been successful, but OPEC officials warned at its March 2010 meeting that the strength in the global  economic recovery was uncertain. OPEC officials decided against increasing OPEC production levels  because crude oil market demand fundamentals are still weak and inventories for the resource are well over  five-year averages. Given the historically strong correlation between commodity prices, drilling and  exploration activity and demand for the company’s vessels in the various international markets, the  company expects that utilization and day rates for its internationally based vessels may remain weak or  weaken further if crude oil prices decrease and/or if capital spending by E&P companies is constrained by  expectations for either lower crude oil prices or weak economic activity. During fiscal 2010, the company’s  international customers, including some of our more significant clients, requested pricing concessions from  the company, which the company has addressed on a case-by-case basis. In response to the weaker crude  oil price and its effect on E&P spending, the company began stacking and removing from its active  internationally based fleet those vessels that could not find attractive charter hire contracts. Oil and gas industry analysts reported in their 2010 E&P expenditure surveys (both land-based and  offshore) that global capital expenditures budgets for E&P are forecast to increase during 2010 by  approximately 11% over calendar year 2009 levels. The surveys forecast that international capital spending  budgets will increase approximately 11%. North American capital spending budgets are forecast to increase  approximately 12%, although most of that increase is expected to be onshore rather than offshore. These  budgets were based on an approximate $70 average price per barrel of oil and an approximate $5.20 per  Mcf average natural gas price for calendar 2010. Given the long project lead times, the company believes  that these spending increases will not take effect, in any significant way, until the latter part of calendar year  2010 and, as such, management does not anticipate a significant increase in our vessel demand until the  later part of fiscal 2011 or sometime in fiscal 2012.  The number of operating drilling rigs in the U.S. offshore market is generally the primary driver of the  company’s expected activity levels and future profitability in the U.S. market. The offshore rig count in the  U.S. GOM remains at historically low levels, in part because the strength of the international drilling market  has attracted numerous offshore drilling rigs from the U.S. to various international markets over the past few  years. Exploration and field development activity in the U.S. GOM had fallen off significantly, particularly in  non-deepwater areas. As a consequence, the demand for offshore marine vessels in the shallow water U.S.  GOM diminished over the past few years and declined further in late calendar year 2008 and into 2009 due  to the deterioration in the global business environment and economy, the significant reduction in commodity  prices (particularly natural gas pricing) and the illiquidity in the credit and capital markets. Over the longer  term, the company’s U.S.-based vessel fleet should be affected more by the active offshore rig count in the  United States than by any other single outside influence. By mid-April 2010, the number of active drilling rigs operating in the U.S. GOM had risen to approximately  79 rigs as compared to 52 rigs operating at the end of September 2009. The increase in the rig count is  attributed to higher natural gas pricing, which at mid-April 2010 was trading in the $3.70 - $4.00 Mcf range  due to a tightening of natural gas inventories resulting from a colder-than-normal North American winter  season. Some drilling operators have expressed that the recent increase in U.S. GOM rig count is a result of  the strengthening and stabilization of crude oil and natural gas commodity prices, a reduction in oilfield  service pricing and improvements in the capital markets. Although the above positive trend bodes well for  activity in the U.S. GOM market in the near-term, the rise in production of unconventional gas resources in  North America and the commissioning of a number of new large Liquefied Natural Gas (LNG) exporting  facilities around the world are contributing to an over-supplied natural gas market, which exerts downward  pricing pressures on the resource. While production of natural gas from unconventional sources is a  relatively small portion of the worldwide natural gas production, it is expected to grow in the future. During  the greater part of calendar year 2009, natural gas inventories in the U.S. have been significantly  oversupplied, which is attributed to the increase of unconventional gas in the market, as well as a reduction  in demand for the resource due to the global recession. Prolonged increases in the supply of natural gas,  whether the supply comes from conventional or unconventional production, will exert downward pricing  pressures on commodity prices for natural gas. A prolonged downturn in natural gas prices can negatively  impact the development plans of E&P companies, which in turn, would result in a decrease in demand for  offshore support vessel services, primarily in the company’s U.S. segment, since it is more sensitive to the  changes in natural gas pricing because it is more oriented towards natural gas than crude oil production. Given the historically strong correlation among commodity prices, drilling and exploration activity and  demand for the company’s vessels in the U.S. GOM, the company expects utilization rates and day rates for  -30- 