EX-99.1 4 h65252a5exv99w1.htm EX-99.1 exv99w1
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EXHIBIT 99.1
 
(PRIDE LOGO)
 
August 5, 2009
 
To Stockholders of Pride International, Inc.:
 
We are pleased to inform you that on August 4, 2009 the board of directors of Pride International, Inc. approved the spin-off of Seahawk Drilling, Inc., a wholly owned subsidiary of Pride, to Pride stockholders through a stock distribution. At the time of the spin-off, Seahawk will hold the assets and liabilities associated with Pride’s mat-supported jackup rig business. After completing the spin-off, Pride stockholders will own 100% of the outstanding common stock of Seahawk. We believe that the spin-off has the potential to facilitate Pride’s growth strategies and reduce its cost of capital, and to allow Pride to refine its focus and further enhance its reputation as a provider of premium deepwater drilling services.
 
The distribution of Seahawk common stock is expected to occur on August 24, 2009 by way of a pro rata stock dividend to Pride stockholders. Each Pride stockholder will receive 1/15 of a share of Seahawk common stock with respect to each share of Pride common stock held by such stockholder at the close of business on August 14, 2009, the record date of the spin-off. The distribution, which is subject to certain customary conditions, will be issued in book-entry form only, which means that no physical stock certificates will be issued. If you own your shares through a broker, your brokerage account will be credited with the shares of Seahawk. If you own your shares of Pride stock directly (either in book-entry form through an account with Pride’s transfer agent and/or if you hold physical stock certificates), the shares of Seahawk will be credited to you by way of direct registration to a book-entry account.
 
Stockholder approval of the spin-off is not required, nor are you required to take any action to receive your Seahawk common stock. Following the spin-off, if you are a Pride stockholder on the record date, you will own shares in each of Pride and Seahawk.
 
We have received a private letter ruling from the Internal Revenue Service and will seek an opinion from Baker Botts L.L.P. that, for U.S. federal income tax purposes, the spin-off will qualify for tax-free treatment. However, any cash that you receive in lieu of fractional shares generally will be taxable to you. It is a condition to completing the spin-off that we receive the opinion of Baker Botts L.L.P. confirming the spin-off’s tax-free status. The spin-off is also subject to other conditions, including necessary regulatory approvals.
 
Seahawk’s common stock has been authorized for listing on the NASDAQ Global Select Market under the symbol “HAWK.” Pride common stock will continue to trade on the New York Stock Exchange under the symbol “PDE.”
 
The enclosed information statement, which is being mailed to all Pride stockholders, describes the spin-off in detail and contains important information about Seahawk. We urge you to read this information statement carefully.
 
We want to thank you for your continued support of Pride, and we look forward to your support of Seahawk in the future.
 
Sincerely,
 
-s- Louis A. Raspino
LOUIS A. RASPINO
President and Chief Executive Officer
Pride International, Inc.


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(SEAHAWK LOGO)
 
August 5, 2009
 
Dear Seahawk Drilling, Inc. Stockholder:
 
It is our great pleasure to welcome you as a stockholder of Seahawk, which will become an independent publicly traded company on August 24, 2009 as a result of the spin-off from Pride International, Inc.
 
Our strategy as an independent company will be to improve the profitability, efficiency and reputation of our core business of providing jackup drilling services to the exploration and production industry in the Gulf of Mexico. We believe that our strengths, including our large jackup fleet in the Gulf of Mexico, our existing relationships with our customers and our experienced management team, will enable us to achieve our goals. As an independent company, we believe we can more effectively focus on our operations and growth strategies, and thus bring more value to you as a stockholder than we could as a subsidiary of Pride.
 
Our common stock has been authorized for listing on the NASDAQ Global Select Market under the symbol “HAWK” in connection with the spin-off.
 
We thank you in advance for your support as a holder of Seahawk common stock, and invite you to learn more about Seahawk by reviewing the enclosed information statement.
 
Sincerely,
 
-s- Randall D. Stilley
RANDALL D. STILLEY
President and Chief Executive Officer
Seahawk Drilling, Inc.


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(SEAHAWK LOGO)
 
INFORMATION STATEMENT
 
Seahawk Drilling, Inc.
 
Common Stock
 
This information statement is being furnished in connection with the spin-off by Pride International, Inc. (“Pride”) to its stockholders of Seahawk Drilling, Inc. (“Seahawk”), a wholly owned subsidiary of Pride that will hold directly or indirectly the assets and liabilities associated with Pride’s mat-supported jackup rig business. To implement the spin-off, Pride will distribute all of its shares of Seahawk common stock on a pro rata basis to the holders of Pride common stock. Each of you, as a holder of Pride common stock, will receive 1/15 of a share of Seahawk common stock with respect to each share of Pride common stock that you held at the close of business on August 14, 2009, the record date for the spin-off. The spin-off will be effective as of August 24, 2009. Immediately after the spin-off is completed, Seahawk will be an independent publicly traded company. As discussed more fully in this information statement, if you sell shares of Pride common stock in the “regular way” market after the record date and before the spin-off date, you will be selling your right to receive shares of Seahawk common stock in the spin-off. See “The Spin-Off — Trading Between the Record Date and Spin-Off Date.”
 
No vote of Pride stockholders is required in connection with this spin-off.  You are not required to send us a proxy card. Pride stockholders will not be required to pay any consideration for the shares of Seahawk common stock they receive in the spin-off, and they will not be required to surrender or exchange shares of their Pride common stock or take any other action in connection with the spin-off.
 
At the time of the spin-off, each share of Seahawk common stock will have attached to it one preferred stock purchase right, the principal terms of which are described under “Description of Capital Stock — Stockholder Rights Plan.” Where appropriate, references in this information statement to Seahawk common stock include the associated rights.
 
All of the outstanding shares of Seahawk common stock are currently owned by Pride. Accordingly, there currently is no public trading market for Seahawk common stock. Seahawk’s common stock has been authorized for listing under the ticker symbol “HAWK” on the NASDAQ Global Select Market. We anticipate that a limited market, commonly known as a “when-issued” trading market, for Seahawk common stock will develop on or shortly before the record date for the spin-off and will continue up to and including the spin-off date, and we anticipate that “regular-way” trading of Seahawk common stock will begin on the first trading day following the spin-off date.
 
In reviewing this information statement, you should carefully consider the matters described in the section entitled “Risk Factors” beginning on page 16 of this information statement.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of any of the securities of Seahawk or determined whether this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
 
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
 
The date of this information statement is August 5, 2009.


 

 
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This information statement is being furnished solely to provide information to Pride stockholders who will receive shares of our common stock in the spin-off. It is not and is not to be construed as an inducement or encouragement to buy or sell any of our securities or any securities of Pride. This information statement describes our business, the relationship between Pride and us, and how the spin-off affects Pride and its stockholders, and provides other information to assist you in evaluating the benefits and risks of holding or disposing of our common stock that you will receive in the spin-off. You should be aware of certain risks relating to the spin-off, our business and ownership of our common stock, which are described under the heading “Risk Factors.”
 
You should not assume that the information contained in this information statement is accurate as of any date other than the date set forth on the cover. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information, except in the normal course of our public disclosure obligations and practices.
 
In this information statement, we rely on and refer to information and statistics regarding the contract drilling industry. We obtained this information from independent publications or other publicly available information. Although we believe these sources are reliable, we have not independently verified and do not guarantee the accuracy and completeness of this information.
 
All industry and statistical information included in this information statement, other than information derived from our financial and accounting records, is presented as of March 31, 2009 unless otherwise indicated. Unless otherwise indicated, financial information and information derived from our accounting records which are presented as “current” are as of March 31, 2009.


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SUMMARY
 
This summary highlights selected information contained elsewhere in this information statement. This summary is not complete and does not contain all of the information that may be important to you. You should read carefully the entire information statement, including the risk factors, financial information and financial statements included herein. Unless the context requires otherwise or we specifically indicate otherwise, the terms “Seahawk,” “our company,” “we,” “our,” “ours” and “us” refer to Seahawk Drilling, Inc., a company incorporated under the laws of the state of Delaware, and its subsidiaries; and the term “Pride” refers to Pride International, Inc., a publicly traded Delaware corporation, and its subsidiaries (excluding us and any of our subsidiaries). The term “Gulf of Mexico Business” refers to Pride’s historical Gulf of Mexico operations reflected in the historical combined financial statements discussed herein and included elsewhere in this information statement. The Gulf of Mexico Business reflects the effects of certain assets and operations that will not be held by Seahawk.
 
We describe in this information statement the mat-supported jackup rig business to be held by us after the spin-off as if it were our business for all historical periods described. However, we are an entity that will not have independently conducted any operations before the spin-off. References in this document to our historical assets, liabilities, products, business or activities generally refer to the historical assets, liabilities, products, business or activities of the Gulf of Mexico Business as it was conducted as part of Pride and its subsidiaries before the spin-off. Our historical combined financial results as part of Pride contained in this information statement may not be indicative of our financial results in the future as an independent company or reflect what our financial results would have been had we been an independent company during the periods presented.
 
Our Company
 
Seahawk Drilling, Inc. operates a jackup rig business that provides contract drilling services to the oil and natural gas exploration and production industry in the Gulf of Mexico. Our fleet of mobile offshore drilling rigs consists of 20 mat-supported jackup rigs that are capable of operating in maximum water depths of up to 300 feet and drilling to depths of up to 25,000 feet. We have the second largest fleet of jackup rigs operating in the Gulf of Mexico. We contract with our customers on a dayrate basis to provide rigs and drilling crews, and we are responsible for the payment of operating and maintenance expenses. Our customers primarily consist of various independent oil and natural gas producers, drilling service providers and the national oil company in Mexico, and our competitors range from large international companies offering a wide range of drilling services to smaller companies focused on more specific geographic or technological areas.
 
Jackup rigs are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established to support the drilling platform. Once a foundation is established, the drilling platform is jacked further up the legs so that the platform is above the highest expected waves. The rig hull includes the drilling rig, jackup system, crew quarters, loading and unloading facilities, storage areas for bulk and liquid materials, helicopter landing deck and other related equipment. All of our rigs have a lower hull referred to as a “mat.” This mat is attached to the lower portion of the legs in order to provide a more stable foundation in soft bottom areas, like those encountered in certain of the shallow-water areas of the Gulf of Mexico, where independent leg rigs are prone to excessive penetration and are subject to leg damage. After the rig is towed to the drilling location, its legs are lowered until the mat contacts the seabed and the upper hull is jacked to the desired elevation above sea level. Mat-supported rigs generally are able to more quickly position themselves on the worksite and more easily move on and off location than independent leg rigs.
 
There are several factors that determine the type of rig most suitable for a particular job, the most significant of which include the water depth and bottom conditions at the proposed drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. Fourteen of our jackup rigs have a cantilever design that permits the drilling platform to be extended out from the hull to perform drilling or workover operations over some types of preexisting platforms or structures. Six of our


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jackup rigs have a slot-type design, which requires drilling operations to take place through a slot in the hull. Historically, jackup rigs with a cantilever design have maintained higher levels of utilization than rigs with a slot-type design. Our jackup rigs generally operate with crews of 15 to 40 persons and can accommodate between 48 and 88 persons when operating.
 
Our Rig Fleet
 
The following table contains information regarding our rig fleet as of July 29, 2009. All of our rigs are mat-supported jackup rigs and are currently located in the Gulf of Mexico.
 
                                     
                      Drilling
         
                Water
    Depth
         
Seahawk
  Former
      Built/
  Depth
    Rating
        Contracted
Rig Name
 
Rig Name
  Type   Upgraded   Rating     (In Feet)    
Status
  Until
 
USA
                                   
Seahawk 2601
  Pride Kansas   Cantilever   1976/1999     250       25,000     Idle   N/A
Seahawk 2600
  Pride Alaska   Cantilever   1982/2002     250       20,000     Working   September 2009
Seahawk 2500
  Pride Arizona   Slot   1981/1996     250       20,000     Stacked   N/A
Seahawk 2502
  Pride Georgia   Slot   1981/1995     250       20,000     Stacked   N/A
Seahawk 2504
  Pride Michigan   Slot   1975/2002     250       20,000     Idle   N/A
Seahawk 2602
  Pride Missouri   Cantilever   1982     250       20,000     Working   August 2009
Seahawk 2000
  Pride Alabama   Cantilever   1982     200       20,000     Stacked   N/A
Seahawk 2001
  Pride Arkansas   Cantilever   1982     200       20,000     Stacked   N/A
Seahawk 2002
  Pride Colorado   Cantilever   1982     200       20,000     Stacked   N/A
Seahawk 2003
  Pride Florida   Cantilever   1981     200       20,000     Stacked   N/A
Seahawk 2004
  Pride Mississippi   Cantilever   1981/2002     200       20,000     Idle   N/A
Seahawk 2005
  Pride Nebraska   Cantilever   1981/2002     200       20,000     Stacked   N/A
Seahawk 2006
  Pride Nevada   Cantilever   1981/2002     200       20,000     Stacked   N/A
Seahawk 2007
  Pride New Mexico   Cantilever   1982     200       20,000     Idle   N/A
Seahawk 2008
  Pride South Carolina   Cantilever   1980/2002     200       20,000     Stacked   N/A
Seahawk 800
  Pride Utah   Cantilever   1978/2002     80       15,000     Stacked   N/A
                                     
Mexico
                                   
Seahawk 3000
  Pride Texas   Cantilever   1974/1999     300       25,000     Working   September 2009
Seahawk 2501
  Pride California   Slot   1975/2002     250       20,000     Working   October 2009
Seahawk 2503
  Pride Louisiana   Slot   1981/2002     250       20,000     Working   September 2009
Seahawk 2505
  Pride Oklahoma   Slot   1975/2002     250       20,000     Working   September 2009


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Summary Recent Combined Financial Information
 
The following table shows summary combined financial data of the Gulf of Mexico Business for the periods and as of the dates indicated. The data for the six months ended June 30, 2009 and 2008 is derived from the unaudited historical financial statements of the Gulf of Mexico Business. In the opinion of our management, the unaudited combined financial statements have been prepared on the same basis as the audited combined financial statements and include all adjustments necessary to present fairly the information set forth therein. Interim results are not necessarily indicative of full year results.
 
                                 
                Six Months Ended
 
    Three Months Ended June 30,     June 30,  
    2009     2008     2009     2008  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
 
Statement of Operations Information:
                               
Revenue
  $ 77.1     $ 172.1     $ 192.8     $ 365.7  
Operating costs, excluding depreciation and amortization
    66.4       79.3       140.9       178.1  
Depreciation and amortization
    16.3       15.8       31.8       31.8  
General and administrative, excluding depreciation and amortization
    4.7       6.1       10.6       12.6  
Loss (gain) on sale of fixed assets
    0.1       0.1       0.2        
                                 
Earnings (loss) from operations
    (10.4 )     70.8       9.3       143.2  
Other income and (expense), net
    0.7       0.2       1.4       0.6  
                                 
Income from continuing operations before income taxes
    (9.7 )     71.0       10.7       143.8  
Income taxes
    1.9       (25.0 )     (5.4 )     (50.6 )
                                 
Income (loss) from continuing operations, net of tax
  $ (7.8 )   $ 46.0     $ 5.3     $ 93.2  
                                 
 
                 
    As of June 30, 2009     As of December 31, 2008  
    (Unaudited)     (Audited)  
 
Balance Sheet Information:
               
Working capital
  $ 47.2     $ 82.0  
Property and equipment, net
    596.1       612.0  
Total assets
    742.1       805.4  
Net parent funding
    505.0       551.6  


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Operating Information
 
The following table sets forth operating information for the Gulf of Mexico Business for the periods shown.
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2009     2008     2009     2008  
 
Mat-Supported Jackup Rig Operations:
                               
Operating Days
    635       1,649       1,538       3,244  
Available days
    1,820       1,911       3,620       3,822  
Utilization(1)
    35 %     86 %     42 %     85 %
Average daily revenues(2)
  $ 88,300     $ 87,700     $ 95,200     $ 90,500  
Average marketed rigs(3)
    10.0       19.3       11.2       19.7  
Other Rig Operations:
                               
Operating Days
    206       177       376       632  
Available days
    256       182       436       637  
Utilization(1)
    80 %     97 %     86 %     99 %
Average daily revenues(2)
  $ 100,300     $ 154,700     $ 123,400     $ 113,700  
Average marketed rigs(3)
    2.0       2.0       2.0       3.5  
 
 
(1) Utilization is calculated as the total number of days our rigs were under contract, known as operating days, divided by the total days in the period of determination, known as available days.
 
(2) Average daily revenues are based on total revenues divided by the total number of operating days in the period. Average daily revenues will differ from average contract dayrate due to billing adjustments for any non-productive time, mobilization fees, performance bonuses and charges to the customer for ancillary services.
 
(3) Average marketed rigs is the number of total rigs owned or managed, excluding rigs that are undergoing a shipyard life enhancement or maintenance project or have been “stacked” (i.e., minimally crewed with little or no scheduled maintenance being performed).


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Questions and Answers About Seahawk and the Spin-Off
 
Why am I receiving this document? Pride is delivering this document to you because you were a holder of Pride common stock on the record date for the spin-off. Accordingly, you are entitled to receive 1/15 of a share of our common stock with respect to every share of Pride common stock that you held on the record date. No action is required for you to participate in the spin-off.
 
What is the spin-off? The spin-off is the overall transaction of separating our company from Pride. As of the spin-off, assets and liabilities consisting primarily of Pride’s mat-supported jackup rig business will be held by us. Pride will then distribute pro rata to its stockholders shares of our common stock. As a result of the spin-off, we will become a separate public company.
 
What is Seahawk and why is Pride separating Seahawk’s business and distributing its stock? We are a new company that will own the mat-supported jackup rig operations conducted by Pride. The separation of Seahawk from Pride results in two separate companies that can each focus on maximizing opportunities for its distinct business. We believe this separation will present the opportunity for enhanced performance of each of the two companies.
 
Pride’s board of directors has determined that separating our business from Pride is in the best interests of Pride and its stockholders. For an explanation of the reasons for the spin-off and more information about our business, see “The Spin-Off — Reasons for the Spin-Off” and “Business.”
 
What is being distributed in the spin-off? Approximately 11.6 million shares of our common stock will be distributed in the spin-off, based upon the number of shares of Pride common stock outstanding on August 3, 2009. The shares of our common stock to be distributed by Pride will constitute all of the issued and outstanding shares of our common stock. At the time of the spin-off, each share of our common stock will have attached to it one preferred stock purchase right. For more information on the shares and rights being distributed in the spin-off, see “Description of Capital Stock.”
 
When will the spin-off occur? We expect that Pride will distribute the shares of Seahawk common stock on August 24, 2009 to holders of record of Pride common stock on August 14, 2009, the record date for the spin-off.
 
What do stockholders need to do to participate in the spin-off? Nothing, but we urge you to read this information statement carefully. Stockholders who hold Pride common stock as of the record date will not be required to take any action to receive Seahawk common stock in the spin-off. No stockholder approval of the spin-off is required or sought. We are not asking you for a vote, and we are not requesting you to send us a proxy card. You will not be required to make any payment, surrender or exchange of your shares of Pride common stock or to take any other action to receive your shares of Seahawk common stock.
 
If you own Pride common stock as of the close of business on the record date, Pride, with the assistance of BNY Mellon Shareowner Services, the distribution agent, will electronically issue shares of Seahawk common stock to you or to your brokerage firm on your


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behalf by way of direct registration in book-entry form. Seahawk will not issue paper stock certificates. If you are a registered stockholder (meaning you own your stock directly either through an account with Pride’s transfer agent and/or if you hold physical stock certificates), BNY Mellon Shareowner Services will mail you a book-entry account statement that reflects the number of Seahawk shares you own. If you own your Pride shares through a bank or brokerage account, your bank or brokerage firm will credit your account with the Seahawk shares.
 
Following the spin-off, stockholders whose shares are held at the transfer agent may request that their shares of either Pride or Seahawk be transferred to a brokerage or other account at any time. You should consult your broker if you wish to transfer your shares.
 
Are there conditions to the consummation of the spin-off? Yes. The spin-off is subject to the satisfaction or waiver of certain conditions. For more information, see the section entitled “The Spin-Off — Conditions to the Spin-Off” included elsewhere in this information statement. However, even if all of the conditions are satisfied, Pride has the right to terminate the spin-off if at any time the board of directors of Pride determines that the spin-off is not in the best interests of Pride and its stockholders.
 
Does Seahawk plan to pay dividends? We do not currently plan to pay a regular dividend on our common stock following the spin-off. The declaration and amount of future dividends, if any, will be determined by our Board of Directors and will depend on our financial condition, earnings, capital requirements, financial covenants, industry practice and other factors our Board of Directors deems relevant. For more information about our dividend policy, see “Dividend Policy.”
 
Will Seahawk have any debt? We will not have any long-term debt at the time of the spin-off. We have entered into a two-year $36 million revolving credit facility that will not have any outstanding borrowings at that time.
 
For information relating to our planned financing arrangements, see the section entitled “Description of Credit Facility” included elsewhere in this information statement.
 
What are the U.S. federal income tax consequences of the spin-off to Pride stockholders? Pride has received a private letter ruling from the Internal Revenue Service (“IRS”) and intends to obtain an opinion of Baker Botts L.L.P., in each case, substantially to the effect that for U.S. federal income tax purposes, the spin-off and certain related transactions will qualify under Sections 355 and/or 368 of the Internal Revenue Code of 1986, as amended (the “Code”). The private letter ruling is, and the tax opinion will be, subject to certain qualifications and limitations.
 
Assuming the spin-off so qualifies, for U.S. federal income tax purposes, no gain or loss will be recognized by you, and no amount will be included in your income (other than with respect to cash received in lieu of fractional shares), upon the receipt of shares of Seahawk common stock pursuant to the spin-off. For more information regarding the private letter ruling, the tax opinion and the potential consequences to you of the spin-off, see the section entitled “The Spin-Off — Certain U.S. Federal Income Tax


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Consequences of the Spin-Off” included elsewhere in this information statement.
 
How will I determine the tax basis I will have in the Seahawk shares I receive in the spin-off? Generally, your aggregate basis in the stock you hold in Pride and the new Seahawk shares received in the spin-off will equal the aggregate basis of Pride common stock held by you immediately before the spin-off. This aggregate basis should be allocated between your Pride common stock and the Seahawk common stock you receive in the spin-off in proportion to the relative fair market value of each on the date of the distribution. See the section entitled “The Spin-Off — Certain U.S. Federal Income Tax Consequences of the Spin-Off” included elsewhere in this information statement for more information.
 
You should consult your tax advisor about how this allocation will work in your situation (including a situation where you have purchased Pride shares at different times or for different amounts) and regarding any particular consequences of the spin-off to you, including the application of state, local and foreign tax laws.
 
What are the U.S. federal income tax consequences of the spin-off to our ability to engage in strategic transactions? We will be prohibited from taking or failing to take any action that prevents the spin-off and/or certain related transactions from being tax-free. Such actions would include, but not be limited to, any of the following actions within the two-year period following the effective time of the spin-off: (i) selling or transferring all or substantially all of the assets that constitute our mat-supported jackup rig business, (ii) issuing stock of us or any affiliate (or any instrument that is convertible or exchangeable into any such stock) except in certain permitted cases relating to employee compensation, (iii) facilitating or otherwise participating in any acquisition (or deemed acquisition) of our stock that would result in any shareholder or certain groups of shareholders owning or being deemed to own 40% or more (by vote or value) of our outstanding stock, and (iv) redeeming or otherwise repurchasing any of our stock. The foregoing actions contain exceptions for certain permitted cases, including certain transfers among us and our wholly owned subsidiaries, and in some cases allow for actions that do not exceed permitted limits.
 
These restrictions may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that may maximize the value of our business. For more information, see the sections entitled “The Spin-Off — Certain U.S. Federal Income Tax Consequences of the Spin-Off” and “Certain Relationships and Related Party Transactions — Agreements Between Us and Pride — Tax Sharing Agreement” included elsewhere in this information statement.
 
What will the relationships between Pride and Seahawk be following the spin-off? We have entered into a master separation agreement and several other agreements with Pride to effect the separation and distribution and provide a framework for our relationships with Pride. These agreements govern the relationships between Seahawk and Pride subsequent to the completion of the spin-off and provide for the allocation between Seahawk and Pride of Pride’s assets, liabilities and obligations attributable to periods prior to the spin-off. We


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cannot assure you that these agreements are on terms as favorable to us as agreements with unaffiliated third parties. For more information, see the section entitled “Certain Relationships and Related Party Transactions” included elsewhere in this information statement.
 
What if I want to sell my Pride common stock or my Seahawk common stock? You should consult with your financial advisors, such as your stockbroker, bank or tax advisor. Neither Pride nor Seahawk makes any recommendations on the purchase, retention or sale of shares of Pride common stock or the Seahawk common stock to be distributed.
 
If you decide to sell any shares after the record date, but before the spin-off, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your Pride common stock, the Seahawk common stock you will receive in the spin-off, or both. If you sell your Pride stock before the record date, you will not receive shares of Seahawk in the spin-off.
 
Where will I be able to trade shares of Seahawk common stock? There is not currently a public market for Seahawk common stock. Seahawk common stock has been authorized for listing on the NASDAQ Global Select Market under the symbol “HAWK.” We anticipate that limited trading in shares of Seahawk common stock will begin on a “when-issued” basis on or shortly before the record date and will continue up to and including through the spin-off date and that “regular-way” trading in shares of Seahawk common stock will begin on the first trading day following the spin-off date. The “when-issued” trading market will be a market for shares of Seahawk common stock that will be distributed to Pride stockholders on the spin-off date. If you owned shares of Pride common stock at the close of business on the record date, you would be entitled to shares of our common stock distributed pursuant to the spin-off. You may trade this entitlement to shares of Seahawk common stock, without the shares of Pride common stock you own, on the “when-issued” market.
 
We cannot predict the trading prices for Pride or Seahawk common stock before, on or after the spin-off date.
 
What will happen to the listing of Pride common stock? Nothing. It is expected that, after the spin-off of our company, Pride common stock will continue to be traded on the NYSE under the symbol “PDE.” The number of shares of Pride common stock you own will not change.
 
Will the spin-off affect the market price of my Pride shares? As a result of the spin-off, we expect the trading price of shares of Pride common stock following the spin-off to be lower than prior to the spin-off because the trading price will no longer reflect the value of the mat-supported jackup rig business. Furthermore, until the market has fully analyzed the value of Pride without the mat-supported jackup rig business, the price of Pride shares may experience more stock price volatility. There can be no assurance that the trading price of a share of Pride common stock after the spin-off plus the trading price of the 1/15 of a share of Seahawk common stock distributed for each share of Pride common stock will not, in the aggregate, be less than the trading price of a share of Pride common stock before the spin-off.


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Are there risks to owning Seahawk common stock? Yes. Our business is subject to both general and specific risks, including risks related to the spin-off, our relationship with Pride and our being a separate, publicly traded company. These risks are described in the section entitled “Risk Factors.” We encourage you to read that section carefully.
 
Do I have appraisal rights? No. Holders of Pride common stock have no appraisal rights in connection with the spin-off.
 
Where can Pride stockholders get more information? Before the spin-off, if you have any questions relating to the spin-off, you should contact:
 
Pride International, Inc.
Investor Relations
5847 San Felipe, Suite 3300
Houston, Texas 77057
Tel: (713) 917-2020
Fax: (713) 784-7302
 
After the spin-off, if you have any questions relating to us or the distribution of our shares, you should contact:
 
Seahawk Drilling, Inc.
Investor Relations
5847 San Felipe, Suite 1600
Houston, Texas 77057
Tel: (713) 369-7300
Fax: (713) 369-7301


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Summary of the Spin-Off
 
Distributing Company Pride International, Inc. After the spin-off, Pride will not own any shares of Seahawk common stock.
 
Distributed Company Seahawk Drilling, Inc. Currently, Seahawk is a Delaware corporation and is a wholly owned subsidiary of Pride that will hold directly or indirectly all of the assets and liabilities of Pride’s mat-supported jackup rig business. After the spin-off, Seahawk will be an independent, publicly traded company.
 
Distribution Ratio Each holder of Pride common stock will receive 1/15 of a share of Seahawk common stock for each share of Pride common stock they own as of the record date.
 
Distributed Securities Pride will distribute all of the shares of Seahawk common stock owned by Pride, which will be 100% of our common stock outstanding. At the time of the spin-off, each share of our common stock will have attached to it one preferred stock purchase right. Based on the approximately 173.7 million shares of Pride common stock outstanding on August 3, 2009, and applying the distribution ratio of 1/15 of a share of Seahawk common stock for each share of Pride common stock, approximately 11.6 million shares of Seahawk common stock will be distributed to holders of Pride common stock as of the record date.
 
Fractional Shares Fractional shares of our common stock will not be issued. If you would be entitled to receive a fractional share of our common stock in the distribution, you will instead receive a cash payment with respect to the fractional share.
 
Record Date The record date for the spin-off is 5:00 p.m., Houston time, on August 14, 2009.
 
Distribution Method Seahawk common stock will be issued only in book-entry form. No paper stock certificates will be issued.
 
Spin-Off Date The spin-off date is August 24, 2009.
 
Conditions to the Spin-Off The spin-off is subject to the satisfaction or waiver by Pride of the following conditions, among other conditions described in this information statement:
 
•  Pride will have received an opinion of counsel from Baker Botts L.L.P. satisfactory to Pride substantially to the effect that for U.S. federal income tax purposes the spin-off and certain related transactions will qualify under Sections 355 and/or 368 of the Code;
 
•  the private letter ruling issued to Pride by the IRS regarding the tax-free status of the distribution and certain related transactions shall remain effective;
 
•  the registration statement of which this information statement is a part will have become effective under the Securities Exchange Act of 1934 (the “Exchange Act”);
 
•  the actions and filings necessary or appropriate to comply with federal and state securities laws will have been taken;


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•  the NASDAQ Global Select Market will have approved for listing the shares of our common stock to be issued in the spin-off, subject to official notice of issuance;
 
•  the separation of our business from Pride’s and the distribution of Seahawk shares in the spin-off will not violate or result in a breach of any law or any material agreements of Pride;
 
•  no court or other order or other legal or regulatory restraint will exist that prevents, or materially limits the benefits of, completion of the separation or spin-off;
 
•  all consents and governmental or other regulatory approvals required in connection with the transactions contemplated by the master separation agreement will have been received and will remain in full force and effect;
 
•  each of the ancillary agreements related to the separation and the distribution will have been entered into before the spin-off and will not have been materially breached by the parties; and
 
•  the spin-off will not violate the terms of any Pride debt agreement.
 
The fulfillment of the foregoing conditions does not create any obligations on Pride’s part to effect the spin-off, and the Pride board of directors has reserved the right, in its sole discretion, to abandon, modify or change the terms of the spin-off, including by accelerating or delaying the timing of the consummation of the spin-off, at any time prior to the spin-off date.


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Summary Historical Combined Financial and Operating Information
 
The following tables present summary historical combined financial information and operating information of the Gulf of Mexico Business. The term “Gulf of Mexico Business” refers to Pride’s historical Gulf of Mexico operations reflected in the historical combined financial statements discussed herein and included elsewhere in this information statement. The Gulf of Mexico Business reflects the effects of certain assets and operations that will not be held by Seahawk, including operations related to two independent leg jackup rigs, two semi-submersible rigs and deepwater drilling services management contracts for the Thunderhorse, Mad Dog and Holstein rigs. See “Unaudited Pro Forma Combined Financial Information” for further description of the assets of Pride that will not be held by Seahawk but are reflected in the historical combined financial statements of the Gulf of Mexico Business.
 
We derived the historical combined statement of operations information for each of the years in the three-year period ended December 31, 2008, and the balance sheet information as of December 31, 2007 and 2008, from the audited combined financial statements of the Gulf of Mexico Business included elsewhere in this information statement. We derived the balance sheet information as of December 31, 2006 and the historical combined statement of operations information for the year ended December 31, 2005 from audited combined financial statements of the Gulf of Mexico Business not included in this information statement. We derived the historical combined statement of operations information for the Gulf of Mexico Business for the year ended December 31, 2004 and the balance sheet information as of December 31, 2004 and 2005 and March 31, 2008 from unaudited combined financial statements of the Gulf of Mexico Business. We derived the historical combined statement of operations information for the three months ended March 31, 2009 and 2008 and the balance sheet information as of March 31, 2009 from the unaudited combined financial statements of the Gulf of Mexico Business included elsewhere in this information statement.
 
The summary historical combined financial information and operating information presented below should be read in conjunction with the combined financial statements of the Gulf of Mexico Business and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this information statement. The financial information may not be indicative of our future performance and does not necessarily reflect what the financial position and results of operations would have been had we operated as a separate, stand-alone entity during the periods presented, including changes that will occur in our operations as a result of our spin-off from Pride (amounts in millions).
 
                                                         
    Three Months Ended March 31,     Year Ended December 31,  
    2009     2008     2008     2007     2006     2005     2004  
    (Unaudited)     (Unaudited)                             (Unaudited)  
 
Statement of Operations Information:
                                                       
Revenue
  $ 115.7     $ 193.6     $ 681.8     $ 707.2     $ 639.5     $ 423.0     $ 326.1  
Operating costs, excluding depreciation and amortization
    74.5       98.8       343.3       349.9       299.3       257.9       200.4  
Depreciation and amortization
    15.5       16.0       62.5       62.8       54.7       51.3       53.6  
General and administrative, excluding depreciation and amortization
    5.9       6.5       36.7       25.7       17.7       13.9       9.9  
Impairment expense
                                        3.6  
(Gain) loss on sale of fixed assets
    0.1       (0.1 )     0.1       (0.4 )     (0.4 )     (2.1 )      
                                                         
Earnings from operations
    19.7       72.4       239.2       269.2       268.2       102.0       58.6  
Other income and (expense), net
    0.7       0.4       (2.6 )     (0.8 )     (1.6 )     0.8       9.2  
                                                         
Income from continuing operations before income taxes
    20.4       72.8       236.6       268.4       266.6       102.8       67.8  
Income taxes
    (7.3 )     (25.6 )     (82.9 )     (94.9 )     (95.7 )     (36.6 )     (24.3 )
                                                         
Income (loss) from continuing operations, net of tax
  $ 13.1     $ 47.2     $ 153.7     $ 173.5     $ 170.9     $ 66.2     $ 43.5  
                                                         


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    As of March 31,     As of December 31,  
    2009     2008     2008     2007     2006     2005     2004  
    (Unaudited)     (Unaudited)                       (Unaudited)     (Unaudited)  
 
Balance Sheet Information:
                                                       
Working capital
  $ 73.7     $ 125.2     $ 82.0     $ 80.6     $ 54.5     $ 95.8     $ 46.4  
Property and equipment, net
    610.1       698.9       612.0       711.5       670.9       579.3       628.7  
Total assets
    781.2       898.7       805.4       893.1       823.4       725.4       727.1  
Net parent funding
    540.2       677.2       551.6       644.5       579.7       560.2       595.0  
 
Operating Information
 
The following table sets forth operating information for the Gulf of Mexico Business for the periods shown.
 
                                         
    Three Months Ended
       
    March 31,     Year Ended December 31,  
    2009     2008     2008     2007     2006  
 
Mat-Supported Jackup Rig Operations:
                                       
Operating Days
    903       1,595       6,125       5,900       6,327  
Available days
    1,800       1,911       7,577       7,665       7,653  
Utilization(1)
    50 %     83 %     81 %     77 %     83 %
Average daily revenues(2)
  $ 99,600     $ 93,500     $ 90,400     $ 93,600     $ 86,500  
Average marketed rigs(3)
    12.3       20.0       17.4       19.2       18.8  
Other Rig Operations(4):
                                       
Operating Days
    170       455       998       1,711       1,806  
Available days
    180       455       1,005       1,910       2,190  
Utilization(1)
    94 %     100 %     99 %     90 %     82 %
Average daily revenues(2)
  $ 151,400     $ 97,800     $ 128,600     $ 90,600     $ 51,000  
Average marketed rigs(3)
    2.0       5.0       2.7       4.8       5.0  
 
 
(1) Utilization is calculated as the total number of days our rigs were under contract, known as operating days, divided by the total days in the period of determination, known as available days.
 
(2) Average daily revenues are based on total revenues divided by the total number of operating days in the period. Average daily revenues will differ from average contract dayrate due to billing adjustments for any non-productive time, mobilization fees, performance bonuses and charges to the customer for ancillary services.
 
(3) Average marketed rigs is the number of total rigs owned or managed, excluding rigs that are undergoing a shipyard life enhancement or maintenance project or have been “stacked” (i.e., minimally crewed with little or no scheduled maintenance being performed).
 
(4) Other Rig Operations include two independent leg rigs, three deepwater drilling management contracts and one semisubmersible rig operated by the GOM business that will be retained by Pride after the spin-off. Management of the three deepwater drilling management contracts was transferred to another division of Pride in April 2008 and the management of the semisubmersible rig was transferred to another division of Pride in April 2007.


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Summary Unaudited Pro Forma Combined Financial Information
 
We derived the following summary unaudited pro forma combined financial information from our unaudited pro forma combined financial statements included elsewhere in this information statement. The unaudited pro forma combined statements of operations for the year ended December 31, 2008 and the three months ended March 31, 2009 include adjustments to give effect to the deemed transfer of certain assets and operations that will not be held by Seahawk as if such transfers occurred on January 1, 2008. The unaudited pro forma combined balance sheet information includes adjustments to give effect to the deemed transfer of certain assets and operations that will not be held by Seahawk as if such transfers occurred on March 31, 2009.
 
The unaudited pro forma financial information below adjusts the financial position and results of operations of the Gulf of Mexico Business to give effect to the following:
 
  •  The elimination of operations related to our drilling services management contracts for the Thunderhorse, Mad Dog and Holstein rigs, all of which were managed by the Gulf of Mexico Business until April 2008 but will be retained by Pride.
 
  •  The elimination of operations related to two independent leg jackup rigs, the Pride Tennessee and Pride Wisconsin, which were managed by the Gulf of Mexico Business but will be retained by Pride.
 
  •  The tax effect of the aforementioned adjustments using the applicable tax rate.
 
The unaudited pro forma, as adjusted financial information below is further adjusted to give effect to the following transactions relating to the spin-off of Seahawk to Pride stockholders:
 
  •  The issuance by us to Pride, in connection with certain transactions relating to the spin-off, of 11,580,249 shares of our common stock, and the distribution of such shares to the holders of Pride common stock.
 
  •  An estimated cash contribution by Pride to Seahawk to achieve the targeted working capital (defined as total current assets less total current liabilities) of $85 million as set forth in the master separation agreement, as though the working capital adjustment were effected at March 31, 2009.
 
  •  The transfer by Pride to Seahawk of certain capital spares under the master separation agreement.
 
  •  The effect of certain alternative minimum tax credits generated by Seahawk’s business to which Seahawk will be entitled after the spin-off.
 
The pro forma combined balance sheet does not reflect contingent obligations relating to tax assessments from the Mexican government. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates — Income Taxes” for more information about these tax assessments, including the amounts assessed to date and anticipated potential assessments.
 
There are no differences between the pro forma statement of operations information and the pro forma, as adjusted statement of operations information, except with respect to earnings per share. To avoid redundancy, only the pro forma, as adjusted statement of operations information is presented below.


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We present the unaudited pro forma combined financial information for informational purposes only. It does not purport to represent what our financial position or results of operations would actually have been had the pro forma adjustments in fact occurred on the assumed dates or to project our financial position at any future date or results of operations for any future period. The following information should be read in conjunction with “Selected Historical Combined Financial Information,” “Unaudited Pro Forma Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and related notes included elsewhere in this information statement (amounts in millions).
 
                 
    Seahawk Pro Forma
 
    as Adjusted  
    Three Months
    Year
 
    Ended
    Ended
 
    March 31,
    December 31,
 
    2009     2008  
 
Statement of Operations Information:
               
Revenue
  $ 90.0     $ 553.6  
Operating costs, excluding depreciation and amortization
    66.8       302.7  
Depreciation and amortization
    14.2       56.9  
General and administrative, excluding depreciation and amortization
    5.3       32.7  
(Gain) loss on sale of fixed assets
    0.1       0.1  
                 
Earnings from operations
    3.6       161.2  
Other income and (expense), net
    0.7       (2.7 )
                 
Income from continuing operations before income taxes
    4.3       158.5  
Income taxes
    (1.7 )     (55.5 )
                 
Income from continuing operations, net of tax
  $ 2.6     $ 103.0  
                 
Pro forma earnings per share:
               
Basic
  $ 0.22     $ 8.90  
Diluted
  $ 0.22     $ 8.90  
Weighted average shares used in calculated earnings per share:
               
Basic
    11.6       11.6  
Diluted
    11.6       11.6  
 
                 
          Seahawk Pro Forma
 
    Seahawk Pro Forma     as Adjusted  
    March 31,
    March 31,
 
    2009     2009  
 
Balance Sheet Information:
               
Working capital
  $ 56.0     $ 82.2  
Property and equipment, net
    529.5       540.8  
Total assets
    682.0       721.7  
Net parent funding/stockholders’ equity
    459.0       537.9  


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RISK FACTORS
 
You should carefully consider each of the following risks and all of the information set forth in this information statement. If any of the following risks and uncertainties develop into actual events, our business, financial condition, results of operations or cash flows could be materially adversely affected.
 
Risks Related to Our Business
 
A material or extended decline in expenditures by oil and natural gas companies due to a decline or volatility in crude oil and natural gas prices, a decrease in demand for crude oil and natural gas or other factors may reduce demand for our services and substantially reduce our profitability or result in our incurring losses.
 
The profitability of our operations depends upon conditions in the oil and natural gas industry, and particularly the level of natural gas exploration, development and production activity in the shallow waters of the Gulf of Mexico. Crude oil and natural gas prices and market expectations regarding potential changes in these prices significantly affect this level of activity. However, higher commodity prices do not necessarily translate into increased drilling activity because our customers’ expectations of future commodity prices typically drive demand for our rigs. Crude oil and natural gas prices are volatile. Commodity prices in the Gulf of Mexico are directly influenced by many factors beyond our control, including:
 
  •  the demand for crude oil and natural gas;
 
  •  the cost of exploring for, developing, producing and delivering crude oil and natural gas in the Gulf of Mexico, and the relative cost of onshore production or importation of natural gas;
 
  •  expectations regarding future energy prices;
 
  •  advances in exploration, development and production technology;
 
  •  government regulations;
 
  •  local and international political, economic and weather conditions;
 
  •  the ability of OPEC to set and maintain production levels and prices;
 
  •  the level of production in non-OPEC countries;
 
  •  domestic and foreign tax policies;
 
  •  the development and exploitation of alternative fuels and the competitive position of natural gas as a source of energy compared with other energy sources;
 
  •  the policies of various governments regarding exploration and development of their oil and natural gas reserves;
 
  •  acts of terrorism in the United States or elsewhere; and
 
  •  the worldwide military and political environment and uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in the Middle East and other oil and natural gas producing regions.
 
In addition, continued hostilities in the Middle East and the occurrence or threat of terrorist attacks against the United States or other countries could have a negative impact on the economies of the United States and those of other countries. The ongoing slowdown in economic activity has reduced worldwide demand for energy and could result in an extended period of lower crude oil and natural gas prices. Lower crude oil and natural gas prices combined with the inability of our customers to obtain financing for drilling projects has depressed the levels of exploration, development and production activity. Even during periods of high commodity prices, customers may cancel or curtail their drilling programs, or reduce their levels of capital expenditures for exploration and production for a variety of reasons, including their lack of success in exploration efforts. These factors could cause our revenues and margins to decline, decrease daily rates and


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utilization of our rigs and limit our future growth prospects. Any significant decrease in daily rates or utilization of our rigs could materially reduce our revenues and profitability. In addition, these risks could increase instability in the financial and insurance markets and make it more difficult for us to access capital and to obtain insurance coverages that we consider adequate or are otherwise required by our contracts.
 
The global financial crisis may have impacts on our business and financial condition that we currently cannot predict.
 
The recent worldwide financial and credit crisis has reduced the availability of liquidity and credit to fund the continuation and expansion of industrial business operations worldwide. The shortage of liquidity and credit combined with recent substantial losses in worldwide equity markets could lead to an extended worldwide economic recession or depression. This credit crisis and the related instability in the global financial system has had, and may continue to have, an impact on our business and our financial condition. We may face significant challenges if conditions in the financial markets do not improve. Our ability to access the capital markets may be severely restricted at a time when we would like, or need, to access such markets, which could have an impact on our flexibility to react to changing economic and business conditions. The financial and credit crisis could have an impact on the lenders under our revolving credit facility, on our customers or on our vendors, causing them to fail to meet their obligations to us.
 
Certain customers account for a significant portion of our revenues. The loss of a significant customer could have a material adverse impact on our financial condition and results of operations.
 
Our contract drilling business is subject to the usual risks associated with having a limited number of customers for our services. In Mexico, our only customer is PEMEX Exploración y Producción (“PEMEX”), a unit of the state-owned national company that owns all oil reserves in Mexico. PEMEX accounted for 58%, 56% and 31% of our total pro forma revenue for the years ended December 31, 2008, 2007 and 2006, respectively, and PEMEX accounted for 54% of our total pro forma revenue for the three months ended March 31, 2009, compared to 65% for the three months ended March 31, 2008. In addition to PEMEX, Applied Drilling Technology, Inc. (“ADTI”) accounted for 13%, 4%, 12% and 12% of our total pro forma revenue for the years ended December 31, 2008, 2007 and 2006 and the three months ended March 31, 2009, respectively. We currently have no master agreements with PEMEX or ADTI; rather, PEMEX and ADTI contract for our services on a rig-by-rig basis. Our results of operations could be materially adversely affected if any of our major customers terminates its contracts with us, fails to renew its existing contracts or refuses to award new contracts to us and we are unable to enter into contracts with new customers at comparable dayrates.
 
PEMEX has indicated an increased emphasis on rigs with a water depth rating of 250 feet or greater; as a result, the contracting opportunities in Mexico for our ten rigs with water depth ratings of 200 feet or less could diminish.
 
Recently, PEMEX has indicated a shifting focus toward geologic prospects in deeper water and therefore an increased emphasis on rigs with a water depth rating of 250 feet or greater, especially independent leg cantilever rigs. As PEMEX changes its focus toward new field exploration and development prospects that increasingly require the use of rigs with greater water depth capability, it is possible that demand in Mexico for our ten rigs with water depth ratings of 200 feet or less could decline and the future contracting opportunities for such rigs in Mexico could diminish.
 
We have moved seven rigs out of Mexico since late 2007; all of these rigs had water depth ratings of 200 feet or less. All of our remaining rigs in Mexico have water depth ratings of at least 250 feet and are currently working. All of the seven rigs that have been relocated to the U.S. are stacked. Our financial condition and results of operations could be materially adversely affected if we are unable to contract our lower water depth rigs with new customers at comparable dayrates.


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In the U.S., we provide drilling services primarily to independent oil and natural gas producers and drilling service providers pursuant to short-term contracts, resulting in potential instability in our customer base and contract status in that region.
 
Our customer base in the U.S. primarily consists of independent oil and natural gas producers and drilling service providers, and contracts in the U.S. tend to be short-term or well-to-well contracts. As a result, our U.S. customer base is subject to frequent turnover, and the contracted status of our rigs in that region changes rapidly. Additionally, our customers in the U.S. generally have less capital resources available to perform their obligations owed to us relative to larger oil and gas companies or state-owned entities.
 
Rig upgrade, refurbishment and repair are subject to risks, including delays and cost overruns, which could have an adverse impact on our available cash resources and results of operations.
 
We make significant upgrade, refurbishment and repair expenditures for our rigs from time to time, particularly in light of the aging nature of our rigs. Some of these expenditures are unplanned. The average age of our rigs is over 28 years. In 2009, we expect our capital expenditures for our rigs and equipment to be approximately $20 million. All of these projects are subject to the risks of delay or cost overruns, including costs or delays resulting from the following:
 
  •  unexpectedly long delivery times for or shortages of key equipment, parts and materials;
 
  •  shortages of skilled labor and other shipyard personnel necessary to perform the work;
 
  •  failure or delay of third-party equipment vendors or service providers;
 
  •  unforeseen increases in the cost of equipment, labor and raw materials, particularly steel;
 
  •  unanticipated actual or purported change orders;
 
  •  client acceptance delays;
 
  •  disputes with shipyards and suppliers;
 
  •  work stoppages and other labor disputes;
 
  •  latent damages or deterioration to equipment and machinery in excess of engineering estimates and assumptions;
 
  •  financial or other difficulties at shipyards;
 
  •  adverse weather conditions; and
 
  •  inability to obtain required permits or approvals.
 
Significant cost overruns or delays could materially affect our financial condition and results of operations. Delays in the delivery of rigs undergoing upgrade, refurbishment or repair may, in many cases, result in delay in contract commencement, resulting in a loss of revenue to us, and may also cause our customer to renegotiate the drilling contract for the rig or terminate or shorten the term of the contract under applicable late delivery clauses. In the event of termination of one of these contracts, we may not be able to secure a replacement contract on as favorable terms. Additionally, capital expenditures for rig upgrade and refurbishment projects could materially exceed our planned capital expenditures. Moreover, our rigs undergoing upgrade, refurbishment and repair may not earn a dayrate during the period they are out of service.
 
Our rigs are at a relative disadvantage to higher specification jackup rigs. These higher specification rigs may be more likely to obtain contracts than our rigs, particularly during market downturns.
 
Some of our competitors have jackup fleets with generally higher specification rigs than those in our fleet. Particularly during market downturns when there is decreased rig demand, higher specification rigs may be more likely to obtain contracts than lower specification rigs. Some of our significant customers may also begin to require higher specification rigs for the types of projects that currently utilize our lower specification rigs, which could materially affect the utilization of these rigs. Particularly, PEMEX has indicated an increased


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emphasis on field exploration and development prospects that require the use of rigs with a water depth rating of 250 feet or greater; as a result, it is possible that demand in Mexico could decline and the future contracting opportunities in Mexico could diminish. In the past, our rigs have been stacked earlier in the cycle of decreased rig demand than our competitors’ higher specification rigs and have been reactivated later in the cycle, which has adversely impacted our business and could be repeated in the future. In addition, higher specification rigs may be more adaptable to different operating conditions and have greater flexibility to move to areas of demand in response to changes in market conditions. Furthermore, in recent years, an increasing amount of exploration and production expenditures have been concentrated in deeper water drilling programs and deeper formations, including deep natural gas prospects, requiring higher specification rigs. This trend is expected to continue and could result in a material decline in demand for the rigs in our fleet. Under the terms of the noncompetition covenant in the master separation agreement with Pride, we will generally not be permitted to own or operate any rig with a water depth rating of more than 500 feet for three years following the consummation of the spin-off.
 
An oversupply of comparable or higher specification jackup rigs in the Gulf of Mexico could depress the demand and contract prices for our rigs and materially reduce our revenues and profitability.
 
Demand and contract prices customers pay for our rigs also are affected by the total supply of comparable rigs available for service in the shallow waters of the Gulf of Mexico. During prior periods of high utilization and dayrates, industry participants have increased the supply of rigs by ordering the construction of new units. This has often created an oversupply of drilling units and has caused a decline in utilization and dayrates when the rigs enter the market, sometimes for extended periods of time as rigs have been absorbed into the active fleet. Approximately 65 newbuild jackups are currently under construction or on order worldwide, seven of which are being built in shipyards in the Gulf of Mexico region, and accordingly, would have relatively low mobilization costs to operate in the Gulf of Mexico. All of these rigs are considered to be of a higher specification than our rigs, because generally they are larger, have greater deckloads, have water depth ratings of 250 feet or greater and have an independent leg design, as opposed to being mat-supported. Independent leg rigs are better suited for use in stronger currents or uneven seabed conditions. As discussed in the immediately preceding risk factor, PEMEX has indicated an increased emphasis on prospects requiring the use of rigs with water depth ratings of 250 feet or greater, such as the anticipated newbuilds. Most of the new rigs available in the second half of 2009 and beyond are currently without contracts, which may intensify price competition as scheduled delivery dates occur. In addition, our competitors’ stacked rigs may re-enter the market. The entry into service of newly constructed, upgraded or reactivated units will increase market supply and could reduce, or curtail a strengthening of, our dayrates in the affected markets as rigs are absorbed into the active fleet. Any further increase in construction of new drilling units may negatively affect utilization and dayrates. In addition, the new construction of high specification rigs, as well as changes in our competitors’ drilling rig fleets, could require us to make material additional capital investments to keep our rig fleet competitive.
 
Our ability to move some of our rigs to other regions is limited.
 
Most jackup rigs can be moved from one region to another, and in this sense the contract drilling market is a global market. The supply and demand balance for jackup rigs may vary somewhat from region to region, and because the cost to move a rig is significant, there is limited availability of rig-moving vessels and some rigs are designed to work in specific regions. However, significant variations between regions tend not to exist on a long-term basis due to the ability to move rigs. Our rigs, which are mat-supported, are less capable than independent leg jackup rigs of managing variable sea floor conditions found in most areas outside the Gulf of Mexico. As a result, our ability to move these rigs to other regions in response to changes in market conditions is limited.
 
Our industry is highly competitive and cyclical, with intense price competition.
 
Our industry is highly competitive. Our contracts are traditionally awarded on a competitive bid basis. Pricing, safety record and technical expertise are key factors in determining which qualified contractor is awarded a job. Rig availability, location and specifications also can be significant factors in the determination.


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Some of our competitors in the drilling industry are larger than we are and have rigs with generally higher specifications, and greater resources than we have. In addition, recent mergers within the oil and natural gas industry have reduced the number of available customers, resulting in increased competition for projects. We may not be able to maintain our competitive position, and we believe that competition for contracts will continue to be intense in the foreseeable future. Our inability to compete successfully may reduce our revenues and profitability.
 
Historically, the offshore service industry has been highly cyclical, with periods of high demand, limited rig supply and high dayrates often followed by periods of low demand, excess rig supply and low dayrates. Periods of low demand and excess rig supply intensify the competition in the industry and often result in rigs, particularly lower specification rigs like ours, being idle for long periods of time. We may be required to stack rigs or enter into lower dayrate contracts in response to market conditions. Due to the short-term nature of most of our drilling contracts, changes in market conditions can quickly affect our business. As a result of the cyclical nature of our industry, our results of operations have been volatile, and we expect this volatility to continue. Prolonged periods of low utilization and dayrates could result in the recognition of impairment charges if future cash flow estimates, based upon information available to management at the time, indicate that our rigs’ carrying value may not be recoverable.
 
Our business is conducted in the shallow-water Gulf of Mexico, a mature region that could result in less drilling activity in the area and thereby reduce demand for our services.
 
The shallow-water region of the Gulf of Mexico is a mature oil and natural gas production region that has experienced substantial seismic survey and exploration activity for many years. Because a large number of oil and natural gas prospects in this region have already been drilled, additional prospects of sufficient size and quality could be more difficult to identify. According to the U.S. Energy Information Administration, the average size of Gulf of Mexico discoveries has declined significantly since the early 1990s. In addition, the amount of natural gas production in the shallow-water region of the Gulf of Mexico has declined over the last several years. As a result of the diminished discovery potential, oil and natural gas companies may be unable to obtain acceptable financing necessary to drill prospects in this region. The decrease in the size of oil and natural gas prospects, the decrease in production or the failure to obtain such financing may result in reduced drilling activity in the shallow-water region of the Gulf of Mexico and reduced demand for our services. Further, U.S. demand for natural gas is also supplied by onshore natural gas exploration and development and importation of liquefied natural gas. Significant onshore discoveries of natural gas, increased onshore production or development of new, or expansion of existing, liquefied natural gas facilities in the U.S. could also reduce demand for our offshore natural gas drilling services.
 
Consolidation of suppliers may limit our ability to obtain supplies and services at an acceptable cost, on our schedule or at all.
 
We rely on certain third parties to provide supplies and services necessary for our operations. Recent mergers have reduced the number of available suppliers, resulting in fewer alternatives for sourcing of key supplies. We may not be able to obtain supplies and services at an acceptable cost, at the times we need them or at all. These cost increases or delays could have a material adverse affect on our results of operations and financial position.
 
Failure to attract and retain skilled personnel or an increase in labor costs could hurt our operations.
 
We require highly skilled personnel to operate and provide technical services and support for our business. Competition for the skilled and other labor required for our operations intensifies as the number of rigs activated or added to worldwide fleets or under construction increases, creating upward pressure on wages. Additionally, in the master separation agreement we entered into with Pride, we have agreed to refrain from directly soliciting, recruiting or hiring employees of Pride without Pride’s consent for one year after the spin-off. The shortages of qualified personnel or the inability to obtain and retain qualified personnel could negatively affect the quality, safety and timeliness of our work. We plan to implement recruiting and training programs in an effort to meet our anticipated personnel needs. These efforts may be unsuccessful, and


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competition for skilled personnel could materially impact our business by limiting or affecting the quality and safety of our operations or further increasing our costs.
 
Our operations in Mexico expose us to possible currency exchange losses and involve additional risks not generally associated with domestic operations, which may hurt our operations materially.
 
We derived 58% of our pro forma revenues for the year ended December 31, 2008, and 54% of our pro forma revenues for the three months ended March 31, 2009, from our operations in Mexico. Our operations in Mexico are subject to the following risks, among others:
 
  •  foreign currency fluctuations and devaluations;
 
  •  political, social and economic instability;
 
  •  unexpected changes in regulatory requirements;
 
  •  work stoppages;
 
  •  wage and price controls; and
 
  •  other forms of government regulation and economic conditions that are beyond our control.
 
We may experience currency exchange losses to the extent we do not take protective measures against exposure to the Mexican peso. Our contracts in Mexico generally provide for payment in Mexican pesos based on U.S. dollar equivalents, but we are exposed to exchange rate fluctuations for operating costs, assets and liabilities denominated or payable in Mexican pesos. Additionally, PEMEX could seek to eliminate its obligation to pay us in U.S. dollar equivalents in future contracts with us. This exposure to foreign currency fluctuations could cause our results of operations, financial condition and cash flows to deteriorate materially.
 
The shipment of goods, services and technology across international borders subjects us to extensive trade laws and regulations.
 
Many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations. Governments also may impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities. The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended, enforced or interpreted in a manner materially impacting our operations. Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime. Any failure to comply with applicable legal and regulatory trading obligations also could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from government contracts, seizure of shipments and loss of import and export privileges.
 
Although we implement policies and procedures designed to promote compliance with the laws of the jurisdictions in which we operate, our employees, contractors and agents may take actions in violation of our policies and such laws. Any such violation, even if prohibited by our policies, could materially and adversely affect our business.
 
Pride is conducting an investigation into allegations of improper payments to foreign government officials, as well as corresponding accounting entries and internal control issues. The outcome and impact of this investigation are unknown at this time.
 
The audit committee of Pride’s board of directors, through independent outside counsel, has undertaken an investigation of potential violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) in several of its international operations. With respect to our operations, this investigation has found evidence suggesting that payments, which may violate the FCPA, were made to government officials in Mexico aggregating less than


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$150,000. The evidence to date regarding these payments suggests that payments were made beginning in 2002 through early 2006 (a) to one or more government officials in Mexico in connection with the clearing of a jackup rig and equipment through customs, the movement of personnel through immigration or the acceptance of a jackup rig under a drilling contract; and (b) with respect to the potentially improper entertainment of government officials in Mexico.
 
Pride has voluntarily disclosed information found in the investigation to the Department of Justice and the Securities and Exchange Commission (“SEC”), and Pride has cooperated and is continuing to cooperate with these authorities.
 
For any violations of the FCPA, we may be liable for or subject to fines, civil and criminal penalties, equitable remedies, including profit disgorgement, and injunctive relief. Civil penalties under the antibribery provisions of the FCPA could range up to $10,000 per violation, with a criminal fine up to the greater of $2 million per violation or twice the gross pecuniary gain to us or twice the gross pecuniary loss to others, if larger. Civil penalties under the accounting provisions of the FCPA can range up to $500,000 per violation, and a company that knowingly commits a violation can be fined up to $25 million per violation. In addition, both the SEC and the DOJ could assert that conduct extending over a period of time may constitute multiple violations for purposes of assessing the penalty amounts. Often, dispositions of these types of matters result in modifications to business practices and compliance programs and possibly a monitor being appointed to review future business and practices with the goal of ensuring compliance with the FCPA. Pursuant to the master separation agreement, we will be responsible for any liabilities, costs or expenses related to, arising out of or resulting from Pride’s current FCPA investigation to the extent related to Pride’s and our operations in Mexico (subject to certain exceptions), except that we will not be responsible for any fine, penalty or profit disgorgement payable to the United States government in excess of $1 million, and we will not be allocated any fees or expenses of third party advisors retained by Pride. In the event that a disposition includes the appointment of a compliance monitor or consultant or any similar remedy for our company, we will be responsible for the costs associated with such monitor, consultant or similar remedy.
 
We could also face fines, sanctions, and other penalties from authorities in Mexico, including prohibition of our participating in or curtailment of business operations and the seizure of rigs or other assets. Our customer in Mexico could seek to impose penalties or take other actions adverse to our interests. We could also face other third-party claims by directors, officers, employees, affiliates, advisors, attorneys, agents, security or other interest holders or constituents of our company. In addition, disclosure of the subject matter of the investigation could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees, and to access the capital markets.
 
Pride has commenced discussions with the DOJ and SEC regarding a negotiated resolution for these matters, which could be settled during 2009. There can be no assurance that these discussions will result in a final settlement of any or all of these issues or, if a settlement is reached, the timing of any such settlement or that the terms of any such settlement would not have a material adverse effect on us. No amounts have been accrued related to any potential fines, sanctions, claims or other penalties, which could be material individually or in the aggregate, but an accrual could be made as early as the third quarter of 2009. We cannot currently predict what, if any, actions may be taken by the DOJ, the SEC, any other applicable government or other authorities or our customers or other third parties or the effect the actions may have on our results of operations, financial condition or cash flows, on our combined financial statements or on our business, except that our responsibility for fines, penalties or profit disgorgement payable to the United States government will not exceed $1 million as described above.
 
We have received and are contesting tax assessments from the Mexican government and we could receive additional assessments in the future.
 
In 2006 and 2007, Pride received tax assessments from the Mexican government related to the operations of certain of our entities for the tax years 2001 through 2003. Pursuant to local statutory requirements, Pride has provided bonds in the amount of approximately 560 million Mexican pesos, or approximately $39 million


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as of March 31, 2009, to contest these assessments. In February 2009, Pride received additional tax assessments for the tax years 2003 and 2004 in the amount of 1,097 million Mexican pesos, or approximately $76 million, and Pride has contested these assessments. We anticipate that bonds or other suitable collateral will be required no earlier than the fourth quarter of 2009 in connection with Pride’s contest of these assessments. These assessments contest Pride’s right to claim certain deductions in its tax returns for those years. We anticipate that the Mexican government will make additional assessments contesting similar deductions for other tax years. If the Mexican tax authorities were to apply a similar methodology on the primary issue in the dispute to remaining open tax years, the total amount of future tax assessments (inclusive of related penalties and interest) could be approximately $100 million as of March 31, 2009. In addition, we recently received unrelated observation letters from the Mexican government for other tax periods that could ultimately result in additional assessments. While we intend to contest these assessments vigorously, we cannot predict or provide assurance as to the ultimate outcome, which may take several years. Additional security will be required to be provided to the extent assessments are contested.
 
We expect to post the additional bonds or other collateral when due, which we anticipate to be no earlier than the fourth quarter of 2009. Pursuant to a tax support agreement we entered into with Pride, Pride has agreed to guarantee or indemnify the issuer of any such surety bonds or other collateral issued for our account in respect of Mexican tax assessments made prior to the date of the spin-off. Beginning on the third anniversary of the spin-off, and on each subsequent anniversary thereafter, we will be required to provide substitute credit support for a portion of the collateral guaranteed or indemnified by Pride, so that Pride’s obligations are terminated in their entirety by the sixth anniversary of the spin-off. Seahawk will pay Pride a fee based on the credit support provided.
 
Our tax support agreement with Pride does not obligate Pride to guarantee or indemnify the issuer of any surety bonds or other collateral issued in respect of future tax assessments. If we are not able to obtain additional security for future tax assessments, if any, we will not be permitted to contest those assessments and the full amount assessed will become due and payable. Additionally, if we are not able to provide substitute credit support for the collateral guaranteed or indemnified by Pride beginning on the third anniversary of the spin-off (as described above), we may lose our ability to continue our pending contests of the existing assessments. We could also be in default under the tax support agreement, which may constitute a cross-default under our bank credit facility and could trigger cash collateralization requirements to Pride. If any of these events were to occur, our liquidity and results of operations could be materially affected.
 
Our customers may seek to cancel or renegotiate some of our drilling contracts during periods of depressed market conditions or if we experience downtime, operational difficulties, or safety-related issues.
 
All our contracts with major customers are dayrate contracts, where we charge a fixed charge per day regardless of the number of days needed to drill the well. During depressed market conditions, a customer may no longer need a rig that is currently under contract or may be able to obtain a comparable rig at a lower daily rate. As a result, customers may seek to renegotiate the terms of their existing drilling contracts or avoid their obligations under those contracts. In addition, our customers may have the right to terminate, or may seek to renegotiate, existing contracts if we experience downtime, operational problems above the contractual limit or safety-related issues, if the rig is a total loss, if the rig is not delivered to the customer within the period specified in the contract or in other specified circumstances, which include events beyond the control of either party. Some of our contracts with our customers include terms allowing them to terminate contracts without cause, with little or no prior notice and without penalty or early termination payments. In addition, we could be required to pay penalties, which could be material, if some of our contracts with our customers are terminated due to downtime, operational problems or failure to deliver. Some of our other contracts with customers may be cancelable at the option of the customer upon payment of a penalty, which may not fully compensate us for the loss of the contract. Early termination of a contract may result in a rig being idle for an extended period of time. The likelihood that a customer may seek to terminate a contract is increased during periods of market weakness. If our customers cancel some of our significant contracts and we are unable to secure new contracts on substantially similar terms, our revenues and profitability could be materially reduced.


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We can provide no assurance that our current backlog of contract drilling revenue will be ultimately realized.
 
As of March 31, 2009, our pro forma contract drilling backlog was approximately $92.8 million for future revenues under firm commitments, all of which is expected to be realized during the remainder of 2009. We may not be able to perform under these contracts due to events beyond our control, and our customers may seek to cancel or renegotiate our contracts for various reasons, including those described above or in connection with the ongoing financial crisis. Our inability or the inability of our customers to perform under our or their contractual obligations may have a material adverse effect on our financial position, results of operations and cash flows.
 
Our credit agreement imposes significant operating and financial restrictions, which may prevent us from capitalizing on business opportunities and taking some actions.
 
We have entered into a two-year, $36 million revolving credit facility that will not have any outstanding borrowings at the time of the spin-off. Borrowings under the credit facility may only be used to fund reactivation capital expenditures and for related working capital purposes. The credit agreement imposes significant operating and financial restrictions on us, including limitations on our ability to:
 
  •  make investments and other restricted payments, including dividends and other distributions;
 
  •  incur additional indebtedness;
 
  •  create liens;
 
  •  restrict dividend or other payments by our subsidiaries to us;
 
  •  sell our assets or consolidate or merge with or into other companies;
 
  •  engage in transactions with affiliates; and
 
  •  make capital expenditures.
 
Our credit agreement also requires us to maintain minimum ratios with respect to our financial condition. These covenants may adversely affect our ability to finance our future operations and capital needs and to pursue available business opportunities. A breach of any of these covenants would result in a default in respect of the related debt. If a default were to occur, the relevant lenders could elect to declare the debt, together with accrued interest and other fees, immediately due and payable and proceed against any collateral securing that debt.
 
In order to execute our growth strategy, we may require additional capital in the future, which may not be available to us.
 
Our business is capital-intensive and, to the extent we do not generate sufficient cash from operations, we may need to raise additional funds through public or private debt or equity financings to execute our growth strategy and to fund capital expenditures. Adequate sources of capital funding may not be available when needed or may not be available on favorable terms. If we raise additional funds by issuing equity securities, dilution to the holdings of existing stockholders may result. If funding is insufficient at any time in the future, we may be unable to fund maintenance requirements and acquisitions, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.
 
Our acquisition strategy may be unsuccessful if we incorrectly predict operating results, are unable to identify and complete future acquisitions, or fail to successfully integrate acquired assets or businesses we acquire.
 
The acquisition of assets or businesses that are complementary to our operations is an important component of our business strategy. We believe that attractive acquisition opportunities may arise from time to time, and any such acquisition could be significant. At any given time, discussions with one or more potential sellers may be at different stages. However, any such discussions may not result in the consummation of an


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acquisition transaction, and we may not be able to identify or complete any acquisitions. In addition, we cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our common stock.
 
Any future acquisitions could present a number of risks, including:
 
  •  the risk of incorrect assumptions regarding the future results of acquired operations or assets or expected cost reductions or other synergies expected to be realized as a result of acquiring operations or assets;
 
  •  the risk of failing to integrate the operations or management of any acquired operations or assets successfully and timely; and
 
  •  the risk of diversion of management’s attention from existing operations or other priorities.
 
If we are unsuccessful in completing acquisitions of other operations or assets, our financial condition could be adversely affected and we may be unable to implement an important component of our business strategy successfully. In addition, if we are unsuccessful in integrating our acquisitions in a timely and cost-effective manner, our financial condition and results of operations could be adversely affected.
 
We are subject to a number of operating hazards, including those specific to marine operations. We may not have insurance to cover all these hazards.
 
Our operations are subject to hazards inherent in the drilling industry, such as blowouts, reservoir damage, loss of production, loss of well control, lost or stuck drill strings, equipment defects, punchthroughs, craterings, fires, explosions and pollution. Contract drilling requires the use of heavy equipment and exposure to hazardous conditions, which may subject us to liability claims by employees, customers and third parties. These hazards can cause personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, claims by third parties or customers and suspension of operations. Our fleet is also subject to hazards inherent in marine operations, either while on-site or during mobilization, such as capsizing, sinking, grounding, collision, damage from severe weather and marine life infestations. Operations may also be suspended because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services, or personnel shortages. We customarily provide contract indemnity to our customers for:
 
  •  claims that could be asserted by us relating to damage to or loss of our equipment, including rigs;
 
  •  claims that could be asserted by our employees relating to personal injury or loss of life; and
 
  •  pollution emanating from the rigs we operate.
 
Certain areas in and near the Gulf of Mexico are subject to hurricanes and other extreme weather conditions on a relatively frequent basis. Our drilling rigs may be located in areas that could cause them to be susceptible to damage or total loss by these storms. For example, in September 2008, a mat-supported jackup rig operating in the U.S., the Pride Wyoming, was lost as a result of Hurricane Ike. In addition, damage caused by high winds and turbulent seas to our rigs, our shorebases and our corporate infrastructure could potentially cause us to curtail operations for significant periods of time until the damages can be repaired.
 
We maintain insurance for injuries to our employees, damage to or loss of our equipment and other insurance coverage for normal business risks, including general liability insurance. For at least the first year following the date of the spin-off, rigs operating in the U.S. Gulf of Mexico will not have coverage for physical damage due to named windstorms. Our marine package policy, which provides coverage for physical damage to our rigs and for various marine liabilities, has a $10 million per-occurrence deductible for non-windstorm events. Other deductibles may apply depending on the nature and circumstances of the liability.
 
Any insurance protection may not be sufficient or effective under all circumstances or against all hazards to which we may be subject. For example, in addition to our lack of coverage for physical damage caused by named windstorms in the U.S., pollution, reservoir damage and environmental risks generally may not be fully


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insurable. We do not expect to maintain business interruption or loss of hire insurance. In addition, some of our primary insurance policies will have substantial deductibles.
 
The oil and natural gas industry in the Gulf of Mexico suffered extensive damage in recent years due to hurricanes. As a result, insurance costs and deductibles have increased significantly. There also have been significant changes made to the scope and terms of various insurance coverages. There can be no assurance that costs, deductibles and coverage terms will not continue to be adversely affected.
 
The occurrence of a significant event against which we are not fully insured, or of a number of lesser events against which we are insured but are subject to substantial deductibles, aggregate limits, and/or self-insured amounts, could materially increase our costs and impair our profitability and financial condition. We may not be able to maintain adequate insurance at rates or on terms that we consider reasonable or acceptable or be able to obtain insurance against certain risks.
 
Public health threats could have a material adverse effect on our operations and our financial results.
 
Public health threats, such as influenza, Severe Acute Respiratory Syndrome (SARS) and other highly communicable diseases, could adversely impact our operations, the operations of our clients and the global economy in general, including the worldwide demand for crude oil and natural gas and the level of demand for our services. Any quarantine of personnel or inability to access our offices or rigs could adversely affect our operations. Travel restrictions or operational problems in the United States or Mexico, or any reduction in the demand for drilling services caused by public health threats in the future, may materially impact operations and adversely affect our financial results.
 
We are responsible for costs and awards relating to the loss of the Pride Wyoming that are not covered by Pride’s insurance.
 
In September 2008, the Pride Wyoming, a 250-foot slot-type jackup rig operating in the U.S., was deemed a total loss for insurance purposes after it was severely damaged and sank as a result of Hurricane Ike. We expect to incur costs of approximately $53 million for removal of the wreckage and salvage operations, not including any costs arising from damage to offshore structures owned by third parties. These costs for removal of the wreckage are expected to be covered by Pride’s insurance. Pride has agreed to advance the costs of removal of the wreckage and salvage operations until receipt of insurance proceeds, but we will be responsible for payment of the $1 million retention, $2.5 million in premium payments for a removal of wreckage claim and for any costs not covered by Pride’s insurance.
 
Four owners of facilities in the Gulf of Mexico on which parts of the Pride Wyoming settled or may have settled have requested that Pride pay for all costs, expenses and other losses associated with the damage, including loss of revenue. These owners have claimed damages in excess of $120 million in the aggregate. Other pieces of the rig may have also caused damage to certain other offshore structures. In October 2008, Pride filed a complaint in U.S. Federal District Court pursuant to the Limitation of Liability Act, which has the potential to statutorily limit our exposure for claims arising out of third party damages caused by the loss of the Pride Wyoming. We will be responsible for any insurance deductibles or awards not covered by Pride’s insurance.
 
We may not be able to maintain or replace our rigs as they age.
 
The capital associated with the repair and maintenance of our fleet increases with age. We may not be able to maintain our fleet of existing rigs to compete effectively in the market, and our financial resources may not be sufficient to enable us to make expenditures necessary for these purposes or to acquire or build replacement rigs. The Seahawk 2000 (formerly known as Pride Alabama) and the Seahawk 2002 (f/k/a Pride Colorado), which are currently stacked, would require additional capital expenditures in order to be class certified.


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New technologies may cause our current drilling methods to become obsolete, resulting in an adverse effect on our business.
 
The offshore contract drilling industry is subject to the introduction of new drilling techniques and services using new technologies, some of which may be subject to patent protection. As competitors and others use or develop new technologies, we may be placed at a competitive disadvantage and competitive pressures may force us to implement new technologies at substantial cost. In addition, competitors may have greater financial, technical and personnel resources that allow them to benefit from technological advantages and implement new technologies before we can. We may not be able to implement technologies on a timely basis or at a cost that is acceptable to us.
 
Our customers may be unable or unwilling to indemnify us.
 
Consistent with standard industry practice, our customers generally assume, and indemnify us against, well control and subsurface risks under dayrate contracts. These risks are those associated with the loss of control of a well, such as blowout or cratering, the cost to regain control or redrill the well and associated pollution. There can be no assurance, however, that these customers will necessarily be willing or financially able to indemnify us against all these risks. Also, we may choose not to enforce these indemnities because of the nature of our relationship with some of our larger customers.
 
We are subject to numerous governmental laws and regulations, including those that may impose significant costs and liability on us for environmental and natural resource damages.
 
Many aspects of our operations are affected by governmental laws and regulations that may relate directly or indirectly to the contract drilling industry, including those requiring us to obtain and maintain specified permits or other governmental approvals and to control the discharge of oil and other contaminants into the environment or otherwise relating to environmental protection. Our operations and activities in the United States are subject to numerous environmental laws and regulations, including the Oil Pollution Act of 1990, the Outer Continental Shelf Lands Act, the Comprehensive Environmental Response, Compensation and Liability Act and the International Convention for the Prevention of Pollution from Ships. Additionally, Mexico has adopted, and could in the future adopt additional, environmental laws and regulations covering the discharge of oil and other contaminants and protection of the environment that could be applicable to our operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and even criminal penalties, the imposition of remedial obligations, the denial or revocation of permits or other authorizations and the issuance of injunctions that may limit or prohibit our operations. Laws and regulations protecting the environment have become more stringent in recent years and may in certain circumstances impose strict liability, rendering us liable for environmental and natural resource damages without regard to negligence or fault on our part. These laws and regulations may expose us to liability for the conduct of, or conditions caused by, others or for acts that were in compliance with all applicable laws at the time the acts were performed. The application of these requirements, the modification of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or development drilling for oil and natural gas could materially limit future contract drilling opportunities or materially increase our costs or both. In addition, we may be required to make significant capital expenditures to comply with laws and regulations or materially increase our costs or both.
 
Our ability to operate our rigs could be restricted or made more costly by government regulation.
 
Hurricanes Katrina and Rita in 2005 and Hurricanes Gustav and Ike in 2008 caused damage to a number of rigs in the Gulf of Mexico. Rigs that were moved off location by the storms damaged platforms, pipelines, wellheads and other drilling rigs. In May 2006 and April 2007, the Minerals Management Service of the U.S. Department of the Interior (“MMS”) issued interim guidelines for jackup rig fitness requirements for the 2006 and 2007 hurricane seasons, effectively imposing new requirements on the offshore oil and natural gas industry in an attempt to increase the likelihood of survival of jackup rigs and other offshore drilling units during a hurricane. Effective June 2008, the MMS issued longer-term guidelines, generally consistent with the interim guidelines, for jackup rig fitness requirements during hurricane seasons. The June 2008 guidelines are


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scheduled to be effective through the 2013 hurricane season. As a result of these MMS guidelines, our jackup rigs operating in the U.S. are being required to operate with a higher air gap (the space between the water level and the bottom of the rig’s hull) during the hurricane season, effectively reducing the water depth in which they can operate. The guidelines also provide for enhanced information and data requirements from oil and natural gas companies operating properties in the U.S. Gulf of Mexico. The MMS may take other steps that could increase the cost of operations or reduce the area of operations for our rigs, thus reducing their marketability. Implementation of the MMS guidelines or regulations may subject us to increased costs and limit the operational capabilities of our rigs.
 
Unionization efforts and labor regulations in the U.S. or Mexico could materially increase our costs or limit our flexibility.
 
Our Mexican national employees are represented by a labor union and work under collective bargaining or similar agreements, which are subject to periodic renegotiation. In addition, our business has been affected by strikes or work stoppages and other labor disruptions. Although our domestic employees are not covered by a collective bargaining agreement, the marine services industry has been targeted by maritime labor unions in an effort to organize U.S. employees. A significant increase in the wages paid by competing employers or the unionization of our U.S. employees could result in a reduction of our skilled labor force, increases in the wage rates that we must pay, or both. If either of these events were to occur, our capacity and profitability could be diminished and our growth potential could be impaired. Additional unionization efforts, new collective bargaining agreements or work stoppages, whether foreign or domestic, could materially increase our costs, reduce our revenues or limit our flexibility.
 
Certain legal obligations require us to contribute certain amounts to retirement funds and restrict our ability to dismiss employees. Future regulations or court interpretations established in the countries in which we conduct our operations could increase our costs and materially adversely affect our business, financial condition and results of operation.
 
Risks Related to Our Separation from Pride
 
We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from Pride.
 
As a stand-alone, independent public company, we believe that we will be able to more effectively focus on our operations and growth strategies, and thus bring more value to our stockholders, than we could as a subsidiary of Pride. However, by separating from Pride there is a risk that we may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of the current Pride. As part of Pride we are able to enjoy certain benefits from Pride’s operating diversity, purchasing and borrowing leverage, and available capital for investments. We may not be able to achieve some or all of the benefits that we expect to achieve as a stand-alone, independent company.
 
We do not have a history of operating as a stand-alone company, we may encounter difficulties in making the changes necessary to operate as a stand-alone company, and we may incur greater costs as a stand-alone company that may adversely affect our results.
 
Pride has historically performed various corporate functions for us, including:
 
  •  accounting;
 
  •  human resource services such as payroll and benefit plan administration;
 
  •  information technology and communications;
 
  •  legal (including compliance with the Sarbanes-Oxley Act of 2002 and with the periodic reporting obligations of the Exchange Act);
 
  •  purchasing and logistics;


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  •  quality, safety, health and environment;
 
  •  risk management;
 
  •  tax; and
 
  •  treasury and corporate finance.
 
Following our separation from Pride, Pride will have no obligation to provide these functions to us other than the interim services that will be provided by Pride under a transition services agreement, which is described in “Certain Relationships and Related Party Transactions — Agreements Between Us and Pride — Transition Services Agreement.” We are in the process of creating, or engaging third parties to provide, our own systems and business functions to replace many of the systems and business functions Pride provides, and we may incur difficulties in the replacement process. We may also incur higher costs for these functions than the amounts we were allocated as segments of Pride. If we do not have in place our own systems and business functions or if we do not have agreements with other providers of these services once our transition services agreement with Pride expires, we may operate our business less efficiently and our results may suffer.
 
Our designated executive team has not previously worked together and some members of our executive team do not have extensive experience operating our assets.
 
While the persons expected to be our executive officers have significant industry experience, some do not have extensive operating experience with the rigs in our fleet, and they have not all worked together previously as a team. As a separate company, we will have substantially fewer resources than Pride. Our success will depend, in part, on the ability of our executives to work effectively as a team in the new environment. The loss of any of our executive officers could adversely impact our performance.
 
The historical and pro forma combined financial information in this information statement may not permit you to predict our future performance, and the estimates and assumptions used in preparing our pro forma combined financial information may be materially different from our actual experience as a separate independent company.
 
The historical combined financial information we have included in this information statement may not reflect what our results of operations, financial position and cash flows would have been had we been an independent company during the periods presented or be indicative of what our results of operations, financial position and cash flows may be in the future when we are an independent company. This is primarily a result of the following factors:
 
  •  the historical combined financial information reflects the effects of certain assets and operations that will not be held by Seahawk, including operations related to two independent leg jackup rigs, two semi-submersible rigs and deepwater drilling services management contracts for the Thunderhorse, Mad Dog and Holstein rigs;
 
  •  our historical combined financial information reflects allocations for services historically provided by Pride, and we expect these allocations to be different from the costs we will incur for these services in the future as a smaller independent company, including with respect to services provided by Pride under the transition services agreement. We expect that, in some instances, the costs incurred for these services as a smaller independent company will be higher than the share of total Pride expenses allocated to us historically; and
 
  •  the historical combined financial information does not reflect the increased costs associated with being an independent company, including changes that we expect in our cost structure, personnel needs, financing and operations of our business as a result of the spin-off and from reduced economies of scale.
 
In preparing the pro forma combined financial information in this information statement, we have made adjustments to the historical combined financial information of Pride based upon currently available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma


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basis, the impact of the transactions contemplated by the separation. These and other estimates and assumptions used in the calculation of the pro forma financial information in this information statement may be materially different from our actual experience as a separate, independent company. The pro forma combined financial information in this information statement does not purport to represent what our results of operations would actually have been had we operated as a separate, independent company during the periods presented, nor does the pro forma information give effect to any events other than those discussed in the unaudited pro forma combined financial information and related notes. See “Unaudited Pro Forma Combined Financial Information.”
 
We may be required to record an impairment loss to our rig fleet as a result of the spin-off.
 
We currently value our rig fleet at historical cost in our financial statements as required by U.S. generally accepted accounting principles. We periodically evaluate our property and equipment for impairment whenever events or circumstances indicate the carrying value of such long-lived assets may not be recoverable. Asset impairment valuations for held and used assets are based on estimated future undiscounted cash flows of the assets being evaluated to determine the recoverability of the carrying amounts. These evaluations of our rig fleet have not resulted in impairment losses in the past. However, we will be required as a result of the spin-off to perform an assessment of the fair value of our rig fleet as compared to its carrying value. To the extent that the carrying value exceeds the assessed fair value, we will recognize an impairment loss. Pride has conducted a preliminary fair value assessment of our rig fleet, and as a result we currently expect to record an impairment loss of between $25 million and $45 million as a result of the spin-off. Our new revolving credit facility contains a covenant that requires us to maintain a minimum tangible net worth as of the end of each fiscal quarter equal to the sum of $320 million, plus 50% of our net income and 100% of the proceeds of any equity offerings. Although an impairment loss would reduce our tangible net worth, we expect to remain in compliance with that covenant despite the expected impairment loss. See “Management’s Discussion and Analysis of Combined Financial Condition and Results of Operations — Critical Accounting Estimates — Property and Equipment.”
 
The requirements of being a public company may strain our resources.
 
As a public company, we will be subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports, proxy statements and other information. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight will be required. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We expect to incur additional annual expenses related to these steps and, among other things, directors and officers liability insurance, director fees, SEC reporting, transfer agent fees, hiring additional accounting and administrative personnel, increased auditing and legal fees and similar expenses, which expenses may be significant. In addition, we may not be able to implement these changes in a timely fashion.
 
The spin-off could result in substantial tax liability.
 
Pride has received a private letter ruling from the IRS and intends to obtain an opinion from Baker Botts L.L.P., in each case, substantially to the effect that for U.S. federal income tax purposes, the spin-off and certain related transactions will qualify under Sections 355 and/or 368 of the Code. Pride has advised us that it does not intend to complete the spin-off if the IRS private letter ruling does not remain effective or if Pride has not obtained the opinion from Baker Botts L.L.P. The IRS private letter ruling relies on, and the opinion will rely on, certain representations, assumptions and undertakings, including those relating to the past and future conduct of our business, and neither the IRS private letter ruling nor the opinion would be valid if such representations, assumptions and undertakings were incorrect. Moreover, the IRS private letter ruling does not


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address all the issues that are relevant to determining whether the distribution will qualify for tax-free treatment. For more information regarding the tax opinion and the private letter ruling, see the section entitled “The Spin-Off — Certain U.S. Federal Income Tax Consequences of the Spin-Off” included elsewhere in this information statement.
 
If the distribution fails to qualify for tax-free treatment, Pride would be treated as if it had sold the common stock of our company in a taxable sale for its fair market value, and our initial public stockholders may be treated as if they had received a taxable distribution from Pride in an amount equal to the fair market value of our common stock that was distributed to them. In addition, if such related transactions fail to qualify for tax-free treatment, we would be treated as if we had sold all or part of our assets (including certain assets that will be retained by Pride, the value of which may be in excess of the assets we will hold immediately after the spin-off) in a taxable sale for fair market value. Under the terms of the tax sharing agreement we entered into with Pride, in the event that the spin-off and/or certain related transactions were to fail to qualify for tax-free treatment, we would generally be responsible for 50% of the tax resulting from such failure. However, if the spin-off and/or certain related transactions were to fail to qualify for tax-free treatment because of certain actions or failures to act by us or by Pride, the party taking or failing to take such actions would be responsible for all of the tax resulting from such failure. For a more detailed discussion, see the section entitled “Certain Relationships and Related Party Transactions — Agreements Between Us and Pride — Tax Sharing Agreement” included elsewhere in this information statement. Our indemnification obligations to Pride and its subsidiaries, officers and directors are not limited by any maximum amount. If we are required to indemnify Pride or such other persons under the circumstances set forth in the tax sharing agreement, our financial condition could be materially adversely affected.
 
We might not be able to engage in desirable strategic transactions and equity issuances following the spin-off.
 
Under the tax sharing agreement that we entered into with Pride, we are prohibited from taking or failing to take any action that prevents the spin-off and related transactions from being tax-free. Such actions would include, but not be limited to, any of the following actions within the two-year period following the effective time of the spin-off: (i) selling or transferring all or substantially all of the assets that constitute our mat-supported jackup rig business, (ii) issuing stock of us or any affiliate (or any instrument that is convertible or exchangeable into any such stock) except in certain permitted cases relating to employee compensation, (iii) facilitating or otherwise participating in any acquisition (or deemed acquisition) of our stock that would result in any shareholder or certain groups of shareholders owning or being deemed to own 40% or more (by vote or value) of our outstanding stock, and (iv) redeeming or otherwise repurchasing any of our stock. The foregoing actions contain exceptions for certain permitted cases, including certain transfers among us and our wholly owned subsidiaries, and in some cases allow for actions that do not exceed permitted limits.
 
These restrictions, to the extent they remain in effect and apply to particular transactions we may seek to undertake, may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that may maximize the value of our business. For more information, see the sections entitled “The Spin-Off — Certain U.S. Federal Income Tax Consequences of the Spin-Off” and “Certain Relationships and Related Party Transactions — Agreements Between Us and Pride — Tax Sharing Agreement” included elsewhere in this information statement.
 
The terms of our separation from Pride, the related agreements and other transactions with Pride were determined in the context of a parent-subsidiary relationship and thus may be less favorable to us than the terms we could have obtained from an unaffiliated third party.
 
Transactions and agreements entered into with Pride on or before the closing of the spin-off present conflicts between our interests and those of Pride. These transactions and agreements include the following:
 
  •  agreements related to the separation of our business from Pride that provide for, among other things, the assumption by us of liabilities related to our business or subsidiaries, the assumption by Pride of liabilities unrelated to our business, our agreement not to compete with Pride in certain respects for


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  three years following the spin-off, the transfer to us of a target working capital amount, our respective rights, responsibilities and obligations with respect to taxes and tax benefits and the terms of our various interim and ongoing relationships, as described under “Certain Relationships and Related Party Transactions — Agreements Between Us and Pride;” and
 
  •  administrative support services provided by Pride to us and other transactions with Pride, as described under “Certain Relationships and Related Party Transactions.”
 
Because the terms of our separation from Pride and these transactions and agreements were entered into in the context of a parent-subsidiary relationship, their terms may be less favorable to us than the terms we could have obtained from an unaffiliated third party. In addition, while we are controlled by Pride, it is possible for Pride to cause us to amend these agreements on terms that may be less favorable to us than the current terms of the agreements. We may not be able to resolve any potential conflict, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party. See “Certain Relationships and Related Party Transactions — Agreements Between Us and Pride.”
 
In connection with our separation from Pride, Pride will indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that Pride’s ability to satisfy its indemnification obligation will not be impaired in the future.
 
Pursuant to the master separation agreement, Pride has agreed to indemnify us from certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that Pride has agreed to retain, and there can be no assurance that the indemnity from Pride will be sufficient to protect us against the full amount of such liabilities, or that Pride will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Pride any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could adversely affect our business, results of operations and financial condition.
 
Risks Related to the Securities Markets and Ownership of Our Common Shares
 
Substantial sales of our common shares could cause our share price to decline and issuances by us may dilute your ownership interest in our company.
 
Any sales of substantial amounts of our common shares in the public market after the spin-off, or the perception that these sales might occur, could lower the market price of our common shares and impede our ability to raise capital through the issuance of equity securities. Although we have no actual knowledge of any plan or intention on the part of any 5% or greater stockholder to sell our common stock following the spin-off, it is possible that some Pride stockholders, including possibly some of Pride’s large stockholders and index fund investors, will sell the shares of our common stock they receive in the spin-off for various reasons (for example, if our business profile or market capitalization as an independent company does not fit their investment objectives). Further, if we issue additional equity securities to raise additional capital, your ownership interest in our company will be diluted and the value of your investment may be reduced.
 
The price of our common stock may be volatile.
 
We have not and will not set an initial price for our common stock. The price for our common stock will be established by the public market. We are unable to predict whether large amounts of our common stock will be sold in the open market following the spin-off. We are also unable to predict the number of buyers that will be in the market at any time. Our smaller size and different investment characteristics may not appeal to the current investor base of Pride. There is no assurance that there will be sufficient buying interest to offset any sales, and, accordingly, the price of our common stock could be depressed by those sales or be more volatile. Neither we nor Pride can assure you that the trading price of a share of Pride common stock after the spin-off plus the trading price of the 1/15 of a share of Seahawk common stock distributed for each share of Pride common stock will not, in the aggregate, be less than the trading price of a share of Pride common stock before the spin-off.


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We have no plans to pay regular dividends on our common shares, so you may not receive funds without selling your common shares.
 
We have no current intent to pay a regular dividend. Our new revolving credit facility includes restrictions on our ability to pay dividends. Our board of directors will determine the payment of future dividends on our common stock, if any, and the amount of any dividends in light of applicable law, contractual restrictions limiting our ability to pay dividends, our earnings and cash flows, our capital requirements, our financial condition, and other factors our board of directors deems relevant. Accordingly, you may have to sell some or all of your common shares in order to generate cash flow from your investment.
 
Provisions in our certificate of incorporation and by-laws and in our rights plan, and provisions of Delaware law, may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.
 
Our certificate of incorporation, by-laws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:
 
  •  our board of directors fixes the number of members on the board;
 
  •  our board of directors is divided into three classes with staggered terms;
 
  •  elimination of the rights of our stockholders to act by written consent and call stockholder meetings;
 
  •  rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
 
  •  the right of our board of directors to issue preferred stock without stockholder approval;
 
  •  supermajority vote requirements for certain amendments to our certificate of incorporation and by-laws;
 
  •  anti-takeover provisions of Delaware law which may prevent us from engaging in a business combination with an interested stockholder; and
 
  •  limitations on the right of stockholders to remove directors.
 
In addition, we have adopted a stockholder rights plan which provides that in the event of an acquisition of or tender offer for 15% of our outstanding common stock, our stockholders shall be granted rights to purchase our common stock at a specified price. The rights plan could make it more difficult for a third-party to acquire our common stock without the approval of our board of directors.
 
Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. For more information, see the section entitled “Description of Capital Stock — Delaware Anti-Takeover Law” included elsewhere in this information statement. We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board and by providing our board with more time to assess any acquisition proposal. These provisions are not intended to make our company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board determines is not in the best interests of our company and our stockholders.


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FORWARD-LOOKING INFORMATION
 
This information statement contains forward-looking statements. All statements, other than statements of historical fact, included in this information statement that address activities, events or developments that we expect, project, believe or anticipate will or may occur in the future are forward-looking statements. These include such matters as:
 
  •  market conditions, expansion and other development trends in the contract drilling industry;
 
  •  our ability to enter into new contracts for our rigs and future utilization rates and contract rates for rigs;
 
  •  customer requirements for drilling capacity and customer drilling plans;
 
  •  future capital expenditures and investments in the refurbishment and upgrading of rigs (including the amount and nature thereof and the timing of completion and delivery thereof);
 
  •  future income tax payments;
 
  •  business strategies;
 
  •  expansion and growth of operations;
 
  •  future payment of dividends;
 
  •  expected outcomes of legal, tax and administrative proceedings, including Pride’s ongoing FCPA investigation, pending tax assessments by the Mexican government and potential claims resulting from the loss of the Pride Wyoming, and their expected effects on our financial position, results of operations and cash flows;
 
  •  future operating results and financial condition;
 
  •  the correlation between demand for our services and our earnings and customers’ expectations of future energy prices;
 
  •  expected general and administrative expenses;
 
  •  future impairment losses related to our rig fleet;
 
  •  contract backlog and the amounts expected to be realized;
 
  •  future exposure to currency devaluations or exchange rate fluctuations;
 
  •  sufficiency of funds for required capital expenditures, working capital and debt service; and
 
  •  liabilities under laws and regulations protecting the environment.
 
We have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. Although it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially are the risks and uncertainties described under “Risk Factors” above and the following:
 
  •  general economic and business conditions;
 
  •  prices of oil and natural gas, particularly prices for natural gas in the U.S. and Mexico, and industry expectations about future prices;
 
  •  ability to adequately staff our rigs;
 
  •  foreign exchange controls and currency fluctuations;
 
  •  political stability in the countries in which we operate;


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  •  the business opportunities (or lack thereof) that may be presented to and pursued by us;
 
  •  cancellation or renegotiation of our drilling contracts;
 
  •  changes in laws or regulations;
 
  •  changes in interest and tax rates;
 
  •  demand for our rigs;
 
  •  our ability to enter into and the terms of future contracts;
 
  •  our ability to realize expected benefits from the spin-off;
 
  •  a determination by the IRS that the spin-off should be treated as a taxable transaction;
 
  •  our different capital structure as an independent company, including our access to capital, credit ratings, indebtedness and ability to raise additional financing;
 
  •  the adequacy of sources of liquidity;
 
  •  competition and market conditions in the contract drilling industry;
 
  •  labor relations and work stoppages;
 
  •  operating hazards, war, terrorism and cancellation or unavailability of insurance coverage;
 
  •  severe weather; and
 
  •  the effect of litigation and contingencies.
 
Most of these factors are beyond our ability to control or predict. Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements.


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THE SPIN-OFF
 
General
 
On August 4, 2009 the board of directors of Pride approved a plan to separate Pride into two independent, publicly traded companies. As approved, the separation will occur through the distribution to Pride stockholders of all of the shares of common stock of a subsidiary of Pride that would hold, directly or indirectly, the assets and liabilities of Pride’s mat-supported jackup rig business.
 
On August 24, 2009, the spin-off date, subject to certain customary conditions, each Pride stockholder will receive 1/15 of a share of our common stock with respect to each share of Pride common stock held by such stockholder at the close of business on the record date, as described below. Following the spin-off, Pride stockholders will own 100% of our common stock. Pride stockholders will not be required to make any payment, surrender or exchange of shares of Pride common stock or take any other action to receive their shares of Seahawk common stock.
 
The spin-off as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see the caption entitled “— Conditions to the Spin-Off” included elsewhere in this section.
 
Reasons for the Spin-Off
 
Pride’s board of directors has determined that separating our business from Pride is in the best interests of Pride and its stockholders. The board of directors of Pride considered the following potential benefits in making its determination to effect the spin-off:
 
  •  facilitating Pride’s external acquisition growth strategy for its premium deepwater drilling operations by meaningfully increasing the relative value and attractiveness of the shares of stock which Pride will have available to offer as acquisition currency and thereby decreasing Pride’s overall cost of capital;
 
  •  facilitating the growth and acquisition strategies for the mat-supported jackup rig business to be held by us, which would be inconsistent with Pride’s general business strategy;
 
  •  permitting our management (i) to focus exclusively on the operation and management of the mat-supported jackup rig business and the opportunities, challenges and risks unique to that business, and (ii) to modify the manner in which the business is conducted in order to increase its profitability; and
 
  •  allowing Pride to refine its focus and further enhance its reputation as a provider of technically advanced contract drilling services primarily in deepwater by separating from the mat-supported jackup rig business and focusing on its premium deepwater drilling operations.
 
Neither we nor Pride can assure you that, following the spin-off, any of these benefits will be realized to the extent anticipated or at all.
 
The Pride board of directors also considered a number of potentially negative factors in evaluating the spin-off, including the potential loss of synergies from operating as one company and potential increased costs, potential loss of joint purchasing power, potential disruptions to the businesses as a result of the spin-off, the limitations placed on our company as a result of the tax sharing agreement and other agreements it entered into with Pride in connection with the spin-off, risks of being unable to achieve the benefits expected to be achieved by the spin-off, risks related to loss of the opportunity to train Pride personnel on the mat-supported jackup rigs, the risk that reducing infrastructure in Mexico may reduce Pride’s ability to compete for deepwater contracts in Mexico, the risk that the spin-off might not be completed, the one-time, ongoing costs of the spin-off and the risk that the trading price of a share of Pride common stock after the spin-off plus the trading price of the 1/15 of a share of Seahawk common stock distributed for each share of Pride common stock will, in the aggregate, be less than the trading price of a share of Pride common stock before the spin-off. The Pride board of directors concluded that the potential benefits of the spin-off outweighed these factors.


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In view of the wide variety of factors considered in connection with the evaluation of the spin-off and the complexity of these matters, the Pride board of directors did not find it useful to, and did not attempt to, quantify, rank or otherwise assign relative weights to the factors considered. The individual members of the Pride board of directors likely may have given different weights to different factors.
 
The Number of Shares You Will Receive
 
For each share of Pride common stock that you owned at the close of business on August 14, 2009, the record date, and not subsequently sold in the “regular way” market, you will receive 1/15 of a share of Seahawk common stock on the spin-off date.
 
Treatment of Fractional Shares
 
The transfer agent will not deliver any fractional shares of our common stock in connection with the spin-off. Instead, the transfer agent will aggregate all fractional shares and sell them on behalf of those holders who otherwise would be entitled to receive a fractional share. We anticipate that these sales will occur as soon as practicable after the distribution date. Those holders will then receive a taxable cash payment in the form of a check in an amount equal to their pro rata share of the total net proceeds of those sales. If you own your shares of Pride stock directly (either in book-entry form through an account with Pride’s transfer agent and/or if you hold physical stock certificates), your check for any cash that you may be entitled to receive instead of fractional shares of our common stock will be mailed to you separately. It is expected that all fractional shares held in street name will be aggregated and sold by brokers or other nominees according to their standard procedures. You should contact your broker or other nominee for additional details.
 
None of Pride, our company or the transfer agent will guarantee any minimum sale price for the fractional shares of our common stock. Neither we nor Pride will pay any interest on the proceeds from the sale of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient stockholders. See “— Material U.S. Federal Income Tax Consequences of the Spin-Off.”
 
Treatment of Stock-Based Awards
 
In recent years, employees of Pride (including certain of our executive officers) have been eligible to participate in Pride’s 1998 Long-Term Incentive Plan and Pride’s 2007 Long-Term Incentive Plan. Under these plans, Pride’s Compensation Committee has granted certain stock-based awards, including restricted stock units, shares of restricted stock and stock options, to employees who are remaining with Pride (“Remaining Employees”) and employees who are transferring to Seahawk (“Transferring Employees”). The outstanding stock-based awards held by Remaining Employees and Transferring Employees at the time of the spin-off will be treated as set forth below. We expect to issue approximately 200,000 restricted stock units to our employees to replace unvested Pride stock-based awards being forfeited by them. The expected equity ownership of our named executive officers after the spin-off is described in “Management — Security Ownership of Executive Officers and Directors.” The equity ownership of our other employees is expected to be less than 1% in the aggregate of our outstanding shares of common stock after the spin-off.
 
Restricted Stock Units Granted in 2009
 
Pride restricted stock units granted in 2009 and held by Remaining Employees generally will remain subject to the vesting schedule and other terms of such awards following the spin-off, except that the number of restricted stock units granted in 2009 and held by the Remaining Employees will be increased by a number of additional units equal to (x) the value of the Seahawk common stock (calculated using the volume-weighted average price on the date of the spin-off) that would have been distributed in the spin-off to a holder of a number of shares of Pride common stock equal to the number of restricted stock units granted in 2009 and held by the employee on the record date, divided by (y) the value of a share of Pride common stock (calculated using the volume-weighted average price on the date of the spin-off). Remaining Employees will not otherwise receive any distribution in the spin-off in respect of restricted stock units granted in 2009.


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Transferring Employees likewise will not receive any distribution in the spin-off in respect of restricted stock units granted in 2009. Pride restricted stock units granted in 2009 and held by Transferring Employees will be forfeited as a result of the termination of their employment with Pride. However, such Transferring Employees will be granted a replacement award of Seahawk restricted stock units, with the number of such Seahawk restricted stock units equal to (x) divided by (y) plus (z), where (x) is the volume-weighted average price of Pride common stock on the date of the spin-off multiplied by the number of shares of Pride common stock subject to the forfeited restricted stock units, (y) is the volume-weighted average price of Seahawk common stock on the date of the spin-off, and (z) is the number of shares of Seahawk common stock that would have been distributed in the spin-off with respect to the number of shares of Pride common stock covered by the forfeited restricted stock units. Such replacement awards will be subject to a vesting schedule that corresponds to the remaining vesting schedule of the forfeited award on the date of the spin-off.
 
Restricted Stock Units Granted Prior to 2009
 
Pride restricted stock units granted prior to 2009 and held by Remaining Employees will remain unchanged by the spin-off and will continue to be subject to the vesting schedule and other terms of such awards. In connection with the spin-off, Remaining Employees will not receive Seahawk common stock but will receive a cash payment equal to the value of the Seahawk common stock (calculated using the volume-weighted average price on the date of the spin-off) that would have been distributed in the spin-off to a holder of a number of shares of Pride common stock equal to the number of restricted stock units granted prior to 2009 and held by the employee on the record date.
 
Transferring Employees likewise will receive the same cash payment in the spin-off as Remaining Employees. Pride restricted stock units granted prior to 2009 and held by Transferring Employees will thereafter be forfeited as a result of the termination of their employment with Pride. However, such Transferring Employees will be granted a replacement award of Seahawk restricted stock units, with the number of such Seahawk restricted stock units equal to (x) the volume-weighted average price of Pride common stock on the date of the spin-off multiplied by the number of shares of Pride common stock subject to the forfeited Pride restricted stock units, divided by (y) the volume-weighted average price of Seahawk common stock on the date of the spin-off. Such replacement awards will be subject to a vesting schedule that corresponds to the remaining vesting schedule of the forfeited award on the date of the spin-off.
 
Restricted Stock
 
Pride restricted stock held by Remaining Employees will remain unchanged by the spin-off and will continue to be subject to the vesting schedule and other terms of such awards. Remaining Employees will receive a distribution in the spin-off of 1/15 of a fully vested share of Seahawk common stock for each share of Pride restricted stock they own on the record date.
 
Transferring Employees likewise will receive a distribution in the spin-off of 1/15 of a fully vested share of Seahawk common stock for each share of Pride restricted stock they own on the record date. The Pride restricted stock they hold will thereafter be forfeited as a result of the termination of their employment with Pride. However, such Transferring Employees will be granted replacement awards of Seahawk restricted stock units, with the number of such Seahawk restricted stock units equal to (x) the volume-weighted average price of Pride common stock on the date of the spin-off multiplied by the number of forfeited shares of Pride restricted stock, divided by (y) the volume-weighted average price of Seahawk common stock on the date of the spin-off. Such replacement awards will be subject to a vesting schedule that corresponds to the remaining vesting schedule of the forfeited award on the date of the spin-off.
 
Stock Options
 
All Pride stock options outstanding at the time of the spin-off will remain stock options to purchase Pride’s common stock, subject to the terms of the grant of such options, but Pride’s compensation committee has adjusted the number of shares subject to, and the exercise price of, each stock option using a formula so


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as to preserve the intrinsic value of each option to the holder, taking into account any change in the value of shares of Pride’s common stock resulting from the spin-off.
 
This formula requires adjustments to the exercise price and number of underlying option shares such that for each option:
 
  •  on a share-by-share comparison, the pre-spin-off ratio of the exercise price to the fair market value of the Pride shares subject to the option immediately before the spin-off will be equal to the post-spin-off ratio of the exercise price to the fair market value of the Pride shares subject to the option immediately after the spin-off, and
 
  •  the pre-spin-off spread, defined as the difference between the aggregate fair market value of the Pride shares subject to the option immediately before the spin-off and the aggregate exercise price, will be equal to the post-spin-off spread, defined as the difference between the aggregate fair market value of the Pride shares subject to the option immediately after the spin-off over the aggregate exercise price.
 
To illustrate the operation of this formula, assume an employee holds an option to acquire 1,000 shares of Pride stock at an exercise price of $50 per share. Further assume that immediately prior to the spin-off, the market price of a share of Pride stock (including the value of the distribution of Seahawk stock for that share) is $100, and that immediately after the spin-off the market price of a share of Pride stock is $80 (these hypothetical stock prices are provided for ease of computation and are not indicative of expected stock prices before or after the spin-off). In this example, the pre-spin-off ratio is 0.5, calculated as $50 / $100, and the pre-spin-off spread is $50,000, calculated as (1,000 * $100) – (1,000 * $50). In order to preserve the pre-spin-off ratio, the exercise price must be reduced to $40, calculated by multiplying the post-spin-off market price of Pride stock by the ratio ($80 * 0.5). In order to preserve the pre-spin-off spread, the number of Pride shares subject to the option must be increased to 1,250, calculated by dividing the spread ($50,000) by the difference between the post-spin-off market price of Pride stock and the new post-spin-off exercise price ($80 – $40).
 
With respect to Transferring Employees, all such options are already vested. Options awards held by Transferring Employees will expire according to the terms of the grant of such options because the Transferring Employees are terminating their employment with Pride. The option grants generally provide that expiration will occur 60 days after termination of employment with Pride. The Seahawk board of directors may, in its discretion, make new or replacement awards with respect to such forfeited options.
 
When and How You Will Receive the Distribution
 
Pride will distribute the shares of our common stock on August 24, 2009, the spin-off date. BNY Mellon Shareowner Services will serve as transfer agent and registrar for the Seahawk common stock and as distribution agent in connection with the distribution of Seahawk common stock.
 
If you own Pride common stock as of the close of business on the record date, the shares of Seahawk common stock that you are entitled to receive in the spin-off will be issued electronically, as of the spin-off date, to your account as follows:
 
  •  Registered Stockholders.  If you own your shares of Pride stock directly (either in book-entry form through an account at Pride’s transfer agent, and/or if you hold physical paper stock certificates), you will receive your shares of Seahawk common stock by way of direct registration in book-entry form. Registration in book-entry form refers to a method of recording stock ownership when no physical paper share certificates are issued to stockholders, as is the case in this spin-off.
 
Commencing on or shortly after the spin-off date, if you are a registered holder of Pride shares, the distribution agent will mail to you an account statement that indicates the number of shares of Seahawk common stock that have been registered in book-entry form in your name.
 
  •  Beneficial Stockholders.  Most Pride stockholders hold their shares of Pride common stock beneficially through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the stock in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your Pride common stock through a bank or brokerage firm, your bank or brokerage firm will


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  credit your account for the shares of Seahawk common stock that you are entitled to receive in the spin-off. If you have any questions concerning the mechanics of having shares of our common stock held in “street name,” we encourage you to contact your bank or brokerage firm.
 
If any stockholder of Pride on the record date sells shares of Pride common stock on the “regular way” market after the record date but on or before the spin-off date, the buyer of those shares, and not the seller, will become entitled to receive the shares of our common stock issuable in respect of the shares sold. See “— Trading Between the Record Date and Spin-Off Date” below for more information.
 
Trading Between the Record Date and Spin-Off Date
 
Beginning on or shortly before the record date and continuing up to and including through the spin-off date, we expect that there will be two markets in Pride common stock: a “regular-way” market and an “ex-distribution” market. Shares of Pride common stock that trade on the regular way market will trade with an entitlement to shares of Seahawk common stock distributed pursuant to the spin-off. Shares that trade on the ex-distribution market will trade without an entitlement to shares of Seahawk common stock distributed pursuant to the spin-off. Therefore, if you sell shares of Pride common stock in the “regular-way” market up to and including through the spin-off date, you will be selling your right to receive shares of Seahawk common stock in the spin-off. If you own shares of Pride common stock at the close of business on the record date and sell those shares on the “ex-distribution” market, up to and including the spin-off date, you will still receive the shares of Seahawk common stock that you would be entitled to receive pursuant to your ownership of the shares of Pride common stock.
 
Furthermore, beginning on or shortly before the record date and continuing up to and including the spin-off date, we expect that there will be a “when-issued” market in our common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for shares of Seahawk common stock that will be distributed to Pride stockholders on the spin-off date. If you owned shares of Pride common stock at the close of business on the record date, you would be entitled to shares of our common stock distributed pursuant to the spin-off. You may trade this entitlement to shares of Seahawk common stock, without the shares of Pride common stock you own, on the “when-issued” market. On the first trading day following the spin-off date, “when-issued” trading with respect to our common stock will end and “regular-way” trading will begin.
 
Conditions to the Spin-Off
 
We expect that the spin-off will be effective on August 24, 2009, the spin-off date, assuming that certain conditions described in this information statement have been satisfied or waived by Pride. See “Certain Relationships and Related Party Transactions — Agreements Between Us and Pride — Master Separation Agreement — The Spin-Off” for a description of these conditions.
 
Separation Costs
 
In connection with the consummation of the spin-off, Pride will allocate to us certain one-time, nonrecurring pre-tax separation costs, of which approximately $2.2 million have been incurred by Pride and accrued and expensed by us as of March 31, 2009. These one-time costs are expected to consist of, among other things: non-income tax costs and regulatory fees incurred as part of the separation of our business from Pride’s other businesses; costs for building and/or reconfiguring the required information systems to run the stand-alone companies; other various costs for branding the new company, stock exchange listing fees, investor and other stakeholder communications, fees of the distribution agent, employee recruiting fees and incentive compensation. In addition, Pride also expects to incur other one-time, non-recurring costs in respect of certain financial, legal, accounting and other advisory fees, as well as printing fees and upfront fees associated with our new credit facility. These costs will be borne by Pride and will not be charged to us.
 
After the spin-off, to the extent additional one-time costs are incurred by our company in connection with the separation, they will be the direct responsibility of Seahawk. However, such costs are not currently estimable. In addition, the costs to operate our business as an independent public entity may exceed the


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historical allocations of expenses related to areas that include, but are not limited to, litigation and other legal matters, compliance with the Sarbanes-Oxley Act and other corporate compliance matters, insurance and claims management and the related cost of insurance, as well as general overall purchasing power. These costs will be our responsibility and are as discussed elsewhere in this information statement in the section entitled “Unaudited Pro Forma Combined Financial Information.”
 
Results of the Spin-Off
 
After the spin-off, we will be a separate publicly traded company. Immediately following the spin-off, we expect to have approximately 1,530 stockholders of record, based on the number of registered stockholders of Pride common stock on August 3, 2009, and approximately 11.6 million shares of Seahawk common stock outstanding.
 
We entered into a master separation agreement and several other agreements with Pride to effect the separation and provide a framework for our relationships with Pride after the separation. These agreements will govern the relationships between Seahawk and Pride subsequent to the completion of the spin-off and provide for the allocation between Seahawk and Pride of Pride’s assets, liabilities and obligations attributable to periods prior to the spin-off. For a more detailed description of these agreements, see the section entitled “Certain Relationships and Related Party Transactions” included elsewhere in this information statement.
 
The spin-off will not affect the number of outstanding shares of Pride common stock or any rights of Pride stockholders, although it will affect the market value of the outstanding Pride common stock.
 
Market for Common Stock
 
There is currently no public market for Seahawk common stock. However, we expect that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the spin-off, and we expect regular way trading of our common stock will begin on the first trading day after the completion of the spin-off. Neither we nor Pride can assure you as to the trading price of our common stock after the spin-off or as to whether the trading price of a share of Pride common stock after the spin-off plus the trading price of the 1/15 of a share of Seahawk common stock distributed for each share of Pride common stock will not, in the aggregate, be less than the trading price of a share of Pride common stock before the spin-off. See “Risk Factors — Risks Related to the Securities Markets and Ownership of Our Common Shares.” The trading price of our common stock is likely to fluctuate significantly, particularly until an orderly market develops.
 
A condition to the spin-off is the listing on the NASDAQ Global Select Market of our common stock. Seahawk common stock has been authorized for listing on the NASDAQ Global Select Market under the symbol “HAWK.”
 
After the spin-off, we will have approximately 11.6 million shares of our common stock outstanding. The shares of our common stock distributed to Pride’s stockholders will be freely transferable, except for shares received by individuals who are our affiliates. Individuals who may be considered our affiliates after the spin-off include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. This may include some or all of our executive officers and directors. Individuals who are our affiliates will be permitted to sell their shares of our common stock only pursuant to an effective registration statement under the Securities Act of 1933 (the “Securities Act”) or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(1) of the Securities Act or Rule 144 thereunder.
 
Certain U.S. Federal Income Tax Consequences of the Spin-Off
 
The following is a summary of certain material U.S. federal income tax consequences relating to the spin-off by Pride. This summary is based on the Code, the U.S. Treasury regulations promulgated thereunder, and interpretations of the Code and the U.S. Treasury regulations by the courts and the IRS, in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. This summary does not


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discuss all the tax considerations that may be relevant to Pride stockholders in light of their particular circumstances, nor does it address the consequences to Pride stockholders subject to special treatment under the U.S. federal income tax laws (such as non-U.S. persons, insurance companies, dealers or brokers in securities or currencies, tax-exempt organizations, financial institutions, mutual funds, pass-through entities and investors in such entities, holders who hold their shares as a hedge or as part of a hedging, straddle, conversion, synthetic security, integrated investment or other risk-reduction transaction or who are subject to alternative minimum tax or holders who acquired their shares upon the exercise of employee stock options or otherwise as compensation). In addition, this summary does not address the U.S. federal income tax consequences to those Pride stockholders who do not hold their Pride common stock as a capital asset. Finally, this summary does not address any state, local or foreign tax consequences. PRIDE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES OF THE SPIN-OFF TO THEM.
 
The spin-off is conditioned upon the continued effectiveness of a private letter ruling from the IRS and Pride’s receipt of an opinion from Baker Botts L.L.P. (which opinion will rely, in part, upon the continued effectiveness of such private letter ruling), in each case substantially to the effect that (i) the spin-off and certain related transactions will qualify under Sections 355 and/or 368 of the Code, and (ii) the spin-off and certain related transactions will further qualify for tax-free treatment to Pride and to us. In keeping with the IRS’s ruling practice, however, the private letter ruling does not cover certain matters which are relevant to the tax-free treatment of Pride, its stockholders and us. These matters will be covered in the opinion of Baker Botts L.L.P.
 
Assuming the spin-off and such related transactions meet the conditions described above:
 
  •  the spin-off and certain related transactions will not result in any taxable income, gain or loss to Pride or to us, other than with respect to any intercompany items or excess loss accounts required to be taken into account under Treasury regulations relating to consolidated returns;
 
  •  no gain or loss will be recognized by (and no amount will be included in the income of) Pride common stockholders upon their receipt of shares of Seahawk common stock in the spin-off;
 
  •  the holding period of the Seahawk common stock received by each Pride common stockholder will include the holding period at the time of the spin-off for the Pride common stock on which the spin-off is made;
 
  •  the tax basis of the Pride common stock held by each Pride common stockholder immediately before the spin-off will be allocated between that Pride common stock and the Seahawk common stock received, including any fractional share of Seahawk stock deemed received in the spin-off, in proportion to the relative fair market value of each on the date of the spin-off; and
 
  •  a Pride common stockholder who receives cash for a fractional share of Seahawk common stock will generally recognize capital gain or loss measured by the difference between the amount of cash received and the basis of the fractional share interest in Seahawk common stock to which the stockholder would otherwise be entitled.
 
United States Treasury Regulations also generally provide that if a Pride common stockholder holds different blocks of Pride common stock (generally shares of Pride common stock purchased or acquired on different dates or at different prices), the aggregate basis for each block of Pride common stock purchased or acquired on the same date and at the same price will be allocated, to the greatest extent possible, between the shares of Seahawk common stock received in the spin-off in respect of such block of Pride common stock and such block of Pride common stock, in proportion to their respective fair market values, and the holding period of the shares of Seahawk common stock received in the spin-off in respect of such block of Pride common stock will include the holding period of such block of Pride common stock. If a Pride common stockholder is not able to identify which particular shares of Seahawk common stock are received in the spin-off with respect to a particular block of Pride common stock, for purposes of applying the rules described above, the stockholder may designate which shares of Seahawk common stock are received in the spin-off in respect of a particular block of Pride common stock, provided that such designation is consistent with the terms of the


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spin-off. Holders of Pride common stock are urged to consult their own tax advisors regarding the application of these rules to their particular circumstances.
 
Although a private letter ruling from the IRS generally is binding on the IRS, if the factual representations or assumptions made in the letter ruling request are untrue or incomplete in any material respect, we will not be able to rely on the ruling. Furthermore, the IRS will not rule on whether a distribution satisfies certain requirements necessary to obtain tax-free treatment of Pride and its stockholders under Section 355 of the Code. Rather, the ruling is based upon representations by Pride that these conditions have been satisfied, and any inaccuracy in such representations could invalidate the ruling. In addition to the continued effectiveness of the ruling from the IRS, Pride has made it a condition to the spin-off that Pride obtain an opinion of Baker Botts L.L.P. substantially to the effect that (i) the spin-off and certain related transactions will qualify under Sections 355 and/or 368 of the Code, and (ii) the spin-off and certain related transactions will further qualify for tax-free treatment to Pride and to us. The opinion will rely on the ruling as to matters covered by the ruling. In addition, the opinion will be based on, among other things, certain assumptions and representations made by Pride and us, which if incorrect or inaccurate in any material respect would jeopardize the conclusions reached by counsel in its opinion. The opinion will not be binding on the IRS or the courts and will be subject to other qualifications and limitations.
 
Notwithstanding receipt by Pride of the ruling and opinion of counsel, the IRS could assert that the spin-off and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes. If the IRS were successful in taking this position, we, our initial public stockholders, and Pride could be subject to significant U.S. federal income tax liability. In general, (i) with respect to the spin-off, Pride would be treated as if it had sold the common stock of our company in a taxable sale for its fair market value and our initial public stockholders could be treated as if they had received a taxable distribution from Pride in an amount equal to the fair market value of our common stock that was distributed to them, and (ii) with respect to certain related transactions, we would be treated as if we had sold all or part of our assets (including certain assets that will be retained by Pride, the value of which may be in excess of the assets we will hold immediately after the spin-off) in a taxable sale for fair market value. In addition, even if the spin-off were otherwise to qualify under Section 355 of the Code, both it and certain related transactions may be taxable to us and to Pride (but not to Pride’s stockholders) under Sections 355(e) and 355(f) of the Code, if the spin-off were later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, stock representing a 50% or greater interest in Pride or us. For this purpose, any acquisitions of Pride stock or of our common stock within the period beginning two years before the spin-off and ending two years after the spin-off are presumed to be part of such a plan, although we or Pride may be able to rebut that presumption.
 
In connection with the spin-off, we and Pride entered into a tax sharing agreement pursuant to which we have agreed to be responsible for certain liabilities and obligations following the spin-off. In general, under the terms of the tax sharing agreement, in the event that the spin-off and/or certain related transactions were to fail to qualify for tax-free treatment, we would generally be responsible for 50% of the tax resulting from such failure. However, if the spin-off and/or certain related transactions were to fail to qualify for tax-free treatment because of certain actions or failures to act by us or by Pride, the party taking or failing to take such actions would be responsible for all of the tax resulting from such failure. For a more detailed discussion, see “Certain Relationships and Related Party Transactions — Agreements Between Us and Pride — Tax Sharing Agreement.” Our indemnification obligations to Pride for taxes under the tax sharing agreement are not limited in amount or subject to any cap. If we are required to indemnify Pride under the circumstances set forth in the tax sharing agreement, we may be subject to substantial liabilities.
 
Pride may incur some tax cost in connection with the spin-off (as a result of certain intercompany transactions or as a result of certain differences between federal, on the one hand, and foreign or state tax rules, on the other), whether or not the spin-off and certain related transactions qualify under Sections 355 and/or 368 of the Code.
 
Under U.S. Treasury regulations, each Pride stockholder who, immediately before the distribution, owns at least 5% of the total outstanding stock of Pride must attach to the stockholder’s U.S. federal income tax


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return for the year in which the spin-off occurs a statement setting forth certain information relating to the spin-off. In addition, all stockholders are required to retain permanent records relating to the amount, basis, and fair market value of the Seahawk stock which they receive and to make those records available to the IRS upon request of the IRS.
 
THE FOREGOING IS A SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF UNDER CURRENT LAW AND IS FOR GENERAL INFORMATION ONLY. THE FOREGOING DOES NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS OR THAT MAY APPLY TO PARTICULAR CATEGORIES OF STOCKHOLDERS. EACH PRIDE STOCKHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE SPIN-OFF TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
 
Reason for Furnishing this Information Statement
 
This information statement is being furnished solely to provide information to Pride stockholders who are entitled to receive shares of our common stock in the spin-off. The information statement is not, and is not to be construed as an inducement or encouragement to buy, hold or sell any of our securities. We believe that the information in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither Pride nor we undertake any obligation to update such information except in the normal course of our respective public disclosure obligations.


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CAPITALIZATION
 
The following table sets forth our capitalization on a historical combined basis as of March 31, 2009 and on a pro forma combined basis, as adjusted to give effect to the deemed transfer of certain assets and operations of the Gulf of Mexico Business that will not be held by Seahawk and the spin-off (in millions, except share numbers).
 
This table should be read in conjunction with “Selected Historical Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Combined Financial Information” and our unaudited combined financial statements and corresponding notes included elsewhere in this information statement.
 
                 
    March 31, 2009  
    Historical     Pro Forma  
 
Liabilities:
               
Long-term debt
  $     $  
                 
Net parent funding (stockholders’ equity)
               
Preferred stock, $.01 par value; 10,000,000 shares authorized pro forma; no shares issued and outstanding pro forma
           
Common stock, $.01 par value; 75,000,000 shares authorized pro forma; 11,580,249 shares issued and outstanding pro forma
          0.1 (1)
Paid-in capital
          511.6 (2)(3)
Net parent funding
    540.2       (3)
                 
Total net parent funding/stockholders’ equity
    540.2       511.7  
                 
Total capitalization
  $ 540.2     $ 511.7  
                 
 
 
(1) Represents the expected distribution of approximately 11,580,249 shares of our common stock to holders of Pride common stock based on the number of shares of Pride common stock outstanding at August 3, 2009.
 
(2) Pride will conduct, as of the date of the spin-off, a fair value assessment of our long-lived assets to determine whether an impairment loss should be recognized. We will recognize an impairment loss if the carrying value of our assets exceeds their fair value as determined in the assessment. This impairment loss would result in a reduction to our total assets and a corresponding reduction to net parent funding (which will be converted to paid-in capital in connection with the spin-off). Pride has conducted a preliminary fair value assessment of our rig fleet, and as a result we currently expect to record an impairment loss of between $25 million and $45 million as a result of the spin-off.
 
(3) Represents the elimination of Pride’s net investment in us to paid-in capital less the aggregate par value and the shares of our common stock distributed in the spin-off.
 
DIVIDEND POLICY
 
We do not currently plan to pay a regular dividend on our common stock following the spin-off. The declaration of any future cash dividends and, if declared, the amount of any such dividends, will be subject to our financial condition, earnings, capital requirements, financial covenants and other contractual restrictions and to the discretion of our board of directors. Our new revolving credit facility includes restrictions on our ability to pay dividends. Our board of directors may take into account such matters as general business conditions, industry practice, our prospects, applicable law and such other factors as our board of directors may deem relevant.


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SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION
 
The following tables present selected historical combined financial information of the Gulf of Mexico Business. The term “Gulf of Mexico Business” refers to Pride’s historical Gulf of Mexico operations reflected in the historical combined financial statements discussed herein and included elsewhere in this information statement. The Gulf of Mexico Business reflects the effects of certain assets and operations that will not be held by Seahawk, including operations related to two independent leg jackup rigs, two semi-submersible rigs and deepwater drilling services management contracts for the Thunderhorse, Mad Dog and Holstein rigs. See “Unaudited Pro Forma Combined Financial Information” for further description of the assets of Pride that will not be held by Seahawk but are reflected in the historical combined financial statements of the Gulf of Mexico Business.
 
We derived the historical combined statement of operations information for each of the years in the three-year period ended December 31, 2008, and the balance sheet information as of December 31, 2007 and 2008 from the audited combined financial statements of the Gulf of Mexico Business included elsewhere in this information statement. We derived the balance sheet information as of December 31, 2006 and the historical combined statement of operations information for the year ended December 31, 2005 from audited combined financial statements of the Gulf of Mexico Business not included in this information statement. We derived the historical combined statement of operations information for the Gulf of Mexico Business for year ended December 31, 2004 and the balance sheet information as of December 31, 2004 and 2005 and March 31, 2008 from unaudited combined financial statements of the Gulf of Mexico Business. We derived the historical combined statement of operations information for the three months ended March 31, 2009 and 2008 and the balance sheet information as of March 31, 2009 from the unaudited combined financial statements of the Gulf of Mexico Business included elsewhere in this information statement.
 
The selected historical combined financial information presented below should be read in conjunction with the combined financial statements of the Gulf of Mexico Business and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this information statement. The financial information may not be indicative of our future performance and does not necessarily reflect what the financial position and results of operations would have been had we operated as a separate, stand-alone entity during the periods presented, including changes that will occur in our operations as a result of our spin-off from Pride (amounts in millions).
 
                                                         
    Three Months Ended March 31,     Year Ended December 31,  
    2009     2008     2008     2007     2006     2005     2004  
    (Unaudited)     (Unaudited)                             (Unaudited)  
 
Statement of Operations Information:
                                                       
Revenue
  $ 115.7     $ 193.6     $ 681.8     $ 707.2     $ 639.5     $ 423.0     $ 326.1  
Operating costs, excluding depreciation and amortization
    74.5       98.8       343.3       349.9       299.3       257.9       200.4  
Depreciation and amortization
    15.5       16.0       62.5       62.8       54.7       51.3       53.6  
General and administrative, excluding depreciation and amortization
    5.9       6.5       36.7       25.7       17.7       13.9       9.9  
Impairment expense
                                        3.6  
(Gain) loss on sale of fixed assets
    0.1       (0.1 )     0.1       (0.4 )     (0.4 )     (2.1 )      
                                                         
Earnings from operations
    19.7       72.4       239.2       269.2       268.2       102.0       58.6  
Other income and (expense), net
    0.7       0.4       (2.6 )     (0.8 )     (1.6 )     0.8       9.2  
                                                         
Income from continuing operations before income taxes
    20.4       72.8       236.6       268.4       266.6       102.8       67.8  
Income taxes
    (7.3 )     (25.6 )     (82.9 )     (94.9 )     (95.7 )     (36.6 )     (24.3 )
                                                         
Income (loss) from continuing operations, net of tax
  $ 13.1     $ 47.2     $ 153.7     $ 173.5     $ 170.9     $ 66.2     $ 43.5  
                                                         
 
                                                         
    As of March 31,     As of December 31,  
    2009     2008     2008     2007     2006     2005     2004  
    (Unaudited)     (Unaudited)                       (Unaudited)     (Unaudited)  
 
Balance Sheet Information:
                                                       
Working capital
  $ 73.7     $ 125.2     $ 82.0     $ 80.6     $ 54.5     $ 95.8     $ 46.4  
Property and equipment, net
    610.1       698.9       612.0       711.5       670.9       579.3       628.7  
Total assets
    781.2       898.7       805.4       893.1       823.4       725.4       727.1  
Net parent funding
    540.2       677.2       551.6       644.5       579.7       560.2       595.0  


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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
 
The following unaudited pro forma combined balance sheet as of March 31, 2009 and the unaudited pro forma combined statement of operations for the three months ended March 31, 2009 and the year ended December 31, 2008 are based on the historical combined financial statements of the Gulf of Mexico Business. See “Selected Historical Combined Financial Information.” The operations of our Gulf of Mexico platform rigs that were sold in May 2008 have been reclassified to discontinued operations and are not included in income from continuing operations. This unaudited pro forma combined financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements of the Gulf of Mexico Business and the notes to those statements included elsewhere in this information statement.
 
Our unaudited pro forma combined statements of operations for the year ended December 31, 2008 and the three months ended March 31, 2009 include adjustments to give effect to the deemed transfer of certain assets and operations that will not be held by Seahawk as if such transfers occurred on January 1, 2008. The unaudited pro forma combined balance sheet information includes adjustments to give effect to the deemed transfer of certain assets and operations that will not be held by Seahawk as if such transfers occurred on March 31, 2009.
 
The unaudited pro forma combined statements of operations and balance sheet give effect to the following:
 
  •  The elimination of operations related to our drilling services management contracts for the Thunderhorse, Mad Dog and Holstein rigs, all of which were managed by the Gulf of Mexico Business until April 2008 but will be retained by Pride.
 
  •  The elimination of operations related to two independent leg jackup rigs, the Pride Tennessee and Pride Wisconsin, which were managed by the Gulf of Mexico Business but will be retained by Pride.
 
  •  The tax effect of the aforementioned adjustments using the applicable tax rate.
 
The unaudited pro forma, as adjusted combined statements of operations and balance sheet are further adjusted to give effect to the following transactions relating to the spin-off of Seahawk to Pride stockholders:
 
  •  The issuance by us to Pride, in connection with certain transactions relating to the spin-off, of 11,580,249 shares of our common stock, and the distribution of such shares to the holders of Pride common stock.
 
  •  An estimated cash contribution by Pride to Seahawk to achieve the targeted working capital (defined as total current assets less total current liabilities) of $85 million as set forth in the master separation agreement, as though the working capital adjustment were effected at March 31, 2009.
 
  •  The transfer by Pride to Seahawk of certain capital spares under the master separation agreement.
 
  •  The effect of certain alternative minimum tax credits generated by Seahawk’s business to which Seahawk will be entitled after the spin-off.
 
The pro forma combined balance sheet does not reflect contingent obligations relating to tax assessments from the Mexican government. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates — Income Taxes” for more information about these tax assessments, including the amounts assessed to date and anticipated potential assessments.
 
There are no differences between the pro forma statement of operations and the pro forma, as adjusted statement of operations, except with respect to earnings per share. To avoid redundancy, only the pro forma, as adjusted statement of operations is presented below.
 
The unaudited pro forma combined financial information set forth below is based upon available information and assumptions that we believe are reasonable. The information has been prepared on a combined basis from Pride’s financial statements using the historical results of operations and bases of assets and liabilities of Pride and includes allocations of expenses from Pride to us. The costs to operate our business as an independent public entity may exceed the historical allocations of expenses related to areas that include, but are not limited to, litigation and other legal matters, compliance with the Sarbanes-Oxley Act and other corporate compliance matters, insurance and claims management and the related cost of insurance, as well as general overall purchasing power. These possible increased costs are not included in the unaudited pro forma combined financial information as their impact on our results of operations cannot be reasonably estimated. The unaudited pro forma combined financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what our financial condition or results of operations would have been had the spin-off occurred on the dates indicated. The unaudited pro forma combined financial information also should not be considered representative of our future financial condition or results of operations.


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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
 
For the Three Months Ended March 31, 2009
 
                         
    Gulf of
    Operations
    Seahawk
 
    Mexico
    Retained
    Pro Forma
 
    Business     by Pride     as Adjusted  
    (In millions)  
 
Revenue
  $ 115.7     $ (25.7 )   $ 90.0  
Operating costs, excluding depreciation and amortization
    74.5       (7.7 )     66.8  
Depreciation and amortization
    15.5       (1.3 )     14.2  
General and administrative, excluding depreciation and amortization
    5.9       (0.6 )     5.3  
Loss on sale of fixed assets
    0.1             0.1  
                         
Earnings from operations
    19.7       (16.1 )     3.6  
Other income and (expense), net
    0.7             0.7  
                         
Income from continuing operations before income taxes
    20.4       (16.1 )     4.3  
Income taxes
    (7.3 )     5.6       (1.7 )
                         
Income from continuing operations, net of tax
  $ 13.1     $ (10.5 )   $ 2.6  
                         
                         
Pro forma earnings per share:
                       
Basic
                  $ 0.22 (c)
Diluted
                  $ 0.22 (d)
Weighted average shares used in calculating earnings per share:
                       
Basic
                    11.6 (c)
Diluted
                    11.6 (d)
 
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.


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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
 
For the Year Ended December 31, 2008
 
                         
    Gulf of
    Operations
    Seahawk
 
    Mexico
    Retained
    Pro Forma
 
    Business     by Pride     as Adjusted  
    (In millions)  
 
Revenue
  $ 681.8     $ (128.2 )(a)   $ 553.6  
Operating costs, excluding depreciation and amortization
    343.3       (40.6 )(a)     302.7  
Depreciation and amortization
    62.5       (5.6 )(a)     56.9  
General and administrative, excluding depreciation and amortization
    36.7       (4.0 )(a)     32.7  
(Gain) loss on sale of fixed assets
    0.1             0.1  
                         
Earnings from operations
    239.2       (78.0 )     161.2  
Other income and (expense), net
    (2.6 )     (0.1 )(a)     (2.7 )
                         
Income from continuing operations before income taxes
    236.6       (78.1 )     158.5  
Income taxes
    (82.9 )     27.4 (b)     (55.5 )
                         
Income from continuing operations, net of tax
  $ 153.7     $ (50.7 )   $ 103.0  
                         
                         
Pro forma earnings per share:
                       
Basic
                  $ 8.90 (c)
Diluted
                  $ 8.90 (d)
Weighted average shares used in calculating earnings per share:
                       
Basic
                    11.6 (c)
Diluted
                    11.6 (d)
 
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.


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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
 
As of March 31, 2009
 
                                         
          Assets/
                   
    Gulf of
    Liabilities
                Seahawk
 
    Mexico
    Retained
    Seahawk
    Adjustments
    Pro Forma
 
    Business     by Pride     Pro Forma     for Spin-off     as Adjusted  
    (In millions)  
 
ASSETS
Current assets:
                                       
Cash and cash equivalents
  $ 23.2     $     $ 23.2     $ 28.4 (f)   $ 51.6  
Trade receivables, net
    79.1       (17.9 )(e)     61.2             61.2  
Deferred income taxes
    1.0             1.0             1.0  
Prepaid expenses and other current assets
    62.7       (0.6 )(e)     62.1             62.1  
                                         
Total current assets
    166.0       (18.5 )     147.5       28.4       175.9  
Property and equipment, net
    610.1       (80.6 )(e)     529.5       11.3 (i)     540.8  
Goodwill
    1.2             1.2             1.2  
Other assets
    3.9       (0.1 )(e)     3.8             3.8  
                                         
Total assets
  $ 781.2     $ (99.2 )   $ 682.0     $ 39.7     $ 721.7  
                                         
 
LIABILITIES AND NET PARENT FUNDING/STOCKHOLDERS’ EQUITY
Current liabilities:
                                       
Accounts payable
  $ 14.3     $ (0.2 )(e)   $ 14.1     $ 2.2 (g)   $ 16.3  
Accrued expenses and other current liabilities
    75.2       (0.6 )(e)     74.6             74.6  
Income taxes payable
    2.8             2.8             2.8  
                                         
Total current liabilities
    92.3       (0.8 )     91.5       2.2       93.7  
Other long-term liabilities
    3.8             3.8             3.8  
Deferred income taxes
    144.9       (17.2 )(e)     127.7       (41.4 )(j)     86.3  
                                         
Total liabilities
    241.0       (18.0 )     223.0       (39.2 )     183.8  
Net Parent Funding/Stockholders’ equity:
                                       
Preferred stock
                             
Common stock
                      0.1 (h)     0.1  
Net parent funding/Retained earnings
    540.2       (81.2 )(e)     459.0       (459.0 )(h)      
Paid-in capital
                      537.8 (h)     537.8  
                                         
Total net parent funding/stockholders’ equity
    540.2       (81.2 )     459.0       78.9       537.9  
                                         
Total liabilities and net parent funding/stockholders’ equity
  $ 781.2     $ (99.2 )   $ 682.0     $ 39.7     $ 721.7  
                                         
 
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.


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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
 
As of the effective date of the spin off, Seahawk will hold selected assets, selected liabilities and parent funding as reported related to its mat-supported jackup rig business. The amounts of the assets and liabilities in the pro forma combined balance sheet have been based upon the unaudited March 31, 2009 carrying values.
 
Statements of Operations
 
(a) Reflects revenues and related expenses associated with certain assets that will not be held by Seahawk but are included in the historical combined results of operations of the Gulf of Mexico Business based upon management responsibility. These assets include:
 
  •  The Pride Tennessee and Pride Wisconsin, two independent-leg jackup rigs that will remain assets of Pride. The current customer contracts applicable to these rigs will remain with the Seahawk subsidiary that is party to such contracts. Pursuant to an agreement we entered into with Pride, all benefits and risks of these customer contracts will be passed through to Pride until their completion, which we expect to occur in August 2009 for the Pride Wisconsin and March 2010 for the Pride Tennessee; and
 
  •  The deepwater drilling services management contracts for the Thunderhorse, Mad Dog and Holstein rigs that were performed by the Gulf of Mexico Business through April 2008 when management of such contracts was transferred to another Pride division and will remain with Pride after the spin-off.
 
(b) Reflects the income tax impact on adjustments described in (a) above using the applicable tax rate.
 
(c) The number of shares used to compute basic earnings per share is 11,580,249, which is the number of shares of Seahawk common stock assumed to be outstanding on the distribution date, based on a distribution ratio of 1/15 of a share of Seahawk common stock for each share of Pride common stock outstanding.
 
(d) The number of shares used to compute diluted earnings per share is based on the number of shares of Seahawk common stock assumed to be outstanding on the distribution date. Prior to the completion of this spin-off, there will be no outstanding restricted stock awards or options to purchase shares of our common stock. Transferring employees, executive officers and directors will be awarded share-based equity grants, but the number of awards to be granted and the determination of the dilutive effect of those awards are not determinable at this time.
 
Balance Sheet
 
(e) Reflects the assets and liabilities associated with the assets described in note (a) that will not be held by Seahawk.
 
(f) Reflects the estimated cash contribution by Pride to Seahawk necessary to achieve the targeted working capital (defined as total current assets less total current liabilities, subject to adjustments for certain noncash items) of $85 million as set forth in the master separation agreement, as though the working capital adjustment were effected at March 31, 2009. The actual cash amount to be contributed at or prior to the date of distribution, which is expected to be approximately $47.3 million, was calculated by subtracting our working capital as of May 31, 2009 from the targeted working capital of $85 million.
 
(g) Reflects certain estimated non-recurring expenses of $2.2 million incurred in connection with the transaction, which have been reflected in the unaudited pro forma, as adjusted combined balance sheet as of March 31, 2009. These expenses have not been reflected in the unaudited pro forma combined statement of operations for the three months ended March 31, 2009 and for the year ended December 31, 2008.
 
(h) Reflects the expected distribution of approximately 11,580,249 million shares of Seahawk common stock to holders of Pride common stock and the elimination of Pride’s investment in us to common stock in an amount equal to the aggregate par value of the shares of our common stock to be distributed in the spin-off, and the remainder to paid-in capital.
 
Pride will conduct, as of the date of the spin-off, a fair value assessment of our long-lived assets to determine whether an impairment loss should be recognized. We will recognize an impairment loss if the carrying value of our assets exceeds their fair value as determined in the assessment. This impairment loss would result in a reduction to our total assets and a corresponding reduction to net parent funding (which will be converted to paid-in capital in connection with the spin-off). Pride has conducted a preliminary fair value assessment of our rig fleet, and as a result we currently expect to record an impairment loss of between $25 million and $45 million as a result of the spin-off.
 
(i) Reflects certain capital spares to be transferred by Pride to Seahawk under the master separation agreement.
 
(j) Reflects certain alternative minimum tax credits as well as foreign tax credits generated by Seahawk’s business to which Seahawk will be entitled after the spin-off.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
COMBINED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis of the combined financial condition and results of operations should be read in conjunction with “Selected Historical Combined Financial Information,” “Unaudited Pro Forma Combined Financial Information” and the combined financial statements and notes thereto appearing elsewhere in this information statement. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this information statement. See “Forward-Looking Information.” Unless the context requires otherwise or we specifically indicate otherwise, when used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the terms “we,” “our,” “ours” and “us” refer to the Gulf of Mexico Business. The financial information for the Gulf of Mexico Business referred to below reflects the effects of, among other things, certain assets and operations that will not be held by Seahawk. See “Unaudited Pro Forma Combined Financial Information” for a description of the assets of Pride that will not be held by Seahawk but are reflected in the historical combined financial statements of the Gulf of Mexico Business.
 
Separation from Pride
 
On August 4, 2009, the board of directors of Pride approved a plan to separate Pride into two independent, publicly traded companies. As approved, the separation will occur through the distribution to Pride stockholders of all of the shares of common stock of a subsidiary of Pride that would hold, directly or indirectly, the assets and liabilities of Pride’s mat-supported jackup rig business. We will not have any long-term debt at the time of the spin-off. On August 24, 2009, the spin-off date, subject to certain customary conditions, each Pride stockholder will receive 1/15 of a share of our common stock and preferred stock purchase rights for each share of Pride common stock held at the close of business on the record date. Following the spin-off, Pride stockholders will own 100% of our common stock. Pride stockholders will not be required to make any payment, surrender or exchange of shares of Pride common stock or take any other action to receive their shares of Seahawk common stock.
 
Historically, we have used the operating and corporate functions of Pride for a variety of services including engineering, training and quality control, environmental, health and safety, accounting, corporate finance, human resource management (such as payroll and benefit plan administration), information technology and communications, legal, purchasing and inventory management, risk management, tax and treasury. We were allocated operating expenses of $3.6 million in the first three months of 2009, $5.9 million in the first three months of 2008, $13.7 million in 2008, $10.9 million in 2007 and $5.0 million in 2006. We were allocated general and administrative expenses of $5.9 million in the first three months of 2009, $6.5 million in the first three months of 2008, $36.6 million in 2008, $25.6 million in 2007 and $17.4 million in 2006. Management believes the assumptions and methodologies underlying the allocation of these expenses from Pride are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been or will be incurred by us if we were to operate as an independent, publicly traded company. We entered into a transition services agreement with Pride which provides for continuation of some of these services in exchange for fees specified in the agreement. See “Certain Relationships and Related Party Transactions — Agreements Between Us and Pride — Transition Services Agreement.” The terms and prices in the transition services agreement may be different than the terms and prices in effect prior to the spin-off. We will also incur additional costs associated with being an independent, publicly traded company. These anticipated incremental costs, which are described in more detail in this information statement in the section entitled “Unaudited Pro Forma Combined Financial Information,” are not reflected in our historical combined financial statements.
 
Overview
 
We operate a jackup rig business that provides contract drilling services to the oil and natural gas exploration and production industry in the Gulf of Mexico. Our fleet of mobile offshore drilling rigs consists of 20 mat-supported jackup rigs that are capable of operating in maximum water depths of up to 300 feet and


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drilling to depths of up to 25,000 feet. We have the second largest fleet of jackup rigs operating in the Gulf of Mexico. We contract with our customers on a dayrate basis to provide rigs and drilling crews, and we are responsible for the payment of operating and maintenance expenses. Our customers primarily consist of various independent oil and natural gas producers, drilling service providers and the national oil company in Mexico, and our competitors range from large international companies offering a wide range of drilling services to smaller companies focused on more specific geographic or technological areas.
 
Our rig fleet operates in the United States and Mexico. In the United States, customer expectations of future natural gas prices strongly influence their drilling activity. Generally, our customers accelerate their drilling programs in higher natural gas price environments and delay or curtail their drilling programs when natural gas prices decline. In Mexico, all crude oil and natural gas basins are owned by the Mexican government and operated and developed by PEMEX, the national oil company. Revenues from exported crude oil are a critical source of funding for Mexico’s government. PEMEX’s demand for drilling services is subject to governmental approval and intervention, including agreements with OPEC to manage the global supply of crude oil, and also is affected by declining production in established fields such as Cantarell and shifting of spending to newer and often deeper offshore fields.
 
PEMEX has indicated an increased emphasis on field exploration and development prospects that increasingly require the use of rigs with a water depth rating of 250 feet or greater, especially independent leg cantilever rigs. As PEMEX changes its focus toward new field exploration and development prospects that increasingly require the use of rigs with greater water depth capability, we believe demand in Mexico could increase for our ten rigs with water depth ratings of 250 feet or greater. However, it is possible that demand in Mexico for our ten rigs with water depth ratings of 200 feet or less could decline and the future contracting opportunities for such rigs in Mexico could diminish. PEMEX has indicated the need for between five and seven incremental jackups in 2009 to maintain its production. While the PEMEX incremental requirements are generally for independent leg rigs with water depth ratings of 250 feet or greater, we believe there will continue to be opportunities for PEMEX to use mat-supported rigs as well. In addition to the rigs we currently have in Mexico, we will seek additional opportunities to mobilize our 250 foot rigs from the United States to Mexico.
 
Following the onset of the global financial crisis in late 2008, the declining prices of crude oil and natural gas and deteriorating worldwide economic conditions, the demand for drilling services has declined. Lower crude oil and natural gas prices combined with the inability of our customers to obtain financing for drilling projects have had a negative impact on 2009 offshore drilling activity in the United States as our customers reduced their planned expenditures in response to these factors. We anticipate that 2009 could be the sharpest downturn for jackup activity in over 20 years. As of August 4, 2009, there were only 18 jackups under contract in the U.S. Gulf of Mexico, out of the marketed supply of 41 rigs, or 44% marketed utilization. Activity may decline even further based on the lack of new drilling plans and permits outstanding. We do not expect drilling activity to recover until natural gas prices increase from current levels or drilling costs are further reduced. Additionally, our average dayrates may decline due to the onset of hurricane season and the expiration of contracts with relatively higher pricing that were entered into before the global financial crisis. Longer term, fleet utilization and dayrates in the U.S. Gulf of Mexico will largely depend upon expectations regarding natural gas prices, access to capital for small to medium sized exploration and production companies and other drilling service providers, seasonality in the market driven by the risk of hurricanes, and the number and timing of rigs moving from the U.S. Gulf of Mexico to Mexico and other international markets.
 
In the current environment, we intend to work a smaller number of rigs at reasonable dayrates and to stack rigs with no near-term prospects. Based on current demand, we have stacked ten rigs and intend to stack additional rigs as necessary. In late February 2009, we reduced our U.S. rig-based workforce by approximately 40%. We have continued to reduce our workforce as we stack rigs, and since April 15, 2009, we have reduced our headcount an additional 15%. Through most of 2008, our jackup fleet operating in the United States benefited from high commodity prices for oil and natural gas, which enabled smaller, independent producers to take advantage of increases in spot price markets and consequently increased demand for our rigs. Additionally, the industry-wide supply of rigs in the U.S. Gulf of Mexico reduced considerably in 2008 due to rig movement to international markets and the permanent loss of several rigs during the active hurricane


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seasons of 2005 through 2008, including three rigs lost (one of which was the Pride Wyoming) and one significantly damaged in 2008. We believe that a number of our competitors are continuing to market jackup rigs that have previously operated or are currently operating in the U.S. Gulf of Mexico to other markets, and we believe the rig supply will continue to contract.
 
Additionally, we could be impacted by the potential negative effect on our dayrates due to worldwide newbuild rig fleet additions. Historically, during prior periods of high utilization and dayrates, industry participants have increased the supply of rigs by ordering the construction of new speculative units. This has often created an oversupply of drilling units and has caused a decline in utilization and dayrates when the rigs enter the market, sometimes for extended periods of time as rigs have been absorbed into the active fleet. Approximately 65 newbuild jackup rigs are currently under construction or on order worldwide, seven of which are being built in shipyards in the Gulf of Mexico region and would have a relatively low mobilization cost to operate in the Gulf of Mexico. All of these rigs are considered to be of a higher specification than our rigs, because generally they are larger, have greater deckloads, have water depth ratings of 250 feet or greater and have an independent leg design, as opposed to being mat-supported. Independent leg rigs are better suited for use in stronger currents or uneven seabed conditions. As discussed above, PEMEX has indicated an increased emphasis on prospects requiring the use of rigs with water depth ratings of 250 feet or greater, such as the anticipated newbuilds. However, any negative effect on our dayrates due to newbuild rig fleet additions could be mitigated by current insurance restrictions applicable in the U.S. Gulf of Mexico, which were a result of industry loss from Hurricanes Katrina and Rita in 2005. As a result of these storms, insurance companies have raised their premiums and the deductibles, and imposed restrictions on windstorm damage, and many rig owners have not been able to insure the full replacement cost of their new rigs operating in the U.S. Gulf of Mexico. This is especially true for smaller owners that are dependent on debt to finance their rig construction projects. As a result, most of the new jackups that have recently been built in the U.S. Gulf of Mexico have been mobilized to other regions. Although we believe the damage from Hurricanes Gustav and Ike was less costly than from the storms in 2005, we believe that the inability of rig owners to obtain full windstorm damage coverage could continue indefinitely.
 
Recent Developments
 
Pride’s FCPA Investigation
 
The audit committee of Pride’s board of directors, through independent outside counsel, has undertaken an investigation of potential violations of the U.S. Foreign Corrupt Practices Act in several of its international operations. With respect to our operations, this investigation has found evidence suggesting that payments, which may violate the FCPA, were made to government officials in Mexico aggregating less than $150,000. The evidence to date regarding these payments suggests that payments were made beginning in 2002 through early 2006 (a) to one or more government officials in Mexico in connection with the clearing of a jackup rig and equipment through customs, the movement of personnel through immigration or the acceptance of a jackup rig under a drilling contract; and (b) with respect to the potentially improper entertainment of government officials in Mexico.
 
Pride has voluntarily disclosed information found in the investigation to the Department of Justice and the SEC, and Pride has cooperated and is continuing to cooperate with these authorities.
 
For any violations of the FCPA, we may be liable for or subject to fines, civil and criminal penalties, equitable remedies, including profit disgorgement, and injunctive relief. Civil penalties under the antibribery provisions of the FCPA could range up to $10,000 per violation, with a criminal fine up to the greater of $2 million per violation or twice the gross pecuniary gain to us or twice the gross pecuniary loss to others, if larger. Civil penalties under the accounting provisions of the FCPA can range up to $500,000 per violation, and a company that knowingly commits a violation can be fined up to $25 million per violation. In addition, both the SEC and the DOJ could assert that conduct extending over a period of time may constitute multiple violations for purposes of assessing the penalty amounts. Often, dispositions of these types of matters result in modifications to business practices and compliance programs and possibly a monitor being appointed to review future business and practices with the goal of ensuring compliance with the FCPA. Pursuant to the master


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separation agreement, we will be responsible for any liabilities, costs or expenses related to, arising out of or resulting from Pride’s current FCPA investigation to the extent related to Pride’s and our operations in Mexico (subject to certain exceptions), except that we will not be responsible for any fine, penalty or profit disgorgement payable to the United States government in excess of $1 million, and we will not be allocated any fees or expenses of third party advisors retained by Pride. In the event that a disposition includes the appointment of a compliance monitor or consultant or any similar remedy for our company, we will be responsible for the costs associated with such monitor, consultant or similar remedy.
 
We could also face fines, sanctions, and other penalties from authorities in Mexico, including prohibition of our participating in or curtailment of business operations and the seizure of rigs or other assets. Our customer in Mexico could seek to impose penalties or take other actions adverse to our interests. We could also face other third-party claims by directors, officers, employees, affiliates, advisors, attorneys, agents, security or other interest holders or constituents of our company. In addition, disclosure of the subject matter of the investigation could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees, and to access the capital markets.
 
Pride has commenced discussions with the DOJ and SEC regarding a negotiated resolution for these matters, which could be settled during 2009. There can be no assurance that these discussions will result in a final settlement of any or all of these issues or, if a settlement is reached, the timing of any such settlement or that the terms of any such settlement would not have a material adverse effect on us. No amounts have been accrued related to any potential fines, sanctions, claims or other penalties, which could be material individually or in the aggregate, but an accrual could be made as early as the third quarter of 2009. We cannot currently predict what, if any, actions may be taken by the DOJ, the SEC, any other applicable government or other authorities or our customers or other third parties or the effect the actions may have on our results of operations, financial condition or cash flows, on our combined financial statements or on our business, except that our responsibility for fines, penalties or profit disgorgement payable to the United States government will not exceed $1 million as described above.
 
Loss of Pride Wyoming
 
In September 2008, the Pride Wyoming, a 250-foot slot-type jackup rig operating in the U.S., was deemed a total loss for insurance purposes after it was severely damaged and sank as a result of Hurricane Ike. The rig had a net book value of approximately $14 million and was insured for $45 million. We expect to incur costs of approximately $53 million for removal of the wreckage and salvage operations, not including any costs arising from damage to offshore structures owned by third parties. These costs for removal of the wreckage are expected to be covered by Pride’s insurance. Pride has agreed to advance the costs of removal of the wreckage and salvage operations until receipt of insurance proceeds, but we will be responsible for payment of the $1 million retention, $2.5 million in premium payments for a removal of wreckage claim and for any costs not covered by Pride’s insurance. Pride has collected a total of $39 million from underwriters through June 2009 for the insured value of the rig and removal of the wreckage, which is net of deductibles of $20 million and $1 million, respectively. The Pride Wyoming accounted for $16.8 million, or approximately 3%, of our pro forma revenues in 2008. We did not carry loss of hire or business interruption insurance for the Pride Wyoming.
 
Four owners of facilities in the Gulf of Mexico on which parts of the Pride Wyoming settled or may have settled have requested that Pride pay for all costs, expenses and other losses associated with the damage, including loss of revenue. These owners have claimed damages in excess of $120 million in the aggregate. Other pieces of the rig may have also caused damage to certain other offshore structures. In October 2008, Pride filed a complaint in U.S. Federal District Court pursuant to the Limitation of Liability Act, which has the potential to statutorily limit our exposure for claims arising out of third party damages caused by the loss of the Pride Wyoming. Pride will retain the right after the spin-off to control any claims, litigation or settlements arising out of the loss of the Pride Wyoming. Based on the information available to us at this time, we do not expect the outcome of these claims to have a material adverse effect on our financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these


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claims. Although we believe Pride has adequate insurance, we will be responsible for any deductibles or awards not covered by Pride’s insurance.
 
Backlog
 
Our contract drilling backlog as of March 31, 2009 totaled approximately $118.8 million for future revenues and firm commitments. We expect the full amount of our total backlog to be realized during the remainder of 2009. We calculate our backlog, or future contracted revenue for our fleet, as the contract dayrate multiplied by the number of days remaining on the contract, assuming full utilization. Backlog excludes revenues for mobilization, demobilization, contract preparation, customer reimbursables and performance bonuses. The amount of actual revenues earned and the actual periods during which revenues are earned will be different than the amount disclosed or expected due to various factors. Downtime due to various operating factors, including unscheduled repairs, maintenance, weather and other factors, may result in lower applicable dayrates than the full contractual operating dayrate, as well as the ability of our customers to terminate contracts under certain circumstances.
 
Critical Accounting Estimates
 
The preparation of our combined financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures about contingent assets and liabilities. We base these estimates and assumptions on historical experience and on various other information and assumptions that are believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as additional information is obtained, as more experience is acquired, as our operating environment changes and as new events occur.
 
The critical accounting estimates of Pride used in preparing our combined financial statements are described below, and we expect to adopt substantially similar critical accounting estimates. Such critical accounting estimates are important to the portrayal of both our financial condition and results of operations and require us to make difficult, subjective or complex assumptions or estimates about matters that are uncertain. We would report different amounts in our combined financial statements, which could be material, if we used different assumptions or estimates. We will discuss the development and selection of our critical accounting estimates with the audit committee of our board of directors. During the past three fiscal years, Pride has not made any material changes in accounting methodology used to establish the critical accounting estimates for revenue recognition, property and equipment, income taxes and contingent liabilities discussed below.
 
We believe that the following are the critical accounting estimates used in the preparation of our combined financial statements. In addition, there are other items within our combined financial statements that require estimation.
 
Revenue Recognition
 
We recognize revenue as services are performed based upon contracted dayrates and the number of operating days during the period. Mobilization fees received and costs incurred in connection with a customer contract to mobilize a rig from one geographic area to another are deferred and recognized on a straight-line basis over the term of such contract, excluding any option periods. Costs incurred to mobilize a rig without a contract are expensed as incurred. Fees received for capital improvements to rigs are deferred and recognized on a straight-line basis over the period of the related drilling contract. The costs of such capital improvements are capitalized and depreciated over the useful lives of the assets.
 
Property and Equipment
 
Property and equipment comprise a significant amount of our total assets. We determine the carrying value of these assets based on property and equipment policies that incorporate our estimates, assumptions and judgments relative to the carrying value, remaining useful lives and salvage value of our rigs and other assets.


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We depreciate our property and equipment over their estimated useful lives using the straight-line method. The assumptions and judgments we use in determining the estimated useful lives of our rigs reflect both historical experience and expectations regarding future operations, utilization and performance. The use of different estimates, assumptions and judgments in the establishment of estimated useful lives, especially those involving our rigs, would likely result in materially different net book values of our property and equipment and results of operations.
 
Useful lives of rigs and related equipment are difficult to estimate due to a variety of factors, including technological advances that impact the methods or cost of oil and natural gas exploration and development, changes in market or economic conditions and changes in laws or regulations affecting the drilling industry. We evaluate the remaining useful lives of our rigs when certain events occur that directly impact our assessment of the remaining useful lives of the rig and include changes in operating condition, functional capability and market and economic factors. We also consider major capital upgrades required to perform certain contracts and the long-term impact of those upgrades on the future marketability when assessing the useful lives of individual rigs. During 2007, we completed a technical evaluation of our fleet, and as a result of this evaluation, we increased our estimates of the remaining lives of certain rigs in our fleet between four and eight years and updated our estimated salvage value for our entire fleet to 10% of the historical cost of the rigs. The effect of these changes in estimates was a reduction to depreciation expense of approximately $11.7 million for 2007. In the first quarter of 2008 following the completion of a shipyard project, we increased the remaining useful life of one rig which reduced depreciation expense by $0.5 million. As of March 31, 2009, the remaining depreciable lives of our rigs range from 1.2 years to 13.7 years.
 
We evaluate our property and equipment for impairment whenever events or changes in circumstances indicate the carrying value of such long-lived assets may not be recoverable. Indicators of possible impairment include (i) extended periods of idle time and/or an inability to contract specific assets or groups of assets, (ii) a significant adverse change in business climate, such as a decline in our market value or fleet utilization, or (iii) an adverse change in the manner of use or physical condition of a group of assets or a specific asset. However, the drilling industry is highly cyclical and it is not unusual to find that assets that were idle, under-utilized or contracted at sub-economic rates for significant periods of time resume activity at economic rates when market conditions improve.
 
Asset impairment evaluations are based on estimated future undiscounted cash flows of the assets being evaluated to determine the recoverability of carrying amounts. In general, analyses are based on expected costs, utilization and dayrates for the estimated remaining useful lives of the asset or group of assets being assessed. An impairment loss is recorded in the period in which it is determined that the aggregate carrying amount is not recoverable.
 
Asset impairment evaluations are, by nature, highly subjective. They involve expectations about future cash flows generated by our assets, and reflect management’s assumptions and judgments regarding future industry conditions and their effect on future utilization levels, dayrates and costs. The use of different estimates and assumptions could result in materially different carrying values of our assets and could materially affect our results of operations.
 
The recent economic downturn has resulted in the stacking of a substantial portion of our rig fleet, and we may be required to stack more rigs or enter into lower dayrate contracts in response to market conditions. We believe that the recent declines in dayrates and utilization which have resulted in the stacking of rigs during the fourth quarter of 2008 and first quarter of 2009 constitute events that may indicate that the carrying value of our mat-supported jackup fleet may not be recoverable. We therefore performed projected undiscounted future cash flow analyses to determine the recoverability of the recorded asset value of our mat-supported jackup fleet and, as a result of these analyses, determined that no impairment was required as of December 31, 2008 and March 31, 2009. Our analysis of projected undiscounted cash flows as of March 31, 2009 assumed a continuation of current natural gas prices in the $3.00/MMBtu to $4.00/MMBtu (million British thermal units) range for the remainder of 2009, which we assumed would result in further reductions in drilling activity, along with a continued deterioration of utilization and dayrates in the U.S. Gulf of Mexico. The analysis reflected management’s view that natural gas prices in 2010, however, would increase over time


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to $7.00/MMBtu to $8.00/MMBtu by the end of the year, which we assumed would result in an increase in drilling activity to a level where equilibrium is reached between rig supply and demand. Should gas prices, drilling activity and resulting utilization and dayrates continue at current depressed levels for an extended period, we could be required to recognize impairment losses to the extent future cash flow estimates, based on information available to management at the time, indicate that the carrying value of these rigs may not be recoverable.
 
Pride will conduct, as of the date of the spin-off, a fair value assessment of our long-lived assets to determine whether an impairment loss should be recognized. We will recognize an impairment loss if the carrying value of our assets exceeds their fair value as determined in the assessment. This impairment loss would result in a reduction to our total assets and a corresponding reduction to net parent funding (which will be converted to paid-in capital in connection with the spin-off). Pride has conducted a preliminary fair value assessment of our rig fleet, and as a result we currently expect to record an impairment loss of between $25 million and $45 million as a result of the spin-off.
 
Income Taxes
 
The provision for income taxes has been computed as if we were a stand-alone entity and filed separate tax returns. The provision for income taxes was impacted by Pride’s tax structure and strategies, which were designed to optimize an overall tax position and not that of the Gulf of Mexico Business. To the extent we provide any U.S. tax expense or benefit, any related tax payable or receivable to Pride is reclassified to net parent funding in the same period.
 
Our income tax expense is based on our income, statutory tax rates and tax planning opportunities available to us in the two jurisdictions in which we operate. We provide for income taxes based on the tax laws and rates in effect in the countries in which operations are conducted and income is earned. The determination and evaluation of our annual income tax provision involves the interpretation of tax laws in the jurisdictions in which we operate and requires significant judgment and the use of estimates and assumptions regarding significant future events such as the amount, timing and character of income, deductions and tax credits. Changes in tax laws, regulations, agreements, treaties, foreign currency exchange restrictions or our levels of operations or profitability in each jurisdiction may impact our tax liability in any given year. While our annual tax provision is based on the information available to us at the time, a number of years may elapse before the ultimate tax liabilities in certain tax jurisdictions are determined.
 
Current income tax expense reflects an estimate of our income tax liability for the current year, withholding taxes, changes in prior year tax estimates as returns are filed, or from tax audit adjustments. Our deferred tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reflected on the balance sheet. Valuation allowances are determined to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To determine the amount of deferred tax assets and liabilities, as well as of the valuation allowances, we must make estimates and certain assumptions regarding future taxable income, including where the rigs are expected to be deployed, as well as other assumptions related to our future tax position. A change in such estimates and assumptions, along with any changes in tax laws, could require us to adjust the deferred tax assets, liabilities, or valuation allowances as discussed below.
 
We have Mexican net operating loss (“NOL”) carryforwards, and we have recognized a full valuation allowance on all of these Mexican NOL carryforwards. Our Mexican NOL carryforwards could expire starting in 2012 through 2017.
 
As required by law, we file periodic tax returns that are subject to review and examination by various tax authorities within the jurisdictions in which we operate. We are currently contesting several tax assessments and may contest future assessments where we believe the assessments are in error. We cannot predict or provide assurance as to the ultimate outcome of existing or future tax assessments; however, we believe the ultimate resolution of outstanding tax assessments will not have a material adverse effect on our combined financial statements.


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In 2006 and 2007, Pride received tax assessments from the Mexican government related to the operations of certain of our entities for the tax years 2001 through 2003. Pursuant to local statutory requirements, Pride has provided bonds in the amount of approximately 560 million Mexican pesos, or approximately $39 million as of March 31, 2009, to contest these assessments. In February 2009, Pride received additional tax assessments for the tax years 2003 and 2004 in the amount of 1,097 million Mexican pesos, or approximately $76 million, and Pride has contested these assessments. We anticipate that bonds or other suitable collateral will be required no earlier than the fourth quarter of 2009 in connection with Pride’s contest of these assessments. These assessments contest Pride’s right to claim certain deductions in its tax returns for those years. We anticipate that the Mexican government will make additional assessments contesting similar deductions for other tax years. If the Mexican tax authorities were to apply a similar methodology on the primary issue in the dispute to remaining open tax years, the total amount of future tax assessments (inclusive of related penalties and interest) could be approximately $100 million as of March 31, 2009. In addition, we recently received unrelated observation letters from the Mexican government for other tax periods that could ultimately result in additional assessments. While we intend to contest these assessments vigorously, we cannot predict or provide assurance as to the ultimate outcome, which may take several years. Additional security will be required to be provided to the extent assessments are contested.
 
We expect to post the additional bonds or other collateral when due, which we anticipate to be no earlier than the fourth quarter of 2009. Pursuant to a tax support agreement we entered into with Pride, Pride has agreed to guarantee or indemnify the issuer of any such surety bonds or other collateral issued for our account in respect of Mexican tax assessments made prior to the date of the spin-off. Beginning on the third anniversary of the spin-off, and on each subsequent anniversary thereafter, we will be required to provide substitute credit support for a portion of the collateral guaranteed or indemnified by Pride, so that Pride’s obligations are terminated in their entirety by the sixth anniversary of the spin-off. Seahawk will pay Pride a fee based on the credit support provided.
 
We do not believe that it is possible to reasonably estimate the potential impact of changes to the assumptions and estimates identified because the resulting change to our tax liability, if any, is dependent on numerous underlying factors which cannot be reasonably estimated. These include, among other things, the amount and nature of additional taxes potentially asserted by local tax authorities; the willingness of local tax authorities to negotiate a fair settlement through an administrative process; the impartiality of the local courts; and the potential for changes in the tax paid to one country to either produce, or fail to produce, an offsetting tax change in other countries. Our experience has been that the estimates and assumptions we have used to provide for future tax assessments have been appropriate; however, past experience is only a guide and the tax resulting from the resolution of current and potential future tax controversies may have a material adverse effect on our combined financial statements.
 
Contingent Liabilities
 
We establish reserves for estimated loss contingencies when we believe a loss is probable and the amount of the loss can be reasonably estimated. Our contingent liability reserves relate primarily to litigation, personal injury claims and potential income and other tax assessments (see also “Income Taxes” above). Revisions to contingent liability reserves are reflected in income in the period in which different facts or information become known or circumstances change that affect our previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon our assumptions and estimates regarding the probable outcome of the matter. Should the outcome differ from our assumptions and estimates or other events result in a material adjustment to the accrued estimated reserves, revisions to the estimated reserves for contingent liabilities would be required and would be recognized in the period the new information becomes known.
 
Results of Operations
 
As a part of Pride, the Gulf of Mexico Business has not operated on a stand alone basis. We provide offshore contract drilling services to oil and gas production and developmental companies in the Gulf of


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Mexico. We manage our operations based upon the geographic location of where the services are performed. We have two reportable segments: U.S. and Mexico.
 
Combined Operations
 
For the three months ended March 31, 2009, our combined revenues were $115.7 million, a decline of $77.9 million, or 40%, from the comparable period in 2008. The decline in 2009 revenue is attributable to PEMEX’s declining demand for mat-supported jackup rigs with water depth ratings of 200 feet or less, which accounted for approximately $40.1 million of the decline in revenues, and a significant decline in operating days and utilization in the United States due to lower U.S. natural gas prices and the credit crisis. Our combined earnings from operations for the three months ended March 31, 2009 were $19.7 million, a decline of $52.7 million, or 73%, from the comparable period in 2008. The decline in earnings from operations was largely due to the decline in revenues. Our income from continuing operations, net of tax for the three months ended March 31, 2009 was $13.1 million, a decline of $34.1 million, or 72%, from the comparable period in 2008. The decline in income from continuing operations was largely due to the effect of the decline in revenues.
 
For the year ended December 31, 2008, our combined revenues were $681.8 million, a decline of $25.4 million, or 4%, from 2007. The decline in 2008 revenue was due to lower revenues in the U.S. resulting from the transfer in 2008 of management of the drilling services management contracts for the Thunderhorse, Mad Dog and Holstein rigs to another Pride division effective April 2008, partially offset by higher dayrates in Mexico. Our combined earnings from operations for 2008 were $239.2 million, a decline of $30.0 million, or 11%, as compared to 2007. The decline in earnings from operations was largely due to the decline in revenues and an $11.0 million increase in general and administrative costs allocated to us by Pride. Our combined income from continuing operations, net of tax for 2008 was $153.7 million, a decline of $19.8 million, or 11%, as compared to 2007. The decline in income from continuing operations was attributable to the transfer of management of drilling services management contracts in 2008 and the increase in the general and administrative allocation from Pride to us.
 
For the year ended December 31, 2007, our combined revenues were $707.2 million, an increase of $67.7 million, or 11%, from 2006. The increase in revenues was due to a $196.6 million increase in revenues in Mexico as our marketed rigs earned substantially higher dayrates in 2007, partially offset by declining dayrates and utilization in the U.S. Our combined earnings from operations for 2007 were $269.2 million, an increase of $1.0 million, or less than 1%, as compared to 2006. The slight increase in earnings from operations was due to the higher revenues generating increased earnings, offset by higher labor costs, higher depreciation and amortization and allocations from Pride. Our combined income from continuing operations, net of tax for 2007 was $173.5 million, an increase of $2.6 million, or 2%, from the comparable period in 2006. The increase in income from continuing operations was due to the slight increase in earnings from operations.


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The following tables present selected combined financial and operational information for our continuing operations for each segment:
 
U.S. Operations
                                         
    Three Months Ended
       
    March 31,     Year Ended December 31,  
    2009     2008     2008     2007     2006  
    (In millions)  
 
Revenues
  $ 41.0     $ 68.1     $ 249.0     $ 307.4     $ 436.3  
                                         
Costs and expenses
                                       
Operating costs, excluding depreciation and amortization
    36.7       49.3       156.1     $ 184.7     $ 180.9  
Depreciation and amortization
    5.4       5.9       22.8       25.2       25.2  
General and administrative excluding depreciation and amortization
    2.7       3.4       16.8       13.4       10.4  
(Gain) loss on sales of assets, net
          (0.1 )     0.1       (0.4 )     (0.7 )
                                         
      44.8       58.5       195.8       222.9       215.8  
                                         
Earnings (loss) from operations
  $ (3.8 )   $ 9.6     $ 53.2     $ 84.5     $ 220.5  
U.S. Mat-Supported Jackup Rigs
                                       
Operating days
    464       699       3,145       2,860       3,633  
Available days
    1,260       967       4,006       4,097       4,368  
Utilization
    37 %     72 %     79 %     70 %     83 %
Average daily revenues
  $ 88,200     $ 73,800     $ 73,900     $ 84,800     $ 104,500  
Average marketed rigs
    6.3       9.9       8.7       10.2       10.9  
U.S. Other Rigs
                                       
Operating days
          273       273       1,064       1,082  
Available days
          273       273       1,064       1,340  
Utilization
          100 %     100 %     100 %     81 %
Average daily revenues
  $     $ 60,400     $ 60,400     $ 60,900     $ 52,600  
Average marketed rigs
          3.0       0.7       2.9       3.0  
 
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
 
Revenues decreased $27.1 million, or 40%, for the three months ended March 31, 2009 from the comparable period in 2008 due to a 34% decline in operating days for mat-supported rigs and $16.5 million in revenues in first quarter 2008 related to the deepwater drilling services management contracts for the Thunderhorse, Mad Dog and Holstein rigs, management of which was transferred to another division of Pride in April 2008. Utilization for the mat-supported rigs declined due to the reduction in U.S. natural gas prices and the credit crisis in 2009, resulting in sharply lower demand for drilling services. The decline of 3.6 average marketed mat-supported rigs was the result of the loss of the Pride Wyoming and of stacking rigs, including stacking three additional rigs in the first quarter of 2009, due to weak demand for rig services. Average daily revenues for our U.S. mat-supported jackup rigs increased by $14,400, or 20%, due to higher dayrates for several of our rigs in the first quarter of 2009 under contracts that were entered into before the global financial crisis decreased demand for drilling services.
 
Operating costs decreased $12.6 million, or 26%, for the three months ended March 31, 2009 over the comparable period in 2008, primarily due to a 52% reduction in rig operating days resulting from weak demand for drilling services and the transfer of the management of the deepwater drilling services management contracts to another division of Pride in April 2008. Due to the declining market environment, we stacked an additional three rigs in the first quarter of 2009 and laid off approximately 270 rig crew personnel, which resulted in $1.4 million of severance costs in March 2009. Operating costs as a percentage of revenues were 90% and 72% for the three months ended March 31, 2009 and 2008, respectively.


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Depreciation and amortization decreased $0.5 million, or 8%, for the three months ended March 31, 2009 over the comparable period in 2008 due to the total loss of the Pride Wyoming in September 2008 as a result of Hurricane Ike.
 
General and administrative costs decreased $0.7 million, or 21%, for the three months ended March 31, 2009 over the comparable period in 2008. Substantially all of these costs were allocated to us by Pride.
 
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 
Revenues decreased $58.4 million, or 19%, in 2008 over 2007 primarily due to the decline in average marketed rigs, resulting from the transfer of management of the deepwater drilling services management contracts for the Thunderhorse, Mad Dog and Holstein rigs to another Pride division as of April 2008. The transfer of management of the management contracts resulted in a decline of 2.2 average marketed rigs for 2008. Average marketed mat-supported jackup rigs also declined by 1.5 in 2008 from 2007 due to the stacking of the Seahawk 800 (f/k/a Pride Utah) in October 2007, the 2008 shipyard project for the Seahawk 2602 (f/k/a Pride Missouri) and the loss of the Pride Wyoming in September 2008. In addition, average daily revenues for our U.S. mat-supported jackup rigs decreased by $10,900, or 13%, due to lower dayrates across the fleet.
 
Operating costs decreased $28.6 million, or 15%, in 2008 over 2007, primarily due to the 791-day reduction in other rig operating days resulting from the transfer of management of the deepwater drilling services management contracts to another Pride division as of April 2008 and a decrease in costs resulting from lower activity as a result of the stacking of one rig in 2007 and two rigs in 2008. Operating costs as a percentage of revenues were 63% and 60% for 2008 and 2007, respectively.
 
Depreciation and amortization decreased $2.4 million, or 10%, in 2008 over 2007 due to a $4.0 million reduction in depreciation expense for 2008 as a result of the change in useful life estimates in 2007 for several of our rigs and a $0.8 million reduction in expense as compared to 2007 due the loss of the Pride Wyoming, partially offset by incremental expense in 2008 from completed capital projects.
 
General and administrative costs increased $3.4 million, or 25%, in 2008 over 2007. Substantially all of these costs were allocated to us by Pride.
 
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 
Revenues decreased $128.9 million, or 30%, in 2007 over 2006 primarily due to the decrease of $19,700, or 19%, in average daily revenues for our U.S. mat-supported jackups and fewer operating days, both due to lower demand for drilling services. The decline in operating days was the result of our decision to stack the Seahawk 800 (f/k/a Pride Utah) in October 2007 and to mobilize two rigs to Mexico for higher dayrate contracts.
 
Operating costs increased $3.8 million, or 2%, in 2007 over the comparable period in 2006, primarily due to repair projects and down time for the Seahawk 2003 (f/k/a Pride Florida) and Seahawk 2602 (f/k/a Pride Missouri) in 2007, the return of the Seahawk 2505 (f/k/a Pride Oklahoma) to work in 2007 after a shipyard project, labor costs for maintaining rig crews while the rigs were not operating, and costs for merit increases, retention programs designed to retain key personnel and incremental training costs, offset by lower activity-based cost due to a 17% decline in operating days. Operating costs as a percentage of revenues were 60% and 41% for 2007 and 2006, respectively.
 
Depreciation and amortization remained at $25.2 million in 2007, unchanged compared with 2006, due to a $4.0 million reduction in depreciation expense for 2007 as a result of the change in useful life estimates for several of our rigs, offset by incremental expense from the completion of capital projects in 2007, including for the Seahawk 2007 (f/k/a Pride New Mexico), which increased the book value being depreciated.
 
General and administrative costs increased $3.0 million, or 29%, in 2007 compared with 2006. Substantially all of these costs were allocated to us by Pride.


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Mexico Operations
 
                                         
    Three Months Ended
       
    March 31,     Year Ended December 31,  
    2009     2008     2008     2007     2006  
    (In millions)  
 
Revenues
  $ 74.7     $ 125.5     $ 432.8     $ 399.8     $ 203.2  
                                         
Costs and expenses
                                       
Operating costs, excluding depreciation and amortization
    37.8       49.5     $ 187.2     $ 165.2     $ 118.4  
Depreciation and amortization
    10.1       10.1       39.7       37.6       29.5  
General and administrative excluding depreciation and amortization
    3.2       3.1       19.9       12.3       7.3  
(Gain) loss on sales of assets, net
    0.1                         0.3  
                                         
      51.2       62.7       246.8       215.1       155.5  
                                         
Earnings from operations
  $ 23.5     $ 62.8     $ 186.0     $ 184.7     $ 47.7  
Mexico Mat-Supported Jackup Rigs
                                       
Operating days
    439       896       2,980       3,041       2,694  
Available days
    540       944       3,571       3,568       3,285  
Utilization
    81 %     95 %     83 %     85 %     82 %
Average daily revenues
  $ 111,700     $ 108,900     $ 107,800     $ 101,900     $ 62,300  
Average marketed rigs
    6.0       10.1       8.7       9.0       7.9  
Mexico Other Rigs
                                       
Operating days
    170       182       725       647       724  
Available days
    180       182       732       846       850  
Utilization
    94 %     100 %     99 %     76 %     85 %
Average daily revenues
  $ 151,400     $ 154,000     $ 154,300     $ 139,400     $ 48,500  
Average marketed rigs
    2.0       2.0       2.0       1.9       2.0  
 
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
 
Revenues decreased $50.8 million, or 40%, for the three months ended March 31, 2009 over the comparable period in 2008, of which approximately $40.1 million was the result of PEMEX’s declining demand for mat-supported jackup rigs with water depth ratings of 200 feet or less. Utilization was lower due to idle time for the Seahawk 2001 (f/k/a Pride Arkansas) after the completion of its contract in January 2009 and unplanned maintenance downtime for the Seahawk 2501 (f/k/a Pride California). Average daily revenues for our Mexico mat-supported jackup fleet for the three months ended March 31, 2009 increased by $2,800, or 3%, over the comparable period in 2008, due to the dayrate for the Seahawk 3000 (f/k/a Pride Texas) having a greater effect on the calculation due to decline in average marketed rigs over the same period.
 
Operating costs decreased by $11.7 million, or 24%, for the three months of 2009 from the comparable period in 2008 primarily due to the decline in available days from the lower number of marketed rigs in Mexico. Operating costs as a percentage of revenues were 51% and 39% for the three months ended March 31, 2009 and 2008, respectively.
 
Depreciation and amortization remained at $10.1 million for the three months ended March 31, 2009, unchanged over the comparable period in 2008.
 
General and administrative costs increased $0.1 million, or 3%, for the three months ended March 31, 2009 over the comparable period in 2008. Substantially all of these costs were allocated to us by Pride.


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Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 
Revenues increased $33.0 million, or 8%, in 2008 over 2007 due to increased dayrates for several of our rigs. Utilization for Mexico other rigs was higher due to increased operating days for the Seahawk 3000 (f/k/a Pride Texas), Pride Tennessee and Pride Wisconsin. Operating days for our Mexico mat-supported jackup rigs decreased by 61 days, or 2%, primarily due to demobilizations of five rigs from Mexico after the completion of their contracts. Average daily revenues for our Mexico mat-supported jackup fleet for 2008 increased by $5,900, or 6%, over 2007, due to higher dayrates for several of our rigs.
 
Operating costs increased by $22.0 million, or 13%, in 2008 over 2007 due to an increase in labor costs and a $14.8 million increase in costs to demobilize mat-supported jackup rigs out of Mexico. Utilization for our Mexico mat-supported jackup fleet declined to 83% for 2008 as compared to 85% for 2007 due to the demobilization of rigs out of Mexico and idle time between contracts for certain rigs. Operating costs as a percentage of revenues were 43% and 41% for 2008 and 2007, respectively.
 
Depreciation and amortization increased $2.1 million, or 6%, in 2008 over 2007 due to $9.6 million of additional depreciation expense from completed capital projects in 2007, partially offset by a $7.7 million reduction in depreciation expense as a result of the change in useful life estimates for several of our rigs.
 
General and administrative costs increased $7.6 million, or 62%, in 2008 over 2007. Substantially all of these costs were allocated to us by Pride.
 
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 
Revenues increased $196.6 million, or 97%, in 2007 over 2006 due to dayrate increases in Mexico, along with an increase of 1.1, or 14%, in average marketed rigs for our Mexico mat-supported jackups. The increase in average marketed rigs was due to the relocation of two rigs to Mexico in the third quarter of 2007 due to increased customer demand for rigs along with higher dayrate contract opportunities in Mexico relative to the U.S. Operating days for our Mexico mat-supported jackup fleet increased by 347 days, or 13%, over 2006. Average daily revenue for our Mexico mat-supported jackup fleet in 2007 increased $39,600, or 64%, over 2006 as our rigs in Mexico recontracted at higher dayrates.
 
Operating costs increased $46.8 million, or 40%, in 2007 compared with 2006 primarily due to the corresponding increase of 347, or 13%, in operating days for our Mexico mat-supported jackup fleet primarily due to increased utilization for several of our rigs. Included in the increased operating costs were higher labor costs for rig crew and shore-based personnel attributable to the increase in operating days and general cost inflation. Operating costs as a percentage of revenues were 41% and 58% for 2007 and 2006, respectively.
 
Depreciation and amortization increased $8.1 million, or 27%, in 2007 compared with 2006. This increase relates to additional depreciation expense resulting from the incremental depreciation from completion of capital projects for the Pride Tennessee, Seahawk 2001 (f/k/a Pride Arkansas) and Seahawk 2503 (f/k/a Pride Louisiana) in 2007, partially offset by a $7.7 million reduction in depreciation expense for 2007 as a result of the change in useful life estimates for several of our rigs.
 
General and administrative costs increased $5.0 million, or 68%, in 2007 compared with 2006. Substantially all of these costs were allocated to us by Pride.
 
Other Items — Combined
 
                                         
    Three Months Ended
   
    March 31,   Year Ended December 31,
    2009   2008   2008   2007   2006
    (In millions)
 
Other income (expense), net
  $ 0.7     $ 0.4     $ (2.6 )   $ (0.8 )   $ (1.6 )
Income taxes
    7.3       25.6       82.9       94.9       95.7  
 
Other income (expense), net.  Other income (expense), net for the three months ended March 31, 2009, increased by $0.3 million over the comparable period in 2008 primarily due to a $0.6 million foreign exchange


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gain for our Mexico operations for the three months ended March 31, 2009, as compared to a $0.3 million foreign exchange gain for our Mexico operations for the comparable period in 2008. Other income (expense), net for 2008, decreased by $1.8 million over 2007 primarily due to a $3.0 million foreign exchange loss for our Mexico operations for 2008, as compared to a $1.3 million foreign exchange loss for our Mexico operations for 2007. Other income (expense), net for 2007 increased by $0.8 million compared with 2006 primarily due to a $1.3 million foreign exchange loss in 2007 compared to a $1.6 million foreign exchange loss in 2006 for our Mexico operations.
 
Income taxes.  Our combined effective income tax rate from continuing operations did not fluctuate materially from period to period, and averages approximately 35% to 36% for all periods presented.
 
Liquidity and Capital Resources
 
We require capital to fund ongoing operations, organic growth initiatives and acquisitions. Our working capital requirements and funding for capital expenditures, strategic investments and acquisitions have historically been part of the corporate-wide cash management program of Pride. As a part of such program, Pride has periodically swept all available cash from our operating accounts. After our separation from Pride, we will be solely responsible for the provision of funds to finance our working capital and other cash requirements.
 
Historical Gulf of Mexico Business Financial Resources and Liquidity
 
                                         
    Three Months Ended
       
    March 31,     Year Ended December 31,  
    2009     2008     2008     2007     2006  
    (In millions)  
 
Cash flows provided by (used in) continuing operations:
                                       
Operating activities
  $ 18.9     $ 32.0     $ 240.7     $ 243.7     $ 269.2  
Investing activities
    (7.7 )     (22.1 )     (9.5 )     (160.2 )     (123.3 )
Financing activities
    (29.1 )     (14.1 )     (214.7 )     (61.1 )     (145.9 )
Capital expenditures, property and equipment for continuing operations
  $ 7.7     $ 22.2     $ 34.7     $ 161.1     $ 124.3  
 
Sources and Uses of Cash
 
Our cash flow from continuing operations is directly related to the level of our business activity and our earnings from operations in the regions in which we operate. Decreases in working capital, including deferred income taxes and payments to third parties, also contributed to the decrease in our cash flows from operations in 2007 as compared to 2006.
 
Our cash used in continuing investing activities primarily consist of investments in capital projects for our rig fleet. The decline in cash used in investing activities for the quarter ended March 31, 2009 is due to the lower spending resulting from the decline in demand for drilling services. In 2008, these uses of cash were partially offset by $25.0 million in insurance proceeds related to the loss of the Pride Wyoming. In 2007, four of our rigs including the Pride Wisconsin, which will be retained by Pride, underwent life enhancement or upgrade projects for approximately $95.0 million. In 2006, four other rigs including the Pride Tennessee, which will be also retained by Pride, underwent life enhancement or upgrade projects for approximately $105.0 million.
 
Cash flows used in continuing financing activities represent the parent contributions of its net investment after giving effect to the net income of the Gulf of Mexico Business.
 
We expect our capital expenditures for our rigs and equipment for 2009 to be approximately $20 million. These expenditures are expected to be used primarily for sustaining capital projects. We expect to fund these projects through cash flow from operations.


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Cash flow from discontinued operations
 
Our discontinued platform rig operations were part of Pride’s centralized cash management and would distribute available cash to Pride. Net cash flows provided by (used in) our discontinued platform rig business prior to the change in net parent funding were $(1.6) million and $4.2 million for the three months ended March 31, 2009 and 2008, respectively, and were $(10.0) million (excluding net proceeds of $64.2 million from sale in May 2008), $7.2 million and $6.6 million for the years ended December 31, 2008, 2007 and 2006, respectively.
 
We do not believe that the loss of the cash flows from our discontinued operations will significantly affect our liquidity or ability to fund our capital expenditures.
 
Contractual Obligations
 
In the table below, we set forth our contractual obligations as of December 31, 2008. Some of the figures we include in this table are based on our estimates and assumptions about these obligations, including their duration and other factors. The contractual obligations we will actually pay in future periods may vary from those reflected in the table because the estimates and assumptions are subjective.
 
                                         
          Less than
                After
 
    Total     1 Year     1-3 Years     4-5 Years     5 Years  
                (In millions)              
 
Recorded contractual obligations:
                                       
Trade payables
  $ 18.7     $ 18.7     $     $     $  
Other long-term liabilities(1)
    0.2       0.2                    
                                         
      18.9       18.9                    
                                         
Unrecorded contractual obligations:
                                       
Operating lease obligations(2)
    1.3       1.2       0.1              
Purchase obligations(3)
    20.1       20.1                    
                                         
      21.4       21.3       0.1              
                                         
Total
  $ 40.3     $ 40.2     $ 0.1     $     $  
                                         
 
 
(1) Amounts represent other long-term liabilities, including current portion, related to severance and termination benefits.
 
(2) We enter into operating leases in the normal course of business. Some lease agreements provide us with the option to renew the leases. Our future operating lease payments would change if we exercised these renewal options and if we entered into additional operating lease agreements.
 
(3) A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms. These amounts are primarily comprised of open purchase order commitments to vendors and subcontractors.
 
As of December 31, 2008, we had approximately $3.6 million of unrecognized tax benefits, including penalties and interest. Due to the high degree of uncertainty regarding the timing of future cash outflows associated with the liabilities recognized in this balance, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.
 
Off Balance Sheet Arrangements
 
As of December 31, 2008, our business was contingently liable for $184.7 million in the aggregate for certain performance, bid and customs bonds and letters of credit, including $40.3 million related to contested tax assessments in Mexico and $43.2 million related to assets that will not be held by us. Some of these bonds and letters of credit have been issued on Pride’s account. Neither Pride nor we have been required to make any collateral deposits with respect to these agreements. In connection with our separation from Pride, we


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expect to replace, to the extent practicable, all of the bonds and letters of credit related to our business which were issued on Pride’s account.
 
Accounting Pronouncements
 
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, which is an amendment of Accounting Research Bulletin No. 51. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. In addition, SFAS No. 160 requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary. This statement is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We adopted SFAS No. 160 on January 1, 2009 but its adoption did not have a material impact on our combined financial statements.
 
On January 1, 2009, we adopted the provisions of SFAS No. 141 (Revised 2007), Business Combinations, which retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but changes the method of applying the acquisition method in a number of ways. Acquisition costs are no longer considered part of the fair value of an acquisition and will generally be expensed as incurred, noncontrolling interests are valued at fair value at the acquisition date, in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date, restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.
 
In April 2009, the FASB issued FASB Staff Position (“FSP”) SFAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends the guidance in SFAS No. 141(R) to require contingent assets acquired and liabilities assumed in a business combination to be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the measurement period. If fair value cannot be reasonably estimated during the measurement period, the contingent asset or liability would be recognized in accordance with SFAS No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss. Further, this FSP eliminated the specific subsequent accounting guidance for contingent assets and liabilities from SFAS No. 141(R), without significantly revising the guidance in SFAS No. 141. However, contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination would still be initially and subsequently measured at fair value in accordance with SFAS No. 141(R). This FSP is effective for all business acquisitions occurring on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We adopted the provisions of SFAS No. 141(R) and FSP SFAS 141(R)-1 for business combinations with an acquisition date on or after January 1, 2009.
 
In April 2009, the FASB issued FSP SFAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased. This FSP re-emphasizes that regardless of market conditions the fair value measurement is an exit price concept as defined in SFAS No. 157. This FSP clarifies and includes additional factors to consider in determining whether there has been a significant decrease in market activity for an asset or liability and provides additional clarification on estimating fair value when the market activity for an asset or liability has declined significantly. The scope of this FSP does not include assets and liabilities measured under level 1 inputs. FSP SFAS 157-4 is applied prospectively to all fair value measurements where appropriate and will be effective for interim and annual periods ending after June 15, 2009. We will adopt the provisions of FSP SFAS 157-4 effective April 1, 2009, which we do not expect to have a material impact on our combined financial statements.


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In April 2009, the FASB issued FSP SFAS 107-1 and Accounting Principles Board (“APB”) 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require publicly-traded companies, as defined in APB Opinion No. 28, Interim Financial Reporting, to provide disclosures on the fair value of financial instruments in interim financial statements. FSP SFAS 107-1 and APB 28-1 is effective for interim periods ending after June 15, 2009. We will adopt the new disclosure requirements in our second quarter 2009 combined financial statements.
 
Quantitative and Qualitative Disclosures About Market Risk
 
We have not previously entered into any forward exchange or option contracts with respect to foreign currencies; however, we may elect to enter into contracts in the future as we continue to monitor our exposure to foreign currency exchange risk. We do not hold or issue foreign currency forward contracts, option contracts or other derivative financial instruments for speculative purposes.
 
We operate in Mexico and are involved in transactions denominated in Mexican pesos, which expose us to foreign currency exchange rate risk, and we may in the future enter into contracts denominated in other currencies. We have not entered into any material contracts denominated in Mexican pesos, and generally the contracts that are denominated in Mexican pesos (generally short-term arrangements settled in the ordinary course of business) provide for payment based on U.S. dollar equivalents. We are exposed to exchange rate fluctuations for operating costs, assets and liabilities denominated or payable in Mexican pesos, but we do not view this risk as material to our operations or financial condition.


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BUSINESS
 
Overview
 
We operate a jackup rig business that provides contract drilling services to the oil and natural gas exploration and production industry in the Gulf of Mexico. Our fleet of mobile offshore drilling rigs consists of 20 mat-supported jackup rigs that are capable of operating in maximum water depths of up to 300 feet and drilling to depths of up to 25,000 feet. We have the second largest fleet of jackup rigs operating in the Gulf of Mexico. We contract with our customers on a dayrate basis to provide rigs and drilling crews, and we are responsible for the payment of operating and maintenance expenses. Our customers primarily consist of various independent oil and natural gas producers, drilling service providers and the national oil company in Mexico, and our competitors range from large international companies offering a wide range of drilling services to smaller companies focused on more specific geographic or technological areas.
 
Jackup rigs are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established to support the drilling platform. Once a foundation is established, the drilling platform is jacked further up the legs so that the platform is above the highest expected waves. The rig hull includes the drilling rig, jackup system, crew quarters, loading and unloading facilities, storage areas for bulk and liquid materials, helicopter landing deck and other related equipment. All of our rigs have a lower hull referred to as a “mat.” This mat is attached to the lower portion of the legs in order to provide a more stable foundation in soft bottom areas, like those encountered in certain of the shallow-water areas of the Gulf of Mexico, where independent leg rigs are prone to excessive penetration and are subject to leg damage. After the rig is towed to the drilling location, its legs are lowered until the mat contacts the seabed and the upper hull is jacked to the desired elevation above sea level. Mat-supported rigs generally are able to more quickly position themselves on the worksite and more easily move on and off location than independent leg rigs.
 
There are several factors that determine the type of rig most suitable for a particular job, the most significant of which include the water depth and bottom conditions at the proposed drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. Fourteen of our jackup rigs have a cantilever design that permits the drilling platform to be extended out from the hull to perform drilling or workover operations over some types of preexisting platforms or structures. Six of our jackup rigs have a slot-type design, which requires drilling operations to take place through a slot in the hull. Historically, jackup rigs with a cantilever design have maintained higher levels of utilization than rigs with a slot-type design. Our jackup rigs generally operate with crews of 15 to 40 persons and can accommodate between 48 and 88 persons when operating.


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Our Rig Fleet
 
The following table contains information regarding our rig fleet as of July 29, 2009. All of our rigs are mat-supported jackup rigs and are currently located in the Gulf of Mexico.
 
                                     
                      Drilling
         
                Water
    Depth
         
Seahawk
  Former
      Built/
  Depth
    Rating
        Contracted
Rig Name
 
Rig Name
  Type   Upgraded   Rating     (In Feet)    
Status
  Until
 
USA
                                   
Seahawk 2601
  Pride Kansas   Cantilever   1976/1999     250       25,000     Idle   N/A
Seahawk 2600
  Pride Alaska   Cantilever   1982/2002     250       20,000     Working   September 2009
Seahawk 2500
  Pride Arizona   Slot   1981/1996     250       20,000     Stacked   N/A
Seahawk 2502
  Pride Georgia   Slot   1981/1995     250       20,000     Stacked   N/A
Seahawk 2504
  Pride Michigan   Slot   1975/2002     250       20,000     Idle   N/A
Seahawk 2602
  Pride Missouri   Cantilever   1982     250       20,000     Working   August 2009
Seahawk 2000
  Pride Alabama   Cantilever   1982     200       20,000     Stacked   N/A
Seahawk 2001
  Pride Arkansas   Cantilever   1982     200       20,000     Stacked   N/A
Seahawk 2002
  Pride Colorado   Cantilever   1982     200       20,000     Stacked   N/A
Seahawk 2003
  Pride Florida   Cantilever   1981     200       20,000     Stacked   N/A
Seahawk 2004
  Pride Mississippi   Cantilever   1981/2002     200       20,000     Idle   N/A
Seahawk 2005
  Pride Nebraska   Cantilever   1981/2002     200       20,000     Stacked   N/A
Seahawk 2006
  Pride Nevada   Cantilever   1981/2002     200       20,000     Stacked   N/A
Seahawk 2007
  Pride New Mexico   Cantilever   1982     200       20,000     Idle   N/A
Seahawk 2008
  Pride South Carolina   Cantilever   1980/2002     200       20,000     Stacked   N/A
Seahawk 800
  Pride Utah   Cantilever   1978/2002     80       15,000     Stacked   N/A
                                     
Mexico
                                   
Seahawk 3000
  Pride Texas   Cantilever   1974/1999     300       25,000     Working   September 2009
Seahawk 2501
  Pride California   Slot   1975/2002     250       20,000     Working   October 2009
Seahawk 2503
  Pride Louisiana   Slot   1981/2002     250       20,000     Working   September 2009
Seahawk 2505
  Pride Oklahoma   Slot   1975/2002     250       20,000     Working   September 2009
 
Since 2005, we have invested approximately $190 million on various refurbishment and upgrade projects on our rigs, including refurbishment of major equipment, steel replacement, leg repairs, upgrade of accommodations, electrical work and repair of mat damage. We experienced approximately 100 days of shipyard maintenance and upgrade projects for the year ended December 31, 2008 for our fleet. Our shipyard projects may be subject to delays.
 
Our Strengths
 
We believe that we are well-positioned to execute our business strategies successfully based on the following strengths:
 
Leading Presence in the Gulf of Mexico.  We have the second largest jackup rig fleet in the Gulf of Mexico. Our leading presence and geographic focus provide us with logistical advantages in servicing our customers, including reduced mobilization times and costs and increased flexibility of rig and crew deployment. Our size also generates economies of scale and helps us attract, train and retain qualified crew personnel.
 
Strong Relationships with Our Customer Base.  Our customer base primarily consists of various independent oil and natural gas producers, drilling service providers and PEMEX. This customer base provides exposure to the spending patterns of a major state-owned company, which is more stable, and of independent exploration and production companies and drilling service providers, which are more commodity-driven and subject to wider fluctuations. We benefit from our management’s long-standing relationships with many of our customers, and in some instances, we have developed preferred service provider relationships with our clients.


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Strong Capital Structure.  We will have no outstanding long-term debt at the time of the spin-off. We have entered into a two-year $36 million revolving credit facility for funding reactivation capital expenditures and for related working capital purposes that will not have any outstanding borrowings at the time of the spin-off. In addition, we expect to have in excess of $65 million in cash on hand upon the closing of the spin-off, including the estimated $47.3 million cash contribution we will receive from Pride. We believe this strong balance sheet should enable us to take advantage of opportunities for growth as the market improves and to respond effectively to market downturns.
 
Experienced and Incentivized Management Team.  Our management has extensive experience across multiple lines of business in oil and gas exploration and production services. Our senior and operations level management team has extensive knowledge of the customer base, job requirements and working conditions in the Gulf of Mexico. We believe that their considerable knowledge of and experience in our industry enhances our ability to operate effectively throughout industry cycles. Our incentive compensation plans are designed to align our management’s interests with our operating, financial and safety performance.
 
Our Strategies
 
We are a leading provider of jackup drilling services in the Gulf of Mexico. This leading position is driven by our experienced workforce, technical expertise and operational relationships with our customers. We intend to improve our margins and cash flows in our Gulf of Mexico markets. We believe our strengths and strategies will allow us to develop mutually beneficial, long-term customer relationships. We intend to accomplish our goal by capitalizing on our strengths and executing our strategy based on the following objectives:
 
Focus on Drilling Services in the Gulf of Mexico Utilizing Our Jackup Fleet.  We view our core business as providing jackup drilling services to the oil and gas exploration and production industry. As one of the largest operators of jackup rigs in the Gulf of Mexico, we believe we are well-positioned to compete effectively in this market. We also believe that our focus on this region offers logistical advantages, including reduced mobilization costs and flexibility of crew deployment, both of which reduce operating costs. Finally, we believe our focus on a particular asset type, mat-supported jackup rigs, will position us as an efficient service provider with specialized operational expertise.
 
Expand Our Leading Market Position in the Gulf of Mexico.  Our market is the U.S. and Mexican sectors of the Gulf of Mexico, treated as a whole, and we intend to reassign, upgrade and expand our fleet to meet customer needs in this market in a way that improves returns for our customers and us. We intend to satisfy market demands for additional services by expanding our jackup fleet through asset purchases and opportunistic market consolidation transactions. Growth in the Gulf of Mexico will depend on available client opportunities and will be focused towards opportunities that will maintain or incrementally improve our market, margin and cash flow objectives.
 
Perform as an Efficient, Low-Cost Service Provider.  We strive to develop an organizational structure and asset base that allows us to be an efficient, low-cost service provider in the industry. We believe that by being an efficient, low-cost contractor, we can maintain significant operating flexibility and maximize our earnings and cash flow over the entire business cycle. Because of the smaller rig and crew sizes required to operate our fleet as compared to higher specification assets, we believe our rigs have an operating and capital cost advantage.
 
Maintain a Conservative Capital Structure and Disciplined Approach to Capital Spending.  We believe that our capital structure will continue to be conservative and allow us to pursue opportunities to grow our business. Because our industry is cyclical and subject to substantial fluctuations in demand, pricing and profitability, we believe that it is important to maintain a conservative balance sheet and consider the return performance of any investment throughout the entire business cycle. We expect that our cash flow and available borrowings will provide sufficient capital to fund our near-term growth plans and to meet our customers’ increased demand for our services. We intend to continue to evaluate investment opportunities, including potential acquisitions that meet our targeted returns on invested capital and allow us to respond to changes in our industry, and we will also consider the payment of dividends with excess cash to the extent attractive investments are not available and to the extent permitted by our debt agreements and regulatory requirements.


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Recent Industry Trends
 
Our rig fleet operates in the United States and Mexico. In the United States, customer expectations of future natural gas prices strongly influence their drilling activity. Generally, our customers accelerate their drilling programs in higher natural gas price environments and delay or curtail their drilling programs when natural gas prices decline. In Mexico, all crude oil and natural gas basins are owned by the Mexican government and operated and developed by PEMEX, the national oil company. Revenues from exported crude oil are a critical source of funding for Mexico’s government. PEMEX’s demand for drilling services is subject to governmental approval and intervention, including agreements with OPEC to manage the global supply of crude oil, and also is affected by declining production in established fields such as Cantarell and shifting of spending to newer and often deeper offshore fields.
 
PEMEX has indicated an increased emphasis on field exploration and development prospects that increasingly require the use of rigs with a water depth rating of 250 feet or greater, especially independent leg cantilever rigs. As PEMEX changes its focus toward new field exploration and development prospects that increasingly require the use of rigs with greater water depth capability, we believe demand in Mexico could increase for our ten rigs with water depth ratings of 250 feet or greater. However, it is possible that demand in Mexico for our ten rigs with water depth ratings of 200 feet or less could decline and the future contracting opportunities for such rigs in Mexico could diminish. PEMEX has indicated the need for between five and seven incremental jackups in 2009 to maintain its production. While the PEMEX incremental requirements are generally for independent leg rigs with water depth ratings of 250 feet or greater, we believe there will continue to be opportunities for PEMEX to use mat-supported rigs as well. In addition to the rigs we currently have in Mexico, we will seek additional opportunities to mobilize our 250 foot rigs from the United States to Mexico.
 
Following the onset of the global financial crisis in late 2008, the declining prices of crude oil and natural gas and deteriorating worldwide economic conditions, the demand for drilling services has declined. Lower crude oil and natural gas prices combined with the inability of our customers to obtain financing for drilling projects have had a negative impact on 2009 offshore drilling activity in the United States as our customers reduced their planned expenditures in response to these factors. We anticipate that 2009 could be the sharpest downturn for jackup activity in over 20 years. As of August 4, 2009, there were only 18 jackups under contract in the U.S. Gulf of Mexico, out of the marketed supply of 41 rigs, or 44% marketed utilization. Activity may decline even further based on the lack of new drilling plans and permits outstanding. We do not expect drilling activity to recover until natural gas prices increase from current levels or drilling costs are further reduced. Additionally, our average dayrates may decline due to the onset of hurricane season and the expiration of contracts with relatively higher pricing that were entered into before the global financial crisis. Longer term, fleet utilization and dayrates in the U.S. Gulf of Mexico will largely depend upon expectations regarding natural gas prices, access to capital for small to medium sized exploration and production companies and other drilling service providers, seasonality in the market driven by the risk of hurricanes, and the number and timing of rigs moving from the U.S. Gulf of Mexico to Mexico and other international markets.
 
In the current environment, we intend to work a smaller number of rigs at reasonable dayrates and to stack rigs with no near-term prospects. Based on current demand, we have stacked ten rigs and intend to stack additional rigs as necessary. In late February 2009, we reduced our U.S. rig-based workforce by approximately 40%. We have continued to reduce our workforce as we stack rigs, and since April 15, 2009, we have reduced our headcount an additional 15%. Through most of 2008, our jackup fleet operating in the United States benefited from high commodity prices for oil and natural gas, which enabled smaller, independent producers to take advantage of increases in spot price markets and consequently increased demand for our rigs. Additionally, the industry-wide supply of rigs in the U.S. Gulf of Mexico reduced considerably in 2008 due to rig movement to international markets and the permanent loss of several rigs during the active hurricane seasons of 2005 through 2008, including three rigs lost (one of which was the Pride Wyoming) and one significantly damaged in 2008. We believe that a number of our competitors are continuing to market jackup rigs that have previously operated or are currently operating in the U.S. Gulf of Mexico to other markets, and we believe the rig supply will continue to contract.


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Additionally, we could be impacted by the potential negative effect on our dayrates due to worldwide newbuild rig fleet additions. Historically, during prior periods of high utilization and dayrates, industry participants have increased the supply of rigs by ordering the construction of new speculative units. This has often created an oversupply of drilling units and has caused a decline in utilization and dayrates when the rigs enter the market, sometimes for extended periods of time as rigs have been absorbed into the active fleet. Approximately 65 newbuild jackup rigs are currently under construction or on order worldwide, seven of which are being built in shipyards in the Gulf of Mexico region and would have a relatively low mobilization cost to operate in the Gulf of Mexico. All of these rigs are considered to be of a higher specification than our rigs, because generally they are larger, have greater deckloads, have water depth ratings of 250 feet or greater and have an independent leg design, as opposed to being mat-supported. Independent leg rigs are better suited for use in stronger currents or uneven seabed conditions. As discussed above, PEMEX has indicated an increased emphasis on prospects requiring the use of rigs with water depth ratings of 250 feet or greater, such as the anticipated newbuilds. However, any negative effect on our dayrates due to newbuild rig fleet additions could be mitigated by current insurance restrictions applicable in the U.S. Gulf of Mexico, which were a result of industry loss from Hurricanes Katrina and Rita in 2005. As a result of these storms, insurance companies have raised their premiums and the deductibles, and imposed restrictions on windstorm damage, and many rig owners have not been able to insure the full replacement cost of their new rigs operating in the U.S. Gulf of Mexico. This is especially true for smaller owners that are dependent on debt to finance their rig construction projects. As a result, most of the new jackups that have recently been built in the U.S. Gulf of Mexico have been mobilized to other regions. Although we believe the damage from Hurricanes Gustav and Ike was less costly than from the storms in 2005, we believe that the inability of rig owners to obtain full windstorm damage coverage could continue indefinitely.
 
Competition
 
The contract drilling industry is highly competitive. Demand for contract drilling and related services is influenced by a number of factors, including the current and expected prices of oil and natural gas and the expenditures of oil and natural gas companies for exploration and development of oil and natural gas. Demand in the U.S. Gulf of Mexico is particularly driven by natural gas demand and natural gas prices. Offshore natural gas drilling in the shallow waters of the Gulf of Mexico will face competition from new supply that could be developed to meet North America’s natural gas demand, including from existing producing basins in the United States and Mexico, frontier basins in offshore deepwater, and imported liquefied natural gas. In addition, demand for energy currently met by natural gas could alternatively be met by other energy forms such as coal, hydroelectric, oil, wind, solar and nuclear energy.
 
Demand for drilling services also remains dependent on a variety of political and economic factors beyond our 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.
 
Drilling contracts are generally awarded on a competitive bid basis. Pricing, safety record and technical expertise are key factors in determining which qualified contractor is awarded a job. Rig availability, location and specifications also can be significant factors in the determination. Operators also may consider crew experience and efficiency. Some of our contracts are on a negotiated basis. We believe that the market for drilling contracts will continue to be highly competitive for the foreseeable future. Certain competitors may have greater financial resources than we do, which may better enable them to withstand periods of low utilization, compete more effectively on the basis of price, build new rigs or acquire existing rigs.
 
Our competition ranges from large international companies to smaller, locally owned companies. We believe we are competitive in terms of safety, pricing, performance, equipment, availability of equipment to meet customer needs and availability of experienced, skilled personnel; however, industry-wide shortages of supplies, services, skilled personnel and equipment necessary to conduct our business can occur. Demand for our rigs will typically be correlated to our customer’s expectations of future natural gas and oil prices, particularly natural gas prices. Competition for offshore rigs is usually on a global basis, as these rigs are


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highly mobile and may be moved, at a cost that is sometimes substantial, from one region to another in response to demand. However, our mat-supported jackup rigs are less capable than independent leg jackup rigs of managing variable sea floor conditions found in most areas outside the Gulf of Mexico. As a result, our ability to move our rigs to other regions in response to changes in market conditions is limited. Additionally, a number of our competitors have jackup fleets with generally higher specification rigs than those in our fleet. Particularly during market downturns when there is decreased rig demand, higher specification rigs may be more likely to obtain contracts than lower specification rigs. Under the terms of the noncompetition covenant in the master separation agreement with Pride, we will generally not be permitted to own or operate any rig with a water depth rating of more than 500 feet for three years following the consummation of the spin-off. Please read “Risk Factors — Our rigs are at a relative disadvantage to higher specification jackup rigs. These higher specification rigs may be more likely to obtain contracts than our rigs, particularly during market downturns.” We are also obligated to comply with noncompetition covenants between Pride and third parties that restrict our ability to operate self-erecting platform rigs of 2,000 horsepower or less.
 
Customers
 
We provide contract drilling and related services to a customer base that primarily consists of various independent oil and natural gas producers, drilling service providers and the national oil company in Mexico, PEMEX. PEMEX accounted for 58%, 56% and 31% of our total pro forma revenue for the years ended December 31, 2008, 2007 and 2006, respectively, and PEMEX accounted for 54% of our total pro forma revenue for the three months ended March 31, 2009, compared to 65% for the three months ended March 31, 2008. Recently, PEMEX has indicated a shifting focus toward geologic prospects in deeper water and therefore an increased emphasis on rigs with a water depth rating of 250 feet or greater, especially independent leg cantilever rigs. As PEMEX changes its focus toward new field exploration and development prospects that increasingly require the use of rigs with greater water depth capability, it is possible that demand in Mexico for our ten rigs with water depth ratings or 200 feet or less could decline and the future contracting opportunities for such rigs in Mexico could diminish.
 
We have moved seven rigs out of Mexico since late 2007; all of these rigs had water depth ratings of 200 feet or less. All of our remaining rigs in Mexico have water depth ratings of at least 250 feet and are currently working. All of the seven rigs that have been relocated to the U.S. are stacked. Our financial condition and results of operations could be materially adversely affected if we are unable to contract our lower water depth rigs with new customers at comparable dayrates.
 
ADTI accounted for 13% of our total pro forma revenue for the year ended December 31, 2008. For the three months ended March 31, 2009, ADTI and Stone Energy accounted for 12% and 10%, respectively, of our total pro forma revenue. Besides these customers and PEMEX, no other customer represented 10% or more of our total pro forma revenue for these periods.
 
Drilling Contracts
 
Our drilling contracts are awarded through competitive bidding or on a negotiated basis. The contract terms and rates vary depending on competitive conditions, geographical area, geological formation to be drilled, equipment and services to be supplied, on-site drilling conditions and anticipated duration of the work to be performed. Contracts in the U.S. Gulf of Mexico tend to be short-term or well-to-well contracts, whereas contracts in Mexico tend to be on a longer-term basis of one to two years.
 
Currently, all of our drilling services contracts are on a dayrate basis. Under dayrate contracts, we charge the customer a fixed amount per day regardless of the number of days needed to drill the well. In addition, dayrate contracts usually provide for a reduced dayrate (or lump-sum amount) for mobilizing the rig to the well location or when drilling operations are interrupted or restricted by equipment breakdowns, adverse weather conditions or other conditions beyond our control. A dayrate drilling contract generally covers either the drilling of a single well or group of wells or has a stated term. These contracts may generally be terminated by the customer in the event the drilling unit is destroyed or lost or, in some instances, if drilling operations are suspended for a period of time as a result of a breakdown of equipment or, in some cases, due


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to other events beyond the control of either party. In addition, drilling contracts with PEMEX are cancelable, without cause, upon little or no prior notice and without penalty or early termination payments, other than reimbursement of nonrecoverable expenses. In some instances, the dayrate contract term may be extended by the customer exercising options for the drilling of additional wells or for an additional length of time at fixed or mutually agreed terms, including dayrates. If we were to engage in work pursuant to footage or turnkey contracts, rather than dayrate contracts, in the future, it would result in a higher degree of risk to us.
 
Our customers, in some instances, may have the right to terminate, or may seek to renegotiate, existing contracts if we experience downtime or operational problems above a contractual limit, if the rig is a total loss or in other specified circumstances. Our contracts also generally include cost escalation provisions that allow us to increase the amounts billed to our customers when certain stated operating costs increase. A customer is more likely to seek to cancel or renegotiate its contract during periods of depressed market conditions. We, in some instances, could be required to pay penalties if some of our contracts with our customers are canceled due to downtime or operational problems. Suspension of drilling contracts results in the reduction in or loss of dayrates for the period of the suspension. If our customers cancel some of our significant contracts and we are unable to secure new contracts on substantially similar terms, or if contracts are suspended for an extended period of time, our financial condition and results of operations could be adversely affected.
 
Employees
 
As of August 3, 2009, we employed approximately 900 personnel. Rig crews constitute the vast majority of our employees. None of our U.S. employees are represented by a collective bargaining agreement. Our employees in Mexico are subject to collective labor agreements.
 
Seasonality
 
Our rigs are subject to severe weather during certain periods of the year, particularly hurricane season, which extends from June through November, which could halt operations for prolonged periods or limit contract opportunities during that period. In addition, regulatory requirements during hurricane season could increase the cost or reduce the area of operation of our rigs. Otherwise, our business activities are not significantly affected by seasonal fluctuations.
 
Insurance
 
Our operations are subject to hazards inherent in the drilling of oil and natural gas wells, including blowouts and well fires, which could cause personal injury, suspend drilling operations, or seriously damage or destroy the equipment involved. Offshore drilling operations are also subject to hazards particular to marine operations including capsizing, grounding, collision and loss or damage from severe weather. Our marine package policy provides insurance coverage for physical damage to our rigs and other loss events; however, for at least the first year following the date of the spin-off, rigs operating in the U.S. Gulf of Mexico will not have coverage for physical damage due to named windstorms. This insurance policy has a $10 million per-occurrence deductible for non-windstorm events. Other deductibles may apply depending on the nature and circumstances of the liability. We also maintain insurance coverage for cargo, non-owned aviation, personal injury and similar liabilities. Those policies have significantly lower deductibles than the marine package policy.
 
Environmental and Other Regulatory Matters
 
Our operations include activities that are subject to numerous international, federal, state and local laws and regulations, including the U.S. Oil Pollution Act of 1990, the U.S. Outer Continental Shelf Lands Act, the Comprehensive Environmental Response, Compensation and Liability Act and the International Convention for the Prevention of Pollution from Ships, governing the discharge of materials into the environment or otherwise relating to environmental protection. In certain circumstances, these laws may impose strict liability, rendering us liable for environmental and natural resource damages without regard to negligence or fault on our part. Numerous governmental agencies issue regulations to implement and enforce such laws, which often require


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difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties or may result in injunctive relief for failure to comply. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly compliance or limit contract drilling opportunities could adversely affect our results of operation or financial condition. While we believe that we are in substantial compliance with the current laws and regulations, there is no assurance that compliance can be maintained in the future. We do not currently anticipate that compliance with currently applicable environmental laws and regulations will have a material adverse effect on our results of operation or financial condition during 2009.
 
The Minerals Management Service of the U.S. Department of the Interior (“MMS”) has issued guidelines for jackup rig fitness requirements in the U.S. Gulf of Mexico for future hurricane seasons through 2013 and may take other steps that could increase the cost of operations or reduce the area of operations for our rigs, thus reducing their marketability. Implementation of new MMS guidelines or regulations may subject us to increased costs or limit the operational capabilities of our rigs and could materially and adversely affect our results of operation or financial condition. Please read “Risk Factors — Our ability to operate our rigs in the U.S. Gulf of Mexico could be restricted or made more costly by government regulation.”
 
The United States Clean Water Act prohibits the discharge of oil or hazardous substances in U.S. navigable waters and imposes strict liability in the form of penalties for unauthorized discharges. Pursuant to regulations promulgated by the EPA in the early 1970s, the discharge of sewage from vessels and effluent from properly functioning marine engines was exempted from the permit requirements of the National Pollution Discharge Elimination System. This exemption allowed vessels in U.S. waters to discharge certain substances incidental to the normal operation of a vessel, including ballast water, without obtaining a permit to do so. In September 2006, in response to a challenge by certain environmental groups and U.S. states, a U.S. District Court issued an order invalidating the exemption. As a result of this ruling, as of December 19, 2008, EPA requires a permit for such discharges. EPA issued a general permit available to vessel owners to cover the discharges, which includes effluent limits, specific corrective actions, inspections and monitoring, recordkeeping and reporting requirements. As a result, like others in our industry, we are subject to this new permit requirement. However, we do not currently anticipate that compliance with this requirement will have a material adverse effect on our results of operation or financial condition.
 
Our Mexican operations are subject to various laws and regulations, including laws and regulations relating to the importation of and operation of drilling rigs and equipment, currency conversions and repatriation, oil and natural gas exploration and development, environmental protection, taxation of offshore earnings and earnings of expatriate personnel, the use of local employees and suppliers by foreign contractors and duties on the importation and exportation of drilling rigs and other equipment. New environmental or safety laws and regulations could be enacted, which could adversely affect our ability to operate in Mexico.
 
Properties
 
Our property consists of mat-supported jackup drilling rigs and related support equipment. The capital associated with the repair and maintenance of our fleet increases with age. The Seahawk 2000 (f/k/a Pride Alabama) and the Seahawk 2002 (f/k/a Pride Colorado), which are currently stacked, would require additional capital expenditures in order to be class certified and thus able to operate.
 
The Pride Tennessee and Pride Wisconsin are two independent-leg jackup rigs that will remain assets of Pride. The current customer contracts applicable to these rigs will remain with the Seahawk subsidiary that is party to such contracts. Pursuant to an agreement we entered into with Pride, all benefits and risks of these customer contracts will be passed through to Pride until their completion, which we expect to occur in August 2009 for the Pride Wisconsin and March 2010 for the Pride Tennessee.
 
We lease office and/or operating facilities in Houston, Texas, Rosharon, Texas, Houma, Louisiana and Ciudad del Carmen, Campeche, Mexico.


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Legal Proceedings
 
FCPA Investigation.  The audit committee of Pride’s board of directors, through independent outside counsel, has undertaken an investigation of potential violations of the U.S. Foreign Corrupt Practices Act in several of its international operations. With respect to our operations, this investigation has found evidence suggesting that payments, which may violate the FCPA, were made to government officials in Mexico aggregating less than $150,000. The evidence to date regarding these payments suggests that payments were made beginning in 2002 through early 2006 (a) to one or more government officials in Mexico in connection with the clearing of a jackup rig and equipment through customs, the movement of personnel through immigration or the acceptance of a jackup rig under a drilling contract; and (b) with respect to the potentially improper entertainment of government officials in Mexico.
 
Pride has voluntarily disclosed information found in the investigation to the Department of Justice and the SEC, and Pride has cooperated and is continuing to cooperate with these authorities.
 
For any violations of the FCPA, we may be liable for or subject to fines, civil and criminal penalties, equitable remedies, including profit disgorgement, and injunctive relief. Civil penalties under the antibribery provisions of the FCPA could range up to $10,000 per violation, with a criminal fine up to the greater of $2 million per violation or twice the gross pecuniary gain to us or twice the gross pecuniary loss to others, if larger. Civil penalties under the accounting provisions of the FCPA can range up to $500,000 per violation, and a company that knowingly commits a violation can be fined up to $25 million per violation. In addition, both the SEC and the DOJ could assert that conduct extending over a period of time may constitute multiple violations for purposes of assessing the penalty amounts. Often, dispositions of these types of matters result in modifications to business practices and compliance programs and possibly a monitor being appointed to review future business and practices with the goal of ensuring compliance with the FCPA. Pursuant to the master separation agreement, we will be responsible for any liabilities, costs or expenses related to, arising out of or resulting from Pride’s current FCPA investigation to the extent related to Pride’s and our operations in Mexico (subject to certain exceptions), except that we will not be responsible for any fine, penalty or profit disgorgement payable to the United States government in excess of $1 million, and we will not be allocated any fees or expenses of third party advisors retained by Pride. In the event that a disposition includes the appointment of a compliance monitor or consultant or any similar remedy for our company, we will be responsible for the costs associated with such monitor, consultant or similar remedy.
 
We could also face fines, sanctions, and other penalties from authorities in Mexico, including prohibition of our participating in or curtailment of business operations and the seizure of rigs or other assets. Our customer in Mexico could seek to impose penalties or take other actions adverse to our interests. We could also face other third-party claims by directors, officers, employees, affiliates, advisors, attorneys, agents, security or other interest holders or constituents of our company. In addition, disclosure of the subject matter of the investigation could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the capital markets.
 
Pride has commenced discussions with the DOJ and SEC regarding a negotiated resolution for these matters, which could be settled during 2009. There can be no assurance that these discussions will result in a final settlement of any or all of these issues or, if a settlement is reached, the timing of any such settlement or that the terms of any such settlement would not have a material adverse effect on us. No amounts have been accrued related to any potential fines, sanctions, claims or other penalties, which could be material individually or in the aggregate, but an accrual could be made as early as the third quarter of 2009. We cannot currently predict what, if any, actions may be taken by the DOJ, the SEC, any other applicable government or other authorities or our customers or other third parties or the effect the actions may have on our results of operations, financial condition or cash flows, on our combined financial statements or on our business, except that our responsibility for fines, penalties or profit disgorgement payable to the United States government will not exceed $1 million as described above.
 
Tax Assessments by Mexican Government.  In 2006 and 2007, Pride received tax assessments from the Mexican government related to the operations of certain of our entities for the tax years 2001 through 2003.


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Pursuant to local statutory requirements, Pride has provided bonds in the amount of approximately 560 million Mexican pesos, or approximately $39 million as of March 31, 2009, to contest these assessments. In February 2009, Pride received additional tax assessments for the tax years 2003 and 2004 in the amount of 1,097 million Mexican pesos, or approximately $76 million, and Pride has contested these assessments. We anticipate that bonds or other suitable collateral will be required no earlier than the fourth quarter of 2009 in connection with Pride’s contest of these assessments. These assessments contest Pride’s right to claim certain deductions in its tax returns for those years. We anticipate that the Mexican government will make additional assessments contesting similar deductions for other tax years. In addition, we recently received unrelated observation letters from the Mexican government for other tax periods that could ultimately result in additional assessments. While we intend to contest these assessments vigorously, we cannot predict or provide assurance as to the ultimate outcome, which may take several years. Additional security will be required to be provided to the extent assessments are contested.
 
We expect to post the additional bonds or other collateral when due, which we anticipate to be no earlier than the fourth quarter of 2009. Pursuant to a tax support agreement we entered into with Pride, Pride has agreed to guarantee or indemnify the issuer of any such surety bonds or other collateral issued for our account in respect of Mexican tax assessments made prior to the date of the spin-off. Beginning on the third anniversary of the spin-off, and on each subsequent anniversary thereafter, we will be required to provide substitute credit support for a portion of the collateral guaranteed or indemnified by Pride, so that Pride’s obligations are terminated in their entirety by the sixth anniversary of the spin-off. Seahawk will pay Pride a fee based on the credit support provided.
 
Pride Wyoming.  In September 2008, the Pride Wyoming, a 250-foot slot-type jackup rig operating in the U.S., was deemed a total loss for insurance purposes after it was severely damaged and sank as a result of Hurricane Ike. Four owners of facilities in the Gulf of Mexico on which parts of the Pride Wyoming settled or may have settled have requested that Pride pay for all costs, expenses and other losses associated with the damage, including loss of revenue. These owners have claimed damages in excess of $120 million in the aggregate. Other pieces of the rig may have also caused damage to certain other offshore structures. In October 2008, Pride filed a complaint in U.S. Federal District Court pursuant to the Limitation of Liability Act, which has the potential to statutorily limit our exposure for claims arising out of third party damages caused by the loss of the Pride Wyoming. Pride will retain the right after the spin-off to control any claims, litigation or settlements arising out of the loss of the Pride Wyoming. Based on the information available to us at this time, we do not expect the outcome of these claims to have a material adverse effect on our financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these claims. Although we believe Pride has adequate insurance, we will be responsible for any deductibles or awards not covered by Pride’s insurance.
 
We are routinely involved in other litigation, claims and disputes incidental to our business, which at times involve claims for significant monetary amounts, some of which would not be covered by insurance. In the opinion of management, none of the other existing litigation will have a material adverse effect on our financial position, results of operations or cash flows. However, a substantial settlement payment or judgment in excess of our accruals could have a material adverse effect on our financial position, results of operations or cash flows.


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MANAGEMENT
 
Directors and Executive Officers
 
The following table sets forth information as of July 1, 2009 regarding individuals who are expected to serve as our directors and executive officers, including their positions after the spin-off.
 
Director nominees will be presented to our sole stockholder, Pride, for election effective prior to the spin-off date. After the spin-off, none of the following individuals will be employees of Pride.
 
         
Name
 
Age
 
Position
 
Randall D. Stilley
  55   President, Chief Executive Officer and Director
Steven A. Manz
  43   Senior Vice President and Chief Financial Officer
Alejandro Cestero
  34   Senior Vice President, General Counsel, Chief Compliance Officer and Secretary
Oscar A. German
  43   Senior Vice President — Human Resources and Administration
Stephen A. Snider
  61   Nominee, Chairman of the Board of Directors
Richard J. Alario
  54   Director Nominee
Mark E. Baldwin
  56   Director Nominee
Franklin Myers
  56   Director Nominee
John T. Nesser, III
  60   Director Nominee
Edmund P. Segner, III
  55   Director Nominee
 
Randall D. Stilley has served as Pride’s Chief Executive Officer — Mat Jackup Division since September 2008. Prior to joining Pride, from October 2004 to June 2008, Mr. Stilley was President and Chief Executive Officer of Hercules Offshore, Inc., an oilfield services company. From January 2004 to October 2004, Mr. Stilley was Chief Executive Officer of Seitel, Inc., an oilfield services company. From June 2008 to September 2008 and from 2000 until January 2004, Mr. Stilley was an independent business consultant and managed private investments. From 1997 until 2000, Mr. Stilley was President of the Oilfield Services Division at Weatherford International, Inc., an oilfield services company. Prior to joining Weatherford in 1997, Mr. Stilley served in a variety of positions at Halliburton Company, an oilfield services company. He is a registered professional engineer in the state of Texas and a member of the Society of Petroleum Engineers. Mr. Stilley holds a Bachelor of Science degree in Aerospace Engineering from the University of Texas at Austin.
 
Steven A. Manz has served as Pride’s Vice President and Chief Financial Officer — Mat Jackup Division since October 2008. Mr. Manz was most recently a Director of Research for the investment bank Simmons & Company International from April until August 2008. From January 2005 to September 2007, he was with Hercules Offshore, Inc., where he served as Senior Vice President of Corporate Development and Planning from March 2007 to September 2007 and as Chief Financial Officer from January 2005 to March 2007. From May 1995 to December 2004, Mr. Manz was with Noble Corporation, where he served in a variety of management roles including Managing Director-Noble Technology Services Division from April 2003 to December 2004, Vice President of Strategic Planning from August 2000 to April 2003, and Director of Accounting and Investor Relations from March 1997 to August 2000. During September 2008 and from September 2007 until April 2008 Mr. Manz was not employed. Mr. Manz holds a Bachelor of Business Administration in Finance from the University of Texas at Austin.
 
Alejandro (Alex) Cestero has served as Pride’s Vice President and General Counsel — Mat Jackup Division since October 2008. Prior to his appointment Mr. Cestero had been serving as Deputy General Counsel, Business Affairs and Assistant Secretary for Pride since January 2007. Mr. Cestero joined Pride in April 2002 as Senior Counsel. In January 2004 he was named Assistant General Counsel and Assistant Secretary and served in this position until December 2006. Mr. Cestero has been responsible for legal oversight of the operational, commercial and general legal affairs of Pride’s worldwide operating divisions, as well as legal oversight of Pride’s strategic and business development transactions. Prior to joining Pride, he


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was with Bracewell & Giuliani LLP and Vinson & Elkins LLP. Mr. Cestero earned his Juris Doctor from Stanford Law School, and a Master of Business Administration and Bachelor of Arts from Rice University.
 
Oscar A. German has served as Pride’s Vice President, Human Resources — Mat Jackup Division since November 2008. Prior to his appointment Mr. German served as International Human Resources Director — Western Hemisphere, for Pride and has been with Pride in that position since March 2006. Mr. German has been responsible in leading Human Resources in the areas of organizational effectiveness, employee and industrial relations, compensation and benefits, and performance and change management. Mr. German has over 15 years of international human resources experience. Prior to joining Pride, Mr. German performed human resources consulting work as an independent contractor from September 2005 to February 2006. Mr. German was employed by Coca-Cola Corporation during the month of August 2005 as Corporate Human Resources Director. Mr. German was also previously with BHP Billiton from January 2001 to June 2005, where he most recently served as Regional Vice President Human Resources Base Metals — South America from July 2002 to June 2005 based out of Santiago, Chile. During July 2005 Mr. German was not employed. Mr. German has a Bachelor of Business Administration in Finance from the University of Houston-Downtown.
 
Stephen A. Snider has held the position of Chief Executive Officer and director of Exterran Holdings, Inc., a global natural gas compression services company, and Chief Executive Officer and director for the general partner of Exterran Partners, L.P., a domestic natural gas contract compression services business, in each case since the completion of the merger between Hanover Compressor Company and Universal Compression Holdings, Inc. in 2007. Exterran Holdings and Exterran Partners are publicly traded and headquartered in Houston, Texas. Until the merger in 2007, Mr. Snider held the position of Chairman, President and Chief Executive Officer of Universal Compression Holdings, Inc. and Universal Compression Partners, L.P., since their inception in 1998 and 2006, respectively. Mr. Snider also serves on the Board of Energen Corporation. Mr. Snider has over 30 years of experience in senior management of operating companies. Mr. Snider holds a Bachelor of Science in Civil Engineering from the University of Detroit and a Master of Business Administration the University of Colorado at Denver.
 
Richard J. Alario has served as the Chief Executive Officer of Key Energy Services, Inc., a publicly traded provider of rig-based well services, since May 1, 2004 and as Chairman of its board of directors since August 25, 2004. Mr. Alario joined Key Energy Services as President and Chief Operating Officer effective January 1, 2004 and has been a member of the board of Key Energy Services since May 2004. Prior to joining Key Energy Services, Mr. Alario was employed by BJ Services Company, where he served as Vice President from May 2002 after OSCA, Inc. was acquired by BJ Services. Prior to joining BJ Services, Mr. Alario had over 21 years of service in various capacities with OSCA, an oilfield services company, most recently serving as its Executive Vice President. He currently serves as director and chairman of the Health, Safety, Security and Environmental Committee of the National Ocean Industries Association. Mr. Alario holds a Bachelor of Arts from Louisiana State University.
 
Mark E. Baldwin has served as the Executive Vice President and Chief Financial Officer of Dresser-Rand Group Inc., a publicly traded supplier of custom-engineered rotating equipment solutions, since August 2007. Prior to that, he served as the Executive Vice President, Chief Financial Officer and Treasurer of Veritas DGC Inc., a public energy service company from August 2004 until February 2007. From April 2003 to July 2004 he was an Operating Partner at First Reserve Corporation. Mr. Baldwin was not employed from March 2007 to July 2007. Other previous experience includes four years as Chairman and Chief Executive Officer for Pentacon Inc. and 17 years with Keystone International Inc. in a variety of finance and operations positions, including Treasurer, Chief Financial Officer, and President of the Industrial Valves and Controls Group. Mr. Baldwin has a Bachelor of Science in Mechanical Engineering from Duke University and a Master of Business Administration from Tulane University.
 
Franklin Myers served as the Senior Advisor to Cameron International Corporation, a publicly traded provider of flow equipment products, systems and services, from April 2008 through March 2009. Before April 2008, Mr. Myers was the Senior Vice President and Chief Financial Officer of Cameron. Mr. Myers became Senior Vice President of Cameron in 1995, and served as General Counsel and Corporate Secretary of Cameron from 1995 to 1999, as well as President of its Cooper Energy Services Division from 1998 until


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2001. Prior to joining Cameron, he was Senior Vice President and General Counsel of Baker Hughes Incorporated, an oilfield services and equipment provider, and an attorney and partner with the law firm of Fulbright & Jaworski L.L.P. in Houston, Texas. Mr. Myers currently serves on the Board of Directors of Comfort Systems, Inc., a NYSE-listed provider of heating, ventilation and air conditioning services. Mr. Myers also serves on the Board of Directors of ION Geophysical Corporation, a company that provides advanced seismic data acquisition equipment, seismic software, and seismic planning, processing and interpretation services. He holds a Bachelor of Science degree in Industrial Engineering from Mississippi State University and a Juris Doctor degree with Honors from the University of Mississippi.
 
John T. Nesser, III, has served as the Executive Vice President and Chief Operating Officer of J. Ray McDermott, S.A., a subsidiary of McDermott International, Inc., a publicly traded engineering and construction company, since October 2008. Previously, he served as McDermott International’s Executive Vice President, Chief Administrative and Legal Officer from January 2007 to September 2008; Executive Vice President and General Counsel from January 2006 to January 2007; Executive Vice President, General Counsel and Corporate Secretary from February 2001 to January 2006; Senior Vice President, General Counsel and Corporate Secretary from January 2000 to February 2001; Vice President and Associate General Counsel from June 1999 to January 2000; and Associate General Counsel from October 1998 to June 1999. Prior to joining McDermott International, he served as a managing partner of Nesser, King & LeBlanc, a New Orleans law firm, which he co-founded in 1985. Mr. Nesser holds a Bachelor of Arts in Finance and Commercial Banking and a Juris Doctor degree from Louisiana State University.
 
Edmund P. Segner, III, is currently a Professor in the Practice of Civil Engineering Management at Rice University in Houston, Texas, a position he has held since July 2006 and full time since July 2007. From July 2007 through his transition to retirement in November 2008, he served as Vice President of EOG Resources, Inc., a publicly traded independent oil and gas company. Mr. Segner served as Senior Executive Vice President and Chief of Staff and Director of EOG from February 2007 through June 2007. From August 1999 to February 2007 he served as President and Chief of Staff and Director of EOG, and from March 2003 through June 2007 he also served as the principal financial officer of EOG. Mr. Segner serves on the Board of Directors of Exterran Partners, L.P. Mr. Segner holds a Bachelor of Science in Civil Engineering from Rice University and a Master of Arts in Economics from the University of Houston, and he is also a Certified Public Accountant.
 
There are no family relationships between any of our executive officers or directors.
 
There are no contractual obligations regarding the election of our executive officers or directors.
 
Board Structure
 
Upon completion of the spin-off, our board will be comprised of seven directors, six of whom we expect to satisfy the independence requirements of NASDAQ and the SEC. We expect that membership on the audit committee, compensation committee and nominating and governance committee will be limited to independent, non-employee directors as required by NASDAQ and the SEC.
 
Upon completion of the spin-off, our directors will be divided into three classes serving staggered three-year terms. Class I directors will have an initial term expiring in 2010, Class II directors will have an initial term expiring in 2011 and Class III directors will have an initial term expiring in 2012. Class I will be comprised of Messrs. Snider and Stilley, Class II will be comprised of Messrs. Alario and Baldwin, and Class III will be comprised of Messrs. Myers, Nesser and Segner.
 
At each annual meeting of stockholders, directors will be elected to succeed the class of directors whose terms have expired. This classification of our board of directors could have the effect of increasing the length of time necessary to change the composition of a majority of the board of directors. Following this classification of the board, in general, at least two annual meetings of stockholders will be necessary for stockholders to effect a change in a majority of the members of the board of directors.


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Board Committees
 
Our board of directors will have an audit committee, a compensation committee and a nominating and governance committee immediately following the spin-off.
 
The audit committee is expected to consist of Messrs. Segner (Chairman), Baldwin and Myers. The board of directors is expected to determine that Mr. Segner is an audit committee financial expert as defined by applicable SEC rules. The committee’s purpose will be to assist the board of directors in overseeing (a) the integrity of our financial statements, (b) our compliance with legal and regulatory requirements, (c) the independence, qualifications and performance of our independent auditors and (d) the performance of our internal audit function.
 
The compensation committee is expected to consist of Messrs. Alario (Chairman), Myers and Nesser. The committee’s purpose will be (a) to review and approve the compensation of our executive officers and other key employees, (b) to administer and make recommendations to the board of directors with respect to our incentive compensation plans, equity-based plans and other compensation benefit plans and (c) to produce a compensation committee report and assist management with the preparation of the compensation discussion and analysis as required by the SEC for inclusion in our annual proxy statement or annual report on Form 10-K.
 
The nominating and corporate governance committee is expected to consist of Messrs. Nesser (Chairman), Snider and Alario. The committee will be responsible for (a) identifying qualified individuals to become directors of the company, (b) recommending candidates to fill vacancies on the board of directors and for election by the stockholders, (c) recommending committee assignments for directors to the board of directors, (d) monitoring and assessing the performance of the board of directors and individual non-employee directors, (e) reviewing compensation received by directors for service on the board of directors and its committees and (f) developing and recommending to the board of directors appropriate corporate governance policies, practices and procedures for us.
 
In assessing the qualifications of prospective nominees to the board of directors, the nominating and corporate governance committee is expected to consider each nominee’s personal and professional integrity, experience, skills, ability and willingness to devote the time and effort necessary to be an effective board member, and commitment to acting in the best interests of our company and our stockholders. It is expected that consideration will be given to the board having an appropriate mix of backgrounds and skills when considering prospective nominees.
 
The nominating and corporate governance committee is expected to consider director candidates recommended by stockholders. If a stockholder wishes to recommend a director for nomination by the committee, the stockholder should submit the recommendation in writing to the Chairman, Nominating and Corporate Governance Committee, in care of the Secretary, Seahawk Drilling, Inc., 5847 San Felipe, Suite 1600, Houston, Texas 77057. The recommendation should contain the following information:
 
  •  the name, age, business address and residence address of the nominee and the name and address of the stockholder making the nomination;
 
  •  the principal occupation or employment of the nominee;
 
  •  the number of shares of each class or series of our capital stock beneficially owned by the nominee and the stockholder and the period for which those shares have been owned; and
 
  •  any other information the stockholder may deem relevant to the committee’s evaluation.
 
Candidates recommended by stockholders are evaluated on the same basis as candidates recommended by our directors, executive officers, third-party search firms or other sources.


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Compensation Committee Interlocks and Insider Participation
 
None of our executive officers have served as members of a compensation committee (or if no committee performs that function, the board of directors) of any other entity that has an executive officer serving as a member of our board of directors.
 
Security Ownership of Executive Officers and Directors
 
We are currently wholly owned by Pride. Immediately following the spin-off, Pride will not own any of our common stock. None of our officers or directors own any shares of our common stock, but those who own unrestricted shares of Pride common stock will be treated the same as any other holder of Pride common stock in any distribution by Pride and, accordingly, will receive shares of our common stock in the spin-off. As described below under ‘‘— Treatment of Stock-Based Awards,” our executive officers and directors will receive restricted stock units in respect of our common stock following the closing of the spin-off. Restricted stock and restricted stock units held by Messrs. Cestero and German will be treated as described below in “Treatment of Stock-Based Awards.”
 
The following table sets forth the Pride common stock, restricted stock units and restricted stock held by director nominees and our executive officers, as of August 4, and the number of shares of our common stock and rights to acquire our common stock that will be held by our director nominees and our executive officers immediately upon completion of the spin-off, assuming there are no changes in each person’s holdings of Pride securities since August 4 and based on our estimates as of August 4 using the distribution ratio of 1/15 of a share of our common stock for every share of Pride common stock, with no fractional shares:
 
                         
          Restricted
    Shares of
 
          Stock Units and
    Seahawk
 
    Shares of Pride
    Restricted
    Common
 
Name
  Common Stock Owned(1)     Stock Owned     Stock(2)  
 
Randall D. Stilley
                 
Steven A. Manz
    4,500             300  
Alejandro Cestero
    107       16,682       16,822  
Oscar A. German
    5,368       9,375       9,807  
Stephen A. Snider
                 
Richard J. Alario
                 
Mark E. Baldwin
                 
Franklin Myers
                 
John T. Nesser, III
                 
Edmund P. Segner, III
                 
                         
All directors and executive officers (10 individuals)
    9,975       26,057       26,629  
 
 
(1) Each executive officer holds less than 1% of Pride’s outstanding common stock.
 
(2) The number of Seahawk shares listed in the table reflects the issuance of Seahawk stock in the spin-off in respect of shares of Pride restricted stock, and replacement awards of Seahawk restricted stock units in respect of Pride restricted stock units and restricted stock, in each case as described in “— Treatment of Stock-Based Awards” below. The number of Seahawk shares listed in the table does not reflect the initial equity grant pursuant to each executive officer’s employment agreement (see “— Employment Agreements with Executive Officers” below), which grant will be based on a dollar value provided in the agreement.
 
Compensation Discussion and Analysis
 
The following Compensation Discussion and Analysis should be read in conjunction with “Executive Compensation” below.


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Executive Compensation Philosophy
 
Our executive compensation program has been designed to achieve three objectives. First, it is designed to align the interests of our executives with those of our stockholders. Second, it is designed to retain and motivate executives who serve our stockholders’ interests. Third, it is designed to attract talented external candidates when vacancies arise.
 
Alignment of Interests
 
Our executive compensation program is based on the principle that an employee is likeliest to serve the interests of our stockholders when his or her own interests are aligned with our stockholders’ interests. Our hiring practices are designed to identify candidates who have a demonstrated ability and desire to serve the interests of our stockholders. Our executive compensation program, however, acknowledges that hiring talented candidates is not sufficient to maximize the performance of those candidates. Rather, employees, including executives, should have financial incentives to serve the interests of our stockholders. We believe that the most effective way to unify the interests of our executives and our stockholders is to pay a significant amount of total compensation through annual incentive awards, which create incentives for meeting annual performance targets, and long-term stock-based incentive compensation, which focuses executives on the longer-term performance of our company.
 
Retention
 
Our executive compensation program is also based on the principle that executives who are serving the interests of our stockholders should be retained and incentivized to continue serving those interests. Given their qualifications, experience and professionalism, our executives, as well as the non-executive members of our management team who may be candidates for executive positions in the future, are highly marketable. Opportunities for alternative employment frequently arise, and our executive compensation program is designed to retain our executives in light of these other opportunities.
 
Attracting Candidates
 
Finally, our executive compensation program is based on the principle that highly qualified candidates seek the best available opportunities, from both a professional and a financial standpoint. Our program seeks to provide compensation that is competitive in relation to alternatives in the markets in which we compete for executives.
 
Administration of Executive Compensation Program
 
Our executive compensation program has been initially designed by the compensation committee of Pride’s board of directors. Following the spin-off our executive compensation program will be administered by the compensation committee of our board of directors. The specific duties and responsibilities of the compensation committee are described in “— Board Committees” above. In designing our executive compensation program, Pride’s compensation committee engaged an outside consultant, Frederic W. Cook & Co., Inc., the primary role of whom was to provide to the compensation committee with market data and information regarding compensation trends in our industry and to make recommendations regarding the design of our incentive program. Pride’s and our management did not direct or oversee the retention or activities of the compensation consultant with respect to our executive compensation program and has not engaged Frederic W. Cook in any other capacity.
 
Following the spin-off, we expect that our senior management will support our compensation committee in performing its role with respect to administering the compensation program. We expect that the compensation committee, with input from the other non-management directors, will conduct performance evaluations of Mr. Stilley, and Mr. Stilley will conduct performance evaluations of our other executive officers and make recommendations to the compensation committee regarding all aspects of their compensation. No executive has the authority to establish or modify executive officer compensation, except with respect to certain perquisites as described below.


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Overview of Compensation
 
Our executive compensation program generally consists of five principal components:
 
  •  base salary;
 
  •  annual cash incentive compensation;
 
  •  long-term stock-based incentive compensation;
 
  •  severance and change in control arrangements; and
 
  •  limited perquisites.
 
Annually, on the basis of the performance evaluations discussed above, our compensation committee will conduct a review of each of base salary, annual cash incentive compensation and long-term stock-based incentive compensation, which we refer to as total direct compensation, with respect to each executive and will make adjustments, if any, to the preceding year’s levels. In determining initial compensation levels, Pride’s compensation committee sought to position each element of each executive officer’s total direct compensation at a competitive level in relation to similar compensation paid to the executive’s peers, as described below. We expect our compensation committee to adopt a similar approach going forward.
 
For use in determining compensation for 2008, Pride’s compensation committee selected eight companies against which to compare our executive compensation program. The following eight companies were selected because they either directly compete with us or have operations that are comparable to our operations: Atwood Oceanics, Inc., Global Industries, Ltd., Gulf Island Fabrication, Inc., Gulfmark Offshore, Inc., Hercules Offshore, Inc., Horizon Offshore, Inc., Hornbeck Offshore Services, Inc. and Parker Drilling Company. We refer to this group of companies collectively as our comparator group. Our compensation committee may elect to modify the group for future periods to reflect best practices in executive compensation or changes in our business or the business of other companies, in and outside the comparator group.
 
The compensation consultant engaged by Pride also used nationally recognized executive compensation surveys. Data were provided by Frederic W. Cook & Co., Inc. and consisted of industry-specific data from two proprietary surveys, and general industry data from one proprietary survey. The first industry-specific survey covered 200 organizations in all energy-related segments, including (but not limited to) drilling, exploration and production, and services and equipment. Compensation data for companies with revenues of between $300 million and $1.2 billion were used, with median revenues of approximately $650 million. The second industry-specific survey covered 60 energy-related organizations in the oilfield manufacturing and service industries. Compensation data for all companies in the survey (median revenues $1.2 billion) were used, as well as data for a subset of companies in the survey limited to those with revenues of less than $800 million (median revenues of $400 million). The general industry survey consisted of approximately 400 companies across all industries, excluding energy and financial service organizations. For this survey, compensation data for companies with revenues of less than $1 billion were used, with median revenues of $750 million. These surveys included information regarding compensation of officers with similar roles and responsibilities as our officers.
 
As part of Pride’s compensation committee’s review and determination of appropriate and competitive initial levels of compensation, they utilized a summary of our competitive posture for each component of compensation. The summary was prepared by the compensation consultant and derived from the two data sources described below. The median revenues for each source were comparable to our pro forma revenues.
 
  •  The compensation consultant used the compensation information provided in the proxy statements of the members of our comparator group to develop market compensation levels for our most highly compensated officers. The compensation consultant then compared the compensation of the named executive officers in our comparator group to our executive pay levels based on position and pay rank.
 
  •  The compensation consultant also utilized data from the compensation surveys described above (using a subset of the companies whose median revenues were comparable to our pro forma revenues) to develop marketplace compensation levels for our executive officers.


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The comparator group compensation data, together with the compensation survey data, each as described above, are collectively referred to as the “compensation data.” We expect that our compensation committee will use comparable summaries in future reviews and determinations of compensation levels for our executives.
 
Our compensation committee’s annual review of each executive’s total direct compensation will also seek to ensure that each component of that compensation is appropriate in view of the performance of the executive and our company, based on the annual performance evaluation discussed above. The review will vary with the compensation component for which the evaluation is being performed, as described in greater detail below. Because each component will be reviewed separately and compensation within each component will be based on individual and company performance, the percentage of total direct compensation that each component comprises may vary by executive and by year.
 
Similar to his peers in the comparator group, Mr. Stilley, our President and Chief Executive Officer, has a significantly broader scope of responsibilities at our company than the other named executive officers. The difference in compensation for Mr. Stilley described below primarily reflects these differing responsibilities as valued by the companies in the comparator group and, except as described below, does not result from the application of different policies or decisions with respect to Mr. Stilley.
 
Base Salary
 
The first component of the executive compensation program is base salary. Pride’s compensation committee sought to, and we expect our compensation committee will continue to, position each executive around the 50th percentile of the individual’s peers based on the compensation data. The compensation committee identified the 50th percentile as the average of the medians of each of the data sets that comprise the compensation data. Pride’s and our compensation committees believe that this target percentile provides our executives with a competitive market rate for salaries paid to executives in our comparator group. For future compensation determinations, the extent to which an executive’s base salary falls short of, or exceeds, the 50th percentile will be determined subjectively by our compensation committee based on tenure, experience, prior base salary, the results of the annual evaluation and other factors. We expect that executives, other than the Chief Executive Officer, will be evaluated on the following criteria: leadership; initiative; relationship and team building; business sense; communication; vision and perspective; supervision; organizational savvy; ethical practices; and fiscal responsibility. We expect that the Chief Executive Officer will be evaluated on similar criteria, with emphasis on ethical practices, relations with our board of directors, vision, strategy, leadership and professional skills.
 
Our named executive officers are being paid the following base salaries:
 
         
Name
  Base Salary  
 
Mr. Stilley
  $ 625,000  
Mr. Manz
  $ 300,000  
Mr. Cestero
  $ 285,000  
Mr. German
  $ 240,000  
 
Annual Cash Incentive Compensation
 
The second component of the program is annual cash incentive compensation. The annual cash incentive will be based on the achievement of company-wide objectives and personal objectives during the year, which are described in greater detail below. Messrs. Stilley and Manz have received guaranteed prorated bonuses for 2008, and will participate in Pride’s incentive plan beginning in 2009. The 2008 guaranteed bonuses were agreed as part of the arms-length negotiations of Messrs. Stilley’s and Manz’s respective employment agreements prior to the time they joined us. The Pride compensation committee established a “target bonus” for each executive around the 50th percentile of the compensation data. We expect that our compensation committee will adopt a similar approach going forward. Pride’s compensation committee believes this target percentile provides our executives with a competitive market rate for bonuses paid to executives in our comparator group. These target bonus percentages also take into account differing levels of experience and


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responsibility of our executive officers and their prior level of compensation. The target bonus percentage is applied to the annual base earnings to determine the total target bonus dollar opportunity for that executive. The bonus is to be paid upon the achievement of specified performance-based goals during the applicable year. For 2009, our President and Chief Executive Officer set his personal goals with the President and Chief Executive Officer of Pride, and each executive officer other than the President and Chief Executive Officer set his own personal goals with the President and Chief Executive Officer. The extent to which the executive achieves those goals is itself a metric on which part of the bonus is based. For 2009, target bonuses for the named executive officers will be as follows:
 
         
    Target
 
    Bonus
 
Name
  Percentage  
 
Mr. Stilley
    100 %
Mr. Manz
    75 %
Mr. Cestero
    50 %
Mr. German
    50 %
 
Following the spin-off, at the beginning of each calendar year, we expect our compensation committee will analyze our corporate objectives and, on that basis, determine the metrics by which the executive’s bonuses will be calculated for that year. Each metric will be weighted by the compensation committee to reflect its relative importance for the year in question. In addition, the Chief Executive Officer will set his personal goals with the compensation committee, and each executive other than the Chief Executive Officer will set his own personal goals with the Chief Executive Officer, which will then be subject to approval by our compensation committee. The extent to which the executive achieves those goals will itself be a metric on which part of the bonus is based. To allow time for the compensation committee to complete its annual review of executive performance evaluations and compensation, and in light of other company-wide reporting and accounting obligations during the first quarter of each year, we expect that the target bonus percentages will be established by our compensation committee during the second quarter of each year. However, the compensation committee will establish target bonus percentages without regard to company performance during the period of the year prior to action by the compensation committee, and bonuses will be paid based on the achievement of the metrics for the entire calendar year.
 
Each metric is assigned a minimum threshold result, below which no amount of the bonus would be awarded with respect to that metric, a target result and a maximum result, at which the amount of the bonus awarded with respect to that metric would be 100% of the target bonus with respect to Messrs. Cestero and German, 150% of the target bonus with respect to Mr. Manz and 200% of the target bonus with respect to Mr. Stilley.
 
All bonuses paid under the program, while expected to be based on the guidelines established by the compensation committee, are at all times subject to our compensation committee’s discretion. The compensation committee may exercise this discretion to increase or decrease the bonus amounts, possibly by significant amounts.
 
Long-Term Stock-Based Incentive Compensation
 
The third component of our executive compensation program is long-term stock-based incentive compensation. Specifically, our executives will be eligible to participate in Seahawk’s 2009 Long-Term Incentive Plan. Under the plan, our compensation committee will be authorized to grant stock options, shares of restricted stock, restricted stock units, stock appreciation rights, other stock-based awards and cash awards to executives.
 
Each of our named executive officers is entitled to an initial equity award as of the effective date of the spin-off pursuant to the terms of his employment agreement. See “— Employment Agreements with Executive Officers” below. At the end of each calendar year, we expect that our compensation committee will determine an aggregate value of stock-based incentive awards to grant to each executive for the following year that generally would position the executive’s stock-based incentive compensation between the 50th and 75th percentile of the individual’s peers based on the compensation data. In so doing, the compensation committee will be


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seeking to tie an appropriate percentage of the executive’s total compensation to the long-term performance of our company. The amount of an executive’s stock-based incentive award will be determined subjectively by the compensation committee following a recommendation from the Chief Executive Officer (or, with respect to the Chief Executive Officer, by the board of directors following a recommendation by the compensation committee), based in part on the executive’s performance. For purposes of valuing options in the determination of the aggregate value of stock-based incentive awards to be granted, the compensation committee will use the binomial method, which is the method recommended and used by the compensation consultant. For accounting purposes, we use the Black-Scholes method to value options in our financial statements.
 
We expect that our compensation committee generally will grant long-term incentive compensation to executives during the first quarter of each calendar year. The compensation committee will approve the grant of options at committee meetings and does not intend to grant options by written consent. We will not time the release of material nonpublic information for the purpose of affecting the value of executive compensation, and we will not grant options with a grant date prior to the date of compensation committee approval of the grant. The exercise price of options will be equal to the closing market price of our common stock on NASDAQ on the grant date.
 
Long-term incentive compensation is designed to achieve all of the objectives under our executive compensation program. First, it is a mechanism through which executives become (or can become) stockholders, either through the ownership of shares of restricted stock, restricted stock units or options to purchase stock. Second, the vesting provisions of each award generally require continued employment for the awards to vest, thereby incentivizing the executive to remain in our employment. Third, we use long-term incentive compensation to attract external candidates, who, by resigning from their prior employer to accept employment with us, may be surrendering unvested equity and other compensation.
 
Severance and Change in Control Arrangements
 
The fourth component of the executive compensation program is severance and change in control arrangements. Each of our named executive officers has entered into an employment agreement with us, which provides severance and change in control protections to the executive.


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The table below provides a brief summary of some of the benefits due to the executives in the event of termination or change in control under their employment agreements and award agreements.
 
                 
Event
 
Stilley
 
Manz
 
Cestero
 
German
 
Involuntary termination (for any
reason other than cause) or
 
•   Two years of base salary
 
•   One year of base salary
 
•   One year of base salary
 
•   One year of base salary
constructive termination or
disability
 
•   Two times target bonus
 
•   One times target bonus
 
•   One times target bonus
 
•   One times target bonus
   
•   Two years of insurance
 
•   One year of insurance
 
•   One year of insurance
 
•   One year of insurance
   
•   Awards vest
 
•   Awards vest
 
•   Awards vest
 
•   Awards vest
   
•   Options exercisable for 60 days after termination
 
•   Options exercisable for 60 days after termination
 
•   Options exercisable for 60 days after termination
 
•   Options exercisable for 60 days after termination
   
•   If disability, options exercisable for one year
 
•   If disability, options exercisable for one year
 
•   If disability, options exercisable for one year
 
•   If disability, options exercisable for one year
                 
Death
 
•   No severance payments under employment agreement
 
•   No severance payments under employment agreement
 
•   No severance payments under employment agreement
 
•   No severance payments under employment agreement
   
•   Awards vest
 
•   Awards vest
 
•   Awards vest
 
•   Awards vest
   
•   Options exercisable for one year
 
•   Options exercisable for one year
 
•   Options exercisable for one year
 
•   Options exercisable for one year
                 
Change in control
 
•   Awards vest
 
•   Awards vest
 
•   Awards vest
 
•   Awards vest
                 
Involuntary termination or
constructive termination within two
 
•   Three years of base salary
 
•   Two years of base salary
 
•   Two years of base salary
 
•   Two years of base salary
years, for Mr. Stilley, or one year,
for Messrs. Manz, Cestero and
 
•   Three times target bonus
 
•   Two times target bonus
 
•   Two times target bonus
 
•   Two times target bonus
German, following change in control  
•   Three years insurance
 
•   Two years insurance
 
•   Two years insurance
 
•   Two years insurance
   
•   Options exercisable for 60 days after termination
 
•   Options exercisable for 60 days after termination
 
•   Options exercisable for 60 days after termination
 
•   Options exercisable for 60 days after termination
   
•   Potential for reimbursement for Code Section 4999 excise taxes incurred as a result of payments subject to Code Section 280G following a change in control
 
•   Cap imposed on amount payable if cap minimizes adverse after-tax consequences due to imposition of Code Section 4999 excise taxes.
 
•   Cap imposed on amount payable if cap minimizes adverse after-tax consequences due to imposition of Code Section 4999 excise taxes.
 
•   Cap imposed on amount payable if cap minimizes adverse after-tax consequences due to imposition of Code Section 4999 excise taxes.
                 
Termination for cause
 
•   All options and unvested restricted stock expire immediately
 
•   All options and unvested restricted stock expire immediately
 
•   All options and unvested restricted stock expire immediately
 
•   All options and unvested restricted stock expire immediately
   
•   Right to earned and accrued compensation
 
•   Right to earned and accrued compensation
 
•   Right to earned and accrued compensation
 
•   Right to earned and accrued compensation
   
•   No severance benefits
 
•   No severance benefits
 
•   No severance benefits
 
•   No severance benefits
                 
Retirement on or after age 62 without cha