The following discussion and analysis of the combined financial condition and results of operations should be read in conjunction with the accompanying financial statements and notes included elsewhere herein and "Selected Historical Combined Financial Information," "Unaudited Pro Forma Combined Financial Information" and the combined financial statements and notes thereto, all included in our Registration Statement on Form 10 which was declared effective on August 12, 2009. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere herein and in our information statement. See "Forward-Looking Information" herein. Unless the context requires otherwise or we specifically indicate otherwise, when used in this Management's Discussion and Analysis of Financial Condition and Results of Operations, the terms "we," "our," "ours" and "us" refer to the Gulf of Mexico Business. The financial information for the Gulf of Mexico Business referred to below reflects the effects of, among other things, certain assets and operations that are not held by Seahawk. See "Unaudited Pro Forma Combined Financial Information" herein for a description of the assets of Pride that are not held by Seahawk but are reflected in the historical combined financial statements of the Gulf of Mexico Business.

The Company

We operate a jackup rig business that provides contract drilling services to the oil and natural gas exploration and production industry in the Gulf of Mexico. Our fleet of mobile offshore drilling rigs consists of 20 mat-supported jackup rigs that are capable of operating in maximum water depths of up to 300 feet and drilling to depths of up to 25,000 feet. We have one of the largest fleets of jackup rigs located in the Gulf of Mexico. We contract with our customers on a dayrate basis to provide rigs and drilling crews, and we are responsible for the payment of operating and maintenance expenses. Our customers primarily consist of various independent oil and natural gas producers, drilling service providers and Pemex Exploración y Producción ("PEMEX"), the national oil company in Mexico. Our competitors range from large international companies offering a wide range of drilling services to smaller companies focused on more specific geographic or technological areas.

Separation from Pride

On August 4, 2009, the board of directors of Pride International, Inc. ("Pride") approved a plan to separate Pride into two independent, publicly traded companies. The separation occurred through the distribution to Pride stockholders of all of the shares of common stock of Seahawk Drilling, Inc. (formerly known as Pride SpinCo, Inc.) ("Seahawk"), a former subsidiary of Pride that held, directly or indirectly, the assets and liabilities of Pride's 20 mat-supported jackup rig business. On August 24, 2009 (the "Spin-off Date"), each Pride stockholder received 1/15 of a share of our common stock and preferred stock purchase rights, which are subject to our rights plan, for each share of Pride common stock held at the close of business on August 14, 2009, the record date. Immediately following the spin-off, Pride stockholders owned 100% of our common stock.

Historically, we have used the operating and corporate functions of Pride for a variety of services including engineering, training and quality control, environmental, health and safety, accounting, corporate finance, human resource management (such as payroll and benefit plan administration), information technology and communications, legal, purchasing and inventory management, risk management, tax and treasury. We were allocated operating expenses of $1.9 million and $6.0 million for the three months and six months ended June 30, 2009, respectively, and $4.0 million and $9.9 million for the three months and six months ended June 30, 2008, respectively. We were allocated general and administrative expenses of $4.8 million and $10.6 million for the three months and six months ended June 30, 2009, respectively, and $5.9 million and $12.5 million for the three months and six months ended June 30, 2008, respectively. Management believes the assumptions and methodologies underlying the allocation of these expenses from Pride are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been or will be incurred by us if we were to operate as an independent, publicly traded company. We entered into a Transition Services Agreement with Pride which provides for continuation of some of these services in exchange for fees specified in the agreement. The terms and prices in the Transition Services Agreement may be different than the terms and prices in effect prior to the spin-off. We will also incur additional costs associated with being an independent, publicly traded company. These anticipated incremental costs, which are described in more detail in this Form 10-Q in the section entitled "Unaudited Pro Forma Combined Financial Information," are not reflected in our historical combined financial statements.

Our Rig Fleet

The following table contains information regarding our rig fleet as of
September 8, 2009. All of our rigs are mat-supported jackup rigs and are
currently located in the Gulf of Mexico.



                                                                                  Drilling
                                                                      Water         Depth
     Seahawk               Former                         Built/      Depth        Rating          Contracted
    Rig Name              Rig Name            Type       Upgraded     Rating      (In Feet)          Until
U.S. Contracted
Seahawk 2600        Pride Alaska           Cantilever   1982/2002         250          20,000    November 2009
Seahawk 2601        Pride Kansas           Cantilever   1976/1999         250          25,000     October 2009
Seahawk 2602        Pride Missouri         Cantilever      1982           250          20,000     October 2009
Mexico
Seahawk 3000        Pride Texas            Cantilever   1974/1999         300          25,000    September 2009
Seahawk 2501        Pride California          Slot      1975/2002         250          20,000     October 2009
Seahawk 2505        Pride Oklahoma            Slot      1975/2002         250          20,000         N/A
U.S. Available
Seahawk 2504        Pride Michigan            Slot      1975/2002         250          20,000         N/A
Seahawk 2001        Pride Arkansas         Cantilever      1982           200          20,000         N/A
Seahawk 2004        Pride Mississippi      Cantilever   1981/2002         200          20,000         N/A
Seahawk 2007        Pride New Mexico       Cantilever      1982           200          20,000         N/A
U.S. Cold Stacked
Seahawk 2502        Pride Georgia             Slot      1981/1995         250          20,000         N/A
Seahawk 2500        Pride Arizona             Slot      1981/1996         250          20,000         N/A
Seahawk 2006        Pride Nevada           Cantilever   1981/2002         200          20,000         N/A
Seahawk 2003        Pride Florida          Cantilever      1981           200          20,000         N/A
Seahawk 2005        Pride Nebraska         Cantilever   1981/2002         200          20,000         N/A
Seahawk 2503        Pride Louisiana           Slot      1981/2002         250          20,000         N/A
Seahawk 2008        Pride South Carolina   Cantilever   1980/2002         200          20,000         N/A
Seahawk 2000        Pride Alabama          Cantilever      1982           200          20,000         N/A
Seahawk 2002        Pride Colorado         Cantilever      1982           200          20,000         N/A
Seahawk 800         Pride Utah             Cantilever   1978/2002          80          15,000         N/A

Our Business

In the United States, customer expectations of future natural gas prices strongly influence their drilling activity. Generally, our customers accelerate their drilling programs in higher natural gas price environments and delay or curtail their drilling programs when natural gas prices decline. In Mexico, all crude oil and natural gas basins are owned by the Mexican government and operated and developed by PEMEX. Revenues from exported crude oil are a critical source of funding for Mexico's government. PEMEX's demand for drilling services is subject to governmental approval and intervention, including agreements with OPEC to manage the global supply of crude oil, and is also affected by declining production in established fields such as Cantarell and shifting of resources to newer and often deeper offshore fields. In recent years, PEMEX has increased its capital expenditures to support its current production levels. A majority of these capital expenditures are based on dollar-denominated contracts, meaning that recent declines in the Mexican peso to U.S. dollar exchange rate have reduced PEMEX's purchasing power and led to reduced operating activity levels.

PEMEX has indicated an increased emphasis on field exploration and development prospects that require the use of rigs with a water depth rating of 250 feet or greater. As PEMEX changes its focus toward new field exploration and development prospects in deeper water, we believe PEMEX may continue to have demand for our ten rigs with water depth ratings of 250 feet or greater. However, PEMEX is less likely to use our ten rigs with water depth ratings of 200 feet or less. Our current contracts with PEMEX are for rigs with water depth ratings of 250 or greater. PEMEX has indicated the need to tender incremental jackup rigs for work beginning in 2010, a new budget year. While incremental jackup requirements by PEMEX are generally for independent leg rigs with water depth ratings of 250 feet or greater, we believe there will continue to be demand for mat-supported rigs as well. In addition to the rigs we currently have in Mexico, we will seek additional opportunities to mobilize our rigs from the United States to Mexico.

Following the onset of the global financial crisis in mid-2008, declining prices of crude oil and natural gas and deteriorating worldwide economic conditions, the demand for drilling services declined. Lower crude oil and natural gas prices combined with the inability of our customers to obtain financing and business interruption insurance for drilling projects have had an extremely negative impact on offshore drilling activity in the United States this year. The decline in the United States jackup market in 2009 has been one of the sharpest downturns for United States jackup activity over the past 20 years. As of August 31, 2009, there were only 19 jackups under contract in the U.S. Gulf of Mexico, out of the marketed supply of 40 rigs, or 48% marketed utilization. Activity may decline further based on continued low commodity prices and the low level of new drilling plans and permits outstanding. We do not expect drilling activity to recover until natural gas prices increase from current levels or drilling costs are further reduced. Additionally, our average dayrates may decline due to the onset of hurricane season and the expiration of contracts with relatively higher pricing that were entered into when jackups were experiencing stronger demand.

Our average dayrates may also be adversely affected by additions of new-build jackups to the worldwide fleet. In prior periods of high utilization and dayrates, industry participants have increased the supply of jackup rigs by ordering the construction of new speculative units without contracts. This has historically created an oversupply of drilling units followed by a decline in utilization and dayrates when the new rigs enter the market, until the new rigs have been absorbed into the active fleet. Approximately 68 new-build jackup rigs are currently under construction or on order worldwide, seven of which are being built in shipyards in the U.S. Gulf of Mexico and would have a relatively low mobilization cost to operate in the Gulf of Mexico. All of these rigs are considered to be of a higher specification than our rigs. They are generally larger, have greater deckloads, have water depth ratings of 250 feet or greater and have an independent leg design, as opposed to being mat-supported. Independent leg rigs are better suited for use in strong currents or on uneven seabed conditions. As discussed above, PEMEX has indicated an increased emphasis on prospects requiring the use of rigs with water depth ratings of 250 feet or greater as well. However, any negative effect on our dayrates due to new-build rigs could be mitigated by current insurance restrictions applicable in the U.S. Gulf of Mexico, which were a result of industry losses from Hurricanes Katrina and Rita in 2005. As a result of these storms, insurance companies have raised their premiums and deductibles, and imposed restrictions on windstorm damage. These new insurance restrictions would prevent most new rig owners from being able to insure their rigs for the full replacement cost if the rigs were to work in the U.S. Gulf of Mexico. As a result, we believe that most of the new rigs being built in the United States will be mobilized to other regions for work. Although the total rig insurance claims from Hurricanes Gustav and Ike were less costly than from the storms in 2005, we believe that the inability of rig owners to obtain full windstorm damage coverage could continue indefinitely.

Longer term, fleet utilization and dayrates in the U.S. Gulf of Mexico will largely depend upon expectations for future natural gas prices, access to capital for small to medium sized exploration and production companies and other drilling service providers, seasonality in the market driven by the risk of hurricanes, and the number and timing of rigs moving into and out of the United States.

Since the fourth quarter of 2008, the marketed fleet utilization for United States jackup rigs has declined steadily. Low utilization led to a decline in dayrates. Jackup rig activity and dayrates are likely to persist at depressed levels through 2009 and possibly into 2010. Although 19 United States jackup rigs have been stacked in 2009 and another four permanently removed from service, rig dayrates remain depressed and could decline further. As previously described, PEMEX is focused on new field exploration and development prospects that require the use of rigs with water depth capability of greater than 200 feet. We expect that jackup demand in Mexico will continue to be strong for rigs with water depth capabilities of 250 feet and greater. From the beginning of 2008 through September 16, 2009, we relocated eight of our mat-supported jackup rigs from Mexico back to the United States, where six of these units are stacked and two remain available. Of our three remaining mat-supported jackup rigs in Mexico, two are operating under PEMEX contracts that expire between September and October 2009, and one is available. PEMEX is currently reviewing its jackup needs to determine if there is additional work for the three mat-supported jackup rigs with contracts expiring in 2009. In September 2009, we received an extension for the Seahawk 3000(formerly the Pride Texas) to continue drilling through December 2009 at a rate of $62,500 per day.

In the current environment, we intend to work a smaller number of rigs at reasonable dayrates and to stack rigs with no near-term prospects. Based on current demand, we have stacked ten rigs and intend to stack additional rigs as necessary. In late February 2009, we reduced our United States rig-based workforce by approximately 40%. We have continued to reduce our workforce as we stack rigs, and since April 15, 2009, we have reduced our United States rig-based workforce by an additional 9%.

Recent Developments

Entry into Revolving Credit Facility

On August 4, 2009, we entered into a revolving credit facility (the "Revolving Credit Facility") with a syndicate of lenders (the "Lenders") that matures on the second anniversary of the date on which we satisfy certain conditions to the initial funding. The Revolving Credit Facility has an initial facility amount of up to $36.0 million (the "Commitments"), subject to availability and a borrowing base, as defined. Up to $27.0 million of the Revolving Credit Facility will be available to issue letters of credit, and up to $36.0 million of the Revolving Credit Facility will be available for revolving credit loans. Seahawk may, on up to three occasions for up to one year, increase the total Commitments to the Revolving Credit Facility amount by adding one or more banks, financial institutions or other lender parties as lenders or by allowing one or more of the Lenders to increase their respective Commitments. Total Commitments cannot exceed an amount equal to $50.0 million. Loans made under the Revolving Credit Facility may be used by Seahawk only to fund reactivation capital expenditures and for related working capital purposes, and letters of credit issued under the Revolving Credit Facility may be used by Seahawk for general corporate purposes, including the backstop of surety bonds. Letters of credit issued to backstop surety bonds related to Mexican tax assessments are limited to 20% of the total Commitment amount. The facility is secured by 15 of our rigs and substantially all of our other assets, including our accounts receivables, spare parts and certain cash and cash equivalents.

Interest on the Revolving Credit Facility is calculated based on outstanding loans and letters of credit as well as commitment fees for any unused portion of the Revolving Credit Facility. Amounts drawn on the Revolving Credit Facility bear interest at variable rates based on LIBOR plus a 4.5% margin or the adjusted base rate, plus a margin, as defined in the agreement. The Company shall pay a per annum letter of credit fee equal to the applicable LIBOR Margin. Commitment fees for the unused portion of the Revolving Credit Facility shall be 150 basis points per annum on the average daily unused portion of the Revolving Credit Facility. Under the Master Separation Agreement, Pride is responsible for certain transaction costs related to this facility.

Pride's Foreign Corrupt Practices Act Investigation

The Audit Committee of Pride's Board of Directors, through independent outside counsel, has undertaken an investigation of potential violations of the U.S. Foreign Corrupt Practices Act ("FCPA") in several of its international operations. With respect to the Mexico operations included in these combined financial statements, this investigation has found evidence suggesting that payments, which may violate the FCPA, were made to government officials in Mexico aggregating less than $150,000. The evidence to date regarding these payments suggests that payments were made beginning in 2002 through early 2006
(a) to one or more government officials in Mexico in connection with the clearing of a jackup rig and equipment through customs, the movement of personnel through immigration or the acceptance of a jackup rig under a drilling contract; and (b) with respect to the potentially improper entertainment of government officials in Mexico. Pride has voluntarily disclosed information found in the investigation to the Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC"). We have been informed by Pride that it is continuing to cooperate with these authorities as the investigation and FCPA compliance reviews continue.

If violations of the FCPA occurred, we could be liable for or subject to fines, civil and criminal penalties, equitable remedies, including profit disgorgement, and injunctive relief. Civil penalties under the antibribery provisions of the FCPA could range up to $10,000 per violation, with a criminal fine up to the greater of $2 million per violation or twice the gross pecuniary gain to us or twice the gross pecuniary loss to others, if larger. Civil penalties under the accounting provisions of the FCPA can range up to $500,000 per violation, and a company that knowingly commits a violation can be fined up to $25 million per violation. In addition, both the SEC and the DOJ could assert that conduct extending over a period of time may constitute multiple violations for purposes of assessing the penalty amounts. Often, dispositions of these types of matters result in modifications to business practices and compliance programs and possibly a monitor being appointed to review future business and practices with the goal of ensuring compliance with the FCPA. Pursuant to the Master Separation Agreement, we are responsible for any liabilities, costs or expenses related to, arising out of or resulting from Pride's current FCPA investigation to the extent related to Pride's and our operations in Mexico (subject to certain exceptions), except that we will not be responsible for any fine, penalty or profit disgorgement payable to the United States government in excess of $1 million, and we will not be allocated any fees or expenses of third party advisors retained by Pride. In the event that a disposition includes the appointment of a compliance monitor or consultant or any similar remedy for our company, we are responsible for the costs associated with such monitor, consultant or similar remedy.

We could also face fines, sanctions, and other penalties from authorities in Mexico, including prohibition of our participating in or curtailment of business operations and/or the seizure of rigs or other assets. Our customer in Mexico could seek to impose penalties or take other actions adverse to our interests. In addition, disclosure of the subject matter of the investigation could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees, and to access the capital markets.

Pride has commenced discussions with the DOJ and SEC regarding a negotiated resolution for these matters, which could be settled during 2009. No amounts have been accrued related to any potential fines, sanctions or other penalties, which could be material individually or in the aggregate, but an accrual could be made as early as the third quarter of 2009. We cannot currently predict what, if any, actions may be taken by the DOJ, the SEC, any other applicable government or other authorities, or our customers, or the effect the actions may have on our results of operations, financial condition or cash flows, on our combined financial statements or on our business, except that our responsibility for fines, penalties or profit disgorgement payable to the United States government will not exceed $1 million as described above.

Loss of Pride Wyoming

In September 2008, the Pride Wyoming, a 250-foot slot-type jackup rig operating in the U.S. Gulf of Mexico, was deemed a total loss for insurance purposes after it was severely damaged and sank as a result of Hurricane Ike. The rig had a net book value of approximately $14 million and was insured for $45 million. We have collected $25 million through June 2009 for the insured value of the rig. We expect to incur costs of approximately $53 million for removal of the wreckage and salvage operations, not including any costs arising from damage to offshore structures owned by third parties. These costs for removal of the wreckage and salvage operations in excess of a $1 million retention are expected to be covered by Pride's insurance. Under the Master Separation Agreement with Pride, at our option, Pride will finance, on a revolving basis, all of the costs for removal of the wreckage and salvage operations until receipt of insurance proceeds. We are permitted to incur up to $10 million of any such debt to Pride under our Revolving Credit Facility. We will be responsible for payment of the $2.5 million in premium payments for a removal of wreckage claim and for any costs not covered by Pride's insurance. Initial removal and salvage operations for the Pride Wyoming began in the fourth quarter of 2008 but were suspended due to weather conditions. These operations resumed in May 2009. As of June 30, 2009 we have incurred expenditures of $16.9 million for the salvage operations and we have received $13.9 million in insurance proceeds.

Four owners of facilities in the Gulf of Mexico on which parts of the Pride Wyoming settled or may have settled have requested that Pride pay for all costs, expenses and other losses associated with the damage, including loss of revenue. These owners have claimed damages of $148 million in the aggregate. Other pieces of the rig may have also caused damage to certain other offshore structures. In October 2008, we filed a complaint in United States Federal District Court pursuant to the Limitation of Liability Act, which has the potential to statutorily limit our exposure for claims arising out of third party damages caused by the loss of the Pride Wyoming. Pride has retained the right after the spin-off to control any claims, litigation or settlements arising out of the loss of the Pride Wyoming. Based on the information available to us at this time, we do not expect the outcome of these claims to have a material adverse effect on our financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these claims. Although we believe Pride has adequate insurance, we will be responsible for any deductibles or awards not covered by Pride's insurance.

Dispositions

In May 2008, we sold our entire fleet of platform rigs and related land, buildings and equipment for $66 million in cash. In connection with the sale, we entered into lease agreements with the buyer to operate two platform rigs until their existing contracts are completed. In March 2009, the contract for one of these rigs was canceled, and the remaining deferred gain of $2.8 million related to the sale of the rig was recognized. The rig was subsequently transitioned to the buyer at the beginning of April 2009.

A contract extension was granted in April 2009 for the remaining rig, and we will continue to operate that rig until this current contract is completed, which is expected to occur in the third quarter of 2009. The leases require us to pay to the buyer all revenues from the operation of the rigs, less operating costs and a small per day management fee, which we retain. Management of drilling service is part of our continuing operations, and the revenues and cost of revenues associated with this management agreement are included in our income from continuing operations.

Backlog

As of August 31, 2009, we had 14% of our marketed mat-supported jackup rig days contracted for the remainder of 2009, with no contracted days in 2010. The shallow water U.S. Gulf of Mexico is a mature offshore basin where drilling activity is typically conducted by small, independent exploration and production companies that are heavily influenced by the price of natural gas. Our contract drilling backlog as of June 30, 2009 totaled approximately $30.9 million for future revenues and firm commitments. We calculate our backlog, or future contracted revenue for our fleet, as the contract dayrate multiplied by the number of days remaining on the contract, assuming full utilization. Backlog excludes revenues for mobilization, demobilization, contract preparation, . . .