Chiles Sees Royalty Relief Program as Support for Future

Chiles Offshore LLC is the operator of three of seven existing ultra-premium jackup drilling rigs, all of which currently operate in the U.S. Gulf of Mexico. The company owns two of these rigs, the Chiles Columbus and the Chiles Magellan, and operates the third, the Tonala, under a bareboat charter.

Ultra-premium jackup drilling rigs are differentiated from other jackup drilling rigs primarily by their greater water depth capabilities, an ability to extend the drilling system over larger fixed offshore platforms and more powerful mud pumps that allow them to drill wells faster and more reliably than other rigs. A fourth ultra-premium jackup rig is being built in Singapore and expected for delivery during the second quarter of 2002.

On Feb. 12 the company reported for the fourth quarter ended Dec. 31, 2000 net income of $4,401,000 on revenues of $16,752,000. In the corresponding quarter ended Dec. 31, 1999, it reported a net loss of $2,234,000 on revenues of $5,274,000.

For the 12 months ended Dec. 31, 2000, and excluding the effect of certain one time, non-cash charges related to the September 22, 2000 initial public offering of common stock, the company reported net income of $11,559,000 on revenues of $56,006,000. In the corresponding 12 months ended December 31, 1999, it reported a net loss of $3,963,000 on revenues of $8,596,000.

On July 20, 2000 the company entered into an agreement with Perforadora Central, S.A.de C.V. of Mexico, to acquire all of the equity of an entity that will own the ultra-premium jackup rig Tonala, which has been operated by Chiles under a bareboat charter since the completion of construction and final commissioning of the rig in April 2000.

Under the terms of the agreement, Chiles issued 2,679,723 shares of common stock and assume approximately $65 million of debt guaranteed by the U.S. Maritime Administration.

William Chiles, Chief Executive Officer of the Company, commented: “During the fourth quarter the Minerals and Management Service adopted a program that will give producers royalty relief for producing deep formation gas (gas produced from below 15,000 ft.). The program is effective should gas process decline to $3.50. While today’s prices are comfortably above these levels we think this program could provide significant support in the future.”