CAL DIVE INTERNATIONAL INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-22739

CAL DIVE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

MINNESOTA 95-3409686
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

400 N. SAM HOUSTON PARKWAY E.,
SUITE 400
HOUSTON, TEXAS 77060
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (281) 618-0400

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

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------

None None

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

COMMON STOCK (NO PAR VALUE)
(TITLE OF CLASS)

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

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

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 26, 2001 was $816,535,638 based on the last reported
sales price of the Common Stock on March 26, 2001, as reported on the
NASDAQ/National Market System.

The number of shares of the registrant's Common Stock outstanding as of
March 26, 2001 was 32,390,961.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 8, 2001 are incorporated by reference into Part
III hereof.
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CAL DIVE INTERNATIONAL, INC. ("CDI") INDEX -- FORM 10-K

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PART I

Item 1. Business.................................................... 1
Item 2. Properties.................................................. 17
Item 3. Legal Proceedings........................................... 19
Item 4. Submission of Matters to a Vote of Security Holders......... 20
Unnumbered Item. Executive Officers of the Company.................. 20

PART II

Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters....................................... 23
Item 6. Selected Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Item 7. Results of Operations....................................... 25
Liquidity and Capital Resources............................. 27
Item Quantitative and Qualitative Disclosure About Market Risk...
7A. 30
Item 8. Financial Statements and Supplementary Data................. 31
Independent Auditors' Report................................ 32
Consolidated Balance Sheets -- December 31, 2000 and 1999... 33
Consolidated Statements of Operations -- Three Years Ended
December 31, 2000......................................... 34
Consolidated Statements of Shareholders' Equity -- Three
Years Ended December 31, 2000............................. 35
Consolidated Statements of Cash Flows -- Three Years Ended
December 31, 2000......................................... 36
Notes to Consolidated Financial Statements.................. 37
Item 9 Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 51

PART III

Item Directors and Executive Officers of the Registrant..........
10. 51
Item Executive Compensation......................................
11. 51
Item Security Ownership of Certain Beneficial Owners and
12. Managers.................................................. 51
Item Certain Relationships and Related Transactions..............
13. 51

PART IV

Item Exhibits, Financial Statement Schedules and Reports on Form
14. 8-K....................................................... 51
Signatures.................................................. 53

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PART I

ITEM 1. BUSINESS.

CAL DIVE INTERNATIONAL, INC.

We are a leading energy services company involved in projects from the
shallowest to the deepest waters of the Gulf of Mexico. We have a reputation for
innovation in our subsea construction techniques, equipment design and
partnering with our customers. Our diversified fleet of 20 vessels performs
services supporting drilling, well completion, construction and decommissioning
projects involving pipelines, production platforms and risers and subsea
production systems. We also acquire selected mature, non-core offshore natural
gas and oil properties from operators and provide them with a cost-effective
alternative to the decommissioning process. Our customers include major and
independent natural gas and oil producers, pipeline transmission companies and
offshore engineering and construction firms.

We have positioned our Company for work in water depths greater than 1,000
feet (the "Deepwater") by assembling a technically advanced fleet of dynamically
positioned (DP) vessels and a highly experienced group of support professionals.
The DP vessels serve as work platforms for the services provided by us and our
alliance partners, a team of internationally recognized contractors and
manufacturers. We are a leader in solving the challenges encountered in the
Deepwater, with many of our projects using methods or technologies we developed.
Most notably, we are constructing our newest and most advanced Deepwater
multi-service vessel, the Q4000, a sixth generation semi-submersible. This
vessel, which we expect to place into service in the third quarter of 2001,
incorporates our latest technologies and elements of its design are patented. We
anticipate that the Q4000 will improve Deepwater completion and construction
economics for our customers. We are also converting the Sea Sorceress to full
DP-2, which will make it one of the largest and most capable mono-hull
construction vessels in the world.

On the Outer Continental Shelf ("OCS") in water depths up to 1,000 feet, we
perform traditional subsea services, including air and saturation diving and
salvage work. Our subsidiary, Aquatica, Inc., provides a customer-focused bundle
of diving services in the shallow water market from the shore to 300 fsw. We
have the largest fleet permanently deployed for the Gulf "spot market" where
projects are generally turnkey in nature, short in duration (two to thirty days)
and require constant rescheduling and availability of multiple vessels. Nineteen
of our vessels perform traditional diving services, and five of them support
saturation diving. Our highly qualified personnel have the technical and
operational experience to manage turnkey projects to satisfy customers'
requirements and achieve our targeted profitability. The scheduling flexibility
afforded by the CDI fleet enables the company to offer turnkey pricing while
assuring customers of on-time project performance. Cal Dive has also established
a leading position in the salvage market by offering customers a number of
options to address decommissioning obligations in the most cost-efficient
manner, particularly in the removal of smaller structures. Our alliance with
Horizon Offshore, Inc. provides derrick barge and heavy lift capacity for the
removal of larger structures.

Management believes we are a dominant service provider in the operation and
decommissioning of mature natural gas and oil properties in the shallow water
Gulf. Through our subsidiary Energy Resource Technology, Inc. ("ERT"), we are
one of a few companies with the skills required to profitably acquire and
operate mature natural gas and oil properties in the Gulf. The reservoir
engineering and geophysical disciplines of ERT recently enabled us to acquire a
working interest in the Gunnison prospect, a Gulf Deepwater oil and natural gas
exploration project, in partnership with the operator, Kerr-McGee Oil & Gas
Corporation. Consistent with our philosophy of avoiding exploratory risk,
financing for up to $15.0 million of the exploratory costs is provided by an
affiliated investment partnership, the investors of which are members of Cal
Dive's senior management, in exchange for a 25% overriding royalty interest in
our 20% working interest. We anticipate that this investment will not only
generate significant income in the future but will also help secure utilization
for our subsea assets. Once the decision is made to begin development, we have
the right to participate in field development planning and will collaborate with
the other working interest owners in executing subsea construction work.

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Our objective is to increase shareholder value by strengthening our market
position to provide a return on capital which leads our peer group. Our return
on capital employed (ROCE) in 2000 was 13% in contrast to the 3% average of our
peer group and we have averaged an ROCE of 18% over the past five years, almost
three times the 6.5% average of our peers. We have been able to achieve our ROCE
objective by focusing on the following business strengths and strategies:

OUR STRENGTHS

Diversified Fleet of Vessels: Our fleet possesses a diverse and
technically advanced complement of subsea construction, maintenance and
decommissioning project capabilities. The comprehensive services provided by our
vessels are both complementary and overlapping, which enable us to deploy the
vessels to areas of greatest utility and margin potential.

Experienced Personnel and Turnkey Contracting: A key element of our growth
strategy has been our ability to attract and retain experienced personnel who we
believe are the best in the industry at providing turnkey contracting. We
believe the recognized skill of our personnel and successful operating history
uniquely position us to capitalize on the trend in the oil and gas industry
towards increased outsourcing to contractors and suppliers.

Major Provider of Marine Construction Services on OCS: We believe that our
acquisition and expansion of Aquatica, Inc.'s operations combined with our
saturation diving services makes Cal Dive the largest supplier of such services
on the OCS. Depletion of existing reserves, coupled with increased demand for
natural gas, will require exploitation and development of OCS reservoirs.

Leader in Decommissioning Operations: Over the last decade, we have
established a leading position in decommissioning offshore facilities, an
estimated $5.0 billion market according to the Minerals Management Service
("MMS"). We expect demand for decommissioning services to increase due to the
significant backlog of platforms and caissons that must be removed in accordance
with government regulations.

Production Contracting: The strategy of our subsidiary ERT's gas
production business differentiates us from our competitors and helps to offset
the cyclical nature of our construction operations. ERT's normal acquisition,
sale and exploitation programs will be greatly expanded by opportunities like
involvement in the Deepwater Gunnison prospect.

OUR STRATEGY

Focusing on the Gulf: We will continue to focus on the Gulf, where we have
provided marine construction services since 1975. We expect natural gas and oil
exploration and development activity in the Gulf to increase significantly in
the next several years.

Deploying Deepwater Applications: Our deployment of Deepwater assets and
construction techniques and technologies focuses upon upstream market niches,
such as pre-drilling services, and offering cost-effective alternatives to
services generally provided by drilling rigs. Included is the specific niche
targeted by the Q4000 and Uncle John of well intervention and completion.

Capturing a Significant Share of the Deepwater Subsea Market: We expect to
benefit from the anticipated increase in Deepwater Gulf activity through our
fleet of DP vessels, which is the largest permanently deployed in the Gulf.
Using Cal Dive's and our alliance partners' capabilities, we provide customers
integrated solutions which minimize project duration and overall cost.

Building Alliances to Expand the Scope of Our Services and Technology: Cal
Dive has entered into alliance agreements with a team of domestic and
internationally recognized contractors and manufacturers. These alliances enable
us to offer state-of-the-art products and services while maintaining our low
overhead base.

Maximizing the Value of Mature Natural Gas and Oil Properties: Through
ERT, we acquire mature, non-core offshore property interests from operators as a
cost-effective alternative to the decommissioning process. Since its inception
in 1992, ERT has delivered a 29% average annual return on its invested capital.
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Partnering with Customers: In 2000 we introduced a new economic model
which focuses upon maximizing overall economic returns by partnering with oil
and gas producers through equity participation in a reservoir. Our success in
this area, exemplified by the Gunnison prospect, should enhance market
visibility as it will greatly increase utilization of the Sea Sorceress and
Q4000 for a variety of tasks while requiring support from our other Deepwater
vessels, the Merlin, Witch Queen and Uncle John.

OVERVIEW OF 2000 DEVELOPMENTS

By every measure, 2000 was an outstanding year for us even though high
commodity prices failed to produce the significant increase in offshore
construction activity that was expected. As a result, we were able to achieve
substantially all of our stated 2000 goals, including:

i. Shareholder Return: 13% in 2000 brought the five-year average to
18%.

ii. Mature Properties: More than doubled oil and gas revenues for the
second consecutive year.

iii. Production Contracting: Success at the Gunnison prospect adds
significant earnings visibility and shareholder value.

iv. Well Operations: Assembled an industry recognized team of well
operations professionals.

v. Continental Shelf: Doubled Aquatica fleet and solidified position
as the dominant player in the shallow water market.

vi. Q4000: MARAD commitment of $138 million completed.

Additionally, one of our continuous corporate goals has been to increase
the public float of our stock. In September 2000, we completed a secondary stock
offering with Coflexip selling its 7.4 million shares of common stock. The
over-allotment option was exercised resulting in our issuing 609,936 shares of
common stock and the Chief Executive Officer selling 500,000 shares. In October
2000, our Board of Directors declared a two-for-one split of CDI's common stock
in the form of a 100% stock distribution on November 13, 2000. As a result, the
average daily trading volume was increased to approximately 334,000 from
approximately 122,000 shares prior to the secondary offering.

HIGHLIGHTS OF 2000 OPERATING DEVELOPMENTS IN EACH OF OUR BUSINESS SEGMENTS
ARE AS FOLLOWS:

Deepwater Technologies

In June, a fire broke out as the Balmoral Sea was being prepared to go into
drydock, resulting in a total loss of the vessel. The Cal Dive Aker Dove (a
vessel jointly owned with Aker Maritime) was able to achieve utilization of only
40% which represented over half of the year-over year decline in the gross
profit of the DP fleet. Due to weak demand, we elected to install new engines
and to accelerate regulatory inspections of the Uncle John and Witch
Queen. Those decisions coupled with the loss of the Balmoral Sea resulted in a
20% year-to-year decline in utilization of these three key assets. As a result,
our DP vessels generated revenues of $51 million in contrast to the $65 million
in 1999.

As part of our Deepwater strategy, MARAD funding for the Q4000 was closed
by our subsidiary, Cal Dive I - Title XI, Inc. on August 11, 2000. The loan,
which stood at approximately $40,100,000 at December 31, 2000, is payable in
equal semi-annual installments over approximately 25 years. It is collateralized
by the Q4000 and a guaranty of 50% of the debt by CDI and bears an interest rate
which currently floats at a rate approximating AAA Commercial Paper yields plus
20 basis points (6.67% as of December 31, 2000). For a period up to three years
from delivery of the vessel, CDI has options to lock-in a fixed rate. We also
completed two significant new deepwater technology agreements in early 2001. The
first was with FMC Corporation and involves a new intervention riser system
capable of operating to 10,000 fsw. The second was with Horizon Offshore, Inc.
and involves small diameter reeled pipelay equipment for Deepwater projects.

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Subsea Services

In our OCS business, Aquatica delivers our services in the shallow water
market (from the beach to 300 fsw). We doubled the number of Aquatica DSVs
during 2000. This additional equipment and an increase in dive-team revenue from
improved conditions in the fourth quarter resulted in a 25% year-over-year
improvement in Aquatica revenues. In the salvage market, however, revenues (and
margins) were reduced by 25% as owners extended production at mature fields to
take advantage of high commodity prices.

In early 2001, we and Horizon announced that our Alliance Agreement with
Horizon covering operation on the Outer Continental Shelf was extended for a
three year period. Under the Alliance we provide Dive Support Vessels and diving
personnel for Horizon pipelay barges while Horizon supplies pipelay, derrick
barge and heavy lift capacity to us. We also acquired substantially all of the
assets of Professional Divers of New Orleans, Inc. including four utility
vessels, associated diving equipment and have offered its offshore personnel
employment positions with our Aquatica.

Production Contracting

Overall, the business segment that differentiates us from our Peer Group,
Production Contracting, enabled us to deliver near record financial results in a
year of adversity. Benefits of this strategy exceeded our expectations in 2000,
as rising production and gas prices allowed ERT to increase revenue from $32.5
million in 1999 to nearly $71 million while achieving a 60% return on capital
employed.

ERT's year was made possible as it successfully acquired, sold and
exploited its property base. In that regard we acquired interests in 26 offshore
blocks in 1999 and early 2000. ERT also sold a platform and interests in three
fields. It also continued its pursuit of exploitation opportunities in 14 well
work projects. Finally, ERT's continued success also comes from its due
diligence procedures which enable its and CDI's salvage expertise to more
accurately assess reserves and quantify the associated decommissioning
liabilities. Reservoir engineering and geophysical disciplines in ERT enabled it
to acquire the working interest in the Gunnison prospect.

DESCRIPTION OF OPERATIONS

The offshore oilfield services industry in the Gulf originated in the early
1950s to assist natural gas and oil companies as they began to explore and
develop offshore fields. The industry has grown significantly since the early
1970s as the domestic oil and gas industry has increasingly relied upon offshore
fields for new production. The industry has benefitted and will continue to
benefit from a number of trends including the following:

- Contraction of natural gas production and failure to construct new assets
in the face of developing shortages and increasing demand.

- Advances in exploration, extraction and production technology that have
enabled industry participants to cost-effectively enter the Gulf
Deepwater.

- Increased demand for decommissioning services as the offshore natural gas
and oil industry continues to mature.

In response to the natural gas and oil industry's migration to the
Deepwater, equipment and vessel requirements have also changed. Most vessels
currently operating in the Deepwater Gulf were designed in the 1970s and 1980s
for work to a maximum depth of approximately 1,000 feet. These vessels have been
modified to take advantage of new technologies and now operate in depths up to
4,000 feet. Currently, there is an unmet demand in the Gulf for new generation
vessels, such as the Q4000, that are specifically designed to work in water
depths up to 10,000 feet.

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Defined below are certain terms and ideas helpful to understanding the
services we perform in support of offshore development:

Bcfe: When comparing oil to natural gas, refers to billion cubic feet
equivalent.

Dive Support Vessel (DSV): Specially equipped vessel which performs
services and acts as an operational base for divers, ROVs and specialized
equipment.

Dynamic Positioning (DP): Computer-directed thruster systems that use
satellite-based positioning and other positioning technologies to ensure
the proper counteraction to wind, current and wave forces enabling the
vessel to maintain its position without the use of anchors. Two DP systems
are necessary to provide the redundancy required to support safe deployment
of divers, while only a single DP system is necessary to support ROV
operations.

DP-2: Redundancy allows the vessel to maintain position even with
failure of one DP system. Required for vessels which support both manned
diving and robotics, and for those working in close proximity to platforms.

EBITDA: Earnings before interest, taxes, depreciation and
amortization is a supplemental financial measure of cash flow used in the
evaluation of the marine construction industry.

EHS: Environment, Health and Safety programs that protect the
environment, safeguard employee health and eliminate injuries.

E&P: Companies involved in oil and gas exploration and production
activities.

Full Field Development: The ability to offer to oil and gas companies
a range of services from subcontracting to complete field development
solutions, from procurement and installation of flowlines, wellheads,
control systems, umbilicals and manifolds to installation and commissioning
of the complete production system. Many oil and gas companies prefer to
contract with a company capable of undertaking major portions of or the
entire field development project. Full field development services can
relieve a customer of a substantial amount of the burdens of management of
field developments.

Life of Field Services: Includes services performed on facilities,
trees and pipelines from the beginning to the economic end of the life of
an oil field, including installation, inspection, maintenance, repair,
contract operations, well intervention, recompletion and abandonment.

MBbl: When describing oil, refers to a thousand barrels.

Minerals Management Service (MMS): The government regulatory body
having responsibility for United States waters in the Gulf.

MMcf: When describing natural gas, refers to million cubic feet.

Moonpool: An opening in the center of a vessel through which a
saturation diving system or ROV may be deployed, allowing safe diver or ROV
deployment in adverse weather conditions.

Outer Continental Shelf (OCS): For purposes of our industry, areas in
the Gulf from the shore to 1,000 feet of water.

Remotely Operated Vehicle (ROV): Robotic vehicles used to complement,
support and increase the efficiency of diving and subsea operations and for
tasks beyond the capability of manned diving operations.

ROCE: "Return on Capital Employed" is the amount, expressed as a
percentage, earned on a company's total capital (shareholders' equity plus
long-term debt). It is calculated by dividing earnings before interest and
dividends by total capital.

Saturation Diving: Saturation diving, required for work in water
depths between 300 and 1,000 feet, involves divers working from special
chambers for extended periods at a pressure equivalent to the pressure at
the work site.

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Spot Market: Prevalent market for subsea contracting in the Gulf,
characterized by projects generally short in duration and often of a
turnkey nature. These projects often require constant rescheduling and the
availability or interchangeability of multiple vessels.

Subsea Construction Vessels: Subsea services are typically performed
with the use of specialized construction vessels which provide an above
water platform that functions as an operational base for divers and ROVs.
Distinguishing characteristics of subsea construction vessels include DP
systems, saturation diving capabilities, deck space, deck load, craneage
and moonpool launching. Deck space, deck load and craneage are important
features of the vessel's ability to transport and fabricate hardware,
supplies and equipment necessary to complete subsea projects.

Ultra-Deepwater: Water depths beyond 4,000 fsw.

SUBSEA CONSTRUCTION

We provide the following subsea construction services, among others, in both the
shallow water and the Deepwater in the Gulf:

- Exploration. Pre-installation survey; rig positioning and installation
assistance; drilling inspection; subsea equipment maintenance; well
completion; search and recovery operations.

- Development. Installation of production platforms; installation of
subsea production systems; pipelay support including connecting pipelines
to risers and subsea assemblies; pipeline stabilization, testing and
inspection; cable and umbilical lay and connection.

- Production. Inspection, maintenance and repair of production structures,
risers and pipelines and subsea equipment; well intervention; life of
field support.

- Decommissioning. Decommissioning and remediation services; plugging and
abandonment services; platform salvage and removal; pipeline abandonment;
site inspections.

Deepwater

In 1994, we began to assemble a fleet of DP vessels in order to deliver
subsea services in the Deepwater and Ultra-Deepwater. In our five vessels, we
believe we have the most technically diverse fleet deployed in the Gulf
consisting of: one semi-submersible DP MSV (the Uncle John); two DP DSV's (the
Witch Queen and the Merlin); one Deepwater DP service vessel (the Sea
Sorceress), and, one work class ROV. The Sea Sorceress is currently in the
construction yard to convert her to DP-2 and add a 400-ton crane to make her
capable of supporting Deepwater flowline operations. The well intervention and
completion of the Q4000 (and Uncle John) is attracting interest from customers,
in part because shortages of Deepwater drilling rigs are expected to become more
severe. When completed, the Q4000 will be an integral part of this fleet to
perform this and other Deepwater services.

We have positioned for Deepwater by assembling both our technically
advanced fleet and a highly experienced team of support professionals. During
2000, we were able to attract industry-recognized specialists as we built a
15-person Well Operations Group to support the downhole operations of the Uncle
John and Q4000. We are also a leader in solving the challenges encountered in
the Deepwater, with many of our projects using methods or technologies we
developed. To enhance our ability to provide both full field development and
life of field services, such as well intervention and production contracting, we
have also established several alliances with offshore service and equipment
providers. These alliances enable us to offer state-of-the-art products and
services while maintaining our low overhead basis. Our Deepwater alliances
include:

- Canyon Offshore Inc.--Robotics and technical support

- FMC Corp.--Well intervention hardware and risers

- Fugro-McClelland Marine Geoscience, Inc.--Geotechnical coring and survey

- Horizon Offshore, Inc.--Small diameter reeled pipelay equipment

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- Schlumberger Limited--Deepwater downhole services

- Shell Offshore, Inc.--Vessels for well intervention

In an extension of our Deepwater alliance strategy, we acquired a working
interest in the Gunnison prospect. Once the prospect is sanctioned, we will
begin working with the other joint owners to assign work to our construction
vessels.

In early 2001, we completed two significant new Deepwater technology
agreements. The first, with FMC Corporation, involves a new intervention riser
system capable of intervention in horizontal and vertical subsea trees of all
manufacturers and rated to operation in water depths to 10,000 fsw. It will be
available when the Q4000 begins work at the end of 2001. The second is a joint
venture with Horizon Offshore, Inc. to conduct small diameter reeled pipelay
projects in deepwater areas of the U.S. Gulf of Mexico. The partners will
jointly fund the estimated $15 million cost of pipelay equipment to be deployed
from CDI's Sea Sorceress. In addition, Horizon will construct a pipe spooling
facility at its Port Arthur, Texas shore base.

Project highlights in 2000 included completion of the first ever Deepwater
decommissioning project (Cooper), the installation of jumper spools and suction
piles to commission the Diana/Hoover field, and the installation of a suction
pile and setting of the manifold at Mica. Before going into drydock for
conversion, the Sea Sorceress demonstrated her stability by serving as the work
platform when Enron recommissioned an abandoned pipeline. We also opened a new
geographic market by moving two key assets (the Uncle John and Witch Queen) to
Mexican waters in the fourth quarter of the year. The Witch Queen will remain
and work several jobs there until May of 2001, and we are actively bidding a
number of other major projects in that country. Our recent Deepwater projects
have included:

DEPTH
FIELD CUSTOMER DESCRIPTION (FEET) YEAR
- ----- ------------ ----------- ------ ---------

Diana Exxon Mobil Record depth for installation work by
non-drilling rig...................... 4,600 1999/2000
Na Kika Shell Record depth for geotechnical sampling
by a non-drilling rig................. 6,700 1998
Cooper EEX First ever Deepwater Gulf
decommissioning....................... 2,200 1999/2000
Genesis Chevron Logistical support for construction of
SPAR.................................. 2,500 1998
Troika BP/Amoco Largest spool pieces installed from a DP
vessel................................ 1,800 1997
Baldpate Amerada Hess Installation of compliant tower and
catenary riser........................ 1,650 1998
Mensa Shell Record depth pipeline support structure
installed............................. 5,400 1997
Ursa Shell Record depth for installation of
risers................................ 3,900 1998
Tahoe Shell Record depth for well intervention from
a non-drilling vessel................. 1,400 1997
Mica Exxon Installation of suction pile and setting
manifold.............................. 4,500 2000/2001

Shallow Water

In water depths up to 1,000 feet (the "OCS"), we perform traditional subsea
services including air and saturation diving in support of marine construction
activities. Nineteen of our vessels perform subsea traditional services, and
five of them support saturation diving. In addition, our highly qualified
personnel have the technical and operational experience to manage turnkey
projects to satisfy customers' requirements and achieve our targeted
profitability.

Aquatica, Inc., our acquisition we completed in August 1999, delivers our
services in the shallow water market (from the beach to 300 fsw). We doubled the
number of Aquatica DSVs during 2000 by transferring the Cal Diver III;
completing a newbuild, 120-foot utility vessel, Cal Diver IV, and by purchasing
and

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upgrading the 165-foot Mr. Fred to include a four-point mooring system. This
additional equipment and an increase in dive team revenue resulted in a 25%
year-over-year improvement in Aquatica revenues. Aquatica is able to increase
prices quickly in response to improving market conditions because it supports
drill rig activity early in the business cycle and its projects are of short
duration. This was particularly noticeable as shallow water rates improved in
the fourth quarter.

In March 2001, CDI acquired substantially all of the assets of Professional
Divers of New Orleans, Inc. The assets purchased included the Sea Level 21 (a
165-foot four-point moored DSV renamed the Mr. Sonny), three utility vessels and
associated diving equipment including two saturation diving systems. Offshore
personnel of the company, comprising 20 diver/tender teams and marine crews that
operate the four DSVs, have been offered employment positions with Aquatica.

Cal Dive performs numerous projects on the OCS in an alliance with Horizon
which gives us the exclusive right to provide DSV services behind Horizon
pipelay barges. In the late 1980's we demonstrated that pipelay operations would
be much more effective if the expensive barge spreads simply laid the pipe,
allowing our DSVs to follow along and perform the more time consuming task of
commissioning the line. This Alliance results in Horizon being our largest OCS
customer. In March 2001, the two companies announced that the Alliance Agreement
covering operation on the Outer Continental Shelf was extended for the three
year period. Principal features of the Alliance are that we provide Dive Support
Vessel services behind Horizon pipelay barges while Horizon supplies pipelay,
derrick barge and heavy lift capacity to Cal Dive. The Alliance was also
expanded to include us providing the diving personnel working from Horizon
barges, a service Horizon handled internally last year.

Salvage

Since 1989, we have undertaken a wide variety of decommissioning
assignments, mostly on a turnkey basis. We have established a leading position
in decommissioning facilities in the shallow water Gulf, especially removal of
smaller structures. We expect demand for decommissioning services to increase
due to the significant number of platforms that must be removed in accordance
with government regulations. Over 75% of the platforms in the Gulf are more than
ten years old, and over 20,000 wells must ultimately be decommissioned.

The largest Deepwater and OCS decommissioning projects in our history, the
Cooper field abandonment and Sabine Pass No. 9, were completed in 1999 and 2000.
The 2000 salvage market, however, was generally much slower than anticipated as
producers retained ownership to extend the production from mature fields and
take advantage of high commodity prices. As a result, revenues from our barge
operations (which include the subcontract of Horizon derrick and pipelay barges)
were only $12.5 million during 2000 or two-thirds of the prior year. More than
70 platforms that had been scheduled for removal last year have been deferred
into 2001. This incremental decommissioning work will come on top of projects
already in the queue for 2001 and at a time when OCS construction activity will
also ramp up, causing us to anticipate an increase in 2001 salvage rates.

PRODUCTION CONTRACTING

We formed ERT in 1992 to exploit a market opportunity to provide a more
efficient solution to offshore abandonment, to expand our off-season salvage and
decommissioning activity and to support full field production development
projects. ERT offers customers the option of selling mature offshore fields
rather than contracting and managing the eight separate phases of the
decommissioning process. We have assembled a team of personnel with experience
in geology, geophysics, reservoir engineering, drilling, production engineering,
facilities management and lease operations to position ERT to achieve its goals.
ERT makes its money in three ways: lowering salvage costs by using our assets,
operating the field more cost effectively and extending reservoir life through
well exploitation operations. The collapse of commodity prices early in 1999
removed many of the small companies which buy mature properties from the market.
The financial difficulties that these companies experienced reminded the majors
and large independents that they must assume responsibility when buyers are not
able to perform the abandonment obligation.

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Production Contracting, the one business segment that differentiates CDI
from our marine contracting brethren, enabled your company to deliver near
record financial results in a year of adversity. The advantages of our
production business are fourfold. First, the financial smoothing of oil and gas
revenues counteracts the lumpiness and the extreme volatility in the revenues
and income which most offshore construction companies reported in the past two
years. In periods of excess capacity such as 2000, we have the flexibility to
stay out of the competitive bid market, focusing instead upon negotiated
contracts. Third, our oil and gas operations generate significant cash flow that
has funded construction of assets such as the Q4000 and Sea Sorceress while
enabling us to add technical talent to support our expansion into the new
Deepwater frontier. And finally, the primary objective of each CDI investment in
oil and gas properties is to secure the associated marine construction work.

The reservoir engineering and geophysical disciplines of ERT also enabled
them to take a working interest in the Deepwater Gunnison prospect which has
encountered significant potential reserves. ERT geologists are working alongside
the partners in this field to evaluate drilling results to date. It is our
expectation that Gunnison will be announced as a sanctioned commercial
development in 2001, adding significant proved reserves.

CUSTOMERS

Our customers include major and independent natural gas and oil producers,
pipeline transmission companies and offshore engineering and construction firms.
The level of construction services required by any particular customer depends
on the size of that customer's capital expenditure budget devoted to
construction plans in a particular year. Consequently, customers that account
for a significant portion of contract revenues in one fiscal year may represent
an immaterial portion of contract revenues in subsequent fiscal years. We
estimate that in 2000 we provided subsea services to over 150 customers. In
2000, Enron accounted for 13% of consolidated revenues. EEX Corporation
accounted for 13% of consolidated revenues in 1999. Our projects are typically
of short duration and are generally awarded shortly before mobilization.
Accordingly, we believe backlog is not a meaningful indicator of future
activities.

COMPETITION

The subsea services industry is highly competitive. While price is a
factor, the ability to acquire specialized vessels, to attract and retain
skilled personnel and to demonstrate a good safety record are also important
competitive factors. Our competitors on the OCS include Global Industries Ltd.,
Oceaneering International, Inc., Stolt Offshore S.A. and Torch, Inc., as well as
a number of smaller companies, some of which only operate a single vessel, that
often compete solely on price. For Deepwater projects, our principal competitors
include Coflexip, Global Industries Ltd., Oceaneering International, Inc.,
McDermott International, Inc. and Stolt Offshore S.A. Other foreign based subsea
contractors, including DSND Ltd, Rockwater, Ltd. and Saipem S.p.A., may
periodically perform services in the Gulf.

ERT also encounters significant competition for the acquisition of mature
natural gas and oil properties. One such competitor is Tetra Technologies, Inc.
Our ability to acquire additional properties depends upon our ability to
evaluate and select suitable properties and to consummate transactions in a
highly competitive environment. Many of our competitors are well-established
companies with substantially larger operating staffs and greater capital
resources.

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TRAINING, SAFETY AND QUALITY ASSURANCE

As work levels increase on the OCS, safety, our single most important
objective, will be even more relevant because the projects in these water depths
are more personnel-intensive. Over 35 years Cal Dive has continuously upgraded
and revitalized so that environment, health and safety (EHS) at work are
embraced as core business values. We recently formed a new Executive EHS
Steering Committee, chaired by the President and Vice Presidents, which meets
monthly to decide on strategy and action plans for further improvements. A
behavioral safety process has been initiated that empowers all employees to take
control of their own safety at work using proven techniques of employees
observing each other for correct and safe behavior. Management believes that our
safety programs are among the best in the industry.

GOVERNMENT REGULATION

Many aspects of the offshore marine construction industry are subject to
extensive governmental regulation. We are subject to the jurisdiction of the
Coast Guard, the Environmental Protection Agency, MMS and the U.S. Customs
Service ("USCS") as well as private industry organizations such as the ABS.

We support and voluntarily comply with the Association of American Diving
Contractor Standards. The Coast Guard sets safety standards and is authorized to
investigate vessel and diving accidents and recommend improved safety standards,
and the Coast Guard is authorized to inspect vessels at will. We are required by
various governmental and quasi-governmental agencies to obtain various permits,
licenses and certificates with respect to our operations. We believe that we
have obtained or can obtain all permits, licenses and certificates necessary for
the conduct of our business.

In addition, we depend on the demand for our services from the oil and gas
industry and, therefore, our business is affected by laws and regulations, as
well as changing taxes and policies relating to the oil and gas industry
generally. In particular, the development and operation of natural gas and oil
properties located on the OCS of the United States is regulated primarily by the
MMS.

The MMS requires lessees of OCS properties to post bonds in connection with
the plugging and abandonment of wells located offshore and the removal of all
production facilities. Operators on the OCS are currently required to post an
area wide bond of $3.0 million or $500,000 per producing lease. We currently
have bonded our offshore leases as required by the MMS. Under certain
circumstances, the MMS has the authority to suspend or terminate operations on
federal leases. Any such suspensions or terminations of our operations could
have a material adverse effect on our financial condition and results of
operations.

We acquire production rights to offshore mature natural gas and oil
properties under federal natural gas and oil leases, which the MMS administers.
These leases contain relatively standardized terms and require compliance with
detailed MMS regulations and orders pursuant to the Outer Continental Shelf
Lands Act ("OCSLA") (which are subject to change by the MMS). The MMS has
promulgated regulations requiring offshore production facilities located on the
OCS to meet stringent engineering and construction specifications. The MMS also
has issued regulations restricting the flaring or venting of natural gas and
prohibiting the burning of liquid hydrocarbons without prior authorization.
Similarly, the MMS has promulgated other regulations governing the plugging and
abandonment of wells located offshore and the removal of all production
facilities. Finally, under certain circumstances, the MMS may require any
operations on federal leases to be suspended or terminated. In December 1999,
the MMS issued regulations that would allow it to expel unsafe operators from
existing OCS platforms and bar them from obtaining future leases.

Under the OCSLA, MMS also administers oil and gas leases and establishes
regulations that set the basis for royalties on oil and gas produced from the
leases. The MMS amends these regulations from time to time. For example, on
March 15, 2000, the MMS issued a final rule governing the calculation of
royalties and the valuation of crude oil produced from federal leases. The rule
modifies the valuation procedures for both arm's length and non-arm's length
crude oil transactions to decrease reliance on oil posted prices and assign a
value to crude oil that better reflects market value. The rule has been
challenged by two industry trade associations and is currently under judicial
review in the United States District Court for the District of Columbia. In
addition, the MMS recently issued a final rule amending its regulations
regarding costs for
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natural gas transportation which are deductible for royalty valuation purposes
when natural gas is sold offlease. Among other matters, for purposes of
computing royalty owed, the rule disallows as deductions certain costs, such as
aggregator/marketer fees and transportation imbalance charges and associated
penalties. A United States District Court, however, enjoined substantial
portions of this rule on March 28, 2000. The United States appealed the district
court decision and the case is pending before the Court of Appeals of District
of Columbia Circuit.

Historically, the transportation and sale for resale of natural gas in
interstate commerce has been regulated pursuant to the Natural Gas Act of 1938,
the Natural Gas Policy Act of 1978 (the "NGPA") and the regulations promulgated
thereunder by the Federal Energy Regulatory Commission (the "FERC"). In the
past, the federal government has regulated the prices at which natural gas and
oil could be sold. While sales by producers of natural gas, and all sales of
crude oil, condensate and natural gas liquids can currently be made at
uncontrolled market prices, Congress could reenact price controls in the future.
Deregulation of wellhead sales in the natural gas industry began with the
enactment of the NGPA. In 1989, the Natural Gas Wellhead Decontrol Act was
enacted. This act amended the NGPA to remove both price and non-price controls
from natural gas sold in "first sales" no later than January 1, 1993.

Sales of natural gas are affected by the availability, terms and cost of
transportation. The price and terms for access to pipeline transportation remain
subject to extensive federal and state regulation. Several major regulatory
changes have been implemented by Congress and the FERC from 1985 to the present
that affect the economics of natural gas production, transportation and sales.
In addition, the FERC continues to promulgate revisions to various aspects of
the rules and regulations affecting those segments of the natural gas industry,
most notably interstate natural gas transmission companies that remain subject
to the FERC's jurisdiction. These initiatives may also affect the intrastate
transportation of natural gas under certain circumstances. The stated purpose of
many of these regulatory changes is to promote competition among the various
sectors of the natural gas industry. The ultimate impact of the complex rules
and regulations issued by the FERC since 1985 cannot be predicted. In addition,
many aspects of these regulatory developments have not become final but are
still pending judicial and FERC final decisions.

We cannot predict what further action the FERC will take on these matters
but we do not believe that we will be affected by any action taken materially
differently than other companies with which we compete.

Additional proposals and proceedings before various federal and state
regulatory agencies and the courts could affect the natural gas and oil
industry. We cannot predict when or whether any such proposals may become
effective. In the past, the natural gas industry has been heavily regulated.
There is no assurance that the regulatory approach currently pursued by the FERC
will continue indefinitely. Notwithstanding the foregoing, we do not anticipate
that compliance with existing federal, state and local laws, rules and
regulations will have a material effect upon the capital expenditures, earnings
or competitive position.

ENVIRONMENTAL REGULATION

Our operations are subject to a variety of federal, state and local laws
and regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. Numerous governmental
departments issue rules and regulations to implement and enforce such laws that
are often complex and costly to comply with and that carry substantial
administrative, civil and possibly criminal penalties for failure to comply.
Under these laws and regulations, we may be liable for remediation or removal
costs, damages and other costs associated with releases of hazardous materials
including oil into the environment, and such liability may be imposed on us even
if the acts that resulted in the releases were in compliance with all applicable
laws at the time such acts were performed.

The Oil Pollution Act of 1990, as amended ("OPA"), imposes a variety of
requirements on "responsible parties" related to the prevention of oil spills
and liability for damages resulting from such spills in waters of the United
States. A "responsible party" includes the owner or operator of an onshore
facility, a vessel or a pipeline and the lessee or permittee of the area in
which an offshore facility is located. OPA imposes liability on each responsible
party for oil spill removal costs and for other public and private damages from
oil spills.

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Failure to comply with OPA may result in the assessment of civil and criminal
penalties. OPA establishes liability limits of $350 million for onshore
facilities, all removal costs plus $75 million for offshore facilities and the
greater of $500,000 or $600 per gross ton for vessels other than tank vessels.
The liability limits are not applicable, however, if the spill is caused by
gross negligence or willful misconduct, if the spill resulted from violation of
a federal safety, construction, or operating regulation, or if a party fails to
report a spill or fails to cooperate fully in the cleanup. Few defenses exist to
the liability imposed under OPA. Management is currently unaware of any oil
spills for which we have been designated as a responsible party under OPA that
will have a material adverse impact on us or our operations.

OPA also imposes ongoing requirements on a responsible party, including
preparation of an oil spill contingency plan and maintaining proof of financial
responsibility to cover a majority of the costs in a potential spill. We believe
we have appropriate spill contingency plans in place. With respect to financial
responsibility, OPA requires the responsible party for certain offshore
facilities to demonstrate financial responsibility of not less than $35 million,
with the financial responsibility requirement potentially increasing up to $150
million if the risk posed by the quantity or quality of oil that is explored for
or produced indicates that a greater amount is required. The MMS has promulgated
regulations implementing these financial responsibility requirements for covered
offshore facilities. Under the MMS regulations, the amount of financial
responsibility required for an offshore facility is increased above the minimum
amounts if the "worst case" oil spill volume calculated for the facility exceeds
certain limits established in the regulations. We believe that we currently have
established adequate proof of financial responsibility for our onshore and
offshore facilities and that we satisfy the MMS requirements for financial
responsibility under OPA and applicable regulations.

OPA also requires owners and operators of vessels over 300 gross tons to
provide the Coast Guard with evidence of financial responsibility to cover the
cost of cleaning up oil spills from such vessels. We currently own and operate
six vessels over 300 gross tons. Satisfactory evidence of financial
responsibility has been provided to the Coast Guard for all of our vessels.

The Clean Water Act imposes strict controls on the discharge of pollutants
into the navigable waters of the U.S. and imposes potential liability for the
costs of remediating releases of petroleum and other substances. The controls
and restrictions imposed under the Clean Water Act have become more stringent
over time, and it is possible that additional restrictions will be imposed in
the future. Permits must be obtained to discharge pollutants into state and
federal waters. Certain state regulations and the general permits issued under
the Federal National Pollutant Discharge Elimination System program prohibit the
discharge of produced waters and sand, drilling fluids, drill cuttings and
certain other substances related to the exploration for and production of oil
and gas into certain coastal and offshore water. The Clean Water Act provides
for civil, criminal and administrative penalties for any unauthorized discharge
of oil and other hazardous substances and imposes liability on responsible
parties for the costs of cleaning up any environmental contamination caused by
the release of a hazardous substance and for natural resource damages resulting
from the release. Many states have laws which are analogous to the Clean Water
Act and also require remediation of releases of petroleum and other hazardous
substances in state waters. Our vessels routinely transport diesel fuel to
offshore rigs and platforms and also carry diesel fuel for their own use. Our
supply boats transport bulk chemical materials used in drilling activities and
also transport liquid mud which contains oil and oil by-products. Offshore
facilities and vessels operated by us have facility and vessel response plans to
deal with potential spills of oil or its derivatives. We believe that our
operations comply in all material respects with the requirements of the Clean
Water Act and state statutes enacted to control water pollution.

OCSLA provides the federal government with broad discretion in regulating
the production of offshore resources of natural gas and oil, including authority
to impose safety and environmental protection requirements applicable to lessees
and permittees operating in the OCS. Specific design and operational standards
may apply to OCS vessels, rigs, platforms, vehicles and structures. Violations
of lease conditions or regulations issued pursuant to OCSLA can result in
substantial civil and criminal penalties, as well as potential court injunctions
curtailing operations and cancellation of leases. Because our operations rely on
offshore oil and gas exploration and production, if the government were to
exercise its authority under OCSLA to restrict the availability of offshore oil
and gas leases, such action could have a material adverse effect on our
financial

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condition and the results of operations. As of this date, we believe we are not
the subject of any civil or criminal enforcement actions under OCSLA.

The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") contains provisions requiring the remediation of releases of
hazardous substances into the environment and imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
including owners and operators of contaminated sites where the release occurred
and those companies who transport, dispose of or who arrange for disposal of
hazardous substances released at the sites. Under CERCLA, such persons may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment, for damages
to natural resources and for the costs of certain health studies. Third parties
may also file claims for personal injury and property damage allegedly caused by
the release of hazardous substances. Although we handle hazardous substances in
the ordinary course of business, we are not aware of any hazardous substance
contamination for which we may be liable.

Management believes we are in compliance in all material respects with all
applicable environmental laws and regulations to which we are subject. We do not
anticipate that compliance with existing environmental laws and regulations will
have a material effect upon our capital expenditures, earnings or competitive
position. However, changes in the environmental laws and regulations, or claims
for damages to persons, property, natural resources or the environment, could
result in substantial costs and liabilities, and thus there can be no assurance
that we will not incur significant environmental compliance costs in the future.

EMPLOYEES

We rely on the high quality of our workforce. As of March 26, 2001, we had
758 employees, 159 of which were salaried. As of that date we also utilized
approximately 75 non-US citizens to crew our foreign flag vessels under a
crewing contract with C-MAR Services (UK), Ltd. of Aberdeen, Scotland. None of
our employees belong to a union or are employed pursuant to any collective
bargaining agreement or any similar arrangement. Management believes that our
relationship with our employees and foreign crew members is good.

FACTORS INFLUENCING FUTURE RESULTS AND
ACCURACY OF FORWARD-LOOKING STATEMENTS

Shareholders should carefully consider the following risk factors in
addition to the other information contained herein. This Annual Report on Form
10-K includes certain statements that may be deemed "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. You can identify these statements by forward-looking words such as
"anticipate," "believe," "budget," "could," "estimate," "expect," "forecast,"
"intend," "may," "plan," "potential," "should," "will" and "would" or similar
words. You should read statements that contain these words carefully because
they discuss our future expectations, contain projections of our future results
of operations or of our financial position or state other forward-looking
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to predict or control accurately. The factors listed below in
this section captioned "Factors Influencing Future Results And Accuracy of
Forward-looking Statements," as well as any cautionary language in this Annual
Report, provide examples of risks, uncertainties and events that may cause our
actual results to differ materially from the expectations we describe in our
forward-looking statements. You should be aware that the occurrence of the
events described in these risk factors and elsewhere in this Annual Report could
have a material adverse effect on our business, results of operations and
financial position.

OUR BUSINESS IS ADVERSELY AFFECTED BY LOW OIL AND GAS PRICES AND BY THE
CYCLICALITY OF THE OIL AND GAS INDUSTRY.

Our business is substantially dependent upon the condition of the oil and
gas industry and, in particular, the willingness of oil and gas companies to
make capital expenditures on offshore exploration, drilling and

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production operations. The level of capital expenditures generally depends on
the prevailing view of future oil and gas prices, which are influenced by
numerous factors affecting the supply and demand for oil and gas, including:

- Worldwide economic activity

- Coordination by the Organization of Petroleum Exporting Countries
("OPEC")

- The cost of exploring for and producing oil and gas

- The sale and expiration dates of offshore leases in the United States and
overseas

- The discovery rate of new oil and gas reserves in offshore areas

- Technological advances

- Interest rates and the cost of capital

- Environmental regulation

- Tax policies

The level of offshore development and production activity did not increase
materially in 2000 despite higher commodity prices. We cannot assure you that
activity levels will increase any time soon. A sustained period of low drilling
and production activity or a return of low hydrocarbon prices would likely have
a material adverse effect on our financial position and results of operations.

THE OPERATION OF MARINE VESSELS IS RISKY, AND WE DO NOT HAVE INSURANCE COVERAGE
FOR ALL RISKS.

Marine construction involves a high degree of operational risk. Hazards,
such as vessels sinking, grounding, colliding and sustaining damage from severe
weather conditions, are inherent in marine operations. These hazards can cause
personal injury or loss of life, severe damage to and destruction of property
and equipment, pollution or environmental damage and suspension of operations.
Damage arising from such an occurrence may result in lawsuits asserting large
claims. We maintain such insurance protection as we deem prudent, including
Jones Act employee coverage (the maritime equivalent of workers compensation)
and hull insurance on our vessels. We cannot assure you that any such insurance
will be sufficient or effective under all circumstances or against all hazards
to which we may be subject. A successful claim for which we are not fully
insured could have a material adverse effect on us. Moreover, we cannot assure
you that we will be able to maintain adequate insurance in the future at rates
that we consider reasonable. As construction activity moves into deeper water in
the Gulf, construction projects tend to be larger and more complex than shallow
water projects. As a result, our revenues and profits are increasingly dependent
on our larger vessels. While the loss of the Balmoral Sea was fully covered by
insurance, the current insurance on our vessels (in some cases, in amounts
approximating book value, which is less than replacement value) against property
loss due to a catastrophic marine disaster, mechanical failure or collision, as
a result of such event may not cover a substantial loss of revenues, increased
costs and other liabilities and could have a material adverse effect on our
operating performance if we lost any of our large vessels..

OUR CONTRACTING BUSINESS DECLINES IN WINTER, AND BAD WEATHER IN THE GULF CAN
ADVERSELY AFFECT OUR OPERATIONS.

Marine operations conducted in the Gulf are seasonal and depend, in part,
on weather conditions. Historically, we have enjoyed our highest vessel
utilization rates during the summer and fall when weather conditions are
favorable for offshore exploration, development and construction activities and
have experienced our lowest utilization rates in the first quarter. As is common
in the industry, we typically bear the risk of delays caused by some but not all
adverse weather conditions. Accordingly, the results of any one quarter are not
necessarily indicative of annual results or continuing trends.

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IF WE BID TOO LOW ON A TURNKEY CONTRACT WE SUFFER THE CONSEQUENCES.

A majority of our projects are performed on a qualified turnkey basis where
described work is delivered for a fixed price and extra work, which is subject
to customer approval, is charged separately. The revenue, cost and gross profit
realized on a contract can vary from the estimated amount because of changes in
offshore job conditions, variations in labor and equipment productivity from the
original estimates and performance of others such as alliance partners. These
variations and risks inherent in the marine construction industry may result in
our experiencing reduced profitability or losses on projects.

ESTIMATES OF OUR NATURAL GAS AND OIL RESERVES, FUTURE CASH FLOWS AND ABANDONMENT
COSTS MAY BE SIGNIFICANTLY INCORRECT.

This Annual Report contains estimates of our proved natural gas and oil
reserves and the estimated future net cash flows therefrom based upon reports
prepared as of the years ended December 31, 2000 and reviewed by Miller and
Lents, Ltd. This report relies upon various assumptions, including assumptions
required by the Securities and Exchange Commission as to natural gas and oil
prices, drilling and operating expenses, capital expenditures, abandonment
costs, taxes and availability of funds. The process of estimating natural gas
and oil reserves is complex, requiring significant decisions and assumptions in
the evaluation of available geological, geophysical, engineering and economic
data for each reservoir. As a result, these estimates are inherently imprecise.
Actual future production, cash flows, development expenditures, operating and
abandonment expenses and quantities of recoverable natural gas and oil reserves
may vary substantially from those estimated in these reports. Any significant
variance in these assumptions could materially affect the estimated quantity and
value of our proved reserves. You should not assume that the present value of
future net cash flows from our proved reserves referred to in this prospectus
supplement is the current market value of our estimated natural gas and oil
reserves. In accordance with Securities and Exchange Commission requirements, we
base the estimated discounted future net cash flows from our proved reserves on
prices and costs on the date of the estimate. Actual future prices and costs may
differ materially from those used in the net present value estimate. In
addition, if costs of abandonment are materially greater than our estimates,
they could have an adverse effect on earnings.

THE GUNNISON PROSPECT MAY NOT RESULT IN THE EXPECTED CASH FLOWS OR SUBSEA ASSET
UTILIZATION WE ANTICIPATE AND COULD INVOLVE SIGNIFICANT FUTURE CAPITAL OUTLAYS.

The Gunnison prospect is subject to a number of assumptions and
uncertainties including estimates as to the size of the oil and natural gas
reserves, the capital outlays necessary to develop the prospect and the cash
flows that we may ultimately derive. We cannot assure you that we will be able
to fund any required capital outlays or that these outlays will be profitable.
Moreover, although our working interest entitles us to participate in field
development and planning and to collaborate with the other working interest
owners in executing subsea construction work, the extent of utilization of our
subsea assets for such work has not been determined.

DELAYS OR COST OVERRUNS IN THE CONSTRUCTION OF THE Q4000 OR SEA SORCERESS COULD
ADVERSELY AFFECT OUR BUSINESS. EXPECTED CASH FLOWS FROM THE Q4000 AND SEA
SORCERESS UPON COMPLETION MAY NOT BE IMMEDIATE OR AS HIGH AS EXPECTED.

In late 1999, we began construction of the Q4000, improvements to the Sea
Sorceress converting her to a DP-2 and adding a crane. These vessels are
currently scheduled to be placed into service in the second half of 2001.
Although the construction contract provides for delay penalties and a parent
guaranty of performance, these projects are subject to the risk of delay or cost
overruns inherent in construction projects. These risks include:

- Unforeseen quality or engineering problems

- Work stoppages

- Weather interference

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- Unanticipated cost increases

- Delays in receipt of necessary equipment

- Inability to obtain the requisite permits or approvals

Significant delays could also have a material adverse effect on expected
contract commitments for this vessel and our future revenues and cash flows. We
will not receive any material increase in revenue or cash flow from the Q4000
until it is placed in service and customers enter into binding arrangements with
the vessel, potentially several months or more after the vessel is completed.
Furthermore, we cannot assure you that customer demand for the Q4000 will be as
high as currently anticipated, and, as a result, our future cash flows may be
adversely affected. While elements of this vessel design have been patented, new
vessels from third parties may also enter the market in the coming years and
compete with the Q4000 for contracts.

OUR NATURAL GAS AND OIL OPERATIONS INVOLVE SIGNIFICANT RISKS, AND WE DO NOT HAVE
INSURANCE COVERAGE FOR ALL RISKS.

Our natural gas and oil operations are subject to the usual risks incident
to the operation of natural gas and oil wells, including, but not limited to,
uncontrollable flows of oil, natural gas, brine or well fluids into the
environment, blowouts, cratering, mechanical difficulties, fires, explosions,
pollution and other risks, any of which could result in substantial losses to
us. In accordance with industry practice, we maintain insurance against some,
but not all, of the risks described above.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.

The business in which we operate is highly competitive. Several of our
competitors are substantially larger and have greater financial and other
resources than we have. If other companies relocate or acquire vessels for
operations in the Gulf, levels of competition may increase and our business
could be adversely affected.

THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY EMPLOYEES, OR OUR FAILURE TO
ATTRACT, ASSIMILATE AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE FUTURE,
COULD DISRUPT OUR OPERATIONS AND ADVERSELY EFFECT OUR FINANCIAL RESULTS.

The industry lost a significant number of experienced subsea people in 1999
and early 2000 due to the decrease in commodity prices. Our continued success
depends on the active participation of our key employees. The loss of our key
people could adversely affect our operations. We believe that our success and
continued growth are also dependent upon our ability to employ and retain
skilled personnel. We believe that our wage rates are competitive; however,
unionization or a significant increase in the wages paid by other employers
could result in a reduction in our workforce, increases in the wage rates we
pay, or both. If either of these events occur for any significant period of
time, our revenues and profitability could be diminished and our growth
potential could be impaired.

WE MAY NEED TO CHANGE THE MANNER IN WHICH WE CONDUCT OUR BUSINESS IN RESPONSE TO
CHANGES IN GOVERNMENT REGULATIONS.

Our subsea construction, inspection, maintenance and decommissioning
operations and our natural gas and oil production from offshore properties
(including decommissioning of such properties) are subject to and affected by
various types of government regulation, including numerous federal, state and
local environmental protection laws and regulations. These laws and regulations
are becoming increasingly complex, stringent and expensive. We cannot assure you
that continued compliance with existing or future laws or regulations will not
adversely affect our operations. Significant fines and penalties may be imposed
for non-compliance.

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CERTAIN PROVISIONS OF OUR CORPORATE DOCUMENTS AND MINNESOTA LAW MAY DISCOURAGE A
THIRD PARTY FROM MAKING A TAKEOVER PROPOSAL.

Our Board of Directors has the authority, without any action by our
shareholders, to fix the rights and preferences on up to 5,000,000 shares of
undesignated preferred stock, including dividend, liquidation and voting rights.
In addition, our Bylaws divide the board of directors into three classes. We are
also subject to certain anti-takeover provisions of the Minnesota Business
Corporation Act. We also have employment contracts with all of our senior
officers which require cash payments in the event of a "change of control." Any
or all of the provisions or factors described above may have the effect of
discouraging a takeover proposal or tender offer not approved by management and
the board of directors and could result in shareholders who may wish to
participate in such a proposal or tender offer receiving less for their shares
than otherwise might be available in the event of a takeover attempt.

ITEM 2. PROPERTIES

OUR VESSELS

We own a fleet of 20 vessels and one ROV. Management believes that the Gulf
market requires specially designed or equipped vessels to competitively deliver
subsea construction services. Five of our vessels have DP capabilities
specifically designed to respond to the Deepwater market requirements. Five of
our vessels also have the capability to provide saturation diving services.
Recent developments in our fleet include:

Q4000: In September 1999, we began construction of our newest
Deepwater multi-service vessel, the Q4000, a sixth generation,
semi-submersible that we believe will greatly improve the economics of
Deepwater completion and construction operations. The vessel, being
constructed at an estimated cost of $150 million, incorporates our latest
technologies, including various patented design elements such as the
absence of lower hull cross bracing. Planned variable deck load of
approximately 4,000 metric tons and a large deck area will make the vessel
particularly well suited for large offshore construction projects in the
Ultra-Deepwater. Its new Huisman-Itrec multi-purpose tower has an open face
which allows free access from three sides, a tremendous advantage for a
construction and intervention vessel. Another important feature of the
Q4000 will be the new intervention riser system we are developing and
jointly funding with FMC Corporation. This system will be the first in the
industry rated for working pressures to 15,000 pounds per square inch in
10,000 fsw. The Q4000 is expected to be placed into service in the third
quarter of 2001, in time to meet an anticipated increase in Deepwater
construction activities.

Mr. Fred: In March 2000, Aquatica acquired the Mr. Fred, a 167 foot
supply vessel which has been converted to support diving and marine
construction services. The vessel has recently been upgraded with the
installation of a four point mooring system.

Sea Sorceress: CDI is currently converting the Sea Sorceress to full
DP-2, which makes it in one of the largest and most capable mono-hull
construction vessels in the world.

New Cal Diver IV: The new DSV is 120 feet long, 32 feet wide, have
1,440 feet of clear deck space, a 60 ton deck load capacity and galley
accommodations for 24 people. It is capable of ten knots cruising speed.

Uncle John Upgrades: In August 2000, we completed a major upgrade of
the Uncle John which included the purchase and installation of new engines,
improved DP thrusters and state-of-the-art electrical and computer systems.
This enhances the capabilities of this multi-service, well intervention
vessel, the only semi-submersible MSV dedicated to the Gulf.

Asset Purchase: In March of 2001, we acquired substantially all of
the assets of Professional Divers of New Orleans, Inc. including one
four-point DSV (Mr. Sonny) and three utility vessels to expand our Aquatica
DSV fleet.

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20

LISTING OF VESSELS, BARGES AND ROVS

DATE CAL MOONPOOL
DIVE CLEAR DECK DECK LAUNCH/
PLACED IN LENGTH SPACE (SQ. LOAD ACCOM- SAT CRANE CAPACITY
SERVICE (FEET) FEET) (TONS) MODATIONS DIVING (TONS) CLASSIFICATION(1)
--------- ------ ---------- ------ --------- -------- -------------- -----------------

DP MSVs:
Uncle John.......... 11/96 254 11,834 460 102 X 2 X 100 DNV
Q4000(2)............ 2001 310 26,400 4,000 138 X Derrick: 600 ABS
1 X 350; 1 X 160
DP DSVs:(3)
Witch Queen......... 11/95 278 5,600 500 60 X 50 DNV
Merlin.............. 12/97 198 955 308 42 -- A-Frame ABS
Sea Sorceress....... 8/97 374 8,600 10,000 50 -- 1 X 400 DNV
CAL DIVE DSVs:
Cal Diver I......... 7/84 196 2,400 220 40 X 20 ABS
Cal Diver II........ 6/85 166 2,816 300 32 X A-Frame ABS
Cal Diver V......... 9/91 168 2,324 490 30 -- A-Frame ABS
Talisman............ 11/00 195 3,000 675 15 -- -- ABS
AQUATICA DSVs:
Cal Diver III....... 8/87 115 1,320 105 18 -- -- ABS
Cal Diver IV........ 2000 120 1,440 60 24 -- -- ABS
Mr. Jim............. 2/98 110 1,210 64 19 -- -- USCG
Mr. Joe............. 10/90 100 1,035 46 16 -- -- ABS
Mr. Jack............ 1/98 120 1,220 66 22 -- -- USCG
Mr. Fred............ 3/00 167 2,465 500 36 -- 25 USCG
Mr. Sonny(4)........ 2/01 175 3,480 409 28 -- 35 ABS
Polo Pony(4)........ 2/01 110 1,240 69 25 -- -- ABS
Sterling Pony(4).... 2/01 110 1,240 64 25 -- -- ABS
White Pony(4)....... 2/01 116 1,230 64 25 -- -- ABS
OTHER:
Cal Dive Barge I.... 8/90 150 NA 200 26 -- 200 ABS
ROV................. 4/97 25 -- -- -- -- -- --

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

(1) Under government regulations and our insurance policies, we are required to
maintain our vessels in accordance with standards of seaworthiness and
safety set by government regulations and classification organizations. We
maintain our fleet to the standards for seaworthiness, safety and health set
by the ABS, Det Norske Veritas ("DNV") and the Coast Guard. The ABS is one
of several classification societies used by ship owners to certify that
their vessels meet certain structural, mechanical and safety equipment
standards, including Lloyd's Register, Bureau Veritas and DNV among others.

(2) This vessel is expected to be placed into service after the third quarter of
2001.

(3) In June 1999, we purchased a controlling interest in the new build DP anchor
handling vessel Cal Dive Aker Dove. Because the converted Sea Sorceress will
offer similar moorings installation capability in addition to a full array
of construction features at roughly the same price, we have elected to put
our ownership position in the Dove back to Aker in conjunction with that
company's acquisition by Coflexip in March 2001.

(4) In March 2001, CDI acquired substantially all of the assets of Professional
Divers of New Orleans, Inc. including the Mr. Sonny (a 165-foot four-point
moored DSV), three utility vessels and associated diving equipment including
two saturation diving systems.

Balmoral Sea, a DP DSV we acquired in 1996, was extensively damaged and
then sank in a fire while dockside in New Orleans, Louisiana on June 26, 2000.
The fire apparently broke out as the vessel was being prepared to enter drydock
for an extended period. The vessel crew was evacuated and there were no
injuries. The vessel has been deemed a total loss by insurance underwriters. Her
book value (approximately $7 million) was fully insured as were all salvage and
removal costs. Payments from the insurance companies were received during the
fourth quarter of 2000.

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We incur routine drydock inspection, maintenance and repair costs pursuant
to Coast Guard Regulations and in order to maintain ABS or DNV classification
for our vessels. In addition to complying with these requirements, we have our
own vessel maintenance program which management believes permits us to continue
to provide our customers with well maintained, reliable vessels. In the normal
course of business, we charter other vessels on a short-term basis, such as
tugboats, cargo barges, utility boats and dive support vessels. All of our
vessels are subject to ship mortgages to secure our $40.0 million revolving
credit facility with Fleet Credit Corporation, except the Cal Dive Aker
Dove(which is leased) and the Q4000 (which is subject to liens to secure the
MARAD financing).

SUMMARY OF NATURAL GAS AND OIL RESERVE DATA

The table below sets forth information, as of December 31, 2000, with
respect to estimates of net proved reserves and the present value of estimated
future net cash flows at such date, prepared by Company engineers in accordance
with guidelines established by the Securities and Exchange Commission. Our
estimates have been reviewed by Miller and Lents, Ltd., independent petroleum
engineers.

TOTAL PROVED
------------
(DOLLARS IN
THOUSANDS)

Estimated Proved Reserves:
Natural Gas (MMcf)........................................ 21,711
Oil and Condensate (MBbls)................................ 1,081
Standardized measure of discounted future net cash flows
(pre-tax)................................................. $77,713
-------

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

(1) The standardized measure of discounted future net cash flows attributable to
our reserves was prepared using constant prices as of the calculation date,
discounted at 10% per annum. As of March 26, 2001, we owned an interest in
130 gross (99 net) natural gas wells and 72 gross (50 net) oil wells located
in federal offshore waters in the Gulf of Mexico.

FACILITIES

Our headquarters is 400 N. Sam Houston Parkway E., Houston, Texas. Our
primary subsea and marine services operations are based in Morgan City,
Louisiana. All of our facilities are leased.

PROPERTY AND FACILITIES SUMMARY

FUNCTION SIZE
-------- ----

Houston, Texas....................... Corporate Headquarters, Project 37,800 square feet
Management and Sales Office
Morgan City, Louisiana............... Operations 28.5 acres
Warehouse 30,000 square feet
Offices 4,500 square feet
Lafayette, Louisiana (Aquatica)...... Operations 8 acres
Warehouse 12,000 square feet
Offices 5,500 square feet

We also have sales offices in Lafayette and Harvey, Louisiana.

ITEM 3. LEGAL PROCEEDINGS.

INSURANCE AND LITIGATION

Our operations are subject to the inherent risks of offshore marine
activity, including accidents resulting in personal injury and the loss of life
or property, environmental mishaps, mechanical failures, fires and collisions.
We insure against these risks at levels consistent with industry standards. We
also carry workers'

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compensation, maritime employer's liability, general liability and other
insurance customary in our business. All insurance is carried at levels of
coverage and deductibles that we consider financially prudent. Our services are
provided in hazardous environments where accidents involving catastrophic damage
or loss of life could result, and litigation arising from such an event may
result in our being named a defendant in lawsuits asserting large claims. To
date, we have been involved in only one such claim, the loss of the Balmoral
Sea, which was fully covered by insurance. Although there can be no assurance
that the amount of insurance we carry is sufficient to protect us fully in all
events (or that such insurance will continue to be available at current levels
of cost or coverage), management believes that our insurance protection is
adequate for our business operations. A successful liability claim for which we
are underinsured or uninsured could have a material adverse effect on our
business.

We are involved in various legal proceedings primarily involving claims for
personal injury under the General Maritime Laws of the United States and the
Jones Act as a result of alleged negligence. In addition, we from time to time
incur other claims, such as contract disputes, in the normal course of business.
In that regard, we entered into a subcontract with Seacore Marine Contractors
Limited to provide the Sea Sorceress for subsea excavation in Canada. Seacore
was in turn contracted by Coflexip Stena Offshore Newfoundland Limited, a
subsidiary of Coflexip ("CSO Nfl"), as representative of the consortium of
companies contracted to perform services on the project. Due to difficulties
with respect to the sea states and soil conditions the contract was terminated.
Seacore was provided a performance bond of $5 million with respect to the
subcontract. No call has been made on this bond. Although CSO Nfl has alleged
that the Sea Sorceress was unable to adequately perform the excavation work
required under the subcontract, Seacore and Cal Dive believe the contract was
wrongfully terminated and are vigorously defending this claim and seeking
damages in arbitration. In another commercial dispute, EEX Corporation sued Cal
Dive and others alleging breach of fiduciary duty by a former EEX employee and
damages resulting from certain construction agreements. Cal Dive has responded
alleging EEX Corporation breached various provisions of the same contracts and
is seeking a declaratory judgment that the defendants are not liable. We believe
that the outcome of all such proceedings is not likely to have a material
adverse effect on our business or financial condition.

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

None.

ITEM (UNNUMBERED). EXECUTIVE OFFICERS OF THE COMPANY

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The executive officers and directors of Cal Dive are as follows:

NAME AGE POSITION WITH CAL DIVE
- ---- --- ----------------------

Owen Kratz(3)........................ 47 Chairman and Chief Executive Officer and
Director
Martin R. Ferron(1).................. 44 President and Chief Operating Officer and
Director
S. James Nelson, Jr.(2) ............. 58 Vice Chairman and Director
Andrew C. Becher..................... 55 Senior Vice President, General Counsel and
Corporate Secretary
Louis L. Tapscott.................... 63 Senior Vice President-Special Projects
Kenneth Duell........................ 50 Senior Vice President -- Business Development
A. Wade Pursell...................... 36 Senior Vice President -- Chief Financial
Officer
Johnny Edwards....................... 47 President, Energy Resource Technology, Inc.
Gordon F. Ahalt(1)(2)(3)............. 72 Director
Bernard Duroc-Danner(1)(2)........... 47 Director
William L. Transier(2)............... 46 Director

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

(1) Member of Compensation Committee

(2) Member of Audit Committee

(3) Member of Nominating Committee

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23

Our Bylaws provide for the Board of Directors to be divided into three
classes of directors with each class to be as nearly equal in number of
directors as possible, serving staggered three-year terms. The terms of the
Class I directors, Owen Kratz and Bernard Duroc-Danner, expire in 2001. The
terms of the Class II directors, Gordon Ahalt and Martin R. Ferron, expire in
2002. The terms of the Class III directors, S. James Nelson, Jr. and William L.
Transier, expire in 2003. Each director serves until the end of his or her term
or until his or her successor is elected and qualified.

Owen Kratz is Chairman and Chief Executive Officer of Cal Dive
International, Inc. He was appointed Chairman in May 1998 and has served as the
Company's Chief Executive Officer since April 1997. Mr. Kratz served as
President from 1993 until February 1999, and a Director since 1990. He served as
Chief Operating Officer from 1990 through 1997. Mr. Kratz joined the Company in
1984 and has held various offshore positions, including saturation (SAT) diving
supervisor, and management responsibility for client relations, marketing and
estimating. From 1982 to 1983, Mr. Kratz was the owner of an independent marine
construction company operating in the Bay of Campeche. Prior to 1982, he was a
superintendent for Santa Fe and various international diving companies and a
saturation diver in the North Sea. An avid sailor in his free time, Mr. Kratz
owns various Lasers, a J-22 and two One-Design 35 boats. He was named Yachtsman
of the Year for Galveston Bay.

Martin R. Ferron has served on our Board of Directors since September 1998.
Mr. Ferron became President in February 1999 and has served as Chief Operating
Officer since January 1998. Mr. Ferron has 20 years of experience in the
oilfield industry, seven of which included senior management positions, with the
international operations of McDermott Marine Construction and Oceaneering
International Services Limited. Mr. Ferron has a Civil Engineering degree, a
Masters Degree in Marine Technology, a MBA and is a Chartered Civil Engineer.

S. James Nelson, Jr. is Vice Chairman and has been a director of the
Company since 1990. Prior to October 2000, he was Executive Vice President and
Chief Financial Officer. From 1985 to 1988, Mr. Nelson was the Senior Vice
President and Chief Financial Officer of Diversified Energies, Inc., the former
parent of the Company, at which time he had corporate responsibility for the
Company. From 1980 to 1985, Mr. Nelson served as Chief Financial Officer of
Apache Corporation, an oil and gas exploration and production company. From 1966
to 1980, Mr. Nelson was employed with Arthur Andersen & Co., and, from 1976 to
1980, he was a partner serving on the firm's worldwide oil and gas industry
team. Mr. Nelson received an undergraduate degree from Holy Cross College (B.S.)
and a MBA from Harvard University; he is also a Certified Public Accountant.

Andrew C. Becher has served as Senior Vice President, General Counsel of
Cal Dive since January 1996 and became Corporate Secretary in 1998. Mr. Becher
served as outside general counsel for Cal Dive from 1990 to 1996, while a
partner with the national law firm of Robins, Kaplan, Miller & Ciresi. From 1987
to 1990, Mr. Becher was Senior Vice President -- Mergers and Acquisitions of
Dain Rauscher, Inc., a regional investment banking firm. From 1976 to 1987, he
was a partner specializing in mergers and acquisitions with the law firm of
Briggs and Morgan.

Louis L. Tapscott is Senior Vice President of Special Projects and joined
the Company in August 1996 as Senior Vice President-Business Development. From
1992 to 1996, he was a Senior Vice President for Sonsub International, Inc., a
company which operates a deepwater fleet of ROVs. From 1984 to 1988, he was a
director and Chief Operating Officer of Oceaneering International, Inc. Mr.
Tapscott has over thirty years of executive management and operational
experience working with subsea contractors and subsea technology organizations
in the United States and internationally.

Kenneth Duell is Senior Vice President-Business Development and joined the
Company in 1994 as Senior Vice President -- Special Projects. From 1989 to 1994,
he was employed by ABB Soimi, Milan, Italy, in connection with a modular
refining systems development in Central Asia. From 1974 to 1988, he held various
positions with Santa Fe International, including the ROV and diving division.
Mr. Duell has over 22 years of worldwide experience in all aspects of the
onshore and offshore construction and diving industry.

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A. Wade Pursell has served as Senior Vice President, Chief Financial
Officer since October 2000. He joined the Company in May 1997 as Vice
President -- Finance and Chief Accounting Officer. From 1988 through 1997, he
was with Arthur Andersen LLP, most recently as an Experienced Manager
specializing in the offshore services industry. Mr. Pursell is a Certified
Public Accountant.

Johnny Edwards became President of our subsidiary, Energy Resource
Technology, Inc., in 2000 after Lyle Kuntz retired. Prior to becoming President,
Mr. Edwards was instrumental in the growth of ERT, managing the engineering and
acquisitions for the company. Mr. Edwards and Mr. Kuntz, who had previously
worked together at ARCO Oil & Gas Co., grew ERT from one property in early 1994
to the 44 leases currently owned by ERT. Prior to joining ERT in 1994, Mr.
Edwards spent 19 years in a broad range of engineering, operations and
management positions with ARCO Oil & Gas Co.

Gordon F. Ahalt has served on our Board of Directors since July 1990 and
has extensive experience in the oil and gas industry. Since 1982, Mr. Ahalt was
President of GFA, Inc., a petroleum industry management and financial consulting
firm. From 1977 to 1980, he was President of the International Energy Bank,
London, England. From 1980 to 1982, he served as Senior Vice President and Chief
Financial Officer of Ashland Oil Company. Prior thereto, Mr. Ahalt spent a
number of years in executive positions with Chase Manhattan Bank. Mr. Ahalt
serves as a director of The Houston Exploration Co., the Bancroft & Elsworth
Convertible Funds and other investment funds.

Bernard J. Duroc-Danner has served on our Board of Directors since February
1999. Mr. Duroc-Danner is the Chairman, CEO and President of Weatherford
International, Inc., an oilfield service company. Mr. Duroc-Danner also serves
as Chairman of the Board of Grant Prideco and as a director of Parker Drilling
Company, a provider of contract drilling and drilling services and Universal
Compression, a provider of a rental , sales, operations, maintenance and
fabrication services and products to the domestic and international natural gas
industry. Mr. Duroc-Danner holds a Ph.D in economics from Wharton (University of
Pennsylvania).

William Transier has served on our Board of Directors since October, 2000.
He is Executive Vice President and Chief Financial Officer for Ocean Energy,
Inc. and oversees treasury, investor relations, human resources, and marketing
and trading. He took his current position in 1999 following the merger of Ocean
Energy and Seagull Energy Corporation. Previously, Transier served as Executive
Vice President and Chief Financial Officer for Seagull and in the audit
department of KPMG LLP. Mr. Transier received an undergraduate degree from the
University of Texas and a Masters in Business Administration from Regis
University. He is a director of Metals USA and the Company.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.

Our common stock is traded on the Nasdaq National Market under the symbol
"CDIS." The following table sets forth, for the periods indicated, the high and
low closing sales prices per share of our common stock:

HIGH* LOW*
------ ------

Calendar Year 1999
First quarter............................................. 10.438 7.188
Second quarter............................................ 16.00 12.25
Third quarter............................................. 18.813 16.938
Fourth quarter............................................ 18.188 16.563
Calendar Year 2000
First quarter............................................. 25.375 18.00
Second quarter............................................ 27.094 23.031
Third quarter............................................. 28.75 24.125
Fourth quarter............................................ 26.625 19.625
Calendar Year 2001 (through March 26, 2001)................. 31.00 22.00

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

* The stock split 2 for 1 effective November 13, 2000. As of March 20, 2001,
there were an estimated 3,600 beneficial holders of our common stock.

DIVIDEND POLICY

We have never paid cash dividends on our common stock and do not intend to
pay cash dividends in the foreseeable future. We currently intend to retain
earnings, if any, for the future operation and growth of our business. Certain
of our current financing arrangements restrict the payment of cash dividends
under certain circumstances.

ITEM 6. SELECTED FINANCIAL DATA

The financial data presented below for each of the five years ended
December 31, 2000, should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
included elsewhere in this Form 10-K.

1996 1997 1998 1999 2000
------- -------- -------- -------- --------

Net Revenues............................. $76,122 $109,386 $151,887 $160,954 $181,014
Gross Profit............................. 22,086 33,685 49,209 37,251 55,369
Net Income............................... 8,435 14,482 24,125 16,899 23,326
Net Income Per Share:
Basic.................................. 0.38 0.56 0.83 0.56 0.74
Diluted................................ 0.37 0.54 0.81 0.55 0.72
EBITDA................................... 19,017 29,916 45,544 44,805 65,085
Total Assets............................. 83,056 125,600 164,235 243,722 347,488
Working Capital.......................... 13,409 28,927 45,916 38,887 76,381
Long-Term Debt........................... 25,000 -- -- -- 40,054
Shareholders' Equity..................... 30,844 89,369 113,643 150,872 194,725

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

Natural gas and oil prices, the offshore mobile rig count and Deepwater
construction activity are three of the primary indicators management uses to
forecast the future performance of our business. Our construction services
generally follow successful drilling activities by six to eighteen months on the
OCS and twelve months or longer in the Deepwater arena. The level of drilling
activity is related to both short- and long-term trends in natural gas and oil
prices. Commodity prices declined significantly in the last half of 1998 and
early 1999, resulting in the offshore mobile rig utilization rates dropping to
approximately 70% in contrast to almost full utilization in 1997 and the first
half of 1998. This trend began reversing in the second quarter of 1999 as oil
prices reached their highest levels since the Gulf War (recently trading in the
$25-$30 per barrel range) and natural gas prices have recently been trading
around $5.00 per thousand cubic feet ("Mcf"). The 1998 collapse of commodity
prices has caused the United States natural gas production to decline in each of
the last three years. The result is significantly higher natural gas prices
today and a flat-out effort to explore for and develop new natural gas reserves
on the OCS, a basin that provides 30% of the natural gas consumed in this
country. Our primary leading indicator, the number of offshore mobile rigs
contracted, has been running at close to full capacity since the second quarter
of 2000.

Product prices impact our natural gas and oil operations in several
respects. We seek to acquire producing natural gas and oil properties that are
generally in the later stages of their economic life. The potential abandonment
liability is a significant consideration with respect to the offshore properties
we have purchased to date. Although higher natural gas prices tend to reduce the
number of mature properties available for sale, these higher prices typically
contribute to improved operating results for ERT, such as in the second half of
1999 and in 2000. In contrast, lower natural gas prices, as experienced in 1998
and early 1999, typically contribute to lower operating results for ERT and a
general increase in the number of mature properties available, as occurred
during those periods. Salvage operations consist of platform decommissioning,
removal and abandonment and plugging and abandonment services performed by our
salvage assets. In addition, salvage related support, such as debris removal and
preparation of platform legs for removal, is often provided by our surface
diving vessels. In 1989, management targeted platform removal and salvage
operations as a regulatory driven activity which offers a partial hedge against
fluctuations in the commodity price of natural gas. In particular, MMS
regulations require removal of platforms within eighteen months after lease
expiration and remediation of the seabed at the well site to its original state.
We contract and manage, on a turnkey basis, all aspects of the decommissioning
and abandonment of fields of all sizes. We have an alliance with Horizon
Offshore Ltd. in order to offer customers expanded derrick barge and pipelay
capacity.

In 1999, we launched a new full field development product line to assist
customers on the OCS to significantly shorten the time from permitting to first
production. With over 4,000 platforms and production facilities already in place
in the Gulf, our underlying premise is that each new field need not be
re-engineered. We now use industry standard design subsea trees, prefabricated
modules, well panels and controls and umbilicals which can be readily adapted
for immediate assembly and use in new developments.

Vessel utilization is historically lower during the first quarter due to
winter weather conditions in the Gulf. Accordingly, we plan our drydock
inspections and other routine and preventive maintenance programs during this
period. During the first quarter, a substantial number of our customers finalize
capital budgets and solicit bids for construction projects. The bid and award
process during the first two quarters typically leads to the commencement of
construction activities during the second and third quarters. As a result, we
have historically generated more than 50% (up to 65%) of our marine contracting
revenues in the last six months of the year. Our operations can also be severely
impacted by weather during the fourth quarter. Our salvage barge, which has a
shallow draft, is particularly sensitive to adverse weather conditions, and its
utilization rate tends to be lower during such periods. To minimize the impact
of weather conditions on our operations and financial condition, we began
operating DP vessels and expanded into the acquisition of mature offshore
properties. The unique station-keeping ability offered by DP enables these
vessels to operate throughout the

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winter months and in rough seas. Operation of natural gas and oil properties
tends to offset the impact of weather since the first and fourth quarters are
typically periods of high demand and strong prices for natural gas. Due to this
seasonality, full year results are not likely to be a direct multiple of any
particular quarter or combination of quarters.

The following table sets forth for the periods presented average U.S.
natural gas prices, our equivalent natural gas production, the average number of
offshore rigs under contract in the Gulf, the number of platforms installed and
removed in the Gulf and the vessel utilization rates for each of the major
categories of our fleet.

1998 1999 2000
-------------------------------- --------------------------------- ------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
------ ------ ----- ------ ------ ------ ------ ------ ------ ------ ------

U.S. Natural Gas Prices(1)..... $ 2.18 $ 2.26 $2.03 $ 1.92 $ 1.80 $ 2.22 $ 2.53 $ 2.45 $ 2.52 $ 3.47 $ 4.27
ERT Gas and Oil Production
(MMcfe)...................... 1,595 1,252 901 1,155 1,488 1,803 2,777 2,786 3,321 4,169 4,271
Rigs Under Contract in the
Gulf(2)...................... 170 167 149 137 121 115 126 146 148 160 175
Platform Installation(3)....... 18 16 21 20 12 13 13 16 9 19 27
Platform Removals(3)........... 3 15 24 8 2 20 40 15 -- 25 61
Our Average Vessel Utilization
Rate:(4)
Dynamic Positioned............. 75% 64% 85% 80% 70% 49% 82% 69% 71% 38% 45%
Saturation DSV................. 88 79 70 83 54 69 79 65 57 57 78
Surface Diving................. 33 58 72 76 63 69 78 51 31 58 55
Derrick Barge.................. 28 73 70 70 40 68 83 50 8 41 53

2000
------
Q4
------

U.S. Natural Gas Prices(1)..... $ 5.29
ERT Gas and Oil Production
(MMcfe)...................... 3,725
Rigs Under Contract in the
Gulf(2)...................... 178
Platform Installation(3)....... 19
Platform Removals(3)........... 7
Our Average Vessel Utilization
Rate:(4)
Dynamic Positioned............. 56%
Saturation DSV................. 60
Surface Diving................. 57
Derrick Barge.................. 59

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

(1) Average of the monthly Henry Hub cash prices per Mcf, as reported in Natural
Gas Week.

(2) Average monthly number of rigs contracted, as reported by Offshore Data
Services.

(3) Source: Offshore Data Services; installation and removal of platforms with
two or more piles in the Gulf.

(4) Average vessel utilization rate is calculated by dividing the total number
of days the vessels in this category generated revenues by the total number
of days in each quarter (excluding Aquatica in 1999). During the second
quarter of 1999, the Uncle John spent 30 days in drydock undergoing thruster
work and inspections. During the second quarter of 2000, the Uncle John
spent 47 days in drydock for engine replacement and inspections and the
Witch Queen spent 41 days in drydock undergoing regulatory inspections.
During the third quarter of 2000, these vessels were out for a combined 105
days for the same reasons.

RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 2000 and 1999

Revenues. During the year ended December 31, 2000, our revenues increased
12% to $181.0 million compared to $161.0 million for the year ended December 31,
1999, with Natural Gas and Oil Production contributing all of the increase.
Revenue for Subsea and Salvage decreased from $128.4 million to $110.2 million.
The Subsea and Salvage revenues include almost $17.1 million of revenues from
the addition of the DP vessel Cal Dive Aker Dove and the acquisition of the 55%
of Aquatica not previously owned. Exclusive of these new assets, Subsea and
Salvage contributed $35.3 million less in 2000 than it did in 1999, due
primarily to the weak GOM construction market in 2000 and eight vessels being
out of service during the first half of 2000 for a combined 416 days for U.S.
Coast Guard (the "Coast Guard" or "USCG") and American Bureau of Shipping
("ABS") inspections and two major DP vessels being out of service a combined
total of 105 days during the third quarter of 2000. This compares to three
vessels being out of service for a combined 113 days during 1999. In addition,
the 2000 salvage market was slower than anticipated as producers retained
ownership to milk the last production out of mature fields and to take advantage
of the high commodity prices. As a result, revenues from our barge operation
(which include the subcontract of Horizon derrick and pipelay barges) were only
$12.5 million during 2000 or two thirds of the prior year.

25
28

Natural Gas and Oil Production revenue for 2000 increased 118% to $70.8
million from $32.5 million during the prior year due to a 74% increase in
production from 8.9 Bcfe to 15.5 Bcfe as a result of the acquisition of
interests in six offshore blocks from EEX Corporation during the first quarter
as well as additional production derived from 1999 property acquisitions
(involving a total of 20 offshore blocks) and an aggressive well exploitation
program. In addition, we realized an average gas price of $4.03 per Mcf
equivalent in 2000, an increase of $1.68, or 71%, over 1999. Oil prices averaged
over $29 per barrel and represented 27% of gas and oil revenues in 2000.

Gross Profit. Gross profit of $55.4 million for 2000 was 49% better than
the $37.3 million gross profit recorded in the comparable prior year period due
mainly to the revenue improvement as well as an eight point improvement in
margins (31% in 2000 versus 23% in the prior year). While Aquatica margins
remained at roughly the consolidated average of 30%, those of the larger vessels
that work from 300 feet out into the Deepwater declined by seven percentage
points from the prior year. The newly added Cal Dive Aker Dove represented more
than half of the year-over-year decline in the gross profit generated by our DP
fleet. The operating loss of this vessel is due to the low level of utilization
in 2000 and to the sale/leaseback structure whereby financing cost is reported
above the line as a charter cost.

Natural Gas and Oil Production gross profit increased $27.4 million from
$11.9 million in 1999 to $39.3 million for 2000 (and margins improved from 37%
to 55%) due to the aforementioned production and commodity pricing improvements
as well as the gains from the sale of a platform and interests in three fields.

Selling and Administrative Expenses. Selling and administrative expenses
were $20.8 million in 2000, a 57% increase over the $13.2 million incurred in
1999 due mainly to improved operating results for ERT, whose incentive plan
tracks its operating results ($3.1 million increase), and to the consolidation
of Aquatica ($1.4 million increase). The remainder of the increase is due to the
addition of personnel to the newly formed well operations group to meet the
anticipated demand for our services in the Deepwater market.

Net Interest (Income) Expense and Other. We reported net interest expense
and other of $554,000 for 2000 in contrast to $849,000 of net interest income
for 1999 as average cash balances declined during 2000 as compared to 1999. This
decrease is due mainly to our capital program (Q4000 vessel construction)
combined with the recording of goodwill amortization expense beginning in
August, 1999 upon acquiring Aquatica, Inc. Minority interest added back $866,000
in 2000 compared to a reduction of $109,000 in 1999 due to the losses recorded
in 2000 by the Cal Dive Aker Dove, a vessel which is jointly owned with Aker
Maritime.

Income Taxes. Income taxes increased to $11.6 million for 2000, compared
to $8.5 million in the prior year due to increased profitability. Federal income
taxes were provided at 34% in 2000, slightly below the statutory rate of 35%.
However, our deduction of Q4000 construction costs as Research and Development
expenditures for federal tax purposes resulted in CDI paying no federal income
taxes in 2000. Since the deduction of Q4000 construction costs affects financial
and taxable income in different years, the entire 2000 provision for federal
taxes is reflected as deferred income taxes. In addition, the balance sheet
includes a $10.0 million income tax receivable which reflects our amending prior
year tax returns to reflect the deduction of such costs (these tax refunds were
received in January, 2001).

Net Income. Net income of $23.3 million for 2000 was $6.4 million, or 38%
more than 1999 as a result of factors described above. Diluted earnings per
share increased only 31% reflecting the additional shares issued to acquire
Aquatica in the third quarter of 1999 and the shares sold in conjunction with
the Secondary Offering (Green Shoe).

Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998

Revenues. Consolidated revenues of $161.0 million in 1999 were 6% more
than the $151.9 million in 1998, with Natural Gas and Oil Production providing
all of the increase, while Subsea and Salvage revenues declined $10.9 million
from $139.3 million in 1998 to $128.4 million in 1999. Most of this decline is
due to the inclusion in 1998 revenues of $8.0 million from the charter of two
Coflexip vessels. During 1999, one project, the Cooper field abandonment for EEX
Corporation, represented 13% of consolidated revenues. Adding the Cal Dive Aker
Dove in September 1999 and acquiring the remaining 55% of Aquatica in August
1999 (and

26
29

thus consolidating its results from that date forward) added $10.0 million to
1999 revenues, while the subcontracting of derrick and pipelay barges also added
$10.0 million in 1999, offsetting declines, including the shortfall created by
stacking the Balmoral Sea nearly the entire first half of 1999.

Natural Gas and Oil Production revenues were $32.5 million in 1999 as
compared to $12.6 million in 1998. The increase was due mainly to a rise in
production from 4.9 Bcfe to 8.9 Bcfe in 1999 as the number of blocks owned by
ERT essentially doubled through property acquisitions during the first four
months of 1999. Revenues in 1999 also benefitted from improved average gas
prices ($2.35/Mcf compared to $2.12 in 1998), and, to a lesser extent, an
increase in oil production and prices and the sale of three offshore leases.

Gross Profit. Gross profit decreased by $12.0 million, or 24%, from $49.2
million in 1998 to $37.3 million in 1999 despite an $8.4 million increase in
Natural Gas and Oil Production gross profit. The decrease in Subsea and Salvage
gross profit of $20.4 million is due to the $10.9 million revenue decline
discussed above coupled with margins declining from 33% in 1998 to 20% in 1999.
In addition to a decline in demand for our services on the OCS in 1999 compared
to 1998, the primary reason for the margin decline was our shift to prime
contractor on eight major projects during 1999, which include high third-party
pass through costs (such costs were 31% of revenues in 1999 compared to 23% in
1998).

Natural Gas and Oil Production gross profit was $11.9 million in 1999 as
compared to $3.5 million in the prior year. The increase was due to the
aforementioned production improvement, gas and oil price increases and the gain
recorded on the sale of certain offshore blocks during 1999, offset by the write
down of the carrying value of three ERT fields in connection with the 1999 well
exploitation program.

Selling and Administrative Expenses. Selling and administrative expenses
decreased $2.6 million in 1999 to $13.2 million as compared to $15.8 million in
1998. The primary reason for the decline was the lack of Subsea and Salvage
group bonuses due to a decline in profitability and, to a lesser degree, staff
reductions effected early in 1999. Offsetting the decline in S&A, consolidation
of Aquatica for the final five months of 1999 added $1.2 million. S&A for 1999
includes $3.7 million related to ERT, an increase of $2.2 million over 1998 as
we added new people to handle the expansion in operations. That subsidiary's
significantly increased income also triggered significantly higher bonus
payments under its incentive program. Selling and administrative costs were 8%
of revenues in 1999, two margin points better than the 10% achieved in 1998.

Other Income and Expenses. We recorded $600,000 in 1999 for our share of
earnings in Aquatica, compared to $2.6 million in 1998, as Aquatica's results
were consolidated with Cal Dive's as a result of our acquisition on August 1,
1999 of the remaining 55% ownership in Aquatica. Net interest income of $849,000
was comparable to the $1.1 million earned in 1998 as we remained relatively debt
free throughout both years.

Income Taxes. Income taxes were $8.5 million in 1999 compared to $13.0
million in 1998 due to decreased profitability. The effective tax rate fell from
35% in 1998 to 33% in 1999 due to expenditures on the development of our
Deepwater technology which qualified for research and development credits.
Approximately half of the 1999 tax provision was deferred due mainly to
increased depreciation in addition to our Deepwater research and development
efforts.

Net Income. Net income decreased 30% in 1999 compared to 1998 as a result
of factors described above. Diluted earnings per share decreased slightly more
as a result of the additional shares issued in the Aquatica acquisition.

LIQUIDITY AND CAPITAL RESOURCES

We have historically funded operating activities principally from
internally generated cash flow, even during periods of weak industry demand such
as 1999 and 2000. We completed an IPO of common stock on July 7, 1997,
generating net proceeds to Cal Dive of approximately $39.5 million, which
resulted in $15.0 million of cash on hand after paying off all debt outstanding.
Since our IPO three and a half years ago, internally generated cash flow, along
with proceeds received from the sale and leaseback of the Cal Dive Aker Dove of
$20.0 million, has funded approximately $211 million of capital expenditures
while enabling us to remain essentially debt free. As of December 31, 2000, we
had $76.4 million of working capital (including $47.5 million of cash and
equivalents) and $40.1 million of debt outstanding. In August 2000, we closed a
27
30

$138.5 million long-term financing for the construction of the Q4000. We also
have a $40 million revolving line of credit available with a financial
institution.

Operating Activities. Net cash provided by operating activities was $53.7
million in 2000, as compared to $25.5 million in 1999. This increase was mainly
due to increased profitability as well as $23.6 million of funding from the
collection of accounts receivable during 2000 as we collected all amounts due on
the EEX Cooper abandonment project (the largest contract in our history) during
the first quarter. In addition, depreciation and amortization increased $10.1
million to $30.7 million for 2000 due mainly to ERT depletion associated with
increased production levels. These increases, along with the aforementioned
deferred tax increase, were partially offset by a $22.2 million reduction in the
level of funding from accounts payable and accrued liabilities in 2000 compared
to 1999. The 1999 levels increased primarily as a result of year-end accruals
with respect to the Q4000 construction project and the EEX project.

Net cash provided by operating activities was $25.5 million in 1999, as
compared to $35.7 million provided in 1998. This decrease is primarily the
result of decreased profitability and the level of funding required to fund the
increases in accounts receivable ($16.9 million required in 1999 compared to
$900,000 returned in 1998) which occurred primarily as a result of the terms
negotiated with EEX Corporation for the Cooper abandonment project. In addition,
depreciation and amortization increased as a result of natural gas and oil
properties acquisitions.

Investing Activities. Capital expenditures have consisted principally of
strategic asset acquisitions related to the assembly of a fleet of DP vessels,
including the Witch Queen, Uncle John, Sea Sorceress, Merlin and Cal Dive Aker
Dove, construction of the Q4000, acquisition of Aquatica, improvements to
existing vessels and the acquisition of offshore natural gas and oil properties.
We have consistently targeted the year 2001 as the time when we expect to see a
significant acceleration in Deepwater demand. As a result, we incurred $95.1
million of capital expenditures during 2000 compared to $77.4 million during
1999, a level which was over five times the prior year. Included in the $95.1
million of capital expenditures in 2000 was $61.0 million for the construction
of the Q4000 and $8.5 million relating to the conversion of the Sea Sorceress to
full dynamic positioning. Also, during the first half of 2000, ERT acquired
interests in six offshore blocks from EEX Corporation and agreed to operate the
remaining EEX properties on the OCS. The acquired offshore blocks include
working interests from 40% to 75% in five platforms, one caisson and 13 wells.
ERT agreed to a purchase price of $4.9 million, assumed EEX Corporation's
prorated share of the abandonment obligation for the acquired interests and
entered into a two-year contract to manage the remaining EEX operated
properties. During the first four months of 1999, in four separate transactions,
ERT acquired interests in 20 blocks in exchange for cash consideration, as well
as assumption of the pro rata share of the related decommissioning liabilities.
During 1998, ERT acquired interests in six blocks involving two separate fields
in exchange for cash, as well as assumption of the pro rata share of the related
decommissioning liabilities. In connection with 2000, 1999 and 1998 offshore
property acquisitions, ERT assumed net abandonment liabilities of approximately
$4,200,000, $19,500,000 and $3,432,000, respectively.

ERT production activities are regulated by the Federal government and
require significant third-party involvement, such as refinery processing and
pipeline transportation. We record revenue from our offshore properties net of
royalties paid to the Minerals Management Service ("MMS"). Royalty fees paid
totaled approximately $11.7 million, $4 million and $2 million for the years
ended 2000, 1999 and 1998, respectively. In accordance with Federal regulations
that require operators in the Gulf of Mexico to post an areawide bond of $3
million, the MMS has allowed the Company to fulfill such bonding requirements
through an insurance policy.

During 2000, ERT sold a platform and interests in three fields. An ERT
operating policy is that we will sell assets (offshore leases, platforms,
compressors, etc.) when the expected future revenue stream can be accelerated in
a single transaction. The net result of these sales was to add approximately
four cents to diluted

28
31

earnings per share. In 1999, property sales in the third quarter, offset by the
write down of carrying value of three ERT fields, added seven cents to earnings.
We also sold interests in two fields in 1998 resulting in minimal earnings
impact. These sales were structured as Section 1031 "Like Kind" exchanges for
tax purposes. Accordingly, the cash received was restricted to use for
subsequent acquisitions of additional natural gas and oil properties.

In June 2000, the DP DSV Balmoral Sea caught fire while dockside in New
Orleans, LA as the vessel was being prepared to enter drydock for an extended
period. The vessel crew was evacuated and no injuries were reported. The vessel
has been deemed a total loss by insurance underwriters. Her book value
(approximately $7 million) was fully insured as were all salvage and removal
costs. Payments from the insurance companies were received during the fourth
quarter of 2000.

Capital expenditures in 1999 of $77.4 million include, $31.0 million for
the construction of the Q4000, $18.9 million for the acquisition of the Cal Dive
Aker Dove, $17.0 million for property acquisitions by ERT (internally funded
from deferred lease abandonment costs prepaid by the seller in connection with
ERT's acquisition of an offshore property and proceeds from the sale of other
ERT offshore properties), and cash spent to purchase new engines for the Uncle
John.

In December 1999, a Cal Dive-affiliated company entered into a
sale-leaseback of the Cal Dive Aker Dove. Our portion of the proceeds received
totaled $20.0 million. The lease, which is accounted for as an operating lease,
requires the affiliated company to make quarterly payments of $988,000 and
contains a renewal option and options to purchase the vessel for amounts
approximating fair market value after 8 1/2 years of the lease term and at the
end of the lease term. Terms also include a put and call feature should one of
the companies be acquired.

Financing Activities. We have financed seasonal operating requirements and
capital expenditures with internally generated funds, borrowings under credit
facilities, the sale of common stock and the sale-leaseback transaction
described above. In August 2000, our subsidiary Cal Dive I-Title XI, Inc. closed
the long-term financing for construction of the Q4000. This $138.5 million
financing is pursuant to Title XI of the Merchant Marine Act of 1936 which is
administered by MARAD. At the time the financing closed, we made an initial draw
of $40.1 million toward construction costs with an additional draw expected to
occur upon delivery of the vessel. The MARAD Debt will be payable in equal
semi-annual installments beginning six months after delivery of the newbuild
Q4000 and maturing 25 years from such date. It is collateralized by the Q4000
and a guarantee of 50% of the debt by CDI and bears an interest rate which
currently floats at a rate approximating AAA Commercial Paper yields plus 20
basis points (6.67% as of December 31, 2000). For a period up to three years
from delivery of the vessel, CDI has options to lock in a fixed rate. In
accordance with the MARAD Debt agreements, CDI is required to comply with
certain covenants, including the maintenance of minimum net worth and
debt-to-equity requirements.

We also have a revolving credit facility available which terminates in
December 2001 and currently provides for a $40.0 million revolving line of
credit. The facility is secured by trade receivables and mortgages on our
vessels, prohibits the payment of dividends on our capital stock and contains
only one financial covenant (a fixed charge coverage ratio limitation) and a
limitation that debt not exceed $120.0 million (excluding the MARAD financing).
We drew upon this facility only 134 days during the past three years with
maximum borrowing of $11.9 million. Interest on borrowings under the revolving
credit agreement is equal to the prime rate with incentive pricing thereafter
pursuant to a formula based upon EBITDA (as defined in the revolving credit
agreement). Letters of credit are also available under the revolving credit
agreement, which we typically use if performance bonds are required or, in
certain cases, in lieu of purchasing U.S. Treasury Bonds in conjunction with
natural gas and oil property acquisitions.

In September 2000, CDI completed a Secondary stock offering with Coflexip
selling its 7.4 million shares of common stock at $26.31 per share. The
over-allotment option was exercised resulting in the Company issuing 609,936
shares of common stock and receiving net proceeds of $14.8 million.

In October 2000, our Board of Directors declared a two-for-one split of
CDI's common stock in the form of a 100% stock distribution on November 13, 2000
to all holders of record at the close of business on

29
32

October 30, 2000. All share and per share data in these financial statements
have been restated to reflect the stock split.

The only other financing activity during 2000 and in 1999 and 1998
represents the exercise of employee stock options.

Capital Commitments. Our Board of Directors has approved a capital budget
of up to $150.0 million for the year 2001, with approximately $80.0 million of
that associated with the Q4000 and the Sea Sorceress. We have also set aside up
to $50 million for production contracting (ERT prospect acquisitions and initial
Gunnison development costs), although timing of these events is difficult to
predict.

We recently acquired a working interest in the Gunnison prospect, a
Deepwater Gulf oil and natural gas project, in partnership with Kerr-McGee Oil &
Gas Corporation, the operator. We have agreed to fund up to $49.0 million in
development costs and up to $1.0 million of certain additional costs if the
Gunnison prospect is declared a sanctioned project and to convey to the
investment partnership any value received from the transfer of any portion of
our working interest prior to commencement of the initial production system
funding.

In March 2001, CDI acquired substantially all of the assets of Professional
Divers of New Orleans, Inc. (PDNO) in exchange for $11.5 million. The assets
purchased included the Sea Level 21 (a 165-foot four-point moored DSV renamed
the Mr. Sonny), three utility vessels and associated diving equipment including
two saturation diving systems. PDNO offshore personnel, comprising 20
diver/tender teams and marine crews that operate the four DSVs, have been
offered employment positions with CDI's wholly-owned subsidiary, Aquatica, Inc.

In connection with our business strategy, we evaluate acquisition
opportunities (including additional vessels as well as interests in offshore
natural gas and oil properties). No such acquisitions are currently pending.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable because, at December 31, 2000, the Company was not engaged
in any transactions requiring disclosure under this item.

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33

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Report of Independent Public Accountants.................... 32
Consolidated Balance Sheets -- December 31, 2000 and 1999... 33
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... 34
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000, 1999 and 1998.............. 35
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... 36
Notes to Consolidated Financial Statements.................. 37

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34

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Cal Dive International, Inc.:

We have audited the accompanying consolidated balance sheets of Cal Dive
International, Inc. (a Minnesota corporation) and subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows for the three years in the period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cal Dive
International, Inc., and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
February 15, 2001

32
35

CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS)

DECEMBER 31,
-------------------
2000 1999
-------- --------

ASSETS

Current assets:
Cash and cash equivalents................................. $ 44,838 $ 11,310
Restricted cash........................................... 2,624 8,686
Accounts receivable --
Trade, net of revenue allowance on gross amounts billed
of $1,770 and $1,789.................................. 42,924 48,191
Unbilled revenue....................................... 1,902 3,430
Income tax receivable..................................... 10,014 --
Other current assets...................................... 20,975 16,327
-------- --------
Total current assets.............................. 123,277 87,944
-------- --------
Property and equipment...................................... 266,102 180,519
Less -- Accumulated depreciation.......................... (67,560) (45,862)
-------- --------
198,542 134,657
Other assets:
Goodwill.................................................. 12,878 13,792
Other assets, net......................................... 12,791 7,329
-------- --------
$347,488 $243,722
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable.......................................... $ 25,461 $ 31,834
Accrued liabilities....................................... 21,435 17,223
Income taxes payable...................................... -- --
-------- --------
Total current liabilities......................... 46,896 49,057
-------- --------
Long-term debt.............................................. 40,054 --
Deferred income taxes....................................... 38,272 16,837
Decommissioning liabilities................................. 27,541 26,956
Commitments and contingencies
Shareholders' equity:
Common stock, no par, 120,000 shares authorized, 45,885
and 44,790 shares issued............................... 93,838 73,311
Retained earnings......................................... 104,638 81,312
Treasury stock, 13,640 shares, at cost.................... (3,751) (3,751)
-------- --------
Total shareholders' equity........................ 194,725 150,872
-------- --------
$347,488 $243,722
======== ========

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

33
36

CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------

Net revenues:
Subsea and salvage........................................ $110,217 $128,435 $139,310
Natural gas and oil production............................ 70,797 32,519 12,577
-------- -------- --------
181,014 160,954 151,887
Cost of sales:
Subsea and salvage........................................ 94,104 103,113 93,607
Natural gas and oil production............................ 31,541 20,590 9,071
-------- -------- --------
Gross profit........................................... 55,369 37,251 49,209
Selling and administrative expenses......................... 20,800 13,227 15,801
-------- -------- --------
Income from operations...................................... 34,569 24,024 33,408
Equity in earnings of Aquatica, Inc. ..................... -- 600 2,633
Net interest (income) expense and other................... 554 (849) (1,103)
-------- -------- --------
Income before income taxes.................................. 34,015 25,473 37,144
Provision for income taxes................................ 11,555 8,465 13,019
Minority Interest......................................... (866) 109 --
-------- -------- --------
Net income........................................... $ 23,326 $ 16,899 $ 24,125
======== ======== ========
Net income per share:
Basic..................................................... $ 0.74 $ 0.56 $ 0.83
Diluted................................................... 0.72 0.55 0.81
======== ======== ========
Weighted average common shares outstanding:
Basic..................................................... 31,588 30,016 29,098
Diluted................................................... 32,341 30,654 29,928
======== ======== ========

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

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37

CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)

COMMON STOCK TREASURY STOCK TOTAL
---------------- RETAINED ----------------- SHAREHOLDERS'
SHARES AMOUNT EARNINGS SHARES AMOUNT EQUITY
------ ------- -------- ------- ------- -------------

Balance, December 31, 1997....... 42,690 $52,832 $ 40,288 (13,640) $(3,751) $ 89,369
Net income....................... -- -- 24,125 -- -- 24,125
Activity in company stock plans,
net............................ 114 149 -- -- -- 149
------ ------- -------- ------- ------- --------
Balance, December 31, 1998....... 42,804 52,981 64,413 (13,640) (3,751) 113,643
Net income....................... -- -- 16,899 -- -- 16,899
Activity in company stock plans,
net............................ 594 4,174 -- -- -- 4,174
Acquisition of Aquatica, Inc. ... 1,392 16,156 -- -- -- 16,156
------ ------- -------- ------- ------- --------
Balance, December 31, 1999....... 44,790 73,311 81,312 (13,640) (3,751) 150,872
Net income....................... -- -- 23,326 -- -- 23,326
Activity in company stock plans,
net............................ 485 5,740 -- -- -- 5,740
Sale of common stock, net........ 610 14,787 -- -- -- 14,787
------ ------- -------- ------- ------- --------
Balance, December 31, 2000....... 45,885 $93,838 $104,638 (13,640) $(3,751) $194,725
====== ======= ======== ======= ======= ========

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

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38

CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------

Cash flows from operating activities:
Net income................................................ $23,326 $16,899 $24,125
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 30,730 20,615 9,563
Deferred income taxes.................................. 21,085 4,298 4,469
Equity in earnings of Aquatica, Inc. .................. -- (600) (2,633)
Gain on sale of gas and oil properties................. (3,292) (8,454) (585)
Changes in operating assets and liabilities:
Accounts receivable, net............................. 6,723 (16,918) 937
Other current assets................................. (4,298) (6,468) (3,919)
Accounts payable and accrued liabilities............. (1,030) 21,217 5,536
Income taxes receivable, net......................... (7,256) (430) 599
Other noncurrent, net................................ (12,287) (4,660) (2,395)
------- ------- -------
Net cash provided by operating activities......... 53,701 25,499 35,697
------- ------- -------
Cash flows from investing activities:
Capital expenditures...................................... (95,124) (77,447) (14,886)
Restricted cash available for acquisitions................ 6,062 (8,222) (463)
Investment in Aquatica, Inc. ............................. -- 442 (5,023)
Prepayment of decommissioning liabilities................. -- 7,750 --
Deposits restricted for salvage operations................ 826 (66) 3,262
Proceeds from sales of property........................... 3,124 28,931 619
Insurance proceeds from loss of vessel.................... 7,118 -- --
------- ------- -------
Net cash used in investing activities............. (77,994) (48,612) (16,491)
Cash flows from financing activities:
Exercise of stock warrants and options, net............... 2,980 2,043 149
Sale of common stock, net of transaction costs............ 14,787 -- --
Borrowings under MARAD loan facility...................... 40,054 -- --
------- ------- -------
Net cash provided by financing activities......... 57,821 2,043 149
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 33,528 (21,070) 19,355
Cash and cash equivalents:
Balance, beginning of year................................ 11,310 32,380 13,025
------- ------- -------
Balance, end of year...................................... $44,838 $11,310 $32,380
======= ======= =======

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

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39

CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION:

Cal Dive International, Inc. (Cal Dive, CDI or the Company), headquartered
in Houston, Texas, owns, staffs and operates nineteen marine construction
vessels and a derrick barge in the Gulf of Mexico. The Company provides a full
range of services to offshore oil and gas exploration and production and
pipeline companies, including underwater construction, well operations,
maintenance and repair of pipelines and platforms, and salvage operations.
Diving and vessel support services in the shallow water market are provided by
Aquatica, Inc., a wholly-owned subsidiary based in Lafayette, Louisiana.

In September 1992, Cal Dive formed a wholly-owned subsidiary, Energy
Resource Technology, Inc. (ERT), to purchase producing offshore oil and gas
properties which are in the later stages of their economic lives. ERT is a fully
bonded offshore operator and, in conjunction with the acquisition of properties,
assumes the responsibility to decommission the property in full compliance with
all governmental regulations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Goodwill

Goodwill is amortized on the straight-line method over its estimated useful
life of 25 years. The Company continually evaluates whether subsequent events or
circumstances have occurred which indicate that the remaining useful life of
goodwill may warrant revision or that the remaining balance of goodwill may not
be recoverable. Management believes that there have been no events or
circumstances which warrant revision to the remaining useful life or which
affect recoverability of goodwill.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided
primarily on the straight-line method over the estimated useful lives of the
assets.

All of the Company's interests in natural gas and oil properties are
located offshore in United States waters. The Company follows the successful
efforts method of accounting for its interests in natural gas and oil
properties. Under the successful efforts method, only the costs of successful
wells and leases containing productive reserves are capitalized.

ERT offshore property acquisitions are recorded at the value exchanged at
closing together with an estimate of its proportionate share of the
decommissioning liability assumed in the purchase based upon its working
interest ownership percentage. In estimating the decommissioning liability
assumed in offshore property acquisitions, the Company performs detailed
estimating procedures, including engineering studies. All capitalized costs are
amortized on a unit-of-production basis (UOP) based on the estimated remaining
oil and gas reserves. Properties are periodically assessed for impairment in
value, with any impairment charged to expense.

37
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CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of the components of property and equipment
(dollars in thousands):

ESTIMATED
USEFUL LIFE 2000 1999
----------- -------- --------

Construction in progress............................. N/A $111,250 $ 31,341
Vessels.............................................. 15 78,776 85,397
Offshore leases and equipment........................ UOP 60,679 49,037
Machinery, equipment and leasehold improvements...... 5 15,397 14,744
-------- --------
Total property and equipment............... $266,102 $180,519
======== ========

In July 1999, the CDI Board of Directors approved the construction of the
Q4000, a newbuild, ultra-deepwater multi-purpose vessel, for a total estimated
cost of $150 million. Amounts incurred on this project through the end of 2000
are included in Construction in Progress along with amounts incurred with
respect to the conversion of the Sea Sorceress to full dynamic positioning
($120,000 of which related to capitalized interest).

The cost of repairs and maintenance of vessels and equipment is charged to
operations as incurred, while the cost of improvements is capitalized. Total
repair and maintenance charges were $4,343,000, $6,031,000 and $8,264,000 for
the years ended December 31, 2000, 1999 and 1998, respectively.

Use of Estimates

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

Earnings Per Share

The Company computes and presents earnings per share in accordance with
Statement of Financial Accounting Standard No. 128, "Earnings Per Share." SFAS
128 requires the presentation of "basic" EPS and "diluted" EPS on the face of
the statement of operations. Basic EPS is computed by dividing the net income
available to common shareholders by the weighted-average shares of outstanding
common stock. The calculation of diluted EPS is similar to basic EPS except that
the denominator includes dilutive common stock equivalents, which were stock
options, less the number of treasury shares assumed to be purchased from the
proceeds from the exercise of stock options.

Revenue Recognition

The Company earns the majority of its subsea service and salvage revenues
during the summer and fall months. Revenues are derived from billings under
contracts (which are typically of short duration) that provide for either
lump-sum turnkey charges or specific time, material and equipment charges which
are billed in accordance with the terms of such contracts. The Company
recognizes revenue as it is earned at estimated collectible amounts. Revenue on
significant turnkey contracts is recognized on the percentage-of-completion
method based on the ratio of costs incurred to total estimated costs at
completion. Contract price and cost estimates are reviewed periodically as work
progresses and adjustments are reflected in the period in which such estimates
are revised. Provisions for estimated losses on such contracts are made in the
period such losses are determined. Unbilled revenue represents revenue
attributable to work completed prior to year-end which has not yet been
invoiced. All amounts included in unbilled revenue at December 31, 2000 are
expected to be billed and collected within one year.

38
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CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Allowance on Gross Amounts Billed

The Company bills for work performed in accordance with the terms of the
applicable contract. The gross amount of revenue billed will include not only
the billing for the original amount quoted for a project but also include
billings for services provided which the Company believes are outside the scope
of the original quote. The Company establishes a revenue allowance for these
additional billings based on its collections history if conditions warrant such
a reserve.

Major Customers and Concentration of Credit Risk

The market for the Company's products and services is the offshore oil and
gas industry. Oil and gas companies make capital expenditures on exploration,
drilling and production operations offshore, the level of which is generally
dependent on the prevailing view of the future oil and gas prices, which have
been characterized by significant volatility in recent years. The Company's
customers consist primarily of major, well-established oil and pipeline
companies and independent oil and gas producers. The Company performs ongoing
credit evaluations of its customers and provides allowances for probable credit
losses when necessary.

The percent of consolidated revenue of major customers was as follows:
2000 -- Enron Corporation (13%); 1999 -- EEX Corporation (13%) and 1998
-- Chevron USA (11%).

Income Taxes

Deferred taxes are recognized for revenues and expenses reported in
different years for financial statement purposes and income tax purposes in
accordance with SFAS No. 109, "Accounting for Income Taxes." The statement
requires, among other things, the use of the liability method of computing
deferred income taxes. The liability method is based on the amount of current
and future taxes payable using tax rates and laws in effect at the balance sheet
date.

Deferred Drydock Charges

Effective January 1, 1998, the Company changed its method of accounting for
regulatory (U.S. Coast Guard, American Bureau of Shipping and Det Norske
Veritas) related drydock inspection and certification expenditures. This change
was made due to the significant expansion in the composition of the Company's
fleet to include more sophisticated dynamically positioned vessels that are
capable of working in the Deepwater Gulf of Mexico, a key to Cal Dive's
operating strategy. The Company previously expensed inspection and certification
costs as incurred; however, effective January 1, 1998, such expenditures are
being capitalized and amortized over the 30-month period between regulatory
mandated drydock inspections and certification. This predominant industry
practice provides better matching of expenses with the period benefitted (i.e.,
certification to operate the vessel for a 30-month period between required
drydock inspections). This change had a $765,000 positive impact on net income,
or $0.03 per share, in the Company's 1998 consolidated financial statements.

Statement of Cash Flow Information

The Company defines cash and cash equivalents as cash and all highly liquid
financial instruments with original maturities of less than three months. During
the years ended December 31, 2000, 1999 and 1998, the Company made no cash
payments for interest expense, and made cash payments for federal income taxes
of approximately $1,800,000, $4,075,000 and $7,650,000, respectively.

Reclassifications

Certain reclassifications were made to previously reported amounts in the
consolidated financial statements and notes to make them consistent with the
current presentation format.
39
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CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. OFFSHORE PROPERTY TRANSACTIONS:

During the first quarter of 2000, ERT acquired interests in six offshore
blocks from EEX Corporation and agreed to operate the remaining EEX properties
on the Outer Continental Shelf (OCS). The acquired offshore blocks include
working interests from 40% to 75% in five platforms, one caisson and 13 wells.
ERT agreed to a purchase price of $4.9 million and assumed EEX's prorated share
of the abandonment obligation for the acquired interests, and entered into a
two-year contract to manage the remaining EEX operated properties. During the
first four months of 1999, in four separate transactions, ERT acquired interests
in 20 blocks and interests in six blocks involving two separate fields during
1998 in exchange for cash as well as assumption of the pro rata share of the
related decommissioning liabilities. In connection with 2000, 1999 and 1998
offshore property acquisitions, ERT assumed net abandonment liabilities
estimated at approximately $4,200,000, $19,500,000 and $3,432,000 respectively.

In April, 2000, ERT acquired a 20% working interest in Gunnison, a
Deepwater Gulf of Mexico prospect of Kerr-McGee Oil & Gas Corporation.
Kerr-McGee, the operator, has drilled an initial well and sidetrack in 3,200
feet of water at Garden Banks 668, one of three lease blocks that comprise the
Gunnison prospect and encountered significant potential reserves. Consistent
with CDI's philosophy of avoiding exploratory risk, financing for up to $15
million of the exploratory costs is being provided by an investment partnership,
the investors of which are CDI senior management in exchange for a 25% override
of CDI's 20% working interest. Once the decision has been made to begin
development CDI has the right to participate in field development planning and
funding and will collaborate with the working interest owners in the execution
of subsea construction work. During the fourth quarter another investment
partnership composed of CDI Senior management and industry sources funded the
drilling of an exploratory well at ERT's Vermillion 201 field. Effective January
1, 2001, ERT acquired approximately 55% of this investment partnership's
interest in the reserves discovered for $2.5 million.

ERT production activities are regulated by the federal government and
require significant third-party involvement, such as refinery processing and
pipeline transportation. The Company records revenue from its offshore
properties net of royalties paid to the Minerals Management Service ("MMS").
Royalty fees paid totaled approximately $11.7 million, $4 million and $2 million
for the years ended 2000, 1999 and 1998, respectively. In accordance with
federal regulations that require operators in the Gulf of Mexico to post an
areawide bond of $3 million,the MMS has allowed the Company to fulfill such
bonding requirements through an insurance policy.

During 2000, ERT sold a platform and interests in three fields. An ERT
operating policy provides for the sale of assets (offshore leases, platforms,
compressors, etc.) when the expected future revenue stream can be accelerated in
a single transaction. The net result of these sales was to add approximately
four cents to diluted earnings per share. In 1999 property sales in the third
quarter added seven cents to earnings. We also sold interests in two fields in
1998 resulting in minimal earnings impact. These sales were structured as
Section 1031 "Like Kind" exchanges for tax purposes. Accordingly, the cash
received was restricted to use for subsequent acquisitions of additional natural
gas and oil properties.

4. ACQUISITION OF AQUATICA, INC.:

In February 1998, CDI purchased a significant minority equity interest in
Aquatica, Inc., a shallow water diving company. CDI accounted for this
investment on the equity basis of accounting for financial reporting purposes.
The related Shareholder Agreement provided that the remaining shares of
Aquatica, Inc. could be converted into Cal Dive shares based on a formula which,
among other things, values their shares of Aquatica, Inc. Effective August 1,
1999, 1.4 million shares of common stock of Cal Dive were issued for all of the
remaining common stock of Aquatica, Inc. pursuant to these terms. This
acquisition was accounted for as a purchase with the acquisition price of $16.2
million being allocated to the assets acquired and liabilities assumed based
upon their estimated fair values. The fair value of tangible assets acquired and
liabilities
40
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CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assumed was $6.4 million and $2.2 million, respectively. The balance of the
purchase price ($12 million) was recorded as excess of cost over net assets
acquired (goodwill). Accumulated amortization as of December 31, 2000 and 1999
was $1.2 million and $300,000, respectively. Results of operations for Aquatica,
Inc. are consolidated with those of Cal Dive for periods subsequent to August 1,
1999.

5. ACCRUED LIABILITIES:

Accrued liabilities consisted of the following (in thousands):

2000 1999
------- -------

Accrued payroll and related benefits........................ $ 5,520 $ 6,606
Workers' compensation claims................................ 559 497
Workers' compensation claims to be reimbursed............... 6,133 6,241
Royalties payable........................................... 4,743 1,649
Other....................................................... 4,480 2,230
------- -------
Total accrued liabilities......................... $21,435 $17,223
======= =======

6. LONG-TERM DEBT:

In August 2000, the Company closed a long-term financing for construction
of the Q4000. This $138.5 million U.S. Government guaranteed financing is
pursuant to Title Xl of the Merchant Marine Act of 1936 which is administered by
the Maritime Administration ("MARAD Debt"). At the time the financing closed,
the Company made an initial draw of $40.1 million toward construction costs with
additional draws expected in 2001 upon delivery of the vessel.

The MARAD Debt will be payable in equal semi-annual installments beginning
six months after delivery of the newbuild Q4000 and maturing 25 years from such
date. It is collateralized by the Q4000 and bears an interest rate which
currently floats at a rate approximating AAA Commercial Paper yields plus 20
basis points (6.67% as of December 31, 2000). For a period up to three years
from delivery of the vessel CDI has options to lock-in a fixed rate. In
accordance with the MARAD Debt agreements, CDI is required to comply with
certain covenants, including the maintenance of minimum net worth and
debt-to-equity requirements. The Company is currently in compliance with these
covenants.

Since April 1997, the Company has had a revolving credit facility of $40
million available. The Company drew upon this facility only 134 days during the
past three years with maximum borrowing of $11.9 million. Interest rates vary
from .5% above prime and 2% above the Eurodollar base rate to prime and 1.25 to
2.50 percent above Eurodollar based on specific provisions set forth in the loan
agreement. Covenant restrictions include only a fixed charge ratio. The Company
was in compliance with these debt covenants at December 31, 2000.

7. FEDERAL INCOME TAXES:

Federal income taxes have been provided based on the statutory rate of 35
percent adjusted for items which are allowed as deductions for federal income
tax reporting purposes, but not for book purposes. The primary differences
between the statutory rate and the Company's effective rate are as follows:

2000 1999 1998
---- ---- ----

Statutory rate.............................................. 35% 35% 35%
Research and development tax credits........................ (2) (3) (1)
Other....................................................... 1 1 1
-- -- --
Effective rate.................................... 34% 33% 35%
== == ==

41
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CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Components of the provision for income taxes reflected in the statements of
operations consist of the following (in thousands):

2000 1999 1998
------- ------ -------

Current..................................................... $ -- $4,167 $ 8,550
Deferred.................................................... 11,555 4,298 4,469
------- ------ -------
$11,555 $8,465 $13,019
======= ====== =======

Deferred income taxes result from those transactions which affect financial
and taxable income in different years. The nature of these transactions and the
income tax effect of each as of December 31, 2000 and 1999, is as follows (in
thousands):

2000 1999
------- -------

Deferred tax liabilities --
Depreciation.............................................. $38,272 $16,837
Deferred tax assets --
Reserves, accrued liabilities and other................... (1,739) (532)
------- -------
Net deferred tax liability........................ $36,533 $16,305
======= =======

CDI effectively paid no federal taxes in 2000 due to its ability to deduct
Q4000 construction costs as research and development for federal tax purposes.
We paid $1.8 million during the year, but the amount was refunded in January
2001 upon completing our research and development analysis and filing for the
refund. In addition, we filed amended tax returns for 1998 and 1999, deducting
such costs, resulting in refunds of $8.2 million which were collected in
January, 2001. These amounts are reflected as Income Tax Receivable in the
accompanying consolidated balance sheets.

8. COMMITMENTS AND CONTINGENCIES:

Lease Commitments

During 1999, CDI acquired Hvide Marine's interest in Cal Dive Aker CAHT I,
LLC (CAHT I), the company which owned the Cal Dive Aker Dove (a newbuild DP
anchor handling and subsea construction vessel which commenced operations in
September 1999) for a total of $18.9 million. CDI effectively owns 56% of CAHT I
and, accordingly, results of operations of this company are consolidated in the
accompanying financial statements with Aker's share being reflected as minority
interest.

In December, 1999, CAHT I entered into a sale-leaseback of the Cal Dive
Aker Dove. Cal Dive's portion of the proceeds received totaled $20 million. The
lease, which is accounted for as an operating lease, requires CAHT I to make
quarterly payments of $988,000 and contains a renewal option and options to
purchase the vessel for amounts approximating fair market value after 8 1/2
years of the lease term and at the end of the lease term.

The Company occupies several facilities under noncancelable operating
leases, with the more significant leases expiring in the years 2004 and 2007.
Future minimum rentals under these leases are $2,899,000 at December 31, 2000
with $679,000 due in 2001, $622,000 in 2002, $676,000 in 2003, $516,000 in 2004,
$135,000 in 2005 and $270,000 thereafter. Total rental expense under these
operating leases was $721,000, $673,000 and $601,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.

42
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CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Insurance

The Company carries hull protection on vessels, indemnity insurance and a
general umbrella policy. All onshore employees are covered by workers'
compensation, and all offshore employees, including divers and tenders, are
covered by Jones Act employee coverage, the maritime equivalent of workers'
compensation. The Company is exposed to deductible limits on its insurance
policies, which vary from $5,000 to a maximum of $100,000 per accident
occurrence. Effective August 1, 1992, the Company adopted a self-insured (within
specified limits) medical and health benefits program for its employees whereby
the Company is exposed to a maximum of $15,000 per claim.

In June, 2000 the DP DSV Balmoral Sea caught fire while dockside in New
Orleans, LA as the vessel was being prepared to enter drydock for an extended
period. The vessel crew was evacuated and no injuries were reported. The vessel
has been deemed a total loss by insurance underwriters. Her book value
(approximately $7 million) was fully insured as were all salvage and removal
costs. Payments from the insurance companies were received during the fourth
quarter.

The Company incurs workers' compensation claims in the normal course of
business, which management believes are covered by insurance. The Company, its
insurers and legal counsel analyze each claim for potential exposure and
estimate the ultimate liability of each claim. Amounts accrued and receivable
from insurance companies, above the applicable deductible limits, are reflected
in other current assets in the consolidated balance sheet. Such amounts were
$6,133,000 and $6,241,000 as of December 31, 2000 and 1999, respectively. See
related accrued liabilities at Note 5. The Company has not incurred any
significant losses as a result of claims denied by its insurance carriers.

Litigation

In 1998, the Company entered into a subcontract with Seacore Marine
Contractors Limited to provide the Sea Sorceress for subsea excavation at the
Terra Nova field offshore Canada. Seacore was in turn contracted by Coflexip
Stena Offshore Newfoundland Limited, a subsidiary of COFLEXIP (CSO Nfl), as a
representative of the consortium of companies contracted to perform services on
the project. Due to difficulties with respect to the sea states and soil
conditions the contract was terminated. Cal Dive provided Seacore a performance
bond of $5 million with respect to the subcontract. No call has been made on
this bond. Although CSO Nfl has alleged that the Sea Sorceress was unable to
adequately perform the excavation work required under the subcontract, Seacore
and the Company believe the contract was wrongfully terminated and are
vigorously defending this claim and seeking damages in arbitration.

In another commercial dispute, EEX Corporation sued Cal Dive and others
alleging breach of fiduciary duty by a former EEX employee and damages resulting
from certain construction agreements. Cal Dive has responded alleging EEX
Corporation breached various provision of the same contracts and is seeking a
declaratory judgment that the defendants are not liable. The Company believes
that the outcome of all such proceedings is not likely to have a material
adverse effect on its business or financial condition.

In addition, the Company from time to time incurs other claims, such as
contract disputes, in the normal course of business. In the opinion of
management, the ultimate liability to the Company, if any, which may result from
the claims discussed above will not materially affect the Company's consolidated
financial position, results of operations or net cash flows.

43
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CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. EMPLOYEE BENEFIT PLANS:

Defined Contribution Plan

The Company sponsors a defined contribution 401(k) retirement plan covering
substantially all of its employees. The Company's contributions and cost are
determined annually as 50 percent of each employee's contribution up to 5
percent of the employee's salary. The Company's costs related to this plan
totaled $423,000, $375,000 and $431,000 for the years ended December 31, 2000,
1999 and 1998, respectively.

Stock-Based Compensation Plans

During 1995, the Board of Directors and shareholders approved the 1995
Long-Term Incentive Plan (the Incentive Plan). Under the Incentive Plan, a
maximum of 10% of the total shares of Common Stock issued and outstanding may be
granted to key executives and selected employees who are likely to make a
significant positive impact on the reported net income of the Company. The
Incentive Plan is administered by a committee which determines, subject to
approval of the Compensation Committee of the Board of Directors, the type of
award to be made to each participant and sets forth in the related award
agreement the terms, conditions and limitations applicable to each award. The
committee may grant stock options, stock appreciation rights, or stock and cash
awards. Options granted to employees under the Incentive Plan vest 20% per year
for a five year period or 33% per year for a three year period, have a maximum
exercise life of three, five or ten years and, subject to certain exceptions,
are not transferable.

During 2000, the Board of Directors approved a "Stock Option in Lieu of
Salary Program" for the Company's Chief Executive Officer. Under the terms of
the program, the participant may annually elect to receive non-qualified stock
options (with an exercise price equal to the closing stock price on the date of
grant) in lieu of cash compensation with respect to his base salary and any
bonus earned under the annual incentive compensation program. The number of
shares granted is determined utilizing the Black Scholes valuation model as of
the date of grant with a risk premium included. The participant made such
election for 2000 and 2001 resulting in a total of 115,000 shares being granted
during 2000 (55,000 of which relate to a bonus earned under the annual incentive
compensation program).

Effective May 12, 1998, the Company adopted a qualified, non-compensatory
Employee Stock Purchase Plan ("ESPP"), which allows employees to acquire shares
of common stock through payroll deductions over a six month period. The purchase
price is equal to 85 percent of the fair market value of the common stock on
either the first or last day of the subscription period, whichever is lower.
Purchases under the plan are limited to 10 percent of an employee's base salary.
Under this plan 25,391 and 22,476 shares of common stock were purchased in the
open market at a weighted average share price of $21.55 and $12.19 during 2000
and 1999, respectively.

The Incentive Plan and ESPP are accounted for using APB Opinion No. 25, and
therefore no compensation expense is recorded. If SFAS Statement No. 123 had
been used for the accounting of these plans, the Company's pro forma net income
for 2000, 1999 and 1998 would have been $21,665,000, $16,218,000 and
$23,735,000, respectively, and the Company's pro forma diluted earnings per
share would have been $0.67, $0.53 and $0.80, respectively. These pro forma
results exclude consideration of options granted prior to January 1, 1995, and
therefore may not be representative of that to be expected in future years.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used: expected dividend yields of 0 percent; expected lives of five
years, risk-free interest rate assumed to be 5.0 percent in 1998, 5.5 percent in
1999 and 5.0 percent in 2000 and expected volatility to be 59 percent in 1998
and 1999 and 62 percent in 2000. The fair value of shares issued under the ESPP
was based on the 15% discount received by the employees.

44
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CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

All of the options outstanding at December 31, 2000, have exercise prices
as follows: 126,388 shares at $3.95, 684,000 at $4.75, 110,000 shares at $6.50,
145,196 shares at $10.28, 421,420 shares at $18.00, 100,000 shares at $19.50,
150,000 shares at $20.75 and 545,596 shares ranging from $2.25 to $23.72 and a
weighted average remaining contractual life of 2.96 years.

Options outstanding are as follows:

2000 1999 1998
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------

Options outstanding,
beginning of year.... 1,957,208 $ 5.59 2,089,200 $4.70 1,989,000 $ 4.33
Granted................ 810,420 19.26 477,938 6.04 651,700 11.78
Exercised.............. (484,344) 4.24 (585,930) 3.42 (113,500) 2.52
Terminated............. (44,684) 4.10 (24,000) 2.25 (438,000) 14.12
--------- ------ --------- ----- --------- ------
Options outstanding,
December 31.......... 2,238,600 $11.34 1,957,208 $5.59 2,089,200 $ 4.70
Options exercisable,
December 31.......... 518,308 $ 7.10 495,488 $4.30 445,900 $ 3.25
========= ====== ========= ===== ========= ======

Options granted in 1999 include 287,278 shares issued in connection with
the August 1, 1999 acquisition of Aquatica, Inc., which provided for conversion
of Aquatica employee stock options into Cal Dive stock options at the same ratio
which Aquatica common shares were converted into Cal Dive common shares. Options
granted and options terminated under the Incentive Plan include options which
were repriced on November 6, 1998. The options which were repriced were
originally granted between August 25, 1997 and May 11, 1998 with original
exercise prices between $14.19 and $18.63. Options for 330,000 shares were
cancelled on November 6, 1998 and a proportionately reduced number of shares
(201,700) were reissued at an exercise price of $10.28 per share with a new five
year vesting period.

10. COMMON STOCK:

The Company's amended and restated Articles of Incorporation provide for
authorized Common Stock of 120,000,000 shares with no par value per share.

In October 2000, our Board of Directors declared a two-for-one split of
CDI's common stock in the form of a 100% stock distribution on November 13, 2000
to all holders of record at the close of business on October 30, 2000. All share
and per share data in these financial statements have been restated to reflect
the stock split.

On April 11, 1997, Coflexip purchased approximately 7.4 million shares of
the Company's stock, consisting of approximately 4.2 million shares sold by
management of the Company at a price of $4.73 per share. Coflexip agreed to
accept approximately 1 million shares of the Company's Common Stock as payment
for two ROVs at published retail prices as part of this transaction. In
September 2000, CDI completed a Secondary Stock Offering with Coflexip selling
its 7.4 million shares of common stock at $26.31 per share. The over-allotment
option was exercised resulting in the Company issuing 609,936 shares of common
stock and receiving net proceeds of $14.8 million, and the Chief Executive
Officer, selling 500,000 shares.

The Company completed an Initial Public Offering of common stock on July 7,
1997, with the sale of 5.8 million shares at $7.50 per share. Net proceeds to
the Company of approximately $39.4 million were used to retire all of its then
outstanding long-term indebtedness of $20 million. In May 1998, the Company

45
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CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

completed a Secondary Offering of 5.7 million shares of common stock at $16.75
per share on behalf of certain selling shareholders. The Company received no
proceeds from the offering.

11. BUSINESS SEGMENT INFORMATION (IN THOUSANDS):

The following summarizes certain financial data by business segment:

YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------

Revenues --
Subsea and salvage................................. $110,217 $128,435 $139,310
Natural gas and oil production..................... 70,797 32,519 12,577
-------- -------- --------
Total...................................... $181,014 $160,954 $151,887
======== ======== ========
Income from operations --
Subsea and salvage................................. $ 2,368 $ 15,817 $ 31,440
Natural gas and oil production..................... 32,201 8,207 1,968
-------- -------- --------
Total...................................... $ 34,569 $ 24,024 $ 33,408
======== ======== ========
Net interest (income) expense and other --
Subsea and salvage................................. $ (63) $ (264) $ (705)
Natural gas and oil production..................... 617 (585) (398)
-------- -------- --------
Total...................................... $ 554 $ (849) $ (1,103)
======== ======== ========
Provision for income taxes --
Subsea and salvage................................. $ 436 $ 5,431 $ 12,195
Natural gas and oil production..................... 11,119 3,034 824
-------- -------- --------
Total...................................... $ 11,555 $ 8,465 $ 13,019
======== ======== ========
Identifiable assets --
Subsea and salvage................................. $301,416 $197,570 $142,629
Natural gas and oil production..................... 46,072 46,152 21,606
-------- -------- --------
Total...................................... $347,488 $243,722 $164,235
======== ======== ========
Capital expenditures --
Subsea and salvage................................. $ 82,697 $ 60,662 $ 10,923
Natural gas and oil production..................... 12,427 16,785 3,963
-------- -------- --------
Total...................................... $ 95,124 $ 77,447 $ 14,886
======== ======== ========
Depreciation and amortization --
Subsea and salvage................................. $ 11,621 $ 9,459 $ 6,966
Natural gas and oil production..................... 19,109 11,156 2,597
-------- -------- --------
Total...................................... $ 30,730 $ 20,615 $ 9,563
======== ======== ========

12. SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED):

The following information regarding the Company's oil and gas producing
activities is presented pursuant to SFAS No. 69, "Disclosures About Oil and Gas
Producing Activities" (in thousands).

46
49
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Capitalized Costs

Aggregate amounts of capitalized costs relating to the Company's oil and
gas producing activities and the aggregate amount of related accumulated
depletion, depreciation and amortization as of the dates indicated are presented
below. The Company has no capitalized costs related to unproved properties.

AS OF DECEMBER 31,
-------------------
2000 1999
-------- --------

Proved properties being amortized........................... $ 60,679 $ 49,037
Less -- Accumulated depletion, depreciation and
amortization.............................................. (35,835) (19,530)
-------- --------
Net capitalized costs............................. $ 24,844 $ 29,507
======== ========

Included in capitalized costs is the Company's estimate of its
proportionate share of decommissioning liabilities assumed relating to these
properties. As of December 31, 2000 and 1999, such liabilities totaled $27.5
million and $27.0 million, respectively, and are also reflected as
decommissioning liabilities in the accompanying consolidated balance sheets.

Costs Incurred in Oil and Gas Producing Activities

The following table reflects the costs incurred in oil and gas property
acquisition and development activities during the dates indicated:

YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------- ------- ------

Proved property acquisition costs........................ $ 7,635 $22,610 $5,416
Development costs........................................ 8,160 5,002 2,281
------- ------- ------
Total costs incurred........................... $15,795 $27,612 $7,697
======= ======= ======

Results of Operations For Oil and Gas Producing Activities

YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------

Revenues................................................ $70,797 $32,519 $12,577
Production (lifting) costs.............................. 12,432 9,433 6,820
Depreciation, depletion and amortization................ 19,109 11,156 2,597
------- ------- -------
Pretax income from producing activities................. 39,256 11,930 3,160
Income tax expenses..................................... 11,119 3,034 1,106
------- ------- -------
Results of oil and gas producing activities............. $28,137 $ 8,896 $ 2,054
======= ======= =======

Estimated Quantities of Proved Oil and Gas Reserves

Proved oil and gas reserve quantities are based on estimates prepared by
Company engineers in accordance with guidelines established by the Securities
and Exchange Commission. The Company's estimates of reserves at December 31,
2000, have been reviewed by Miller and Lents, Ltd., independent petroleum
engineers. All of the Company's reserves are located in the United States.
Proved reserves cannot be measured exactly because the estimation of reserves
involves numerous judgmental determinations. Accordingly, reserve estimates must
be continually revised as a result of new information obtained from drilling and
production history, new geological and geophysical data and changes in economic
conditions.

47
50
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 1998, 400 Bbls. of oil and 1,153,300 Mcf. of gas of the
Company's proved reserves were undeveloped. As of December 31, 1999, 337,500
Bbls. of oil and 284,800 Mcf. of gas were undeveloped. As of December 31, 2000,
- -0- Bbls. of oil and -0- Mcf. of gas were undeveloped.

OIL GAS
RESERVE QUANTITY INFORMATION (MBBLS.) (MMCF.)
- ---------------------------- -------- -------

Total proved reserves at December 31, 1997.................. 200 22,245
Revisions of previous estimates........................... (123) (1,706)
Production................................................ (67) (4,535)
Purchases of reserves in place............................ 60 6,631
Sales of reserves in place................................ -- (201)
----- -------
Total proved reserves at December 31, 1998.................. 70 22,434
Revisions of previous estimates........................... 1,091 (2,392)
Production................................................ (339) (6,819)
Purchases of reserves in place............................ 888 17,218
Sales of reserves in place................................ (8) (5,060)
----- -------
Total proved reserves at December 31, 1999.................. 1,702 25,381
----- -------
Revisions of previous estimates........................... 24 3,024
Production................................................ (739) (14,959)
Purchases of reserves in place............................ 99 9,416
Sales of reserves in place................................ (5) (1,151)
----- -------
Total proved reserves at December 31, 2000.................. 1,081 21,711
===== =======

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves

The following table reflects the standardized measure of discounted future
net cash flows relating to the Company's interest in proved oil and gas reserves
as of December 31:

2000 1999 1998
-------- -------- -------

Future cash inflows................................... $219,620 $101,686 $47,691
Future costs --
Production....................................... (42,608) (30,550) (17,412)
Development and abandonment...................... (27,690) (30,303) (11,232)
-------- -------- -------
Future net cash flows before income taxes............. 149,322 40,833 19,047
Future income taxes................................... (57,018) (16,191) (6,477)
-------- -------- -------
Future net cash flows................................. 92,304 24,642 12,570
Discount at 10% annual rate........................... (14,591) (1,799) (2,414)
-------- -------- -------
Standardized measure of discounted future net cash
flows............................................... $ 77,713 $ 22,843 $10,156
======== ======== =======

48
51
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Changes in Standardized Measure of Discounted Future Net Cash Flows

Principal changes in the standardized measure of discounted future net cash
flows attributable to the Company's proved oil and gas reserves are as follows:

2000 1999 1998
-------- -------- -------

Standardized measure, beginning of year............... $ 22,843 $ 10,156 $19,760
Sales, net of production costs........................ (57,720) (23,086) (5,757)
Net change in prices, net of production costs......... 87,427 15,968 (4,573)
Changes in future development costs................... (3,695) (1,227) (1,736)
Development costs incurred............................ 8,160 5,002 2,281
Accretion of discount................................. 3,785 1,537 2,711
Net change in income taxes............................ (32,996) (9,776) 2,120
Purchases of reserves in place........................ 48,229 31,309 4,403
Sales of reserves in place............................ 2,021 (14,456) (57)
Net change due to revision in quantity estimates...... 20,084 (7,591) (3,192)
Changes in production rates (timing) and other........ (20,425) (175) (5,804)
-------- -------- -------
Standardized measure, end of year..................... $ 77,713 $ 22,843 $10,156
======== ======== =======

13. REVENUE ALLOWANCE ON GROSS AMOUNTS BILLED:

The following table sets forth the activity in the Company's Revenue
Allowance on Gross Amounts Billed for each of the three years in the period
ended December 31, 2000 (in thousands):

2000 1999 1998
------ ------ ------

Beginning balance.......................................... $1,789 $1,335 $1,822
Additions.................................................. 4,535 1,923 2,998
Deductions................................................. (4,554) (1,469) (3,485)
------ ------ ------
Ending balance............................................. $1,770 $1,789 $1,335
====== ====== ======

See Note 2 for a detailed discussion regarding the Company's accounting
policy on the Revenue Allowance on Gross Amounts Billed.

49
52
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

The offshore marine construction industry in the Gulf of Mexico is highly
seasonal as a result of weather conditions and the timing of capital
expenditures by the oil and gas companies. Historically, a substantial portion
of the Company's services has been performed during the summer and fall months.
As a result, historically a disproportionate portion of the Company's revenues
and net income is earned during such period. The following is a summary of
consolidated quarterly financial information for 2000 and 1999.

QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Fiscal 2000
Revenues............................... $40,109 $39,901 $49,707 $51,297
Gross profit........................... 8,397 10,418 17,186 19,368
Net income............................. 3,214 3,660 7,686 8,766
Net income per share:
Basic............................... .10 .12 .24 .27
Diluted............................. .10 .11 .24 .27
Fiscal 1999
Revenues............................... $26,006 $34,104 $58,470 $42,374
Gross profit........................... 5,257 5,724 17,955 8,315
Net income............................. 2,087 2,641 9,017 3,154
Net income per share:
Basic............................... .07 .09 .30 .10
Diluted............................. .07 .09 .29 .10

15. SUBSEQUENT EVENTS (UNAUDITED)

Horizon Offshore. In February 2001, CDI formed a joint venture with
Horizon Offshore, Inc. to conduct small diameter reeled pipelay projects in
deepwater areas of the U.S. Gulf of Mexico. The two companies will jointly fund
the estimated $15 million cost of pipelay equipment to be deployed from CDI's
Sea Sorceress. In addition, Horizon will construct a pipe spooling facility at
its Port Arthur, Texas shore base.

In March 2001, the two companies announced that the Alliance Agreement
covering operation on the Outer Continental Shelf was extended for the
three-year period. Principal features of the Alliance are that CDI provides Dive
Support Vessel services behind Horizon pipelay barges while Horizon supplies
pipelay, derrick barge and heavy lift capacity to Cal Dive. The Alliance was
also expanded to include CDI providing the diving personnel working from Horizon
barges, a service Horizon handled internally last year.

Professional Divers Acquisition. In March 2001, CDI acquired substantially
all of the assets of Professional Divers of New Orleans, Inc. (PDNO) in exchange
for $11.5 million. The assets purchased included the Sea Level 21 (a 165-foot
four-point moored DSV renamed the Mr. Sonny), three utility vessels and
associated diving equipment including two saturation diving systems. PDNO
offshore personnel, comprising 20 diver/tender teams and marine crews that
operate the four DSVs, have been offered employment positions with CDI's
wholly-owned subsidiary, Aquatica, Inc.

50
53

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Act of 1934 in connection with the Company's 2001 Annual
Meeting of Shareholders. See also "Executive Officers of the Registrant"
appearing in Part I of this Report.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Act of 1934 in connection with the Company's 2001 Annual
Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Act of 1934 in connection with the Company's 2001 Annual
Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Act of 1934 in connection with the Company's 2001 Annual
Meeting of Shareholders.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(1) Financial Statements

The following financial statements included on pages 28 through 45 in
this Annual Report are for the fiscal year ended December 31, 2000.

Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 2000 and
1999.
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
Financial Statement Schedules

All financial statement schedules are omitted because the information is
not required or because the information required is in the financial statements
or notes thereto.

51
54

(2) Report on Form 8-K.

November 1, 2000.

(3) Exhibits.

Pursuant to Item 601(b)(4)(iii), the Registrant agrees to forward to
the commission, upon request, a copy of any instrument with respect to
long-term debt not exceeding 10% of the total assets of the Registrant and
its consolidated subsidiaries.

The following exhibits are filed as part of this Annual Report:

EXHIBIT
NUMBER DESCRIPTION
------- -----------

3.1 -- Amended and Restated Articles of Incorporation of
Registrant, incorporated by reference to Exhibit 3.1 to
the Form S-1 Registration Statement filed by the Company
on May 1, 1997 (Reg. No. 333-26357).
3.2 -- Bylaws of Registrant, incorporated by reference to
Exhibit 3.2 to the Form S-1 Registration Statement filed
by the Company on May 1, 1997 (Reg. No. 333-26357).
4.1 -- Amended and Restated Loan and Security Agreement by and
among the Company, ERT and Fleet Capital Corporation
(f/n/a Shawmut Capital Corporation) dated as of May 23,
1995, incorporated by reference to Exhibit 4.1 to the
Form S-1 Registration Statement filed by the Registrant
on May 1, 1997 (Reg. No. 333-26357).
4.2 -- Amendment No. 5 to Loan, incorporated by reference to
Exhibit 4.2 to the Form S-1 Registration Statement filed
by the Company on May 1, 1997 (Reg. No. 333-26357).
4.3 -- Form of Common Stock certificate, incorporated by
reference to Exhibit 4.1 to the Form S-1 filed by the
Company on May 1, 1997 (Reg. No. 333-26357).
*10.2 -- 2000 Annual Incentive Compensation Program.
10.3 -- 1995 Long Term Incentive Plan, as amended incorporated by
reference to Exhibit 10.3 to the Form S-1 Registration
Statement filed by Company on May 1, 1997 (Reg. No.
333-26357).
*10.4 -- Credit Agreement among Cal Dive I-Title XI, Inc., GOVCO
Incorporated, Citibank N.A. and Citibank International
LLC dated as of August 16, 2000.
10.5 -- Employment Agreement between Owen Kratz and the Company
dated February 28, 1999.
10.6 -- Employment Agreement between Martin R. Ferron and the
Company dated February 28, 1999.
10.7 -- Employment Agreement between S. James Nelson and the
Company dated February 28, 1999.
10.8 -- Employment Agreement between Louis L. Tapscott and the
Company dated February 28, 1999.
21.1 -- Subsidiaries of the Registrant. The Company has four
subsidiaries, Energy Resource Technologies, Inc., Cal
Dive Offshore, Ltd., Aquatica, Inc. and Cal Dive I-Title
XI, Inc.
*23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Miller and Lents, Ltd.

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

* Filed herewith.

52
55

SIGNATURES

Pursuant to the requirements option 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned. thereunto duly authorized.

CAL DIVE INTERNATIONAL, INC.

By: /s/ A. WADE PURSELL
----------------------------------
A. Wade Pursell
Senior Vice President, Chief
Financial Officer

March 30, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ OWEN KRATZ Chairman, Chief Executive March 30, 2001
- ----------------------------------------------------- Officer and Director
Owen Kratz

/s/ MARTIN R. FERRON President, Chief Operating March 30, 2001
- ----------------------------------------------------- Officer and Director
Martin R. Ferron

/s/ S. JAMES NELSON Vice Chairman and Director March 30, 2001
- -----------------------------------------------------
S. James Nelson

/s/ A. WADE PURSELL Senior Vice President and March 30, 2001
- ----------------------------------------------------- Chief Financial Officer
A. Wade Pursell

/s/ GORDON F. AHALT Director March 30, 2001
- -----------------------------------------------------
Gordon F. Ahalt

/s/ BERNARD J. DUROC-DANNER Director March 30, 2001
- -----------------------------------------------------
Bernard J. Duroc-Danner

/s/ WILLIAM TRANSIER Director March 30, 2001
- -----------------------------------------------------
William Transier

53
56

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

3.1 -- Amended and Restated Articles of Incorporation of
Registrant, incorporated by reference to Exhibit 3.1 to
the Form S-1 Registration Statement filed by the Company
on May 1, 1997 (Reg. No. 333-26357).
3.2 -- Bylaws of Registrant, incorporated by reference to
Exhibit 3.2 to the Form S-1 Registration Statement filed
by the Company on May 1, 1997 (Reg. No. 333-26357).
4.1 -- Amended and Restated Loan and Security Agreement by and
among the Company, ERT and Fleet Capital Corporation
(f/n/a Shawmut Capital Corporation) dated as of May 23,
1995, incorporated by reference to Exhibit 4.1 to the
Form S-1 Registration Statement filed by the Registrant
on May 1, 1997 (Reg. No. 333-26357).
4.2 -- Amendment No. 5 to Loan, incorporated by reference to
Exhibit 4.2 to the Form S-1 Registration Statement filed
by the Company on May 1, 1997 (Reg. No. 333-26357).
4.3 -- Form of Common Stock certificate, incorporated by
reference to Exhibit 4.1 to the Form S-1 filed by the
Company on May 1, 1997 (Reg. No. 333-26357).
*10.2 -- 2000 Annual Incentive Compensation Program.
10.3 -- 1995 Long Term Incentive Plan, as amended incorporated by
reference to Exhibit 10.3 to the Form S-1 Registration
Statement filed by Company on May 1, 1997 (Reg. No.
333-26357).
*10.4 -- Credit Agreement among Cal Dive I-Title XI, Inc., GOVCO
Incorporated, Citibank N.A. and Citibank International
LLC dated as of August 16, 2000.
10.5 -- Employment Agreement between Owen Kratz and the Company
dated February 28, 1999.
10.6 -- Employment Agreement between Martin R. Ferron and the
Company dated February 28, 1999.
10.7 -- Employment Agreement between S. James Nelson and the
Company dated February 28, 1999.
10.8 -- Employment Agreement between Louis L. Tapscott and the
Company dated February 28, 1999.
21.1 -- Subsidiaries of the Registrant. The Company has four
subsidiaries, Energy Resource Technologies, Inc., Cal
Dive Offshore, Ltd., Aquatica, Inc. and Cal Dive I-Title
XI, Inc.
*23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Miller and Lents, Ltd.

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

* Filed herewith.