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worldwide economic conditions, and geopolitical factors. Crude oil and natural gas prices have been v olatile and very difficult to predict. 

This difficulty has led many exploration and production companies to base their capital spending on much more conservative estimates of commodity prices. As a result, demand for contract drilling services is not always purely function of the movement of commodity prices. 

Interest Rate Risk The Company’s interest rate risk exposure results primarily from short-term rates, mainly LIBOR-based on borrowings from its commercial banks. The Company currently maintains all of its debt portfolio in fixed-rate debt. In  the past, the Company has entered into financial instruments such as interest rate swaps and may consider this and other financial instruments in the future to manage the portfolio mix between fixed and floating rate debt and to mitigate the impact of changes in interest rates based on management’s assessment of future interest rates, volatility of the yield curve and the Company’s ability to access the capital markets in a timely manner. 

Due to the fact that all of the Company’s debt at year-end has fixed rate interest obligations, there is no current risk due to interest rate fluctuation. 

The following tables provide information as of September 30, 2004 and 2003 about the Company’s inter est rate risk sensitive instruments: 

## INTEREST RATE RISK (in thousands) 

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(a) LIBOR plus an increment of .875 to 1.125% depending on certain financial ratios. 

