the percentage of Mr. Fagerstal's time which is allocated to
activities related to the Company. See "--Services Agreement."

Charles Fabrikant, the Chairman of the Board, President and CEO of
SEACOR and a director and President of SEACOR Rigs, serves as the Chairman of
the Management Committee of Chiles Offshore and as a director of Chiles Offshore

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<PAGE>
Finance Corp. Randall Blank, Executive Vice President, Chief Financial Officer
and Secretary of SEACOR, and a director and Vice President of SEACOR Rigs,
serves as the Vice President and Treasurer and a member of the Management
Committee of Chiles Offshore and as a director of Chiles Offshore Finance Corp.
Timothy J. McKeand, Vice President, Marketing of SEACOR, serves as a member of
the Management Committee of Chiles Offshore and as a director of Chiles Offshore
Finance Corp.

In addition to the management fee paid with respect to the services of
Mr. Fagerstal, in the event SEACOR or any of its consolidated subsidiaries,
including SEACOR Rigs, provides management, administrative, financial or
investment banking-type services to the Company or services in connection with
any future rig transactions, such SEACOR entities shall be entitled to receive
reasonable fees and reimbursement of expenses not in excess of fees charged by
unrelated third parties for comparable services.

SERVICES AGREEMENT

The Company and SEACOR have entered into a Management and
Administrative Services Agreement, dated as of February 27, 1998 (the "Services
Agreement"), pursuant to which SEACOR agreed to continue to provide the services
of Dick H. Fagerstal to assist in the management of the Company and SEACOR
agreed to perform certain administrative and technical services on behalf of the
Company. Such services include general management and financial services,
including periodic advice and consultation in connection with corporate, legal,
finance, accounting, tax, marketing, operations and other matters that may be
required for the Company's day-to-day operations. Under the Services Agreement,
the Company agreed to pay a fee to SEACOR for Mr. Fagerstal's services not to
exceed $15,000 per month and such other fees for services of others not to
exceed the reasonable value thereof and to reimburse SEACOR for all
out-of-pocket expenses related to the provision of such services. The Services
Agreement may be terminated at either party's option upon 60 days' notice to the
other party. In addition, the Company has agreed to indemnify and hold harmless
SEACOR for all claims and damages arising from the provision of services by
SEACOR under the Services Agreement, unless due to the gross negligence or
willful misconduct of SEACOR. Under the Services Agreement, the Company paid
SEACOR approximately $194,000 for services performed by SEACOR in 1998,
including the services of Mr. Fagerstal.

The Company does not currently have a policy or procedure requiring
approval of transactions with SEACOR by a majority of disinterested Managers.
However, the Services Agreement provides that the Company shall pay SEACOR fees
for management services that do not exceed fees charged by unrelated persons for
comparable services. Accordingly, while the Company does not currently
anticipate implementing any such procedures, it intends to operate in accordance
with such terms of the Services Agreement.

OPERATING AGREEMENT

SEACOR Rigs, COI and the other investors pursuant to the Equity
Financing (together with SEACOR Rigs and COI, herein referred to collectively as
the "Members" and individually as a "Member") have entered into an Amended and
Restated Operating Agreement, dated as of December 16, 1997 (as amended by
Amendment No. 1 thereto, dated effective as of April 28, 1998, the "Operating
Agreement"), providing for the management of Chiles Offshore and certain
limitations on the transferability of the Membership Interests in Chiles
Offshore held by them. The following description of certain material terms of
the Operating Agreement of Chiles Offshore, which sets forth matters related to
the conduct of the Company's business and the purpose and powers of Chiles
Offshore, its Management Committee and officers and the rights, privileges and
preferences of its Members, does not purport to be complete, and is subject to,
and is qualified in its entirety by reference to, the forms of such instruments,
copies of which are filed as exhibits to this Report.

Organization and Duration. Chiles Offshore was organized as a limited
liability company under the Delaware Limited Liability Company Act (the
"Delaware Act") on August 5, 1997. The term of the Company will continue until
the close of business on August 1, 2032 or until an earlier dissolution pursuant
to the Operating Agreement. The existence of Chiles Offshore as a separate legal
entity will continue until cancellation of the Certificate of Formation of
Chiles Offshore in the manner required by the Delaware Act.

Purpose. The purposes of Chiles Offshore, and the nature of the
business to be conducted and promoted by Chiles Offshore, are (a) to manage and

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<PAGE>
supervise either directly or through one or more other entities owned and
controlled directly or indirectly by Chiles Offshore, all aspects of the
construction of premium jackup rigs, and, upon their completion, manage all
aspects of their operation and receive therefor certain construction supervision
fees and management fees, (b) to form and act as managing general partner of any
such entity that is a partnership, (c) to engage in any other lawful act or
activity for which limited liability companies may be formed under the Delaware
Act and (d) to engage in any and all activities necessary, advisable, convenient
or incidental to the foregoing.

Restrictions on Transferability. Generally, the Members may not sell,
transfer, hypothecate or pledge any of their Membership Interests.
Notwithstanding the foregoing, a Member that is a natural person may freely
transfer his or her Membership Interests to certain immediate family members and
a Member that is not a natural person may freely transfer its Membership
Interests to certain affiliates. Members may also transfer Membership Interests
pursuant to the Right of First Offer, Tag-Along Rights and Drag-Along Rights
described below.

Right of First Offer. In the event a Member proposes to transfer its
Membership Interests to a proposed purchaser, in whole or part, each other
Member will have the option to purchase a portion of such Membership Interests
on a pro rata basis at the same price and on the same terms as such proposed
purchaser (provided that the current Members, taken as a whole, purchase the
entire interest offered for sale).

Tag-Along Rights. Generally, no Member or group of Members may sell, in
one transaction or a series of related transactions, 20% or more of all the
Membership Interests, unless the terms of such sale require that the proposed
purchaser offer to each other Member the right to participate in the sale on a
pro rata basis.

Drag-Along Rights. Generally, any Member or group of Members selling
all of their holdings aggregating more than a majority of all the Membership
Interests may require all of the other Members to sell all their Membership
Interests to the proposed purchaser on the same terms and conditions.

Pre-Emptive Rights. Generally, each Member will have a right to
purchase all or a portion of its pro rata share of additional Membership
Interests to be sold by the Company. Members have no pre-emptive rights with
respect to Membership Interests granted pursuant to the Option Plan.

"Piggyback" Registration Rights. Generally, if Chiles Offshore seeks to
register any class of its equity securities in a primary public offering under
the Securities Act pursuant to an effective registration statement, each Member
will have the right to "piggy back" or sell its Membership Interests, or shares
received in exchange therefor, as part of the registered offering.

Governance. Chiles Offshore is managed by a Management Committee
comprised of up to seven Managers. SEACOR Rigs (together with its permitted
successors or assigns, the "Group A Members") has the right to designate up to
four Managers (the "Group A Managers") and COI (together with its permitted
successors or assigns, the "Group B Members") shall designate up to two
Managers, of which one will be William E. Chiles so long as he is President and
Chief Executive Officer of the Company. In addition, the new investors pursuant
to the final phase of the Equity Financing (together with their respective
permitted successors or assigns, the "Group C Members"), by vote of the holders
of a majority of Membership Interests held by such investors, have the right to
designate one Manager. The Managers designated by SEACOR Rigs were Charles
Fabrikant, Randall Blank, Timothy J. McKeand and Dick H. Fagerstal. The Managers
designated by COI were William E. Chiles and Jonathan B. Fairbanks. The designee
of the new investors was Robert J. Pierot, Jr. The Management Committee acts by
majority vote. A quorum for taking action at any meeting of the Management
Committee requires the presence of at least four Managers. Charles Fabrikant,
Chairman, President and CEO of SEACOR, serves as the Chairman of the Management
Committee.

Officers. The Management Committee has the authority to appoint the
officers of the Company. The Management Committee may appoint such officers as
it deems appropriate, which may include a President and Chief Executive Officer,
Senior Vice President, Vice President, Chief Operating Officer, Chief Financial
Officer, Treasurer, Controller or Secretary.

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<PAGE>
Membership Interest Option Plan. The Company may issue up to five
percent (5%), on a fully-diluted basis, of additional Membership Interests in
Chiles Offshore in the form of options to employees, directors, advisors or
consultants to the Company or its subsidiaries, without triggering pre-emptive
rights under the Operating Agreement, so long as such options are exercisable at
a price that is not less than the price per percentage Membership Interest paid
in the Equity Financing. The Option Committee controls the granting and vesting
terms of any such options. See "Executive Compensation--Membership Interest
Option Plan" and "--Option Repurchase Obligation."

Limited Liability. Generally, the debts, obligations and liabilities of
a Delaware limited liability company, whether arising in contract, tort or
otherwise, are solely the debts, obligations and liabilities of the limited
liability company, and no owner of an equity interest therein is obligated
personally for any such debt, obligation or liability of the limited liability
company solely by reason of being an owner thereof.

Indemnification. The Operating Agreement provides that Chiles Offshore
will indemnify the Members, members of the Management Committee and the officers
of the Company, and certain other persons, from liabilities arising in the
course of such persons' service to the Company, provided that (i) the indemnitee
acted in good faith and in a manner which such indemnitee believed to be in or
not opposed to the interests of the Company and, with respect to any criminal
proceeding, had no reasonable cause to believe such indemnitee's conduct was
unlawful and (ii) the indemnitee's conduct did not constitute actual fraud,
gross negligence or willful or wanton misconduct. Such liabilities include all
losses, claims, demands, costs, damages, liabilities, expenses of any nature
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
in which an indemnitee may be involved, or threatened to be involved, as a party
or otherwise, arising out of or incidental to the business of the Company,
including, without limitation, liabilities under the Federal and state
securities laws.

BROKERAGE FEE

Bassoe will be paid a brokerage fee of $505,000 upon delivery of each
Rig presently under construction at AMFELS. Such brokerage fees and commissions
will be included in the cost of the Rigs paid to AMFELS. Bassoe also has an
exclusive right to broker future sale, purchase and charter transactions with
respect to the Rigs, provided that its rates are not in excess of rates charged
by unrelated third parties in similar transactions.

OPTION REPURCHASE OBLIGATION

Pursuant to the Option Plan, the Company has agreed to repurchase
options granted under the Option Plan upon the occurrence of a termination of a
participant's employment or of all consulting engagements if there has been no
initial public offering of Chiles Offshore's Membership Interests prior to such
time. The value attributed to such options under such repurchase shall be
determined by reference to the fair market value of such Membership Interests.
The determination of fair market value by the Option Committee shall be
conclusive. For a description of other terms of the Option Plan, see "Executive
Compensation--Membership Interest Option Plan."

GUARANTEE OF OFFICE LEASE

On October 1, 1997, SEACOR Marine, Inc. ("SEACOR Marine"), a subsidiary
of SEACOR, agreed to guarantee the Company's lease (the "Lease Guarantee") of
its principal office space. The Lease Guarantee obligates SEACOR Marine as if it
were the lessee of the office space, but it also allows the Company and the
lessor to modify, extend or amend such lease without notice to SEACOR Marine.

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<PAGE>
PART IV

ITEM 14.

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

(1) Financial Statements

Report of Independent Public Accountants................. 16
Consolidated Balance Sheets.............................. 17
Consolidated Statements of Operations.................... 18
Statements of Members' Equity............................ 19
Consolidated Statements of Cash Flows.................... 20
Notes to Consolidated Financial Statements............... 21

(2) Financial Statement Schedules

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

(3) Exhibit Index............................................ 46

See Exhibit Index for a list of those exhibits filed herewith,
which index also includes and identifies management contracts or
compensatory plans or arrangements required to be filed as exhibits to
this Form 10-K by Item 601(b)(10) of Regulation S-K.

(b) Reports on Form 8-K

No reports on Form 8-K were filed by any of the Registrants during the
quarterly period ended December 31, 1998.

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<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
29, 1999.

CHILES OFFSHORE LLC

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

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 29, 1999.

SIGNATURE TITLE
--------- -----

/s/ William E. Chiles President and Chief Executive Officer
- ---------------------------- (Principal Executive Officer) and Manager
William E. Chiles

/s/ Dick H. Fagerstal Senior Vice President, Chief Financial Officer and
- ---------------------------- Secretary (Principal Financial Officer) and
Dick H. Fagerstal Manager

/s/ William A. Thorogood Vice President--Controller and Assistant Secretary
- ---------------------------- (Principal Accounting Officer)
William A. Thorogood

/s/ Charles Fabrikant Chairman of the Management Committee
- ----------------------------
Charles Fabrikant

/s/ Randall Blank Manager
- ----------------------------
Randall Blank

/s/ Timothy J. McKeand Manager
- ----------------------------
Timothy J. McKeand

/s/ Robert J. Pierot, Jr. Manager
- ----------------------------
Robert J. Pierot, Jr.

/s/ Jonathan B. Fairbanks Manager
- ----------------------------
Jonathan B. Fairbanks

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<PAGE>
SIGNATURES

CHILES OFFSHORE FINANCE CORP.

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

SIGNATURE TITLE
--------- -----

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

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

/s/ William A. Thorogood Vice President--Controller and Assistant
- ---------------------------- Secretary
William A. Thorogood (Principal Accounting Officer)

/s/ Charles Fabrikant Director
- ----------------------------
Charles Fabrikant

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

/s/ Timothy J. McKeand Director
- ----------------------------
Timothy J. McKeand

/s/ Robert J. Pierot, Jr. Director
- ----------------------------
Robert J. Pierot, Jr.

/s/ Jonathan B. Fairbanks Director
- ----------------------------
Jonathan B. Fairbanks

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<PAGE>
SIGNATURES

CHILES COLUMBUS LLC

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

SIGNATURE TITLE
--------- -----

/s/ William E. Chiles President and Chief Executive Officer
- ---------------------------- (Principal Executive Officer) and President
William E. Chiles and Chief Executive Officer of Chiles
Offshore LLC, the sole Manager

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

/s/ William A. Thorogood Vice President--Controller and Assistant
- ---------------------------- Secretary
William A. Thorogood (Principal Accounting Officer)

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<PAGE>
SIGNATURES

CHILES MAGELLAN LLC

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

SIGNATURE TITLE
--------- -----

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

/s/ William A. Thorogood Vice President--Controller and Assistant
- ---------------------------- Secretary
William A. Thorogood (Principal Accounting Officer)

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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE EXCHANGE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE EXCHANGE ACT

No annual report covering the Registrants' last fiscal year (other than
this Annual Report on Form 10-K) or proxy statement, form of proxy or other
proxy soliciting materials with respect to any annual or other meeting of
security holders has been or will be sent to the Company's security holders.

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<PAGE>
EXHIBIT INDEX

3.1 Limited Liability Company Certificate of Chiles Offshore LLC
(incorporated by reference to Exhibit 3.1 to the Registrants'
Registration Statement on Form S-4 (Registration No. 333-57325))

3.2 Amended and Restated Operating Agreement, dated as of December 16,
1997, among the members of Chiles Offshore LLC (incorporated by
reference to Exhibit 3.2 to the Registrants' Registration
Statement on Form S-4 (Registration No. 333-57325))

3.3 Amendment No. 1, dated effective as of April 28, 1998, to Amended
and Restated Operating Agreement of Chiles Offshore LLC, among the
members of Chiles Offshore LLC (incorporated by reference to
Exhibit 3.3 to the Registrants' Registration Statement on Form S-4
(Registration No. 333-57325))

3.4 Certificate of Incorporation of Chiles Offshore Finance Corp.
(incorporated by reference to Exhibit 3.4 to the Registrants'
Registration Statement on Form S-4 (Registration No. 333-57325))

3.5 Bylaws of Chiles Offshore Finance Corp. (incorporated by reference
to Exhibit 3.5 to the Registrants' Registration Statement on Form
S-4 (Registration No. 333-57325))

3.6 Certificate of Formation of Chiles Columbus LLC (incorporated by
reference to Exhibit 3.6 to the Registrants' Registration
Statement on Form S-4 (Registration No. 333-57325))

3.7 Limited Liability Company Agreement of Chiles Columbus LLC
(incorporated by reference to Exhibit 3.7 to the Registrants'
Registration Statement on Form S-4 (Registration No. 333-57325))

3.8 Certificate of Formation of Chiles Magellan LLC (incorporated by
reference to Exhibit 3.8 to the Registrants' Registration
Statement on Form S-4 (Registration No. 333-57325))

3.9 Limited Liability Company Agreement of Chiles Magellan LLC
(incorporated by reference to Exhibit 3.9 to the Registrants'
Registration Statement on Form S-4 (Registration No. 333-57325))

4.1 Indenture, dated as of April 29, 1998, among the Registrants and
U.S. Bank Trust National Association, as Trustee (incorporated by
reference to Exhibit 4.1 to the Registrants' Registration
Statement on Form S-4 (Registration No. 333-57325))

4.2 Form of Note (included in Exhibit 4.1 as Exhibit B thereto)

4.3 Registration Rights Agreement, dated as of April 29, 1998, among
the Registrants, Credit Suisse First Boston Corporation and
Wasserstein Perella Securities, Inc. (incorporated by reference to
Exhibit 4.4 to the Registrants' Registration Statement on Form S-4
(Registration No. 333-57325))

10.1 Credit Agreement, dated as of April 29, 1998, by and among the
Company, Nederlandse Scheepshypotheek Bank N.V. ("Nedship") and
MeesPierson Capital Corp. ("MeesPierson"), as co-arrangers, the
banks and financial institutions named therein, Nedship, as
documentation agent and security trustee, and MeesPierson, as
administrative agent and paying agent (incorporated by reference
to Exhibit 10.1 to the Registrants' Registration Statement on Form
S-4 (Registration No. 333-57325))

10.2 Assignment, Assumption, Acknowledgement and Consent Agreement,
dated as of April 23, 1998, among the Company, the Owners and
AMFELS, Inc. (incorporated by reference to Exhibit 10.5 to the
Registrants' Registration Statement on Form S-4 (Registration No.
333-57325))

10.3+ Chiles Offshore LLC 1998 Equity Option Plan (incorporated by
reference to Exhibit 10.7 to the Registrants' Registration
Statement on Form S-4 (Registration No. 333-57325))

10.4 Escrow Agreement, dated as of April 29, 1998, among U.S. Bank
Trust National Association, as Escrow Agent, Trustee and
Collateral Agent, and the Issuers (incorporated by reference to
Exhibit 10.8 to the Registrants' Registration Statement on Form
S-4 (Registration No.
333-57325))

10.5 Escrow Security Agreement, dated as of April 29, 1998, among U.S.
Bank Trust National Association, as Collateral Agent, and the
Issuers (incorporated by reference to Exhibit 10.9 to the
Registrants' Registration Statement on Form S-4 (Registration No.
333-57325))

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<PAGE>
10.6 Securities Intermediary and Account Agreement, dated as of April
29, 1998, among U.S. Bank Trust National Association, as
Securities Intermediary, Trustee and Collateral Agent, and the
Issuers (incorporated by reference to Exhibit 10.10 to the
Registrants' Registration Statement on Form S-4 (Registration No.
333-57325))

10.7+ Employment Agreement, dated as of November 1, 1997, between the
Company and William E. Chiles (incorporated by reference to
Exhibit 10.11 to the Registrants' Registration Statement on Form
S-4 (Registration No. 333-57325))

10.8+ Management and Administrative Services Agreement, dated as of
February 27, 1998, between the Company and SEACOR SMIT Inc.
(incorporated by reference to Exhibit 10.12 to the Registrants'
Registration Statement on Form S-4 (Registration No. 333-57325))

21.1 Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 to the Registrants' Registration Statement on Form S-4
(Registration No. 333-57325))

24.1* Powers of Attorney

27.1* Financial Data Schedule

- ------------------------------
* Filed herewith
+ Management contracts or compensatory plans or arrangements

EXHIBIT 24.1

POWER OF ATTORNEY

William E. Chiles hereby designates and appoints Dick H. Fagerstal as
his attorney-in-fact, with full power of substitution and resubstitution (the
"Attorney-in-Fact"), for him and in his name, place and stead, in any and all
capacities, to execute the annual report on Form 10-K (the "Annual Report") to
be filed by Chiles Offshore LLC, Chiles Offshore Finance Corp., Chiles Columbus
LLC and Chiles Magellan LLC with the Securities and Exchange Commission and any
amendment(s) to the Annual Report, which amendment(s) may make such changes in
the Annual Report as the Attorney-in-Fact deems appropriate, and to file the
Annual Report and each such amendment to the Annual Report together with all
exhibits thereto and any and all documents in connection therewith.

Signature Title Date
--------- ----- ----

/s/ William E. Chiles President and Chief Executive March 29, 1999
- ---------------------------- Officer and Manager/Director
William E. Chiles

48
<PAGE>
POWER OF ATTORNEY

Dick H. Fagerstal hereby designates and appoints William E. Chiles as
his attorney-in-fact, with full power of substitution and resubstitution (the
"Attorney-in-Fact"), for him and in his name, place and stead, in any and all
capacities, to execute the annual report on Form 10-K (the "Annual Report") to
be filed by Chiles Offshore LLC, Chiles Offshore Finance Corp., Chiles Columbus
LLC and Chiles Magellan LLC with the Securities and Exchange Commission and any
amendment(s) to the Annual Report, which amendment(s) may make such changes in
the Annual Report as the Attorney-in-Fact deems appropriate, and to file the
Annual Report and each such amendment to the Annual Report together with all
exhibits thereto and any and all documents in connection therewith.

Signature Title Date
--------- ----- ----

/s/ Dick H. Fagerstal Senior Vice President, Chief March 29, 1999
- ---------------------------- Financial Officer and Secretary
Dick H. Fagerstal and Manager/Director

49
<PAGE>
POWER OF ATTORNEY

William A. Thorogood hereby designates and appoints William E. Chiles
and Dick H. Fagerstal and each of them (with full power to each of them to act
alone) as his attorney-in-fact, with full power of substitution and
resubstitution (the "Attorneys-in-Fact"), for him and in his name, place and
stead, in any and all capacities, to execute the annual report on Form 10-K (the
"Annual Report") to be filed by Chiles Offshore LLC, Chiles Offshore Finance
Corp., Chiles Columbus LLC and Chiles Magellan LLC with the Securities and
Exchange Commission and any amendment(s) to the Annual Report, which
amendment(s) may make such changes in the Annual Report as either
Attorney-in-Fact deems appropriate, and to file the Annual Report and each such
amendment to the Annual Report together with all exhibits thereto and any and
all documents in connection therewith.

Signature Title Date
--------- ----- ----

/s/ William A. Thorogood Vice President--Controller and March 29, 1999
- ----------------------------- Assistant Secretary
William A. Thorogood

50
<PAGE>
POWER OF ATTORNEY

Charles Fabrikant hereby designates and appoints William E. Chiles and
Dick H. Fagerstal and each of them (with full power to each of them to act
alone) as his attorney-in-fact, with full power of substitution and
resubstitution (the "Attorneys-in-Fact"), for him and in his name, place and
stead, in any and all capacities, to execute the annual report on Form 10-K (the
"Annual Report") to be filed by Chiles Offshore LLC, Chiles Offshore Finance
Corp., Chiles Columbus LLC and Chiles Magellan LLC with the Securities and
Exchange Commission and any amendment(s) to the Annual Report, which
amendment(s) may make such changes in the Annual Report as either
Attorney-in-Fact deems appropriate, and to file the Annual Report and each such
amendment to the Annual Report together with all exhibits thereto and any and
all documents in connection therewith.

Signature Title Date
--------- ----- ----

/s/ Charles Fabrikant Chairman of the Management March 29, 1999
- -------------------------- Committee/Director
Charles Fabrikant

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<PAGE>
POWER OF ATTORNEY

Randall Blank hereby designates and appoints William E. Chiles and Dick
H. Fagerstal and each of them (with full power to each of them to act alone) as
his attorney-in-fact, with full power of substitution and resubstitution (the
"Attorneys-in-Fact"), for him and in his name, place and stead, in any and all
capacities, to execute the annual report on Form 10-K (the "Annual Report") to
be filed by Chiles Offshore LLC, Chiles Offshore Finance Corp., Chiles Columbus
LLC and Chiles Magellan LLC with the Securities and Exchange Commission and any
amendment(s) to the Annual Report, which amendment(s) may make such changes in
the Annual Report as either Attorney-in-Fact deems appropriate, and to file the
Annual Report and each such amendment to the Annual Report together with all
exhibits thereto and any and all documents in connection therewith.

Signature Title Date
--------- ----- ----

/s/ Randall Blank Manager/Director March 29, 1999
- ----------------------------
Randall Blank

52
<PAGE>
POWER OF ATTORNEY

Timothy J. McKeand hereby designates and appoints William E. Chiles and
Dick H. Fagerstal and each of them (with full power to each of them to act
alone) as his attorney-in-fact, with full power of substitution and
resubstitution (the "Attorneys-in-Fact"), for him and in his name, place and
stead, in any and all capacities, to execute the annual report on Form 10-K (the
"Annual Report") to be filed by Chiles Offshore LLC, Chiles Offshore Finance
Corp., Chiles Columbus LLC and Chiles Magellan LLC with the Securities and
Exchange Commission and any amendment(s) to the Annual Report, which
amendment(s) may make such changes in the Annual Report as either
Attorney-in-Fact deems appropriate, and to file the Annual Report and each such
amendment to the Annual Report together with all exhibits thereto and any and
all documents in connection therewith.

Signature Title Date

/s/ Timothy J. McKeand Manager/Director March 29, 1999
- ----------------------------
Timothy J. McKeand

53
<PAGE>
POWER OF ATTORNEY

Robert J. Pierot, Jr. hereby designates and appoints William E. Chiles
and Dick H. Fagerstal and each of them (with full power to each of them to act
alone) as his attorney-in-fact, with full power of substitution and
resubstitution (the "Attorneys-in-Fact"), for him and in his name, place and
stead, in any and all capacities, to execute the annual report on Form 10-K (the
"Annual Report") to be filed by Chiles Offshore LLC, Chiles Offshore Finance
Corp., Chiles Columbus LLC and Chiles Magellan LLC with the Securities and
Exchange Commission and any amendment(s) to the Annual Report, which
amendment(s) may make such changes in the Annual Report as either
Attorney-in-Fact deems appropriate, and to file the Annual Report and each such
amendment to the Annual Report together with all exhibits thereto and any and
all documents in connection therewith.

Signature Title Date
--------- ----- ----

/s/ Robert J. Pierot, Jr. Manager/Director March 29, 1999
- ------------------------------
Robert J. Pierot, Jr.

54
<PAGE>
POWER OF ATTORNEY

Jonathan B. Fairbanks hereby designates and appoints William E. Chiles
and Dick H. Fagerstal and each of them (with full power to each of them to act
alone) as his attorney-in-fact, with full power of substitution and
resubstitution (the "Attorneys-in-Fact"), for him and in his name, place and
stead, in any and all capacities, to execute the annual report on Form 10-K (the
"Annual Report") to be filed by Chiles Offshore LLC, Chiles Offshore Finance
Corp., Chiles Columbus LLC and Chiles Magellan LLC with the Securities and
Exchange Commission and any amendment(s) to the Annual Report, which
amendment(s) may make such changes in the Annual Report as either
Attorney-in-Fact deems appropriate, and to file the Annual Report and each such
amendment to the Annual Report together with all exhibits thereto and any and
all documents in connection therewith.

Signature Title Date
--------- ----- ----

/s/ Jonathan B. Fairbanks Manager/Director March 29, 1999
- --------------------------------
Jonathan B. Fairbanks

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CHILES OFFSHORE LLC CONTAINED IN THE ACCOMPANYING ANNUAL
REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,515
<PP&E> 111,787
<DEPRECIATION> 62
<TOTAL-ASSETS> 178,433
<CURRENT-LIABILITIES> 4,838
<BONDS> 110,000
0
0
<COMMON> 0
<OTHER-SE> 63,595
<TOTAL-LIABILITY-AND-EQUITY> 178,433
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 823
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,387
<INCOME-PRETAX> 173
<INCOME-TAX> 0
<INCOME-CONTINUING> 173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>