As stated above, the Company is exposed to risks of currency devaluation in Venezuela primarily as a result of bolivar receivable balances and bolivar cash balances. As a result of the 20% devaluation of the bolivar during  fiscal 2004 (from September 2003 thr ough August 2004), the Company experienced total devaluation losses of $1.9 million during that same  period. This 20% devaluation loss may not be reflective of the actual potential for future devaluation losses because of the exchange controls that are currently in place. There hav e been recent press reports of a potential devaluation in calendar 2005. However, the exact amount and timing of such devaluation is uncertain. While the Company is unable to predict future devaluation in Venezuela, if fiscal 2005 activity levels are similar to fiscal 2004 and if a 10% to 20% devaluation were to occur, the Company could experience potential currency devaluation losses ranging from approximately $1.2 million to $2.3 million. In late August 2003, the Venezuelan state petroleum company agreed, on a prospective basis, to pay a por tion of the Company’s dollar-based invoices in U.S. dollars. While this is a positive development in light of the existing exchange controls, ther e is no guarantee as to how long this arrangement will continue. Were this agreement to end, the Company would revert back to receiving payments in bolivars and thus increase bolivar cash balances and exposur to devaluation. Commodity Price Risk The demand for contract drilling services is a  result of exploration and production companies spending money to explore and develop drilling prospects in search for crude oil and natural gas. Their appetite for such spending is driven by their cash flow and  financial strength, which is very dependent, among other things, on crude oil and natural gas commodity prices. Crude oil prices are  determined by a number of factors including supply and demand,  51 04-HP-876_newMDA.qxd 12/15/04 3:04 PM Page 50