SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934

~~PURSUANT~~For the TOperiod ~~RULE~~ended ~~13a-16~~March 31, ~~OR 15d-16 OF~~2007

THE SECURITIES EXCHANGE ACT OF 1934

For the period ended June 30, 2005

Aurelia Energy N.V.

(Translation of registrant’s name into English)

Landhuis Joonchi Kaya Richard J. Beaujon z/n Curaçao, Netherlands Antilles

Kaya Richard J. Beaujon z/n

Curaçao, Netherlands Antilles

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F x Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o.

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

Not Applicable.

Aurelia Energy N.V. Quarterly Report For period ended ~~June~~March 3031, ~~2005~~2007 Dated ~~19 August~~May 30, ~~2005~~ 2007

TABLE OF CONTENTS

	Page
CERTAIN DEFINITIONS		2
INTRODUCTION		3
FORWARD-LOOKING STATEMENTS		2
CERTAIN DEFINITIONS		3
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		5
FORWARD-LOOKING STATEMENTS		3
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS		5
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		5
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME		7
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS		5
UNAUDITED INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT		8
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME		7
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		9
UNAUDITED INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT		8
UNAUDITED OTHER FINANCIAL DATA AND RATIOS		16
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		9
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		18
UNAUDITED OTHER FINANCIAL DATA AND RATIOS		21
DISCLOSURE CONTROLS AND PROCEDURES		39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		23
SIGNATURES		4138

INTRODUCTION

We prepare this Quarterly Report as an update of our Annual Report, with a focus on the current reporting period. As such, the Quarterly Report should be read in conjunction with the Annual Report, which includes detailed analysis of our operations and activities.

CERTAIN DEFINITIONS

We have prepared this report using a number of conventions, which you should consider when reading the information contained herein. When we use the terms “we”, “us”, “our” and words of similar import or “the Company”, we are referring to Aurelia Energy N.V., itself, or to Aurelia Energy N.V. and its consolidated subsidiaries, as the context requires.

References to “dollars”, “U.S. dollars” and “U.S.$” are to the currency of the United States, references to “euro” and “€” are to the common currency of the member states of the European Union and references to “£” and “sterling” are to the currency of the United Kingdom. In this report, we have translated certain euro amounts into U.S. dollars at exchange rates of €1.00 to U.S.$1.~~3655~~3186 and €1.00 to U.S.$1.~~2066~~3314, which were the noon buying rates in New York City for cable transfers in those currencies as certified for customs purposes by the Federal Reserve Bank of New York on December 31, ~~2004~~2006 and ~~June~~March 3031, ~~2005~~2007, respectively, and we have translated certain sterling amounts into U.S. dollars at exchange rates of £1.00 to U.S.$1.~~9388~~9660 and £1.00 to U.S.$1.~~7923~~9605, which were the noon buying rates in New York City for cable transfers in those foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on December 31, ~~2004~~2006 and ~~June~~March 3031, ~~2005~~2007, respectively. You ~~should~~ should not construe these translations as representations that the euro or ~~sterling~~ sterling amounts actually represent such U.S. dollar amounts or that we could ~~convert~~ convert these amounts into U.S. dollars at the rates indicated. On ~~August~~May 1830, ~~2005~~ 2007 the applicable noon buying rates were €1.00 to U.S.$1.~~2178~~3419 and £1.00 to U.S.$1.~~7949~~9747.

FORWARD-LOOKING STATEMENTS

This report ~~includes~~ includes forward-looking statements within the meaning of, and which have ~~been~~ been made pursuant to, the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report, including, without limitation, those regarding our future financial position and results of operations, our strategy, plans, objectives, goals and targets, future developments in the markets where we participate or are seeking to participate, and any statements preceded by, followed by or that include the words “believe”, “expect”, “aim”, “intend”, “may”, “anticipate”, “seek” or similar expressions or the negative thereof, are forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the environment in which we will operate in the future. Important factors that could cause our actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others:

statements of historical fact contained in this report, including, without limitation, those regarding our future financial position and results of operations, our strategy, plans, objectives, goals and targets, future developments in the markets where we participate or are seeking to participate, and any statements preceded by, followed by or that include the words “believe”, “expect”, “aim”, “intend”, “will”, “may”, “anticipate”, “seek” or similar expressions or the negative thereof, are forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the environment in which we will operate in the future. Important factors that could cause our actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others:

· the level of oil reserves contained in the oil fields on which we operate our FPSOs and the performance of those fields in general;

· levels of capital expenditures by the oil industry on offshore exploration and production activities;

· our future capital needs and our ability generally to finance the expansion of our business;

· our ability to enter into new service and bareboat agreements for our FPSOs, upon ~~the~~ the termination of their existing ~~service~~ agreements;

· the outcome of our discussions with tax authorities with respect to our internal restructuring and our 1997, 1998, 1999 and 2000 tax years;

· our ability to manage currency risks;

· our ability to comply with existing or newly implemented environmental regimes in the countries in which we operate;

· our ability to obtain, maintain and renew the permits and other governmental authorizations required to conduct our operations;

· our liability for violations, known and unknown, under environmental laws;

· our ability to complete existing and future projects on schedule and within budget;

· our ability to comply with health and safety regulations at our facilities;

· our ability to remain profitable in a competitive and ~~profitable~~changing mareketplace;

· the performance of oil companies to whom we contract our FPSOs;

· the efficacy of modifications and repairs to our FPSOs;

· our ability to compete in a competitive and changing marketplace;

· our losses from operational hazards and uninsured risks;

· our ability to minimize the downtime of FPSOs during periods of repair, maintenance, inclement weather and turnarounds;

· our ability to protect our know-how and intellectual property;

· the adverse impact of strikes, lock-outs and other industrial actions;

· the possible extensions of our service agreements and certain of our material contracts;

· our ability to tie-back additional oil fields that neighbor the oil fields on which our FPSOs operate; and

· limitations on our operational flexibility arising under agreements governing our debt.

These forward-looking statements speak only as of the date of this report. We undertake no obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Aurelia Energy N.V. Unaudited Interim Condensed Consolidated Balance Sheets

Aurelia Energy N.V.

	Note		At March 31, 2007		At December 31, 2006
			(unaudited)		(audited)
			(in U.S.$ thousands)
ASSETS
Current assets
Cash and cash equivalents				53,195		42,503
Accounts receivable
Trade, net				35,190		43,480
Other receivables				44,697		45,038
Loan				2,078		2,036
Prepaid expenses				13,350		8,230
				95,315		98,784
Inventory
Work in process				38,793		29,654
				187,303		170,941
Non current assets
Financial investment		10		23,000		23,000
Loan				150		150
Fixed assets
Tangible fixed assets, net		2
FPSOs				1,086,848		1.111,978
Other tangible fixed assets				332,769		297,089
Income tax receivable				2,636		2,626
Deferred income taxes		9		122,177		122,177
Financial instruments at fair value		12		2,441		3,293
Debt arrangement fees				16,872		17,756
				1,586,893		1,578,069
				1,774,196		1,749,010

~~Unaudited~~The ~~Interim Condensed~~accompanying ~~Consolidated~~notes ~~Balance~~are ~~Sheets~~an integral part of these unaudited interim condensed consolidated financial statements.

	Note		At June 30, 2005		At December 31, 2004
			(unaudited)		(audited)
			(in U.S.$ thousands)
ASSETS
Current assets
Cash and cash equivalents				25,853		41,987
Accounts receivable
Trade, net				47,033		38,338
Related party				100		110
Other receivables		12		68,304		24,867
Prepaid expenses				7,153		4,869
				122,590		68,184
Inventory
Work in process				9,669		13,847
				158,112		124,018
Non current assets
Financial investment		11		9,900		7,500
Restricted deposits				85,071		88,069
Loan				150		150
Fixed assets
Tangible fixed assets, net		2
FPSOs				883,242		921,607
Other tangible fixed assets				57,231		56,154
Income tax receivable				2,398		3,408
Deferred income taxes		10		101,643		86,486
Debt arrangement fees				14,763		16,128
				1,154,398		1,179,502
				1,312,510		1,303,520

The accompanying notes are an integral part of these unaudited

interim condensed consolidated financial statements.

	Note		At June 30, 2005			At December 31, 2004
			(unaudited)			(audited)
			(in U.S.$ thousands)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Accounts payable				25,451			26,492
Related party				125			125
Income taxes				642			736
Wage taxes and social security contributions				1,403			2,864
Other liabilities and accrued expenses				69,975			60,230
Billings in excess of cost and unrealized income				7,350			8,452
				104,946			98,899
Non current liabilities
Long-term bank loans		3		215,025			207,358
101¤4% Senior Notes due 2012		4		337,729			337,935
Long-term loan, related party		5		147,017			142,085
Tax lease benefits liability		6		29,971			34,422
Interest rate swaps				0			288
Pensions				1,034			788
				730,776			722,876
Shareholder’s equity
Non-profit sharing 5% non cumulative preference shares, U.S.$1,000 par value, 34,000 shares authorized, issued and outstanding as of June 30, 2005 and December 31, 2004 respectively				34,000			34,000
Common shares, U.S.$1,000 par value, 136,000 shares authorized, issued and outstanding as of June 30, 2005 and December 31, 2004, respectively				136,000			136,000
Retained earnings				330,907			334,904
Accumulated other comprehensive loss		9		(24,119	)		(23,159	)
				476,788			481,745
				1,312,510			1,303,520

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Aurelia Energy N.V.
Unaudited Interim Condensed Consolidated Balance Sheets (Continued)

	Note		At March 31, 2007			At December 31, 2006
			(unaudited)			(audited)
			(in U.S.$ thousands)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Accounts payable				37,637			25,599
Related party				125			125
Income taxes				712			726
Wage taxes and social security contributions				2,027			2,914
Other liabilities and accrued expenses				63,788			82,012
Billings in excess of cost and unrealized income				8,805			12,300
Short-term loan				3,431			3,441
Current portion of long-term debt				50,071			51,101
				166,596			178,218
Non current liabilities
Long-term bank loans		3		587,726			551,665
101¤4% Senior Notes due 2012		4		311,574			310,381
Long-term loan, related party		5		156,539			153,823
Pensions				1,091			1,119
				1,056,930			1,016,988
Minority interest		11		47,515			44,607
Shareholder’s equity
Non-profit sharing 5% non cumulative preference shares, U.S.$1,000 par value, 34,000 shares authorized, issued and outstanding as of March 31, 2007 and December 31, 2006 respectively				34,000			34,000
Common shares, U.S.$1,000 par value, 136,000 shares authorized, issued and outstanding as of March 31, 2007 and December 31, 2006, respectively				136,000			136,000
Retained earnings				348,201			353,628
Accumulated other comprehensive loss		8		(15,046	)		(14,431	)
				503,155			509,197
				1,774,196			1,749,010

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

~~Aurelia~~UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Aurelia Energy N.V. Unaudited Interim Condensed Consolidated Statements of Income

			For the six months ended June 30,				For the three months ended June 30,
			For the three months ended March 31,
	Note		~~2005~~2007		~~2004~~2006		~~2005~~		~~2004~~
			(in U.S.$ thousands except share and per share amounts)
			(in U.S.$ thousands, except share and per share amounts)
Revenues		76	~~195~~106,~~031~~708		~~217~~90,~~958~~148		~~93,763~~		~~127,299~~
Operating expenses
Operations expenses		87	~~134~~58,~~178~~160		~~151~~44,~~787~~366		~~66,069~~		~~93,267~~
Selling, general and administrative expenses			54,~~940~~490		43,~~910~~204		~~3,090~~		~~2,430~~
Depreciation of tangible fixed assets			3927,~~806~~222		3825,~~800~~979		~~19,910~~		~~19,384~~
Other operating income			(1,126	)	(1,638	)	(561	)	(550	)
			89,872		73,549
			178,798		193,859		88,508		114,531
Operating income			16,836		16,599
Operating income			16,233		24,099		5,255		12,768
Financial income (expense)
Financial income (expense)
Interest income			355		373
Interest income			2,080		1,766		1,091		767
Interest expense			(18,748	)	(18,439	)
Interest expense			(25,672	)	(23,343	)	(13,063	)	(11,276	)
Currency exchange results			(455	)	1,097
Currency exchange results			(9,539	)	228		(6,963	)	(2,137	)
			(18,848	)	(16,969	)
			(33,131	)	(21,349	)	(18,935	)	(12,646	)
Loss before income taxes and minority interest			(2,012	)	(370	)
Income/(loss) before income taxes			(16,898	)	2,750		(13,680	)	122
Income taxes		9	639		(6,417	)
Income taxes		10	(12,901	)	(11,772	)	(7,932	)	(6,077	)
Income/(loss) before minority interest			(2,651	)	6,047
Net income/(loss)			(3,997	)	14,522		(5,748	)	6,199
Minority interest		11	2,776		2,462
Basic and diluted earnings per common share			(29	)	107		(42	)	46
Net income/(loss)			(5,427	)	3,585
Weighted average number of common shares outstanding			136,000		136,000		136,000		136,000
Basic and diluted earnings per common share			(40	)	26
Weighted average number of common shares outstanding			136,000		136,000

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

Aurelia Energy N.V.
Unaudited Interim Condensed Consolidated Cash Flow Statement

	For the six months ended June 30,
	For the three months ended March 31,
	2005		2004
	2007		2006
	(in U.S.$ thousands)
Net income/(loss)	(35,~~997~~427	)	143,~~522~~585
Depreciation of tangible fixed assets	3927,~~806~~222		3825,~~800~~979
Increase in deferred income tax assets	~~(14,201~~—	)	(126,~~605~~900	)
Amortization of debt arrangement fees	~~1,365~~839		~~1,365~~611
Amortization of discount on 101¤4% Senior Notes due 2012	~~178~~88		~~178~~88
Amortization benefit from unwinding swap	~~(384~~1,104	)	~~(384~~86	)
Accrued interest on long-term loan from related party	42,~~932~~613		42,~~687~~538
Change in pension provision	~~117~~—		~~(274~~88	)
Interest on restricted deposits	2,227		(3,566	)
Gain on foreign currency forward contracts	(237	)	(1,584	)
(Gain)/loss on foreign currency forward contracts	4,874		(272	)
Change in fair value of interest rate cap	(19	)	1,977
Change in fair value of interest rate swap	0		505
Addition to provision for uncollectible accounts receivable	303		—
Increase/(decrease) in provision for uncollectible accounts receivable	(520	)	459
Addition to provision for work in progress	700
Change in operating assets and liabilities	(55,331	)	(14,965	)
Minority interest in income of subsidiaries	2,776		2,462
Net cash provided by (used in) operating activities	(20,934	)	28,450
Change in operating assets and liabilities	(2,533	)	(35,323	)
Additions to tangible fixed assets	(2,612	)	(6,864	)
Net cash provided by/(used in) operating activities	27,429		(6,393	)
Loans provided	—		(50	)
Additions to tangible fixed assets	(51,401	)	(5,497	)
Financial investment	(2,400	)	(3,000	)
Down payment to purchase tangible fixed assets	—		(13,950	)
Net cash (used in) investing activities	(5,012	)	(9,914	)
Net cash used in investing activities	(51,401	)	(19,447	)
Proceeds from long-term and short-term loans from banks and third parties	9078,~~499~~524		5251,~~997~~894
Proceeds from restricted deposits	771		1,182
Redemption of loans and short term bank liabilities	(42,969	)	(38,468	)
Redemption of loans and short term bank liabilities	(82,832	)	(72,957	)
Net cash provided by financing activities	35,555		13,426
Net cash provided by (used in) financing activities	8,438		(18,778	)
Translation differences	(891	)	1,409
Translation differences	1,374		(324	)
Net increase/(decrease) in available cash and cash equivalents	10,692		(11,005	)
Net decrease in available cash and cash equivalents	(16,134	)	(566	)
Cash and cash equivalents at beginning of the period	42,503		43,026
Cash and cash equivalents at beginning of the period	41,987		32,937
Cash and cash equivalents at end of the period	53,195		32,021
Cash and cash equivalents at end of the period	25,853		32,371
Additional cash flow disclosures:
Interest paid	1917,~~375~~089		1714,~~291~~378
Taxes paid	~~1,407~~458		~~720~~699

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

Aurelia Energy N.V.

Notes to Unaudited Interim Condensed Consolidated Financial Statements for the ~~six~~Three ~~months~~Months ~~and three months~~ ended ~~June~~March 3031, ~~2005~~ 2007 and ~~2004~~2006

1. Accounting Principles

The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP). The information furnished in the unaudited interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these unaudited interim condensed consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, ~~2004~~2006.

Sales and operating results for the ~~six months and the~~ three months ended ~~June~~March 3031, ~~2005~~2007 are not necessarily indicative of the results to be expected for the full year.

2. Tangible Fixed Assets

During the ~~six~~three months ended ~~June~~March 3031, ~~2005 and the three months ended June 30~~2007, ~~2005,~~investments ~~the Company~~in ~~invested~~tangible ~~U.S.$2.6~~fixed ~~million~~assets ~~and~~totalled U.S.$ 139.7 0 million, ~~respectively, in tangible fixed assets (~~as compared to ~~U.S.$6.9~~investments ~~million~~of ~~and~~ U.S.$426.67 million in ~~the~~ ~~six months ended June 30, 2004 and in~~ the three months ended ~~June~~March 3031, ~~2004,~~ ~~respectively)~~2006. The ~~investment~~investments during the ~~six~~three ~~month~~months ended ~~June~~March 3031, ~~2005~~2007 consisted primarily of U.S.$ 140.04 million for work performed in connection with ~~building~~the ~~two~~conversion ~~stock~~of ~~buoys~~our ~~and~~existing hull Aoka Mizu into an FPSO. In addition, U.S.$ 1.0.8 million was ~~related~~invested toin equipment on for the ~~Uisge~~Glas ~~Gorm.~~Dowr Ofand ~~the investment, approximately~~ U.S.$ 0.2 million was ~~related~~invested toin office equipment. onThese investments were partly offset by the ~~Munin,~~sale of a stock buoy ~~and~~that ~~U.S.$~~was ~~0.4~~recorded ~~million~~under toassets ~~expenditures~~under onconstruction ~~certain~~for ~~office~~an ~~equipment~~amount of U.S.$2.4 million. The ~~investment~~ investments during the ~~three~~first ~~months~~quarter ~~ended~~of ~~June 30,~~2006 ~~2005~~ consisted primarily of U.S.$ 014.80 million for a down payment in relation to ~~equipment~~the onpurchase of the ~~Uisge~~Hanne ~~Gorm~~Knutsen, a trading vessel which was delivered to the Company on June 29, 2006, and U.S.$ 011.56 ~~was~~million ~~related~~for to work performed in connection with athe ~~stock~~conversion ~~buoy,~~of our existing hull Aoka Mizu into an FPSO. U.S.$ 0.3 9 million ~~related~~was toalso ~~the~~invested ~~investment~~for work performed in ~~certain~~connection with ~~office~~two ~~equipment~~stock buoys and U.S.$ 0.1 2 million ~~related~~for toexpenditures ~~equipment~~ on ~~the~~certain ~~Munin~~office equipment.

3. Long-Term Bank Loans

AtOn ~~January~~June 2829, ~~2002~~2006, the Company refinanced its outstanding debt under athe U.S.$~~450~~600.0 million revolving credit facility ~~with~~ with funds drawn under ana ~~8-year,~~ U.S.$~~600~~850.0 million ~~corporate~~syndicated secured reducing revolving credit facility (the “RCF”). The RCF has been used to refinance ~~corporate~~outstanding ~~credit~~amounts ~~facility~~under ~~can~~the beexisting ~~used~~U.S.$600.0 million revolving credit facility, to finance the construction of ~~new~~the ~~FPSOs~~FPSO Aoka Mizu, ~~and~~to purchase the Hanne Knutsen, and will be used to aupgrade ~~limited~~existing ~~extent,~~FPSOs and for general corporate purposes. ~~Interest~~The ~~is payable~~costs atincurred ain ~~rate~~arranging ~~that~~the iscorporate ~~equal~~credit tofacility ahave ~~specified~~been ~~margin~~capitalized as debt arrangement fees under non-current assets and are amortized over ~~LIBOR~~the term of the facility. The margin, which is currently 10.~~400~~60%, ~~varies~~could ~~from~~increase ~~1.300%~~ to 1a maximum of 0.~~700~~85% depending on, among other factors, on the amount outstanding under the facility. As of ~~June~~March 3031, ~~2005~~2007, the interest rate, ~~including~~on ~~margin, that~~ the ~~Company paid was approximately 4.56%.~~ ~~The costs incurred in arranging the~~ corporate credit facility ~~have~~including ~~been capitalized~~margin aswas ~~debt~~approximately ~~arrangement fees under non-current assets and will be amortized over the term of the facility~~5.92%.

The facility is primarily secured with mortgages over the FPSOs and assignments of incoming cash flows generated from contracts with clients concerning the FPSOs.

4. 101¤4% Senior Notes due 2012

In February 2002, the Company issued U.S.$260.0 million aggregate principal amount of 101¤4% Senior Notes due 2012 through its finance subsidiary, Bluewater Finance Limited, at a price of 98.47% of

~~the~~Aurelia ~~principal~~Energy ~~amount thereof~~N. ~~The Company used the gross proceeds from the issuance to repay approximately U~~V.S.$248.5 million of indebtedness outstanding under its corporate credit facility and to pay approximately U.S.$7.5 million of costs relating to the issuance. The Company and each of its direct and indirect subsidiaries (other than Bluewater Finance Limited and Brightfield Corporation (a subsidiary in liquidation with no material assets, liabilities or operations)) have fully and unconditionally guaranteed the 101¤4% Senior Notes due 2012 on a joint and several basis.

~~In April 2003, the Company issued an additional U.S.$75.0 million aggregate principal amount of 101¤4% Senior~~ Notes ~~due~~ ~~2012 through its finance subsidiary, Bluewater Finance Limited, at a price of 100.5% of the aggregate principal amount thereof plus accrued interest from and including February 15, 2003~~ to ~~but~~Unaudited ~~excluding~~Interim ~~the~~Condensed ~~issue~~Consolidated ~~date.~~Financial ~~The Company~~Statements ~~used~~for ~~approximately U.S.$75.4 million of~~ the ~~gross~~Three ~~proceeds~~Months ~~from~~ended ~~the issuance, excluding the accrued interest from and including February~~March 1531, ~~2003~~ to2007 ~~but excluding the issue date, to repay approximately U.S.$73.4 million of indebtedness outstanding under its corporate credit facility~~ and to2006 ~~pay an estimated U.S.$2.0 million of costs relating to the issuance.~~(Continued)

~~Bluewater~~On ~~Finance~~August 10, ~~Limited~~2006 ~~is a wholly owned finance subsidiary of the Company~~ and ~~each other subsidiary of the Company is wholly-owned~~August 11, ~~directly~~ ~~or indirectly~~2006, by the Company. ~~The~~purchased ~~Company~~interest ~~has~~rate nocaps ~~independent~~to ~~assets or~~limit ~~operations.~~its ~~There~~interest ~~are~~exposure ~~no significant contractual restrictions~~ on ~~the ability~~ ofU.S.$300.0 million ~~the Company or any other guarantor~~ of the ~~101¤4%~~total ~~Senior~~outstanding ~~Notes due~~amount ~~2012~~under ~~to obtain funds from~~ its ~~subsidiaries~~corporate credit ~~by dividend or loan~~facility. ~~Neither Bluewater~~These ~~Finance~~interest ~~Limited~~rate ~~nor~~caps ~~any~~have ofa ~~the~~strike ~~guarantors~~rate of ~~the 101¤4~~6.5%, ~~Senior Notes~~limiting ~~due~~the ~~2012~~maximum ~~(other~~interest ~~than~~costs ~~the~~on ~~Company)~~that ~~are~~principal ~~restricted~~amount byto ~~any~~6.5% ~~third~~excluding ~~party in their~~margin. ~~ability~~The tointerest ~~transfer~~rate ~~funds~~caps ~~within~~have ~~the~~fixed ~~meaning~~notional amounts of ~~Rule~~U.S.$200.0 ~~4-08(e)(3) of~~million, ~~Regulation~~ U.S-X.$50.0 million Asand aU.S.$50.0 million ~~result,~~and ~~the~~are ~~guarantees~~aligned ofwith the ~~101¤4% Senior Notes~~ ~~due~~maturity ~~2012~~of ~~meet~~ the ~~conditions~~refinanced ofcorporate ~~Rule 3-10(d) of Regulation S-X~~facility. The ~~fair~~interest ~~value~~rate ofcaps ~~the 101¤4%~~are ~~Senior~~treated ~~Notes due 2012~~ as ofcash ~~June 30,~~flow ~~2005 amounted to U~~hedges.~~S.$361.8 million and was based on the quoted market price.~~

ToOn ~~reduce~~July 1, 2005, the ~~interest~~Company ~~expense~~entered ~~relating~~into ~~to the 101¤4%~~a ~~Senior~~U.S.$175.0 million ~~Notes~~loan ~~due~~agreement ~~2012,~~to finance the ~~Company~~acquisition ~~entered~~of ~~into~~ a ~~fixed-to-floating~~55% ownership interest ~~rate~~ ~~swap~~in ~~transaction,~~PR ~~with~~Jotun ~~effect~~DA. ~~from~~This ~~April 25,~~non-recourse ~~2003,~~loan ~~that~~will ~~enabled~~amortize ~~the Company~~ to ~~swap~~zero over ~~the~~a ~~equivalent~~period of ~~the~~six ~~fixed~~and ~~rate~~a ~~amount~~quarter ofyears, ~~interest~~with ~~that~~the ~~is payable~~final onamortization Uoccurring in September 2011.~~S.$335.0~~ ~~million~~Interest ~~aggregate~~equals ~~principal~~0.60% ~~amount~~over ofLIBOR. ~~the~~The ~~101¤4%~~average ~~Senior Notes~~interest ~~due~~rate ~~2012~~during ~~for~~ the ~~floating~~three ~~rate~~months ~~amount~~ended ofMarch 31, ~~interest~~2007 ~~that~~was ~~would~~5.92%. beTo ~~payable~~limit ~~on an~~its ~~equal~~interest ~~amount~~exposure ofafter ~~indebtedness. On May~~July 273, ~~2003~~2006, the Company ~~cancelled~~purchased ~~the~~an interest ~~swap~~rate ~~transaction.~~cap ~~Under~~which ~~the~~has ~~swap,~~a ~~prior~~strike torate ~~the~~of ~~cancellation~~4.4%, limiting the ~~Company received~~maximum interest ~~payments~~costs to ~~that~~5%. ~~were~~The ~~calculated~~interest atrate cap has a ~~fixed~~starting ~~rate~~notional amount of ~~101¤4%~~U.S.$143.9 million and ~~made~~the ~~interest~~reduction ~~payments~~schedule ~~that~~of ~~were~~the ~~calculated~~notional atamount aof ~~floating~~the ~~rate~~cap ~~that~~is ~~was~~aligned with ~~equal~~the torepayment aschedule ~~margin~~of ~~over~~the ~~LIBOR~~loan. The ~~Company~~interest ~~received~~rate ~~U.S.$6.7~~cap ~~million~~is ontreated ~~May 30,~~as cash ~~2003,~~flow ~~which~~hedge. ~~represented~~The ~~its~~costs ~~net~~incurred ~~gain~~in ~~from~~arranging ~~the~~this ~~cancellation~~loan ofagreement ~~the~~have ~~swap~~been ~~transaction.~~capitalized ~~The~~as ~~Company~~debt ~~deferred~~arrangement ~~this~~fees ~~gain,~~under ~~which~~non-current ~~will~~assets beand ~~credited~~will ~~to income~~be amortized over the ~~remaining~~term ~~duration~~ of the ~~101¤4% Senior~~loan. ~~Notes~~The ~~due~~loan ~~2012,~~is ~~and~~secured ~~used~~with ~~this~~a ~~payment~~mortgage toover the ~~repay~~FPSO ~~outstanding~~Jotun A ~~indebtedness~~and an assignment of the ~~under~~bareboat ~~its~~charter ~~credit~~contract ~~facility~~with the Jotun field partners to the lenders.

AsOn of July 171, ~~2003~~2005, ~~the~~PR ~~Company~~Jotun DA entered into a fixed-to-floating interest rate swap transaction, with terms identical to those of the previous swap transaction, that enables the Company to swap the equivalents of the fixed rate amount of interest that is payable on U.S.$~~335~~143.0 2 million ~~aggregate~~loan ~~principal~~agreement ~~amount~~with ofStandard ~~the~~Marine ~~101¤4%~~Nordsjo ~~Senior~~AS ~~Notes~~(“SMNAS”) ~~due~~to ~~2012~~finance ~~for~~the aacquisition ~~floating rate amount~~ of ~~interest~~the ~~that~~FPSO ~~would~~Jotun beA. ~~payable on an~~The ~~equal~~loan ~~amount of indebtedness. Under the swap, the Company~~ will ~~receive~~amortize ~~payments that~~to ~~are~~zero ~~calculated~~over at a ~~fixed~~period ~~rate~~ of ~~101¤4%~~six and ~~makes interest payments that are calculated at~~ a ~~floating~~quarter ~~rate~~years, ~~that~~with ~~is equal to a~~its ~~margin~~final ofamortization ~~6.32%~~occurring ~~over~~in ~~LIBOR~~September 2011. AsInterest ofequals ~~February 15, 2005 the margin changed to 6.44~~5%.

~~The~~As ~~unamortized~~of ~~premium~~March 31, 2007, ~~and~~the ~~discount~~consolidated amount of ~~the~~debt ~~101¤4% Senior~~borrowed ~~Notes~~in ~~due~~connection ~~2012~~with ~~amounted~~PR toJotun DA was U.S.$226.2 million. During the three months ended March 31,~~729~~ as2007 ofand the ~~June~~three months ended March 3031, ~~2005~~2006, repayments of the borrowed debt were made of U.S.$13.3 million and U.S.$12.6 million respectively.

4. 101¤4% Senior Notes due 2012

In February 2002, the Company issued U.S.$260.0 million aggregate principal amount of 101¤4% Senior Notes due 2012 through its finance subsidiary, Bluewater Finance Limited, at a price of 98.47% of the principal amount thereof. The Company used the gross proceeds from the issuance to repay approximately U.S.$248.5 million of indebtedness outstanding under its corporate credit facility and to pay approximately U.S.$7.5 million of costs relating to the issuance. The Company and most of its direct and indirect subsidiaries have fully and unconditionally guaranteed the 101¤4% Senior Notes due 2012 on a joint and several basis.

In April 2003, the Company issued an additional U.S.$75.0 million aggregate principal amount of 101¤4% Senior Notes due 2012 through its finance subsidiary, Bluewater Finance Limited, at a price of 100.5% of the aggregate principal amount thereof plus accrued interest from and including February 15, 2003 to, but excluding, the issue date. The Company used approximately U.S.$75.4 million of the gross proceeds from the issuance, excluding the accrued interest from and including February 15, 2003 to, but excluding, the issue date, to repay approximately U.S.$73.4 million of indebtedness outstanding under its corporate credit facility and to pay an estimated U.S.$2.0 million of costs relating to the issuance.

~~5. Long-Term Loan,~~Aurelia ~~Related~~Energy ~~Party~~N.V.

~~The~~Notes ~~fair~~to ~~value~~Unaudited ofInterim ~~the long-term~~Condensed ~~loan~~Consolidated ~~from~~Financial ~~the~~Statements ~~related~~for ~~party~~the ~~Marenco~~Three ~~Investments~~Months ~~Limited~~ended ~~as of June~~March ~~30, 2005 and December~~ 31, ~~2004~~2007 ~~amounted to U.S.$151.1 million~~ and ~~U.S.$153.6 million,~~2006 respectively. The fair value as of June 30, 2005 is based on the discounted cash-flow method assuming redemption in five equal annual installments as from December 2012. The terms and conditions of the loan remained unchanged compared to those disclosed in the audited financial statements as of and for the year ended December 31, 2004.(Continued)

6Bluewater Finance Limited is a wholly owned finance subsidiary of the Company. ~~Tax~~ ~~Lease~~Each other subsidiary of the Company (except for PR ~~Benefits~~Jotun ~~Liability~~DA and Bluewater Energy Services (Malaysia) Bhd. Sdn.) is wholly-owned, directly or indirectly, by the Company. The Company has no independent assets or operations. There are no significant contractual restrictions on the ability of the Company or any other guarantor of the 101¤4% Senior Notes due 2012 to obtain funds from its subsidiaries by dividend or loan. Neither Bluewater Finance Limited nor any of the guarantors of the 101¤4% Senior Notes due 2012 (other than the Company) are restricted by any third party in their ability to transfer funds within the meaning of Rule 4-08(e)(3) of Regulation S-X. As a result, the guarantees of the 101¤4% Senior Notes due 2012 meet the conditions of Rule 3-10(d) of Regulation S-X. The fair value of the 101¤4% Senior Notes due 2012 as of March 31, 2007 amounted to U.S.$350.1 million and was based on the quoted market price.

~~The~~To ~~liability~~reduce the interest expense relating to ~~repay~~the ~~tax~~101¤4% ~~leases~~Senior ~~declined~~Notes bydue ~~U.S.$1.1~~2012, ~~million~~the ~~during~~Company ~~the~~entered ~~six~~into ~~month~~a ~~ended~~fixed-to-floating ~~June~~interest rate swap transaction, with effect from April 3025, 2003, that enabled the ~~2005.~~Company ~~This~~to ~~tax~~swap ~~lease~~the ~~benefits~~equivalent ~~liability~~of ~~decreased~~the asfixed arate ~~result~~amount of ainterest ~~reduction~~that inis ~~the~~payable on U.S.$335.0 million aggregate principal amount of the ~~repayment~~101¤4% toSenior ~~the~~Notes due ~~lessor~~2012 infor the ~~event~~floating rate amount of ainterest ~~voluntary~~that ~~early~~would be payable on an ~~termination~~equal amount of indebtedness. On May 27, 2003, the ~~tax~~Company ~~lease~~cancelled ~~arrangements~~the swap transaction. ~~Other~~Under ~~movements~~the inswap, prior to the ~~tax~~cancellation, ~~lease~~the Company ~~benefits~~received ~~liability~~interest ~~result~~payments ~~from~~that ~~fluctuations~~were incalculated ~~currency~~at ~~exchange~~a ~~rates. Payments~~fixed ~~received~~rate ~~from/~~of 101¤4% and made tointerest ~~the~~payments ~~lessor~~that ~~resulting~~were ~~from~~calculated ~~changes~~at ina ~~underlying~~floating rate that was ~~variables~~equal ~~such~~to asa ~~market~~margin ~~interest~~over ~~rates~~LIBOR. ~~and~~The ~~corporate~~Company ~~income~~received ~~taxes~~U.S.$6.7 ~~are~~million on May 30, ~~accounted~~2003, ~~for~~which inrepresented its net gain from the ~~statement~~cancellation of ~~income~~the asswap transaction. ~~other~~The ~~operating~~Company deferred this gain, which will be credited to income~~/expense~~ over the remaining duration of the 101¤4% Senior Notes due 2012, and used this payment to repay outstanding indebtedness under its corporate credit facility.

On July 17, 2003, the Company entered into a fixed-to-floating interest rate swap transaction, with terms identical to those of the previous swap transaction, that enabled the Company to swap the equivalents of the fixed rate amount of interest that is payable on U.S.$335.0 million aggregate principal amount of the 101¤4% Senior Notes due 2012 for a floating rate amount of interest that would be payable on an equal amount of indebtedness. Under the swap, the Company received payments that were calculated at a fixed rate of 101¤4% and made interest payments that were calculated at a floating rate that was equal to a margin of 6.32% over LIBOR. As of February 15, 2005 the margin changed to 6.44%.

On November 4, 2005 the Company partially cancelled the fixed-to-floating interest rate swap transaction in relation to the U.S.$335.0 million aggregate principal amount of the 101¤4% Senior Notes due 2012 for the period from August 15, 2005 to August 15, 2007. Due to the partial cancellation of the swap transaction, the Company would incur fair value fluctuations through the statement of income from the date of cancellation until August 15, 2007. The Company paid U.S.$6.9 million on November 4, 2005 which represented its net cost from the partial cancellation of the swap transaction. The Company has deferred this cost which will be debited to the statement of income over the remaining duration of the 101¤4% Senior Notes due 2012.

On April 21, 2006, the Company cancelled the remainder of the fixed-to-floating interest rate swap transaction in relation to the U.S.$335.0 million aggregate principle amount of the 101¤4% Senior Notes due 2012, which was already partially cancelled for the period from August 15, 2005 to August 15, 2007. The Company paid U.S.$23.8 million on May 3, 2006, which represented its net cost from the cancellation of the swap transaction. The Company has deferred this cost which will be debited to the statement of income

7Aurelia Energy N. ~~Segment Information~~V.

Notes to Unaudited Interim Condensed Consolidated Financial Statements
for the Three Months ended March 31, 2007 and 2006 (Continued)

over the remaining duration of the 101¤4% Senior Notes due 2012. The 101¤4% Senior Notes due 2012 will continue at an interest percentage of 10.25%.

The unamortized premium and discount of the 101¤4% Senior Notes due 2012 amounts to U.S.$(1.7) million as of March 31, 2007. The unamortized deferred gain and loss from the cancellations of the swaps amounts to U.S.$(21.7) million as of March 31, 2007.

5. Long-Term Loan, Related Party

The fair value of the long-term loan from the related party Marenco Investments Limited as of March 31, 2007 and December 31, 2006 amounted to U.S.$171.0 million and U.S.$173.9 million, respectively. The fair value as of March 31, 2007 was based on the discounted cash-flow method assuming redemption in five equal annual installments as from December 2012. The terms and conditions of the loan remained unchanged compared to those disclosed in the audited financial statements as of and for the year ended December 31, 2006.

Aurelia Energy N.V.

Notes to Unaudited Interim Condensed Consolidated Financial Statements
for the Three Months ended March 31, 2007 and 2006 (Continued)

6. Segment Information

The segment information by business segment is as follows:

	For the six months ended June 30,				For the three months ended June 30,
	For the three months ended March 31,
	2005		2004		2005		2004
	2007		2006
	(in U.S.$ thousands)
FPSO
Revenues	~~162~~74,~~150~~174		~~181~~74,~~835~~940		~~83,056~~		~~104,296~~
Segment net income/(loss)	~~1,487~~2.585		123,~~886~~138		~~(2,343~~	)	~~4,607~~
Identifiable assets	1,~~263~~685,~~988~~096		1,~~278~~480,~~428~~509		~~1,263,988~~		~~1,278,428~~
Capital expenditures	140,~~293~~422		625,~~597~~592		~~1,024~~		~~4,414~~
Depreciation and amortization	3927,~~780~~191		3825,~~773~~965		~~19,898~~		~~19,371~~
Interest income and (expense)	(2315,~~608~~139	)	(2118,~~551~~208	)	~~(11,984~~	)	~~(10,511~~	)
Income taxes	~~(11,666~~442	)	(105,~~675~~781	)	~~(7,201~~	)	~~(5,505~~	)
SPM
Revenues	32,~~881~~534		3615,~~123~~208		~~10,707~~		~~23,003~~
Segment net income/(loss)	(58,~~484~~012	)	~~1,636~~447		~~(3,405~~	)	~~1,592~~
Identifiable assets	4788,~~912~~361		4741,~~431~~630		~~47,912~~		~~47,431~~
Capital expenditures	(1,~~319~~400	)	~~267~~1,096		~~729~~		~~190~~
Depreciation and amortization	2631		2714		12		13
Interest income and (expense)	163,254		~~(26~~142	)	12		2
Income taxes	~~(1,235~~197	)	(~~1,097~~636	)	~~(731~~	)	~~(572~~	)
Other
Revenues	—		—		—		—
Segment net income	—		—		—		—
Identifiable assets	~~610~~739		~~2,688~~648		~~610~~		~~2,688~~
Capital expenditures	—		—		—		—
Depreciation and amortization	—		—		—		—
Interest income and (expense)	—		—		—		—
Income taxes	—		—		—		—
Consolidated
Revenues	~~195~~106,~~031~~708		~~217~~90,~~958~~148		~~93,763~~		~~127,299~~
Segment net income/(loss)	(35,~~997~~427	)	143,~~522~~585		~~(5,748~~	)	~~6,199~~
Identifiable assets	1,~~312~~774,~~510~~196		1,~~328~~522,~~547~~787		~~1,312,510~~		~~1,328,547~~
Capital expenditures	239,~~612~~022		626,~~864~~688		~~1,753~~		~~4,604~~
Depreciation and amortization	3927,~~806~~222		3825,~~800~~979		~~19,910~~		~~19,384~~
Interest income and (expense)	(2318,~~592~~393	)	(2118,~~577~~066	)	~~(11,972~~	)	~~(10,509~~	)
Income taxes	~~(12,901~~639	)	(116,~~772~~417	)	~~(7,932~~	)	~~(6,077~~	)

~~8. Operations Expenses~~13

Aurelia Energy N.V.

Notes to Unaudited Interim Condensed Consolidated Financial Statements
for the Three Months ended March 31, 2007 and 2006 (Continued)

7. Operations Expenses

Operations expenses are as follows:

	For the six months ended June 30,			For the three months ended June 30,
	For the three months ended March 31,
	2005		2004	2005		2004
	2007			2006
	(in U.S.$ thousands)
SPM contracts	~~37,891~~	35,296	~~34,819~~	~~13,855~~	14,997	~~21,608~~
FPSO contracts	~~96,287~~	22,864	~~116,968~~	~~52,214~~	29,369	~~71,659~~
	134,178		151,787	66,069		93,267
		58,160			44,366

128. Other Comprehensive Income

9. Other Comprehensive Income

Other comprehensive income is as follows:

	For the six months ended June 30,				For the three months ended June 30,
	For the three months ended March 31,
	2005		2004		2005		2004
	2007				2006
	(in U.S.$ thousands)
Decrease in fair value of cash flow hedges (net of tax)	(2,793	)	(124	)	(3,045	)	(1,185	)
Increase in fair value of cash flow hedges (net of tax) nil		731				2,416
Reclassification adjustments for settled portion of hedge realized in net income (net of tax)	562		958		675		1,561
Reclassification adjustments for settled portion of hedge realized in net income (net of tax) nil		(1,409	)			(185	)
Translation result	~~1,271~~	63	16		~~252~~	(875	~~343~~)
	(960	)	850		(2,118	)	719
		(615	)			1,356

109. Internal restructuring and tax audit

Effective January 1, 2000, wethe ~~entered~~Company entered into an internal restructuring process. In connection with this restructuring, ~~the~~ the economic interests in most of the assets and liabilities of certain non-Dutch consolidated group companies (the “selling companies”) were sold to ~~Bluewater~~ Bluewater Holding B.V., while legal title to the assets and liabilities ~~transferred~~ transferred remained with the selling entities. The valuation of the assets and ~~liabilities~~ liabilities transferred was based on a valuation report ~~prepared by an independent investment bank~~. The sales of these economic interests resulted ~~for income taxes purposes only~~ in intercompany profits at the level of the selling ~~companies~~ companies and the creation of a corresponding amount of ~~goodwill~~(amortizable) goodwill and intercompany indebtedness at the level of Bluewater Holding B.V. ~~Although~~The ~~extensive~~tax ~~discussions~~consequences ~~were held with the tax authorities on the tax structure~~ of the ~~Dutch~~ ~~group~~Company’s ~~companies and the~~ internal restructuring, ~~the~~have ~~tax~~been ~~structure of~~ the ~~Dutch~~ ~~group~~subject ~~companies and the tax consequences~~ of ~~our internal restructuring~~ ~~became~~extensive ~~subject~~discussions towith ~~a tax audit and remain subject to further review by~~ the tax authorities.

In ~~May~~ 2002, weand ~~received~~2003 ~~a draft audit report from~~ the Dutch tax authorities. ~~The~~issued ~~draft~~ tax ~~audit report included certain~~ ~~proposed~~assessments ~~factual~~with ~~findings~~respect ~~relating~~ to ~~the~~certain ~~issue of whether our~~ non-Dutch group ~~companies~~ ~~are~~members ~~residents~~pertaining ofto the 1997, ~~Netherlands~~1998, ~~for~~1999 ~~Dutch~~and 2000 tax ~~purposes~~years, orfor ~~have~~ a ~~taxable~~ ~~presence~~total inamount ~~the~~of ~~Netherlands~~€137.9 million ~~The~~(U.S.$181.8 ~~draft audit report~~million), ~~which~~based ~~does~~on ~~not represent a final determination by~~ the ~~Dutch~~position ~~tax~~that ~~authorities,~~these ~~states~~group ~~that it~~companies, ~~was~~prior ~~issued~~to ~~for~~and ~~discussion~~at ~~purposes. On~~ the ~~basis~~time of the ~~draft tax report~~restructuring, ~~the Dutch~~were ~~tax~~residents ~~authorities~~of ~~assessed, in June 2002, additional taxes with~~the ~~respect~~Netherlands tofor a Dutch ~~group~~tax ~~member~~purposes ~~for~~or ~~its~~had ~~1998~~a ~~and~~taxable ~~1999~~presence ~~tax~~in ~~years and assessed,~~the inNetherlands. ~~November 2002,~~The ~~July 2003~~Company ~~and~~filed ~~August 2003,~~a ~~additional~~letter ~~taxes with~~of ~~respect~~objection to ~~certain~~these ~~non-Dutch~~assessments ~~group members for their 1997, 1998, 1999~~ and ~~2000~~engaged ~~tax~~in ~~years.~~further ~~The~~discussions ~~total~~with ~~amount~~the ofDutch ~~these~~tax ~~assessments~~authorities, ~~including~~in ~~interest~~response to ~~their~~which ~~respective~~these ~~dates,~~assessments ~~was~~have ~~€135.4 million (U.S.$163.4 million)~~been asreduced ofto ~~December 31, 2003~~zero.

WeThe ~~have held discussions and corresponded with the~~ Dutch tax authorities ~~regarding~~also ~~their~~issued ~~tax~~ assessments, ~~among other things. We~~with ~~believe~~respect ~~that~~to ~~the~~one ~~findings~~ of ~~fact and~~ the ~~relevant~~Dutch ~~legal~~group ~~and~~companies ~~regulatory interpretations~~in ~~upon~~respect ~~which~~of the ~~Dutch~~years ~~tax~~1998 ~~authorities’~~and 1999 ~~position is~~ based ~~are incomplete~~on ~~and~~their ~~incorrect,~~assertion ~~and, in particular,~~ that ~~the~~certain ~~assessment~~transfer ofpricing ~~such~~adjustments were ~~additional~~required. ~~taxes~~These asassessments ~~discussed~~claimed ~~above~~additional istax ~~contrary~~payments towere ~~certain~~required ~~favorable~~in ~~tax~~an ~~rulings~~aggregate ~~which~~amount weof ~~have received from them~~€23.3 ~~Accordingly,~~million ~~in July 2003, we~~(U.S.$30.7 ~~filed~~million). ~~with~~Based ~~the~~upon ~~Dutch tax authorities~~ a ~~response~~letter toof ~~their~~objection ~~draft~~against ~~audit~~these ~~report~~assessments and a ~~transfer pricing report supporting our response and these discussions.~~

In May and June 2004, we received from the Dutch tax authorities a number of revised assessments stating that for the majority of the companies within the Bluewater Group no taxes are required to be paid. These revised assessments thereby reduced the total amount of the outstanding assessments of the Bluewater Group from €135.4 million (U.S.$163.4 million), as of December 31, 2003, to €29.0 million (U.S.$35.0 million), as of December 31, 2004 and June 30, 2005. We believe, however, that any assessment of additional taxes is incorrect, and that it is probable that it will prevail on the merits in any final determination of the assessments. We intend to continue to contest the imposition of any additional taxes and, if necessary, to seek administrative and judicial review of the assessments. Administrative and judicial review of the assessments in the Netherlands would likely take several years. We intend to withhold payment of such taxes pending final resolution of the issue. Although there can be no assurance that the relevant issues will ultimately be resolved in our favor, we believe that it is not probable that additional Dutch income taxes will be payable for the 1997, 1998, 1999 and 2000 tax years, and, accordingly, we did not accrue for the aforementioned tax assessments in the audited consolidated financial statements included herewith.

In connection with the draft tax audit report, we are also in discussions with the Dutch tax authorities concerning our internal restructuring. In the course of such discussions, the Dutch tax authorities have confirmed to us that they will not seek to tax any capital gain that may be associated with the sale of relevant economic interests in connection with our internal restructuring, but instead will focus their analysis only on the amount of goodwill and deductible interest related to the internal restructuring and the percentage of goodwill and deductible interest from our internal restructuring that should ultimately be attributed to our non-Dutch activities. The outcome of such discussions could limit our ability to take advantage of future tax savings associated with our internal restructuring by limiting the amount of goodwill that we may amortize and the amount of interest we may deduct for tax purposes in future periods. However, based upon current facts and circumstances, applicable tax law, regulation and precedent, discussions with relevant tax authorities and professional advisers and other relevant criteria, we estimate that it is currently probable that we will realize benefits relating to at least U.S.$434.0 million of amortizable goodwill and at least U.S.$768.0 million of interest-bearing inter-company debt in connection with our internal restructuring at January 1, 2000 and that such amounts will result in tax losses which may be carried forward for Dutch income tax purposes. In addition, in December 2001, U.S.$379.5 million of the inter-company indebtedness of Bluewater Holding B.V. relating to the internal restructuring was converted to share capital, thereby reducing the amount of tax benefits that we may take advantage of in subsequent periods. Notwithstanding our current estimate, however, it is impracticable to quantify definitively at this time the effect that the outcome of such discussions may have on our actual tax position, because any such definitive quantification depends on a number of future events, including the specific factual findings and legal and regulatory positions that may be taken by the Dutch tax authorities in any possible future challenge to our internal restructuring, as well as the outcome of any relevant proceedings. While we believe that it is probable that we will realize tax benefits in amounts that are not less than the foregoing estimates as set forth above and that it is unlikely that the outcome of these discussions or any proceedings relating thereto will have a material adverse effect on our financial position, there can be no assurance in this regard and we could lose some or all of the future anticipated tax savings associated with our internal restructuring.

11. Financial Investment

On May 26, 2004, Bluewater International B.V. entered into an agreement with Emerald Energy Resources Ltd. (“Emerald”), a Nigerian indigenous oil company, for the acquisition of shares of Emerald at a price of U.S.$3.0 million. On November 25, 2004 Bluewater International B.V. obtained additional ordinary shares of Emerald at a price of U.S.$4.5 million. On April 27, 2005 Bluewater International B.V. obtained additional shares of Emerald at a price of U.S.$2.0 million. The total investment in Emerald

~~represents~~Aurelia ~~approximately~~Energy 9N.~~6% of its authorized and outstanding capital and is stated at historical cost~~V. ~~The Company has an option to acquire an additional 800,000 ordinary shares.~~

OnNotes ~~April 4,~~to ~~2005 Bluewater~~Unaudited ~~International~~Interim ~~B.V.~~Condensed ~~obtained~~Consolidated anFinancial ~~interest~~Statements offor 2%the inThree aMonths ~~Nigerian~~ended ~~Oil Processing Block OPL229~~March 31, ~~operated~~2007 byand ~~Emerald,~~2006 ~~at a price of U.S.$0.4 million.~~(Continued)

~~12. Other~~subsequent discussions on ~~Receivables~~this issue, the tax authorities have issued decisions in February and March 2006 to eliminate these additional tax assessment amounts, thereby reducing the assessments to the amounts that are equal to amounts originally shown in the tax returns as filed.

AtPrior ~~June 30~~to and after the restructuring that took place in 2000, ~~2005~~the anCompany has also had extensive discussions with the Dutch tax authorities concerning the amount of U goodwill and intercompany indebtedness at the level of Bluewater Holding B.SV.~~$38.0~~ ~~million~~pursuant isto the restructuring transactions, ~~restricted~~and inthe ~~use~~amount ~~because~~of ~~these~~goodwill ~~funds~~carried ~~will~~at beone ~~used~~of the non-Dutch group companies at the date it was redomiciled to the Netherlands as part of the same restructuring. In 2005, the Company received tax assessments for these two companies for the ~~equity~~tax ~~investment~~year 2000 based on the tax authorities’ view that no goodwill should be attributed to these companies and ~~payment~~that, ofaccordingly, the amount of intercompany debt and interest ~~cap~~expense at the level of Bluewater Holding B.V. should be reduced. The Company has filed letters of objection against these assessments and ~~upfront~~had ~~fee~~subsequent indiscussions ~~relation~~with tothe Dutch tax authorities. In February 2006, the ~~Joint~~Company received decision letters from ~~Venture~~the ~~with~~Dutch ~~ExxonMobil~~tax inauthorities ~~Norway~~accepting tosome ~~purchase~~goodwill at the ~~FPSO~~level ~~Jotun~~of the redomiciled non-Dutch group company but no goodwill at the level of Bluewater Holding B.V., ~~effective~~and ~~July~~at the same time reducing its intercompany debt and related interest expense by a corresponding amount. On 1March 22, 2006, the ~~2005~~Company ~~(See~~has ~~note~~started 13legal ~~Subsequent~~proceedings ~~Events)~~to have the assessments reviewed which resulted in a hearing on April 25, 2007 for the lower tax court in Haarlem in the Netherlands.

13The dispute before the tax court focused on various components of the valuation method that was used to establish the enterprise value at the time of the restructuring and hence the amount of goodwill that arose upon the restructuring of the company. ~~Subsequent~~ None of the other previously ~~Events~~disputed matters, such as the amount of goodwill already present at the level of the Dutch group company mentioned above at the time of the restructuring, became subject to judicial review during the court hearing. The verdict in this case has been adjourned and parties have agreed to further discuss the aforementioned componenents of the valuation method in an attempt to reach a settlement.

~~Bluewater~~Based ~~(Dyphavet)~~upon ~~BV,~~current afacts ~~subsidiary~~and ofcircumstances, ~~the~~applicable ~~Company~~tax law, ~~and~~ ~~the~~regulation ~~Norwegian~~and ~~company Standard~~precedent, ~~Marine~~discussions ~~Nordsjo~~with ASrelevant ~~(SMNAS),~~tax anauthorities and ~~affiliate~~professional ofadvisers ~~Exxon~~and ~~Mobil~~other ~~Corporation~~relevant criteria, ~~have~~ ~~formed~~the aCompany ~~partnership~~estimates that ~~(PR~~it ~~Jotun~~is ~~DA),~~currently ~~for~~probable ~~the~~that ~~purchase~~it ofwill ~~the~~realize ~~FPSO~~benefits ~~Jotun~~relating Ato at ~~from~~least ~~its~~U.S.$592 ~~current~~million ~~owners,~~of ~~who~~amortizable ~~are~~goodwill ~~the~~and ~~participants~~at inleast ~~the~~U.S.$1,041 ~~Jotun field~~million ~~development~~of ininterest ~~Norway:~~bearing ~~Exxon~~intercompany ~~Mobil~~debt ~~Exploration~~in ~~and~~connection ~~Production~~with ~~Norway~~the ~~AS,~~Company’s January 2000 ~~Enterprise~~internal ~~Oil~~restructuring ~~Norge~~and ASthat ~~(an~~such ~~affiliate~~amounts ofwill ~~A/S~~result ~~Norske~~in ~~Shell),~~tax ~~Lundin~~losses ~~Norway AS~~which ~~and~~may ~~Petoro~~be ~~AS.~~carried Asforward afor ~~result~~Dutch ofincome ~~this~~tax purposes, subject to the ~~Company~~potential application ~~will~~of ~~incur~~the anthin-capitalization ~~additional~~rules ~~debt of~~and ~~U.S.$172.0 million~~loss ~~for~~carry forward limitations applicable in the ~~financing~~Netherlands ofas ~~this~~described ~~purchase~~below.

~~The~~Notwithstanding ~~FPSO~~the Company’s current estimates, however, ~~operated~~it byis ~~Exxon~~impracticable ~~Mobil,~~to ~~has~~quantify ~~been~~definitively ~~producing~~at this time the effect that the outcome of such discussions may have on the ~~Jotun~~Company’s ~~field~~actual ~~located~~tax position, because such definitive quantification depends on a number of possible future events, including the specific factual findings and legal and regulatory positions that may be taken by the Dutch tax authorities in the current ~~Norwegian~~legal ~~sector~~proceedings ofand discussions, as well as the ~~North~~outcome ~~Sea~~of ~~since~~such proceedings ~~1999~~and discussions between parties.

~~Terms~~In ofFebruary 2007, the ~~agreement~~Company ~~call~~received ~~for its current owners to~~tax ~~lease~~assessments ~~back~~for ~~the~~Bluewater ~~FPSO~~Holding ~~from~~B.V. ~~the~~in ~~newly~~respect ~~formed partnership by means~~ of athe ~~bareboat~~years ~~charter (under~~2001 ~~which only facilities fees~~ and ~~no operational fees will be payable) having~~2002, abased ~~minimum~~on ~~term of five years, with~~ the ~~possibility~~same totax ~~extend~~authorities’ ~~the~~view ~~contract~~as ofmentioned ~~up to 15 years~~above. The Company ~~will~~has filed ~~hold~~letters ~~55%~~of ~~ownership~~objection inagainst ~~the~~these ~~FPSO,~~assessments ~~with~~and ~~SMNAS holding~~expects ~~the~~that ~~remaining 45%. At termination of~~ the ~~lease contract, SMNAS has both~~tax aauthorities ~~call~~will ~~and~~delay a ~~put~~decision ~~option~~until ~~either to purchase~~ the ~~Company’s~~litigation ~~stake~~ in respect of the year ~~partnership~~2000 orhas tobeen ~~sell~~resolved. ~~its~~As ~~own~~is ~~stake~~permitted inunder ~~the~~Dutch ~~partnership~~law toand ~~the Company.~~

The bareboat charter is expected to continue for the remaining life of the Jotun field. Field life will be dependent on product prices, costs and other activities in the area. ExxonMobil will continue to operate the FPSO.

The FPSO Jotun A has a storage capacity of 584.400 bbl (AFRAMAX size tanker) and was built by Kvaerner Masa (now Aker Finnyards). The FPSO ranks among the highest capacity FPSOs in the North Sea.

~~UNAUDITED OTHER~~Aurelia ~~FINANCIAL~~Energy ~~DATA AND RATIOS~~N.V.

	For the six months ended June 30,				For the three months ended June 30,
	2005		2004		2005		2004
	(in U.S.$ thousands, except ratios)
EBITDA(1)
FPSO business	61,940		62,331		28,777		31,121
SPM business	(5,901	)	568		(3,612	)	1,031
Total	56,039		62,899		25,165		32,152
Capital expenditures, net(2)	2,612		6,864		1,753		4,604
Cash interest paid(3)	19,375		17,291		9,901		8,251
Ratio of EBITDA to cash interest paid	2.89	x	3.64	x	2.54	x	3.90	x
Ratio of earnings to fixed charges(4)	0.44	x	1.17	x	0.07	x	1.08	x

Notes to Unaudited Interim Condensed Consolidated Financial Statements
for the Three Months ended March 31, 2007 and 2006 (Continued)

~~Notes:~~regulations, the Company intends to withhold payment of amounts in respect of contested tax assessments pending final resolution of the issue.

~~(1) “EBITDA” is~~As ~~defined~~of asJanuary 1, ~~operating~~2004, ~~income~~Dutch ~~(loss)~~tax ~~plus~~law ~~depreciation and amortization. This~~contains ~~definition~~so-called ~~deviates~~thin-capitalization, ~~from~~or ~~other~~‘thin ~~definitions~~cap’ ofrules that ~~EBITDA~~may ~~used~~operate ~~by some other~~to ~~companies,~~restrict asthe itdeductibility ~~excludes~~of interest ~~income~~on ~~and~~intercompany ~~currency~~debt ~~exchange~~(including ~~results. We~~external ~~believe~~debt ~~this~~that ~~definition~~ is ~~more~~guaranteed ~~appropriate~~by ~~since~~an itaffiliated ~~provides~~company). ~~investors~~In ~~with~~order, ~~a helpful~~among ~~measure for comparing our operating performance with that of~~ other ~~companies~~things, into ~~our~~defer ~~industry.~~applicability ~~EBITDA~~of isthe ~~presented~~Dutch asthin ~~additional~~cap ~~information~~rules until December 30, ~~because~~2004 weand ~~believe~~periods ~~that~~thereafter, itthe isfiscal ayears ~~useful~~of ~~measure~~all ~~for~~Bluewater’s ~~certain~~Dutch ~~investors to~~group ~~determine~~companies ~~our~~were ~~operating~~changed, ~~cash~~although ~~flow~~no ~~and~~assurance ~~historical~~can ~~ability~~be togiven ~~meet~~that ~~debt~~this ~~service~~measure ~~and~~will ~~capital~~be ~~expenditure~~effective ~~requirements.~~to Wepreclude ~~also~~applicability ~~believe~~of ~~that~~the itthin ~~provides~~cap arules to ~~useful~~such ~~measure~~companies ofas ~~the level~~ of ~~profitability~~January 1, we2004. ~~achieve~~As ~~with~~the ~~our~~disallowed ~~asset~~portion ~~base.~~of ~~EBITDA~~the isinterest ~~not~~deduction adepends ~~measure~~significantly ofon ~~financial~~the ~~performance~~debt-equity ~~under~~ratio ~~U.S.~~of ~~GAAP~~the ~~and~~relevant ~~should not be~~entity ~~considered~~at asthe anbeginning ~~alternative~~and tothe ~~cash~~end ~~flow~~of ~~from~~any ~~operating~~financial ~~activities~~year, ait ~~measure of~~is ~~liquidity~~clear orthat anthe outcome ~~alternative~~of tothe ~~net~~dispute ~~income~~with asthe ~~indicators~~Dutch oftax ~~our~~authorities ~~operating performance~~concerning orthe ~~any~~relevant goodwill ~~other~~amount ~~measures~~(and ofthe ~~performance~~annual ~~derived~~amortization inamount ~~accordance~~resulting ~~with~~therefrom) and ~~U.S.~~the ~~GAAP.~~corresponding ~~The~~intercompany ~~following~~debt ~~table~~amount ~~presents~~will have a ~~reconciliation~~significant ofimpact ~~our EBITDA to net~~on ~~income~~the ~~and~~effect ~~net~~of ~~cash~~the ~~provided~~thin bycap ~~operating~~rules on ~~activities~~Bluewater ~~for~~Holding ~~the periods indicated~~B.V.

	For the six months ended June 30,				For the three months ended June 30,
	2005		2004		2005		2004
	(in U.S.$ thousands)
EBITDA	56,039		62,899		25,165		32,152
Depreciation of tangible fixed assets and amortization of intangible assets	(39,806	)	(38,800	)	(19,910	)	(19,384	)
Financial income and expense	(33,131	)	(21,349	)	(18,935	)	(12,646	)
Income taxes	12,901		11,772		7,932		6,077
Net income/(loss)	(3,997	)	14,522		(5,748	)	6,199
Adjustments to reconcile net income to cash provided	38,394		28,893		20,405		16,747
Changes in operating assets and liabilities, net of effect of acquisitions	(55,331	)	(14,965	)	(19,475	)	(767	)
Net cash provided by (used in) operating activities	(20,934	)	28,450		(4,818	)	22,179

In December 2001, U.S.$379.5 million of the intercompany indebtedness of Bluewater Holding B.V. relating to the internal restructuring was converted to share capital, thereby reducing the amount of tax benefits that the Company could take advantage of in subsequent periods and at the same time increasing the equity amount for application of the thin cap rules as of 2004. In December 2006, a further amount of intercompany debt of Bluewater Holding B.V. relating to the internal restructuring was converted to share capital. According to the terms of the agreement, the amount of this debt conversion will be determined based on the total debt and equity of Bluewater Holding B.V. as of December 31, 2006, as well as the final amount of goodwill and intercompany debt that will be established based on the outcome of the pending legal proceedings.

~~(2) “Capital~~The ~~expenditures~~outcome of these discussions and judicial proceedings, which may take a considerable period of ~~net”~~time, ~~represents~~could ~~additions~~limit the Company’s ability to ~~fixed~~take ~~assets~~advantage of future tax savings associated with the Company’s internal restructuring by limiting the amount of goodwill that the Company may amortize and the amount of interest that the Company may deduct for tax purposes in future periods. In addition, the outcome of the Company’s dispute with respect to thin cap rules may limit the amount of deductible interest for the tax year 2004 and subsequent periods. While the Company believes that it is probable that it will realize tax benefits in amounts that are not less ~~disposals~~than the foregoing estimates as set forth above and that it is unlikely that the outcome of ~~fixed~~these ~~assets~~discussions and the pending proceedings relating thereto will have a material adverse effect on the Company’s financial position, there can be no assurance in this regard and the Company could lose some or all of the future anticipated tax savings associated with its internal restructuring.

~~(3)~~10. ~~“Cash interest paid” is~~Financial defined as interest expense, plus capitalized interest, less accrued interest on the subordinated Marenco loan and less amortization of debt arrangement fees and is disclosed as an additional cash flow disclosure in the unaudited interim condensed consolidated cash flow statement.Investment

On May 26, 2004, Bluewater International B.V. entered into an agreement with Emerald Energy Resources Ltd. (“Emerald”), a Nigerian indigenous oil company, which holds a 33% working interest in Nigerian oil producing license OPL229, for the acquisition of shares of Emerald at a total price of U.S.$3.0 million. On November 25, 2004 and April 27, 2005, Bluewater International B.V. obtained additional ordinary shares of Emerald at a total price of U.S.$4.5 million and U.S.$2.0 million respectively. The total investment in Emerald represents approximately 11.4% of its outstanding capital and is stated at historical cost.

~~(4) “Earnings”~~Aurelia isEnergy the amount of pre-tax income from continuing operations before adjustment for minority interests in consolidated subsidiaries or income or loss from equity investees, plus fixed charges, plus amortization of capitalized interest, plus distributed income to equity investees, plus the share of pre-tax losses of equity investees for which charges arising from guarantees are included in fixed charges, less interest capitalized, less preference security dividend requirements of consolidated subsidiaries, less the minority interest in pre-tax income of subsidiaries that have not incurred fixed chargesN. “Fixed charges” means the sum of the following: (a) interest expensed or capitalized, (b) amortized premiums, discounts and capitalized expenses related to indebtedness, (c) an estimate of the interest within rental expense, and (d) preference security dividend requirements of consolidated subsidiariesV. The term “preference security dividend” is the amount of pre-tax earnings that is required to pay the dividends on outstanding preference securities, computed as the amount of the dividend divided by one minus the effective income tax rate applicable to continuing operations.

Notes to Unaudited Interim Condensed Consolidated Financial Statements
for the Three Months ended March 31, 2007 and 2006 (Continued)

On August 1, 2006, Bluewater International B.V acquired 11.1% ownership interest at the total price of U.S.$13.5 million in Amni Oil and Gas Ltd., a Nigerian company which holds a 27% working interest in Nigerian oil producing license OPL229. The investment is stated at historical cost.

11. Minority Interest

Minority interests in consolidated companies represent the third-party shareholding of 45% by SMNAS in the underlying net assets of PR Jotun DA.

12. Financial Instruments

The Company uses (in the normal course of business) various types of financial instruments. The fair value of a financial instrument is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair values are determined from listed market prices, price quotations from banks or from pricing models.

The Company has procedures and policies in place to control risks related to financial instruments. These policies and procedures include a clear segregation of duties between operating, settlement, accounting and controlling of all financial instruments used. The spread of the Company’s activities limits exposure to concentrations of credit or market risk. The Company’s management is involved in the risk management process.

The Company attempts to minimize the counterparty credit risk associated with the financial instruments used by selecting counterparties that it believes to be creditworthy.

(a) Financial assets and liabilities

Financial instruments in the balance sheet substantially include accounts receivable trade, cash, deposits, long-term loans, short-term loans and trade accounts payable. The fair value of these financial instruments approximates their carrying value, unless indicated otherwise.

(b) Derivative financial instruments

To limit its interest exposure after July 3, 2006 on the long-term bank loan entered into on July 1, 2005 for financing of the acquisition of its 55% ownership in PR Jotun DA, the Company purchased an interest rate cap. This interest rate cap has a strike rate of 4.4%, limiting the maximum interest costs including margin to 5%. The interest rate cap has a starting notional amount of U.S.$143.9 million and the reduction schedule of the notional amount of the cap is aligned with the repayment schedule of the loan. The interest rate cap is accounted for as cash flow hedge and change in the fair values are recorded in other comprehensive income. The fair value as of March 31, 2007 was U.S.$1.8 million.

On August 10, 2006 and August 11, 2006, the Company purchased interest rate caps to limit its interest rate exposure on U.S.$300.0 million of the total outstanding amount under its corporate credit facility. These interest rate caps have a strike rate of 6.5%, limiting the maximum interest costs on that principal amount to 6.5% excluding margin. The interest rate caps have fixed notional amounts of U.S.$200.0 million, U.S.$50.0 million and U.S.$50.0 million and are aligned with the maturity of the refinanced corporate facility. The interest rate caps are treated as cash flow hedges and changes in their fair values are recorded in other comprehensive income. The fair value as of March 31, 2007 was U.S.$0.7 million. The Company did not record any ineffectiveness on its interest rate caps in the three months ended March 31, 2007.

~~MANAGEMENT’S~~Aurelia ~~DISCUSSION~~Energy ~~AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~N.V.

~~The following~~Notes ~~management’s~~to ~~discussion~~Unaudited ~~and~~Interim ~~analysis~~Condensed ofConsolidated ~~financial~~Financial ~~condition~~Statements ~~and results~~for ~~of operations should be read in conjunction with~~ the ~~unaudited~~Three ~~interim condensed~~Months ~~consolidated~~ended financial statements and the related notes thereto included elsewhere in this report. Our audited consolidated financial statements and unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. This discussion contains forward-looking statements based on our current expectationsMarch 31, ~~assumptions,~~ ~~estimates~~2007 and ~~projections~~2006 about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those described under “Forward-Looking Statements” and elsewhere in this report, as well as in our annual report for the year ended December 31, 2004.(Continued)

~~Overview~~For designated derivative financial instruments that qualify as fair value hedges, changes in the fair value of the financial instrument and the change in the fair value of the hedged component offset each other in the income statement. The net result of the interest rate swap is recognized in the income statement.

WeIn ~~are~~connection ~~Aurelia~~with ~~Energy~~its ~~N.V.,~~cash aflow ~~holding~~hedging ~~company with no~~activities, ~~independent~~on ~~operations~~January 1, ~~and~~2001 ~~its~~the ~~subsidiaries,~~Company recorded a ~~group~~net oftransitional ~~companies~~loss ~~that~~of ~~comprise~~U.S.$2.5 amillion ~~specialized~~in ~~service~~other ~~provider~~comprehensive toincome ~~and~~on ~~operator~~adoption inof ~~the~~Statement ~~offshore~~of ~~oil~~Financial ~~industry~~Accounting Standards No. 133, We“Accounting ~~operate~~for ~~under~~Derivative ~~the~~Instruments ~~name~~and Hedging Activities” (“~~Bluewater~~SFAS 133”). ~~and~~There ~~are~~was ano ~~leader~~significant inineffectiveness relating ~~the~~to ~~design, development,~~designated ~~ownership~~cash ~~and~~flow ~~operation~~hedges ofduring ~~FPSOs,~~2006 ~~which~~and we2005, ~~operate~~and ~~for~~no ~~oil~~component ~~companies~~of ~~under~~the ~~medium-~~derivative ~~and~~instruments’ ~~long-term~~gain ~~service~~or ~~agreements,~~loss ~~and~~was ~~the~~excluded ~~design, development,~~from ~~project~~the ~~management~~assessment ~~and delivery~~ of hedge ~~SPM systems~~effectiveness.

~~Our~~To ~~FPSO~~reduce ~~business~~the ~~earns~~interest ~~revenues~~expense ~~from~~relating to the ~~design,~~101¤4% ~~development~~Senior ~~and~~Notes ~~operation~~due of2012, ~~FPSOs~~the ~~pursuant~~Company toentered ~~medium-~~into ~~and~~a ~~long~~fixed-~~term~~to-floating interest ~~service~~rate ~~agreements~~swap transaction, with ~~oil~~effect ~~companies.~~from WeApril 25, ~~treat~~2003, ~~our~~that ~~service~~enabled ~~agreements as “operating~~the ~~leases”~~Company ~~under~~to ~~U.S.~~swap ~~GAAP~~the ~~and~~equivalent ~~present~~of ~~them~~the asfixed ~~such~~rate inamount ~~our~~of ~~consolidated~~interest ~~financial~~that is ~~statements.~~payable ~~Under~~on ~~these~~U.S.$335.0 million ~~agreements,~~aggregate weprincipal ~~generally~~amount ~~are~~of ~~paid~~the ~~a defined day rate~~101¤4% ~~consisting~~Senior ofNotes adue ~~fixed~~2012 ~~facility~~for ~~fee~~the ~~that~~floating ~~covers~~rate ~~the~~amount ~~rental~~ of ~~the~~interest ~~FPSO~~that ~~and associated~~would ~~equipment~~be ~~and~~payable on an ~~indexed~~equal ~~operating~~amount ~~fee~~of ~~that~~indebtedness. ~~covers~~On ~~the~~May 27, ~~cost of operating~~2003, ~~maintaining~~the ~~and~~Company ~~insuring~~ cancelled the ~~vessel~~swap transaction. WeUnder ~~may~~the ~~also~~swap, ~~receive~~prior ~~additional tariff~~to ~~payments~~the ~~based~~cancellation, onthe ~~oil~~Company received orinterest ~~water~~payments ~~production~~that orwere ~~gas~~calculated ~~lift~~at ~~volumes~~a ~~(or~~fixed ~~a combination~~rate of ~~those~~101¤4% and ~~volumes),~~made ~~bonus~~interest payments that ~~relate~~were tocalculated ~~the~~at ~~prevailing price~~a offloating ~~oil~~rate ~~and~~that ~~certain~~was equal ~~other~~to ~~fees.~~a ~~Our~~margin ~~FPSO~~over ~~fleet~~LIBOR. ~~currently~~The ~~consists~~Company ofreceived ~~five high~~U.S.$6.7 million ~~specification~~on ~~FPSOs (the Uisge Gorm~~May 30, ~~the Bleo Holm~~2003, ~~the~~which ~~Glas~~represented ~~Dowr,~~its ~~the~~net ~~Haewene~~gain ~~Brim~~from ~~and~~ the ~~Munin) that~~cancellation weof ~~have contracted to oil companies under service agreements and one FPSO hull (~~the ~~Aoka Mizu) that we are~~swap ~~marketing worldwide~~transaction. InThe ~~the~~Company ~~six~~deferred ~~months~~this ~~ended June 30~~gain, ~~2005~~which ~~and~~will inbe ~~the three~~credited ~~months~~to ~~ended~~income over ~~June 30,~~the ~~2005~~remaining ~~our~~duration ~~FPSO~~of ~~business~~the ~~generated 83.1~~101¤4% ~~and~~ ~~88.6%,~~Senior ~~respectively,~~Notes ofdue ~~our revenues~~2012, ~~37.2%~~ and ~~(40.8)%,~~used ~~respectively,~~this ofpayment ~~our net~~to ~~loss~~repay ~~and~~outstanding ~~110.5%~~indebtedness under ~~and~~its ~~114.4%,~~corporate ~~respectively,~~credit ~~of our EBITDA~~facility.

~~Our~~On ~~SPM~~July 17, ~~business~~2003, ~~earns~~the ~~revenues~~Company ~~from~~entered ~~the~~into ~~design,~~a ~~development,~~fixed-to-floating ~~project~~interest ~~management~~rate ~~and~~swap ~~delivery~~transaction, ofwith ~~SPM~~terms ~~systems~~identical ~~under~~to ~~our SPM~~those ~~delivery contracts. We have developed a number~~ of ~~different~~the ~~types~~previous ofswap ~~SPM systems~~transaction, ~~for~~that ~~oil~~enabled ~~companies and contractors around~~ the ~~world,~~Company ~~resulting~~to inswap the ~~delivery~~equivalents of ~~eight~~the ~~SPM~~fixed ~~systems~~rate ~~since~~amount ~~1999~~of ~~and~~interest ~~more~~that ~~than~~is 50payable ~~SPM~~on ~~systems since our founding~~U.S.$335.0 million aggregate ~~Because~~principal ~~SPM~~amount ~~systems~~of ~~are integral to~~ the ~~operation~~101¤4% ofSenior ~~FPSOs in harsh~~Notes ~~environments,~~due ~~and~~2012 ~~because~~for ~~they~~a ~~form~~floating anrate ~~important~~amount ~~link~~of ininterest ~~the~~that ~~oil~~would ~~production chain,~~be wepayable ~~believe~~on ~~that~~an equal itamount isof ~~important~~indebtedness. toUnder ~~preserve~~the ~~our~~swap, ~~core~~the ~~SPM~~Company ~~capabilities~~received payments ~~for~~that ~~use~~were incalculated ~~connection~~at ~~with~~a ~~future~~fixed ~~FPSO~~rate ~~projects.~~of In101¤4% ~~the~~and ~~six~~made interest ~~months~~payments ~~ended~~that ~~June 30, 2005~~were ~~and~~calculated inat ~~the~~a ~~three~~floating ~~months~~rate ~~ended~~that ~~June 30,~~was ~~2005,~~equal ~~our~~to ~~SPM business~~a ~~generated~~margin ~~16.9% and 11.4%, respectively,~~ of ~~our revenues, (137~~6.2)32% ~~and~~over ~~(59~~LIBOR.~~2)%, respectively,~~ As of ~~our net loss~~February 15, ~~and~~2005 ~~(10.5)%~~the ~~and~~margin ~~(14.4)%,~~changed ~~respectively, of our~~to ~~EBITDA~~6.44%.

~~While~~On weNovember 4, ~~manage~~2005 ~~FPSO~~the ~~and~~Company partially ~~SPM~~cancelled ~~projects~~the ~~from~~fixed-to-floating ~~the~~interest ~~initial~~rate ~~design~~swap ~~and~~transaction ~~engineering~~in ~~phase~~relation to the ~~final~~U.S.$335.00 million ~~installation,~~aggregate principal amount of the 101¤4% weSenior doNotes ~~not~~due ~~engage~~2012 infor the ~~fabrication~~period offrom ~~FPSOs~~August 15, or2005 ~~SPM~~to ~~systems~~August 15, 2007. ~~Rather,~~Due ~~we outsource~~to ~~these~~the ~~requirements~~partial tocancellation ~~qualified~~of ~~subcontractors.~~the Inswap transaction the ~~six~~Company ~~months~~would ~~ended~~incur ~~June 30,~~fair ~~2005~~value ~~and~~fluctuations inthrough the ~~three~~statement ~~months~~of ~~ended~~income ~~June 30,~~from ~~2005,~~the wedate of ~~had~~cancellation ~~revenues~~until ofAugust 15, U2007.~~S.$195.0 million~~ ~~and~~The Company paid U.S.$936.89 million, ~~respectively~~on November 4, ~~operating~~2005 ~~income~~which represented its net cost from the partial cancellation of Uthe swap transaction.~~S.$16.2 million~~ ~~and~~The Company has deferred this cost which ~~U.S.$5.3 million,~~will ~~respectively,~~debited ~~net~~it ~~loss~~to the statement of ~~U.S.$(4.0) million~~income ~~and U.S.$(5.7) million,~~over ~~respectively,~~the ~~and~~remaining ~~EBITDA~~duration of Uthe 10¼% Senior Notes due 2012.~~S.$56.0 million~~ ~~and~~The Company has recorded ineffectiveness as a result of the partial cancellation resulting in a gain of U.S.$256.27 million, recognized ~~respectively~~under interest expense.

~~Operating~~Aurelia ~~Uptimes~~Energy N.V.

WeNotes derive a substantial proportion of our total revenues from the payments that we receive from oil companies under our FPSO service agreements. The majority of these payments consist of defined day rates (consisting of a fixed facility fee and an indexed operating fee) and tariff payments (based on oil or water production or gas lift volumes or a combination of those volumes) whose economic terms are established prior to ~~the~~Unaudited ~~commencement~~Interim ofCondensed ~~operations~~Consolidated ~~under~~Financial ~~the~~Statements service agreement. In total, these day rates and tariff payments contributed U.S.$130.6 million and U.S.$63.8 million, to our total revenues in the six months ended June 30, 2005 and in the three months ended June 30, 2005, respectively. Our total revenues were U.S.$195.0 million and U.S.$93.8 million in the six months ended June 30, 2005 and in the three months ended June 30, 2005, respectively. We believe that the most significant factor affecting the amount of these payments during a given contract period is the level of operating uptimes that our FPSOs maintain. Our service agreements currently require our FPSOs to maintain minimum operating uptimes that exceed certain thresholds. Depending on the particular service agreement, our facility fee or our operating fee may be adjusted to the extent that the relevant uptime exceeds or falls below the applicable threshold, and our tariff payments may be affected by consequential changes in oil or water production or gas lift volumes. While our FPSOs generally have maintained high operating uptimes in the past and, as a result, generally have not suffered from a decrease in revenues associated with operational downtime, we received reduced day rates for ~~a period of 24 non-consecutive days during~~ the ~~first~~Three ~~seven~~Months months of 2003 under our service agreement for the Bleo Holm as a result of downtime associated with repair and modification work that we were required to undertake due to blockages as a result of the formation of calcium naphtenate in the vessel’s topsides. On July 14, 2005 we signed a heads of terms for replacing the FPSO agreement with Talisman. As a consequence, the FPSO agreement will be terminated and replaced by a charter agreement. In the charter agreement, Talisman, in its role as operator of the Ross Field for the Bleo Holm, will take over the role of duty holder and be responsible for all of the operations onshore and offshore, including resourcing. We will no longer provide onshore support. For the six months ended ~~June~~March 3031, ~~2005,~~2007 ~~the Company received US$14.5 million in operating fees~~ and ~~operational~~2006 ~~tariffs under the former agreement with Talisman. Part of the heads of terms is the settlement of disputes regarding pipework corrosion and calcium naphtenate.~~(Continued)

~~Seasonality~~over the remaining duration of the 101¤4% Senior Notes due 2012. The 101¤4% Senior Notes due 2012 will continue at an interest percentage of 10.25%.

~~Some~~The ~~service~~Company’s ~~providers operating~~revenues are primarily denominated in U.S. ~~harsh~~dollars ~~weather~~and, ~~environments~~to a lesser extent, ~~such~~sterling asand Euro. In the ~~North~~first ~~Sea~~quarter of 2007, ~~are~~approximately ~~negatively~~£4.3 million (U.S.$8.4 million) of the Company’s ~~affected~~revenues was denominated in sterling and approximately € 3.2 million (U.S.$4.2 million) was denominated in Euro. In the first ~~and~~quarter ~~fourth~~of 2006, ~~quarters~~approximately by£5.4 ~~adverse~~million ~~weather~~(U.S.$9.4 ~~conditions~~million) ~~that~~of the Company’s revenues ~~prevent~~was ordenominated ~~limit~~in ~~the~~sterling ~~full~~and ~~operation~~approximately of€ ~~their~~1.1 ~~crews~~million or(U.S.$1.3 million) ~~vessels~~was denominated in Euro. Our ~~FPSOs~~expenses ~~have~~are denominated primarily in ~~been~~U.S. ~~developed~~dollars ~~using~~and ~~high~~to ~~environmental~~a lesser degree, Euro and ~~design~~sterling. ~~standards~~We are exposed to fluctuations in foreign currency exchange rates, because a portion of our expenses and financial indebtedness is denominated in currencies that ~~generally~~are ~~permit~~different ~~them~~from our revenues. The Company’s policy is to ~~fulfill~~match, ~~their~~through ~~contractual~~our ~~uptime~~FPSO service ~~requirements~~agreements, ~~even~~the revenues in ~~harsh~~a particular currency with its operating ~~weather~~costs ~~conditions~~in that currency, thereby minimizing the risk associated with fluctuations in foreign currency exchange rates. WeThe Company also domatches ~~not~~its indebtedness ~~believe~~denominated ~~that~~in ~~our~~U.S. ~~SPM~~dollars ~~business~~with isits ~~affected~~revenues bydenominated in U.S. ~~seasonal~~dollars. ~~factors~~The Company purchases foreign currency exchange contracts from financial institutions to the extent of any residual exposure. The Company manages its outstanding currency exposure on a regular basis and nets these exposures across its operations as a group. Gains and losses related to specific currency transactions are recognized as part of its income from financing activities.

~~Oil~~In ~~Prices~~the years 2006 and 2007 the Company entered into foreign currency exchange contracts in relation to projects to hedge against the risk of fluctuations in foreign currency exchange rates for expenditures in currencies other than the project currency. The Company has designated certain foreign currency exchange contracts as cash flow hedges. For such contracts designated and that qualify as cash flow hedges, gains and losses related to project specific currency transactions are recognized as part of our accumulated other comprehensive income/(loss).

Historically, our service agreements have provided for the payment of defined day rates or minimum contract payments and have included minimum contract periods that have significantly reduced the exposure of our FPSO business to fluctuations in oil prices. The most significant exposure of our FPSO business to developments in oil price generally has related to the impact that oil prices have on the production economics at the fields on which FPSOs operate. Because fluctuations in oil prices may affect the decision of oil companies to tie-back marginal fields to existing production facilities or extend production at fields nearing the end of their production profiles and, if sufficiently severe, may cause oil companies to alter production levels at producing fields, we have in certain instances been subject to potential risks relating to our ability to enter into new tie-back arrangements, to extend service agreements and to generate revenue from tariff and bonus payments. However, due to positive developments in oil prices and other relevant factors, these risks generally have not had a material impact on our financial

~~condition or~~Aurelia ~~results~~Energy ~~of operations or adversely affected our FPSO business~~N. ~~In addition, as a consequence of recent increases in oil prices, some of our FPSOs may remain in their current fields for longer periods than previously anticipated~~V. We believe that, in the future, we may continue to be subject to these risks. We believe that our SPM business, which accounts for a relatively smaller proportion of our revenues, is generally more affected by fluctuations in oil price than our FPSO business due to the fact that SPM systems are generally developed for sale rather than leased on a term basis. Because oil companies generally adjust their spending on SPM systems based on trends in oil price, we would expect our SPM business to grow in response to positive developments in oil price and to decrease in response to negative developments in oil price. We believe that having a flexible and scalable workforce is an important factor in managing the costs associated with our more cyclical SPM business.

~~Insurance~~Notes ~~Costs~~to Unaudited Interim Condensed Consolidated Financial Statements for the Three Months ended March 31, 2007 and 2006 (Continued)

~~We maintain insurance~~The ~~coverage~~total innotional ~~such~~ amounts as weper ~~believe~~contract toand bethe ~~prudent~~fair ~~against~~values ~~normal~~of ~~risks in our operations, including, among other things,~~ the ~~risk of pollution and damage~~Company’s toforeign ~~vessels.~~currency ~~Certain~~exchange ~~risks~~contracts ~~(such~~ as ~~business interruptions and environmental liabilities in excess~~ of ~~certain limits)~~March 31, ~~however,~~2007 are ~~either~~as not insurable or are insurable only at rates we consider uneconomical. The cost to obtain and maintain insurance could increase or decrease in the future for any number of reasons. There is no assurance that we will continue to maintain the same level of insurance coverage in the future or that we will be able to recover the cost of such coverage from our customers.follows:

Redeployment of the Munin

	Expected Maturity Date As of March 31, 2007
	Total	Fair Value
	(in U.S.$ thousands)
Forward Exchange Agreements
(Receive €/Pay U.S.$) Aggregate Amount	58,243		871
(Receive NOK/Pay U.S.$) Aggregate Amount	845		10
(Receive SGD/Pay U.S.$) Aggregate Amount	103,132		935
(Receive ZAR/Pay U.S.$) Aggregate Amount	688		(1	)
(Receive £/Pay U.S.$) Aggregate Amount	12,464		279
	175,372		2,094

~~Our~~These ~~future~~foreign ~~capital expenditures~~currency ~~will~~exchange ~~depend~~contracts ~~primarily~~mature on ~~the projects that we undertake. Our~~ ~~capital~~various ~~expenditures~~dates ~~during~~through ~~2004~~2007 ~~related~~and ~~primarily~~are toincluded ~~modifications~~at ~~that~~fair ~~we made~~value ~~to the Munin~~ in ~~connection with its redeployment to~~ the ~~Xijiang Field in the South China Sea. As of June 30,~~other ~~2004, we capitalized U~~receivables.~~S.$6.6 million in connection with engineering work to the Munin in connection with its redeployment to the Xijiang Field in the South China Sea.~~

~~Interest~~The total ~~Expense~~notional amounts as per contract and the fair values of the Company’s foreign currency exchange contracts as cash flow hedges under FAS 133 are as follows:

Our financial income and expense is primarily affected by our interest expense, which principally includes interest paid or accrued in respect of our credit facility, our 101¤4% Senior Notes due 2012 and the subordinated Marenco loans and amortization charges relating to debt arrangement fees. Our interest expense does not include interest on financial debt relating to the construction or modification of FPSOs, which is capitalized and added to the historical cost of the FPSO to which it relates. Cash interest paid is defined as interest expense, plus capitalized interest, less accrued interest on the subordinated Marenco loans and less amortization of debt arrangement fees.

	Expected Maturity Date As of March 31, 2007
	Total	Fair Value
	(in U.S.$ thousands)
Forward Exchange Agreements
(Receive €/Pay U.S.$) Aggregate Amount	47,691		772
(Receive £/Pay U.S.$) Aggregate Amount	9,579		224
(Receive SGD/Pay U.S.$) Aggregate Amount	103,132		935
	160,402		1,931

ToThese ~~reduce~~foreign ~~the~~currency ~~interest~~exchange ~~expense~~contracts ~~relating~~mature to our 101¤4% Senior Notes due 2012, we entered into a fixed-to-floating interest rate swap transaction, with effect from April 25, 2003, that enabled us to swap the equivalent of the fixed rate amount of interest that is payable on ~~U.S.$335.0 million~~various ~~aggregate~~dates ~~principal~~through ~~amount~~2007 ofand ~~our~~are ~~101¤4%~~included ~~Senior~~at ~~Notes due~~fair ~~2012~~value ~~for~~in ~~a floating rate amount of interest that would be payable on an equal amount of indebtedness. On May 27, 2003, we cancelled~~ the ~~swap~~other ~~transaction~~receivables. ~~Under~~The ~~the~~fair ~~swap,~~value ~~prior~~is ~~to the cancellation, we received interest payments that were~~ calculated atby amultiplying fixed rate of 101¤4% and made interest payments that were calculated at a floating rate that was equal to a margin over LIBOR. We received U.S.$7.6 million on May 30, 2003, which represented our net gain from the ~~cancellation~~nominal ~~of the swap transaction. We~~amounts ~~deferred~~with ~~U.S.$6.7 million of this gain, which will be credited to income over~~ the ~~remaining~~difference ~~term~~between of the ~~101¤4% Senior~~contract ~~Notes~~rates ~~due 2012,~~ and ~~used~~ the ~~payment~~forward ~~to repay outstanding indebtedness under our credit facility~~rates. As of July 17, 2003, we entered into a new fixed-to-floating interest rate swap transaction, with terms identical to those of the previous swap transaction, that enables us to swap the equivalent of the fixed rate amount of interest that is payable on U.S.$335.0 million aggregate

~~principal~~Aurelia ~~amount~~Energy ~~of the 101¤4% Senior Notes due 2012 for a floating rate amount of interest that would be payable on an equal amount of indebtedness~~N. ~~Under the swap, we receive payments that are calculated at a fixed rate of 101¤4% and make interest payments that are calculated at a floating rate that is equal to a margin of 6~~V.~~32% over LIBOR. As of February 15, 2005 the margin changed to 6.44%.~~

AsNotes ofto ~~June 30,~~Unaudited ~~2005, the~~Interim ~~unamortized~~Condensed ~~premium~~Consolidated ~~and~~Financial ~~discount~~Statements offor the ~~101¤4%~~Three ~~Senior~~Months ~~Notes due~~ended ~~2012~~March 31, 2007 and ~~the~~2006 ~~deferred gain on the cancellation of the swap amounted to U.S.$2.7 million.~~(Continued)

~~Subsequent~~The ~~Events~~Company recorded ineffectiveness on its foreign currency exchange contracts ended March 2007 of U.S.$ (nil) and ended March 2006 of U.S.$ (nil).

Bluewater (Dyphavet) BV, a subsidiary of the Company, and the Norwegian company Standard Marine Nordsjo AS (SMNAS), an affiliate of Exxon Mobil Corporation, have formed a partnership (PR Jotun DA), for the purchase of the FPSO Jotun A from its current owners, who are the participants in the Jotun field development in Norway: Exxon Mobil Exploration and Production Norway AS, Enterprise Oil Norge AS (an affiliate of A/S Norske Shell), Lundin Norway AS and Petoro AS13. AsIncome ~~a result of this, the Company will incur an additional debt of U.S.$172.0 million for the financing of this purchase.~~taxes

~~The~~In ~~FPSO~~June 2006, ~~operated~~the byFinancial ~~Exxon~~Accounting ~~Mobil~~Standards Board (FASB) issued interpretation No. 48 (“FIN 48”), ~~has~~“Accounting ~~been~~for ~~producing~~Uncertainty in Income Taxes”. FIN 48 clarifies onthe accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109. This interpretation prescribes a recognition threshold and measurement attribute for the ~~Jotun~~financial ~~field~~statement ~~located~~recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 as of January 1, 2007, and determined that the ~~Norwegian~~adoption ~~sector~~of FIN 48 did not have a material impact on the Company’s financial position and results of operations. The total amount of unrecognized tax benefits as of January 1, 2007 and March 31, 2007 is U.S.$51.5 million and U.S.$53.7 million, respectively. Interest costs and penalties related to income taxes are classified as interest expense and selling, general and administrative costs, respectively, in the ~~North~~Company’s ~~Sea~~financial statements. ~~since~~The ~~1999~~Company did not recognize interest or penalties related to income tax during the three months ended March 31, 2007 or 2006 and did not accrue for interest or penalties as of March 31, 2007 or December 31, 2006.

~~Terms~~UNAUDITED ~~of the agreement call for its current owners to~~OTHER ~~lease~~FINANCIAL ~~back~~DATA ~~the~~AND FPSO from the newly formed partnership by means of a bareboat charter (under which only facilities fees and no operational fees will be payable) having a minimum term of five years, with the possibility to extend the contract of up to 15 years. The Company will hold 55% ownership in the FPSO, with SMNAS holding the remaining 45%. At termination of the lease contract, SMNAS has both a call and a put option either to purchase the Company’s stake in the partnership or to sell its own stake in the partnership to the Company.RATIOS

	For the three months ended March 31,
	2007		2006
	(in U.S.$ thousands, except ratios)
EBITDA(1)
FPSO business	47,960		42,847
SPM business	(3,902	)	(269	)
Total	44,058		42,578
Capital expenditures, net(2)	39,022		26,688
Cash interest paid(3)	17,089		14,378
Ratio of EBITDA to cash interest paid	2.58x		2.96x
Ratio of earnings to fixed charges(4)	0.79x		0.97x

~~The FPSO Jotun A has a storage capacity of 584.400 bbl (AFRAMAX size tanker) and was built by Kvaerner Masa (now Aker Finnyards). The FPSO ranks among the highest capacity FPSOs in the North Sea.~~Notes:

~~Critical~~(1) “EBITDA” ~~Accounting~~is ~~Policies~~defined as operating income (loss) plus depreciation and ~~Estimates~~amortization. This definition deviates from other definitions of EBITDA used by some other companies, as it excludes interest income and currency exchange results. We believe this definition is more appropriate since it provides investors with a helpful measure for comparing our operating performance with that of other companies in our industry. EBITDA is presented as additional information because we believe that it is a useful measure for certain investors to determine our operating cash flow and historical ability to meet debt service and capital expenditure requirements. We also believe that it provides a useful measure of the level of profitability we achieve with our asset base. EBITDA is not a measure of

The discussion and analysis of our financial condition and results of operations is based upon our unaudited interim condensed consolidated financial statements which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures concerning contingent assets and liabilities as of the date of the financial statements and that impact reported amounts of revenues and expenses during the reporting period. Our management evaluates, on an ongoing basis, its estimates and judgments, including those related to bad debts, inventories, tangible fixed assets, pensions, income taxes, contingencies and litigation. Our management bases these estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our management believes that the following accounting policies, among others, are the most critical to understanding and evaluating our reported financial results.

~~Revenue~~Aurelia ~~Recognition~~Energy ~~and Inventory~~N.V.

~~Our~~Notes ~~revenues~~to ~~consist~~Unaudited ofInterim ~~the~~Condensed ~~contract~~Consolidated ~~payments~~Financial ~~that~~Statements ~~we receive~~for ~~under our FPSO service agreements and our SPM delivery contracts and~~ the ~~payments~~Three ~~that~~Months weended ~~earn~~March 31, ~~from~~2007 ~~the installation~~ and ~~mobilization~~2006 ~~of FPSOs and SPM systems. We recognize these revenues in the following manner.~~(Continued)

~~Our~~financial ~~service~~performance ~~agreements are treated as “operating leases”~~ under U.S. GAAP and ~~presented~~should ~~as such in our consolidated financial~~not ~~statements.~~be ~~Under~~considered ~~these~~as ~~agreements,~~an wealternative ~~derive~~to ~~revenues~~cash flow from ~~defined~~operating ~~day rates~~activities, ~~tariff~~ ~~payments, payments in respect of capital expenditures, payments for the~~a ~~rental~~measure of ~~additional~~liquidity ~~equipment~~or ~~and,~~an inalternative ~~certain~~to ~~cases,~~net ~~bonus~~income ~~payments.~~as ~~Our~~indicators ~~day rates generally consist~~ of ~~a fixed facility fee (for the rental of the FPSO and~~our ~~associated equipment) and an indexed~~ operating ~~fee~~performance ~~(covering~~or ~~the~~any ~~cost~~other measures of ~~operating,~~ ~~maintaining~~performance ~~and~~derived ~~insuring the vessel) and may be adjusted depending~~in onaccordance ~~the~~with ~~level~~U.S. ~~of operating uptimes that we achieve~~GAAP. ~~Our~~The ~~tariff~~following ~~payments~~table ~~are based~~presents ~~on oil or water production or gas lift volumes or~~ a ~~combination~~reconciliation of ~~those~~our ~~volumes.~~EBITDA ~~Our bonus payments generally relate~~ to ~~the~~net ~~prevailing~~income ~~price of oil. We recognize revenues under our service agreements when the FPSO is made available~~ and ~~the~~net ~~relevant~~cash ~~contract~~provided ~~payments~~by ~~are~~operating ~~based~~activities onfor a signed lease contract. We monitor changes in consumer price indices, uptime levels, production and lift volumes and oil prices on an ongoing basis and only include payments that depend on those factors in the ~~determination of income when the relevant index~~ isperiods ~~adjusted, the level of uptime is achieved, the necessary volume has been produced or lifted or the price of oil has changed~~indicated. ~~All other payments due under our service agreements are recognized on a straight-line basis over the term of the service agreement.~~

Under our SPM delivery contracts, we receive milestone payments from our customers for the design, engineering and management services that we provide during the progress of our SPM projects. We recognize revenues from the development of SPM systems and auxiliary equipment based on the percentage of completion method of accounting as the project is performed. Changes in project conditions are recognized in the period in which the revisions are determined. Our management identifies and estimates losses relating to uncompleted contracts and makes necessary provisions, if any, in the period in which the losses are determined. Differences between the actual and estimated development of our work in process could materially impact the results of operations. A change in the percentage of completion would not have had a significant impact on our revenues in period ended June 30, 2005 or in prior periods.

	For the three months ended March 31,
	2007		2006
	(in U.S.$ thousands)
EBITDA	44,058		42,578
Depreciation of tangible fixed assets and amortization of intangible assets	(27,222	)	(25,979	)
Financial income and expense	(18,848	)	(16,969	)
Income taxes	(639	)	6,417
Minority interest	(2,776	)	2,462
Net income/(loss)	(5,427	)	3,585
Adjustments to reconcile net income to cash provided	35,389		25,345
Changes in operating assets and liabilities, net of effect of acquisitions	(2,533	)	(35,323	)
Net cash provided by/(used in) operating activities	27,429		(6,393	)

We(2) “Capital ~~recognize revenues from the installation and mobilization of FPSOs and SPM systems and from the provision of other services when the installation~~expenditures, ~~mobilization or provision of~~ ~~services~~net” ~~has~~represents ~~been~~additions ~~accepted~~to byfixed ~~the~~assets ~~customer~~less ~~and~~disposals ~~the collection~~ of ~~the~~fixed ~~receivable relating to the work is probable~~assets.

~~Income~~(3) “Cash ~~Taxes~~interest ~~Payable~~paid” is defined as interest expense, plus capitalized interest, less accrued interest on the subordinated Marenco loan and less amortization of debt arrangement fees and less the ineffective portion of hedges recognized in earnings and is disclosed as an additional cash flow disclosure in the unaudited interim condensed consolidated cash flow statement.

~~Our~~(4) “Earnings” ~~income~~is ~~tax charges are based on~~ the ~~tax regimes~~amount ~~that~~of ~~are~~pre-tax ~~applicable~~income tofrom ~~our~~continuing ~~group~~operations ~~companies~~before inadjustment ~~the~~for ~~countries~~minority interests in ~~which~~consolidated ~~they~~subsidiaries ~~are legally~~or ~~seated.~~income Weor ~~have~~loss ~~historically benefited~~ from ~~low~~equity ~~income taxes. While we~~investees, ~~believe~~plus ~~that~~fixed wecharges, ~~will~~plus ~~continue~~amortization toof ~~benefit~~capitalized ~~from~~interest, aplus ~~low level of~~ distributed income ~~taxes~~to ~~in future~~equity ~~years~~investees, asplus athe ~~result~~share of ~~the~~pre-tax ~~large~~losses ~~amount~~ of ~~goodwill and deductible~~equity ~~interest~~investees ~~reported by certain members of our group~~ for ~~Dutch~~which ~~tax~~charges ~~purposes,~~arising ~~we received a draft tax audit report~~ from ~~the~~guarantees ~~Dutch~~are ~~tax~~included ~~authorities~~ in ~~May 2002.~~fixed ~~The~~charges, ~~draft~~less ~~tax~~interest ~~audit~~capitalized, ~~report~~less ~~included~~preference ~~certain~~security ~~proposed factual findings relating~~dividend torequirements ~~the issue~~ of ~~whether~~consolidated ~~our~~subsidiaries, ~~non-Dutch~~less ~~companies~~the ~~are~~minority ~~residents~~interest ~~of the~~in ~~Netherlands~~pre-tax ~~for~~income ~~Dutch~~of ~~tax~~subsidiaries ~~purposes~~that or have anot ~~taxable~~incurred ~~presence~~fixed incharges. ~~the~~“Fixed ~~Netherlands.~~charges” ~~The~~means ~~draft~~the ~~audit~~sum ~~report,~~of ~~which~~the ~~does not represent~~ following: (a) interest ~~final~~expensed or ~~determination~~capitalized, by(b) amortized ~~the Dutch tax authorities~~premiums, ~~states~~discounts ~~that~~and itcapitalized ~~was issued for~~expenses ~~discussion~~related ~~purposes.~~to Onindebtedness, ~~the~~(c) an ~~basis~~estimate of the ~~draft~~interest ~~audit~~within ~~report, the Dutch tax~~rental ~~authorities assessed~~expense, inand ~~June~~(d) ~~2002,~~preference ~~additional~~security ~~taxes~~dividend ~~with~~requirements ~~respect~~of ~~to a~~consolidated ~~Dutch~~subsidiaries. ~~group~~The ~~member~~term ~~for~~“preference ~~its~~security ~~1998~~dividend” ~~and~~is ~~1999~~the ~~tax~~amount ~~years~~of ~~and assessed, in November 2002,~~pre-tax ~~July 2003~~earnings ~~and~~that ~~August 2003,~~is ~~additional~~required ~~taxes with respect~~ to ~~certain non-Dutch~~pay ~~group~~the ~~members~~dividends ~~for~~on ~~their~~outstanding ~~1997~~preference securities, ~~1998,~~computed ~~1999~~as ~~and~~the ~~2000 tax years. The total~~ amount of ~~these~~the ~~assessments,~~dividend ~~including~~divided ~~interest~~by toone ~~the~~minus ~~date of~~the ~~assessment,~~effective ~~was~~income ~~€135.4 million (U.S.$163.4 million)~~tax asrate ofapplicable ~~December 31,~~to ~~2003~~continuing operations.

We have held discussions and corresponded with the Dutch tax authorities regarding their tax assessments, among other things. We believe that the findings of fact and the relevant legal and regulatory interpretations upon which the Dutch tax authoritiesMANAGEMENT’S ~~position~~DISCUSSION isAND ~~based~~ANALYSIS ~~are~~OF ~~incomplete~~FINANCIAL ~~and incorrect, and that, in particular, the assessment of such~~CONDITION ~~additional~~AND ~~taxes~~RESULTS asOF discussed above is contrary to certain favorable tax rulings which we have received from them. Accordingly, in July 2003, we filed with the Dutch tax authorities a response to their draft audit report and a transfer pricing report supporting our response and these discussions.OPERATIONS

InThe ~~May and~~following ~~June 2004, we~~management’s ~~received~~discussion ~~from~~and analysis ~~the~~of ~~Dutch~~financial ~~tax~~condition ~~authorities~~and aresults ~~number~~ of ~~revised~~operations ~~assessments stating~~should ~~that~~be ~~for~~read ~~the~~in conjunction ~~majority~~with of the ~~companies~~unaudited ~~within~~interim ~~the~~condensed ~~Bluewater~~consolidated ~~Group no~~financial ~~taxes~~statements ~~are~~and ~~required~~the torelated benotes ~~paid.~~thereto ~~These~~included ~~revised~~elsewhere ~~assessments~~in ~~thereby~~this ~~reduced~~report. ~~the~~Our ~~total~~audited ~~amount~~consolidated offinancial ~~the~~statements ~~outstanding~~and ~~assessments~~unaudited ofinterim ~~the~~condensed consolidated ~~Bluewater~~financial ~~Group~~statements ~~from~~have ~~€135.4 million (U.S.$163.4 million),~~been asprepared ofin ~~December 31,~~accordance ~~2003,~~with ~~to €29.0 million (~~U.S.~~$35.0~~ ~~million), as of December 31, 2004 and June, 30, 2005~~GAAP. We ~~believe,~~This ~~however,~~discussion ~~that~~contains ~~any~~forward-looking ~~assessment~~statements ofbased ~~additional taxes is incorrect, and that it is likely that we will prevail~~ on ~~the~~our ~~merits in any final determination~~current ~~of the assessments. We intend to continue to contest the imposition of any additional taxes and~~expectations, ~~if necessary~~assumptions, toestimates ~~seek administrative~~ and ~~judicial~~projections ~~review of~~about ~~the~~us ~~assessments. Administrative~~ and ~~judicial~~our ~~review of the assessments in the Netherlands would likely take several years~~industry. ~~We intend to withhold payment~~ ofThese ~~such~~forward-looking ~~taxes~~statements ~~pending~~involve ~~final~~risks ~~resolution~~and ~~of the issue~~uncertainties. ~~Although there can be no~~Our ~~assurance~~actual ~~that~~results ~~the~~could ~~relevant~~differ ~~issues~~materially ~~will~~from ~~ultimately~~those beanticipated ~~resolved~~ in ~~our~~these ~~favor, we~~forward-looking ~~believe~~statements ~~that~~as ita isresult ~~not~~of ~~likely~~certain ~~that~~factors, ~~additional~~including ~~Dutch~~those ~~income~~described ~~taxes~~under ~~will be~~“Forward-Looking ~~payable~~Statements” ~~for the 1997, 1998, 1999~~ and ~~2000~~elsewhere ~~tax~~in ~~years~~this ~~and accordingly~~report, weas ~~did~~well ~~not accrue~~as ~~for the aforementioned tax assessments~~ in our ~~unaudited~~annual ~~condensed~~report for ~~consolidated~~the ~~financial~~year ~~statements~~ended ~~included~~December 31, ~~herewith~~2006.

~~Deferred Income Taxes~~Overview

~~Deferred~~We ~~income taxes~~ are ~~temporary~~Aurelia ~~differences between~~Energy ~~the~~N.V., ~~tax~~a ~~bases~~holding company ofwith ~~assets~~no orindependent ~~liabilities~~operations, and ~~their~~its ~~reported~~subsidiaries, ~~amounts~~a ingroup of ~~our~~companies ~~consolidated~~that ~~financial~~comprise ~~statements.~~a ~~Future~~specialized ~~tax~~service ~~benefits~~provider ~~attributable~~ to ~~these~~ ~~differences~~and ~~are~~operator ~~recognized~~in to the ~~extent that realization of the benefits~~ isoffshore ~~more~~oil ~~likely than not~~industry. We ~~recorded~~operate ~~deferred~~under ~~income~~the ~~tax~~name ~~assets~~“Bluewater” ~~of U.S.$0.9 million in 2003, U.S.$0.6 million in 2004~~ and ~~U.S.$15.2~~are ~~million~~a leader in the ~~period ended~~design, ~~June 30~~development, ~~2005~~ownership ~~relating primarily to the amortization of goodwill~~ and ~~the~~ ~~deduction~~operation of ~~interest~~Floating ~~on intercompany loans for income tax purposes. This~~Production ~~goodwill~~Storage and ~~deductible~~Offloading ~~interest~~units ~~is associated with our internal restructuring~~(“FPSOs’’), ~~and~~ which we ~~are~~operate ~~currently~~for inoil ~~discussions with the Dutch tax authorities concerning~~companies ~~our~~under ~~ability~~medium- toand ~~take~~long-term ~~advantage~~service ~~of the tax savings associated with it. See “—Income Taxes Payable”. During 2004~~agreements, aand ~~change in~~ the ~~statutory tax rate in the~~design, ~~Netherlands from 34.5% to 30.0% was enacted~~development, ~~which~~project ~~accordingly~~management ~~reduced~~and ~~the~~delivery ~~amount~~ of ~~tax~~Single ~~credit~~Point ~~available~~Mooring ~~to offset against losses~~(“SPM’’) systems.

InOur ~~connection~~FPSO ~~with~~business earns revenues from the design, ~~draft~~development ~~tax~~and ~~audit~~operation ~~report,~~of weFPSOs ~~are~~pursuant to medium- and ~~also~~long-term inservice ~~discussions~~agreements and bareboat agreements with oil companies. It should be noted that we use the ~~Dutch~~terms ~~tax~~bareboat ~~authorities~~agreement, ~~concerning~~bareboat ~~our~~charter ~~internal~~and charter ~~restructuring~~agreement interchangeably. InThis type of agreement involves the ~~course~~provision of ~~our~~an FPSO ~~discussions,~~whereby the ~~Dutch~~charterer ~~tax~~is ~~authorities~~responsible ~~have confirmed~~for tothe usoperations. ~~that~~Under ~~they~~a ~~will~~service agreement, ~~not~~on ~~seek~~the toother ~~tax~~hand, ~~any~~we ~~capital~~provide ~~gain~~and ~~that~~operate ~~may~~the ~~be associated~~vessel. ~~with~~Our ~~the~~service agreements ~~sale~~and ofbareboat ~~the~~agreements ~~relevant~~qualify ~~economic~~as ~~interests~~“operating inleases” ~~connection~~under ~~with~~U.S. ~~our~~GAAP ~~internal~~and ~~restructuring,~~are ~~but~~presented ~~instead~~as ~~will~~such ~~focus~~in ~~their~~our ~~analysis~~consolidated ~~only~~financial onstatements. ~~the~~Under ~~amount~~these ofagreements, ~~goodwill~~we ~~and~~generally ~~deductible~~are ~~interest~~paid ~~related~~a todefined ~~our~~day ~~internal~~rate consisting of a ~~restructuring~~fixed ~~and~~facility fee that covers the ~~percentage~~rental of ~~goodwill~~the FPSO and ~~deductible~~associated ~~interest~~equipment and, ~~from~~in ~~our internal~~the ~~restructuring~~case ~~that~~of ~~should~~service ~~ultimately~~agreements, bean ~~attributed~~indexed tooperating ~~our~~fee ~~non-Dutch~~that covers ~~activities.~~the ~~The~~cost ~~outcome~~ of ~~such~~operating, ~~discussions~~maintaining ~~could~~and ~~limit~~insuring ~~our~~the ~~ability~~vessel. toWe ~~take~~may also receive ~~advantage~~additional oftariff ~~future~~payments ~~tax~~based ~~savings~~on ~~associated~~oil ~~with~~or ~~our~~water ~~internal~~production ~~restructuring~~or bygas lift volumes ~~limiting~~(or ~~the~~a ~~amount~~combination of ~~goodwill~~those ~~that~~volumes), webonus ~~may~~payments ~~amortize~~that ~~and~~relate to the prevailing ~~amount~~price of ~~interest that~~oil weand ~~may~~certain ~~deduct~~other ~~for~~fees. ~~tax~~Our ~~purposes~~FPSO infleet ~~future~~currently consists ~~periods.~~of ~~However,~~six ~~based~~high ~~upon current~~specification ~~facts~~FPSOs ~~and~~(the ~~circumstances~~Uisge Gorm, the ~~applicable~~Bleo ~~tax law~~Holm, ~~regulation~~the ~~and~~Glas ~~precedent~~Dowr, ~~discussions~~the ~~with~~Haewene ~~relevant~~Brim, ~~tax~~the ~~authorities~~Munin and a ~~professional~~55% ~~advisers~~ownership ~~and~~interest ~~other~~in Jotun A) ~~relevant~~that ~~criteria,~~have webeen ~~estimate~~contracted ~~that~~to itoil iscompanies ~~currently~~under ~~probable~~service ~~that~~agreements ~~we will~~and ~~realize~~bareboat ~~benefits~~agreements ~~relating~~and toone atFPSO ~~least~~hull U(the Aoka Mizu).~~S.$434.0~~ On March ~~million~~31, 2006, we entered into a service agreement for the conversion of ~~amortizable goodwill~~the ~~and~~Aoka atMizu ~~least~~into Uan FPSO.~~S.$768.0 million~~ ofIn ~~interest~~the ~~bearing~~three ~~inter-company debt~~months inended ~~connection~~March 31, 2007 ~~with~~and ~~our~~in ~~internal~~the ~~restructuring~~three atmonths ~~January~~ended March 131, ~~2000~~2006, ~~and~~our FPSO business ~~that~~generated ~~such~~69.5% ~~amounts~~and ~~will~~83.1%, ~~result~~respectively, inof ~~tax~~our ~~losses~~revenues, ~~which~~18.0% ~~may~~and be87.5%, respectively, ~~carried~~of ~~forward~~our ~~for Dutch~~net income ~~tax~~and ~~purposes~~109.2% ~~Notwithstanding~~and ~~our~~100.6%, ~~current estimates~~respectively, of our EBITDA.

Our SPM business earns revenues from the design, development, project management and delivery of SPM systems under our SPM delivery contracts. We have developed a number of different types of SPM systems for oil companies and contractors around the world, resulting in the delivery of more than 70 SPM systems since our founding. Because SPM systems are integral to the operation of FPSOs in harsh environments, and because they form an important link in the oil production chain, we believe that it is important to preserve our core SPM capabilities for use in connection with future FPSO projects. In the three months ended March 31, 2007 and in the three months ended March 31, 2006, our SPM business generated 30.5% and 16.9%, respectively, of our revenues, (118.0)% and 12.5%, respectively, of our net income, and (9.2)% and (0.6)%, respectively, of our EBITDA.

~~however,~~While itwe ~~is impracticable~~manage toFPSO ~~quantify~~and ~~definitively~~SPM atprojects ~~this time the effect that the outcome~~from ~~of such discussions may have on our actual tax position, because such definitive quantification depends on a number of possible future events, including~~ the ~~specific~~ ~~factual~~initial ~~findings~~design and ~~legal~~engineering ~~and~~phase ~~regulatory positions that may be taken by the Dutch tax authorities in any possible future challenge~~ to ~~our~~final ~~internal restructuring~~installation, as well as the outcome of any relevant proceedings. In addition, in December 2001, U.S.$379.5 million of the inter-company indebtedness of Bluewater Holding B.V. relating to the internal restructuring was converted to share capital, thereby reducing the amount of tax benefits that we ~~may~~do ~~take advantage of in subsequent periods. While we believe that it~~not isengage ~~probable that we will realize tax benefits~~ in ~~amounts that are not less than~~ the ~~foregoing~~fabrication ~~estimates as set forth above and that it is unlikely that the outcome~~ of ~~these~~FPSOs ~~discussions~~ or ~~any~~SPM ~~proceedings~~systems. ~~relating thereto will have a material adverse effect on our financial position~~Rather, ~~there can be no assurance in this regard and~~ we ~~could~~outsource ~~lose some or all of the future anticipated tax savings~~these ~~associated~~requirements ~~with~~to ~~our~~qualified ~~internal restructuring~~subcontractors.

WeIn ~~have~~the ~~recorded a~~three ~~deferred~~months ~~tax~~ended ~~asset~~March 31, ~~based~~2007 onand ~~our~~in ~~estimate of~~ the ~~probable~~three ~~result~~months ofended ~~these~~March 31, ~~discussions.~~2006, ~~The~~we ~~carrying~~had ~~value~~revenues of ~~our~~U.S.$106.7 million ~~net deferred tax assets assumes a positive outcome of our discussions with the Dutch tax authorities~~ and ~~that we~~U.S.$90.1 million, ~~will~~respectively, beoperating ~~able to generate sufficient future taxable~~ income ~~in certain tax jurisdictions to take advantage~~ of ~~the benefits associated therewith~~U.S.$16.8 million Weand ~~believe that it is more likely than not that this deferred tax asset will be realized~~U. ~~However~~S.$16.6 million, ~~if this assessment is incorrect~~respectively, wenet ~~may~~(loss)/profit ~~be required to~~of ~~record~~U.S.$(5.4) million ~~full~~and orU.S.$3.6 million, ~~partial~~respectively, ~~valuation~~and ~~allowances~~EBITDA ~~against our deferred tax assets resulting in the inclusion~~ of ~~additional income tax expense in our consolidated~~ ~~financial statements~~U.S.$44.1 million ~~We evaluate the realizability of the deferred tax assets~~ and ~~assess the need for a valuation allowance on a quarterly basis~~U. ~~We did not record a valuation allowance in 2004 or in the period ended June~~S.$42.6 30million, ~~2005~~respectively.

~~Tax~~Refinanced Corporate ~~Lease Benefits Liability~~Facility

~~Our~~On ~~tax~~June 29, ~~lease~~2006, ~~benefits~~the Company ~~liability~~refinanced ~~relates~~its tooutstanding UKdebt ~~tax~~under ~~leasing~~the ~~transactions~~U.S.$600.0 ~~that~~million werevolving ~~entered~~credit facility ~~into~~with ~~from~~funds ~~1994 to~~drawn ~~1999~~under ~~with~~a ~~respect~~U.S.$850.0 tomillion ~~the~~syndicated ~~Uisge Gorm,~~secured ~~the~~reducing ~~Glas~~revolving ~~Dowr~~credit ~~and~~facility (the ~~topsides~~“RCF”). ~~of the~~The ~~Bleo~~RCF ~~Holm~~has ~~and~~been aused ~~tax lease~~to ~~that~~refinance weoutstanding ~~signed~~amounts inunder ~~April 2003 for~~ the ~~topsides~~existing ~~of the Haewene Brim~~U.S.$600.0 million revolving ~~These~~credit ~~arrangements~~facility, ~~allow the lessor~~ to ~~claim~~finance ~~tax~~the ~~depreciation~~construction ~~in respect~~ of ~~its expenditure to acquire~~ the ~~vessel~~ orFPSO ~~the~~Aoka ~~equipment~~Mizu, ~~which is passed on~~ to, orpurchase ~~shared with, us in~~ the ~~form~~Hanne ofKnutsen, ~~reduced~~and ~~rentals.~~will ~~Our~~be ~~rental~~used ~~payment obligations were calculated by reference~~ to aupgrade ~~number~~existing ofFPSOs ~~tax~~ and ~~financial~~for ~~assumptions made at the time the leases were~~general ~~entered~~corporate ~~into~~purposes. ~~Payment~~The ~~arrangements~~costs atincurred ~~the~~in ~~inception~~arranging of the ~~lease~~corporate ~~transactions~~credit ~~were~~facility ~~structured,~~have ~~and security has~~ been ~~provided,~~capitalized ~~such~~as ~~that,~~debt ~~subject~~arrangement tofees ~~certain adjustments,~~under ~~we do not have any~~ non-current ~~rental payment obligations with respect~~ toassets ~~the~~and ~~Uisge~~will ~~Gorm,~~be ~~the~~amortized ~~Glas~~over ~~Dowr,~~ the ~~topsides~~term of the ~~Bleo Holm or the topsides of the Haewene Brim~~facility. ~~Our~~The ~~tax~~margin, ~~lease benefits~~which ~~liability~~is ~~represents~~currently ~~the~~0.60%, ~~amount~~could ~~that~~increase ~~we would be required~~ to ~~pay the lessor in the event of~~ a ~~voluntary~~maximum ~~termination~~ of ~~the prepaid leases~~0.85% Independing ~~the~~on, ~~event of an~~among ~~involuntary~~other ~~termination or an adverse tax change under our tax lease arrangements (whether prospective or retrospective)~~factors, the ~~tax lease benefits liability presented in our balance sheets may be required to be repaid to the lessor at an~~ amount ~~greater~~outstanding ~~than~~under the ~~carrying~~facility. ~~value~~As of ~~the liability~~March 31, ~~which~~ ~~could~~2007, ~~have~~the ainterest ~~material~~rate ~~adverse effect~~ on ~~our financial condition and results of operations. The liability declines over time as~~ the ~~tax~~corporate ~~benefits~~credit ~~are~~facility ~~realized by~~including ~~the~~margin ~~lessor. Periodically, the Company assesses the likelihood of repayment~~was ofapproximately ~~the voluntary early termination liability~~5.92%. AsThe ~~long~~facility ~~as there~~ is ~~more~~primarily ~~than~~secured ~~a remote~~with ~~possibility~~mortgages ~~of early termination, the liability is recorded and is released to other operating income as the liability decreases~~ over the ~~lease~~ ~~term.~~FPSOs ~~Receipts~~and ~~from/payments~~assignments ~~to the lessor as a result~~ of ~~changes~~incoming incash ~~underlying variables~~flows ~~such~~generated asfrom ~~market~~contracts ~~interest rates and corporate income tax are accounted~~with ~~for~~clients inconcerning the ~~statement of income as other operating income/expense~~FPSOs.

~~Tangible~~On ~~Fixed~~August 10, 2006 ~~Assets~~and August 11, 2006, the Company purchased interest rate caps to limit its interest rate exposure on U.S.$300 million of the total outstanding amount under its corporate credit facility. These interest rate caps have a strike rate of 6.5%, limiting the maximum interest costs on that principal amount to 6.5% excluding margin. The interest rate caps have fixed notional amounts of U.S.$200.0 million, U.S.$50.0 million and U.S.$50.0 million ~~Depreciation~~and are aligned with the maturity of the refinanced corporate facility. The interest rate caps are treated as cash flow hedges and changes in their fair values are recorded in other comprehensive income.

~~Our FPSOs account for~~Conversion ~~approximately 67.3%~~ of ~~our total assets, are our primary sources of revenues and, accordingly, represent our most material fixed assets. We account for~~ the ~~value~~ ofAoka ~~these assets at their~~ Mizu

On March 31, 2006, we entered into a service agreement with Nexen Petroleum U.K. Ltd. (“Nexen”) with respect to the provision and operation of an FPSO for production on the Ettrick field on the UK continental shelf. For this project our existing hull Aoka Mizu is currently being converted into an FPSO. Under the agreement with Nexen, we will receive a fixed daily hire rate of U.S.$112,500 per day plus a production tariff per barrel of oil produced. Nexen has agreed to pay us a minimum tariff based on 27 million barrels of oil produced during the five year contract term. Nexen will reimburse all operating costs with a profit mark-up.

Purchase of the Hanne Knutsen

On February 9, 2006, the Company entered into an agreement to purchase the shuttle tanker MT “Hanne Knutsen” for the amount of U.S.$131.5 million. The vessel was built in Spain at Astilleros de Sestau and was delivered to Knutsen OAS in 2000. It has been designed as a typical North Sea tanker and has since been trading in the Baltic ice regions as well as providing services as a shuttle tanker. The “Hanne Knutsen” was specifically chosen for its overall design qualities and its suitability for future FPSO conversion projects. Delivery and payment of the shuttle tanker occurred on June 29, 2006. Since then the Company has agreed to bareboat charter the vessel back to the previous owner in anticipation of a new FPSO project. The initial bareboat charter period of eleven months is currently being extended by another eleven months, until May 2008.

~~construction~~Interest or acquisition cost and depreciate them on a straight-line basis over an estimated useful life of 15 years. An increase or decrease in the actual useful lives of our FPSOs over their estimated useful lives could result in significantly higher or lower annual depreciation expenses, which could have a material effect on our results of operations and shareholder’s equity. In addition, our ability to recover the book value of our FPSOs depends, to a large extent, on our ability to enter into profitable service agreements for the vessels. If we are unable to secure profitable service agreements or if other circumstances arise indicating that the carrying amount of an FPSO may not be recoverable, we may be required to record an impairment loss, which could similarly affect our results of operations and shareholder’s equity. No circumstances arose in 2004 or in the period ended June 30, 2005 that indicated that our FPSOs could be impaired and, therefore, we did not record any impairment losses relating to our fleet.Expense

~~Accounts~~To ~~Receivable~~limit interest exposure after July 3, 2006 on the long-term bank loan entered into on July 1, 2005 for financing of the acquisition of the 55% ownership interest in PR Jotun DA, the Company purchased an interest rate cap on June 27, 2005. This interest rate cap has a strike rate of 4.4%, limiting the maximum interest costs to 5%. The interest rate cap has a starting notional amount of U.S.$143.9 million and the reduction schedule of the notional amount of the cap is aligned with the repayment schedule of the loan.

~~Accounts~~On ~~receivables~~August 10, 2006 ~~are~~and ~~stated~~August 11, at2006, ~~face~~the ~~value~~Company ~~less~~purchased ~~an allowance~~interest ~~for~~rate ~~possible~~caps ~~uncollectible accounts. We continuously monitor~~to ~~collections~~limit ~~and~~its ~~payments~~interest ~~from~~rate ~~our~~exposure ~~customers~~on ~~and~~U.S.$300 million ~~maintain~~of athe ~~provision for~~total ~~estimated~~outstanding ~~credit~~amount ~~losses~~under ~~based~~its ~~upon~~corporate ~~our~~credit ~~historical~~facility. ~~experience~~These ~~and~~interest ~~any specific~~rate ~~customer~~caps ~~collection~~have ~~issues~~a ~~that~~strike werate ~~have~~of ~~identified~~6.5%, ~~Because~~limiting ~~our~~the ~~accounts receivables~~maximum ~~are~~interest ~~concentrated~~costs inon athat principal ~~relatively~~amount ~~small~~to ~~number~~6.5% ofexcluding ~~customers,~~margin. ~~a significant~~The ~~change~~interest inrate ~~the~~caps ~~liquidity~~have orfixed notional ~~financial~~amounts ~~position~~ of ~~these~~U.S.$200.0 million, ~~customers~~U.S.$50.0 million and ~~could~~U.S.$50.0 million ~~have~~and aare ~~material~~aligned ~~adverse~~with ~~effect on~~ the ~~collectability~~maturity of ~~our~~the ~~accounts~~refinanced ~~receivables~~corporate ~~and our results of operations~~facility.

~~In the six months ended June 30, 2005 and in the~~Critical ~~three~~Accounting ~~months~~Policies ~~ended June 30, 2005, we recorded a provision relating to credit losses of U.S.$0 million. In the six months ended June 30, 2004~~ and in ~~the three months ended June 30, 2004, we recorded a provision relating to credit losses of U.S.$0.5 million and U.S.$0 million, respectively.~~Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures concerning contingent assets and liabilities as of the date of the financial statements, and that impact reported amounts of revenues and expenses during the reporting period. Management evaluates, on an ongoing basis, its estimates and judgments, including (but not limited to) those related to bad debts, inventories, tangible fixed assets, pensions, income taxes, contingencies and litigation. Management bases these estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, whenever the carrying values of assets and liabilities are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes its most critical accounting estimates relate to legal proceedings, revenue recognition and income taxes.

Results of Operations

	For the six months ended June 30,				For the three months ended June 30,
	For the three months ended March 31,				Change
	2004		2005		Change 2004-2005			2004		2005		Change 2004-2005
	2006		2007		2006-2007
	(in U.S.$ thousands)				(%)			~~(in U.S.$ thousands)~~				~~(%)~~
Revenues
FPSO business	~~181~~74,~~835~~940		~~162~~74,~~150~~174			(101.80	)	~~104,296~~		~~83,056~~		~~(20.4~~	)
SPM business	3615,~~123~~208		32,~~881~~534			(9113.09	)	~~23,003~~		~~10,707~~		~~(53.5~~	)
Total	~~217~~90,~~958~~148		~~195~~106,~~031~~708			~~(10~~18.54	)	~~127,299~~		~~93,763~~		~~(26.3~~	)
Operating expenses
Operations expenses
FPSO business	~~116~~29,~~968~~369		9622,~~287~~864			(~~17.7~~22,1	)	~~71,659~~		~~52,214~~		~~(27.1~~	)
SPM business	3414,~~819~~997		3735,~~891~~296			8135.84		~~21,608~~		~~13,855~~		~~(35.9~~	)
Total	~~151~~44,~~787~~366		~~134~~58,~~178~~160			~~(11~~31.61	)	~~93,267~~		~~66,069~~		~~(29.2~~	)
Selling, general and administrative expenses	43,~~910~~204		54,~~940~~490			2140.01		~~2,430~~		~~3,090~~		~~27.2~~
Other operating income	(1,638	)	(1,126	)		(31.3	)	(550	)	(561	)	2.0
Depreciation of tangible fixed assets and amortization of intangible assets	25,979		27,222			4.8
Depreciation of tangible fixed assets and amortization of intangible assets	38,800		39,806			2.6		19,384		19,910		2.7
Total operating expenses	73,549		89,872			22.2
Total operating expenses	193,859		178,798			(7.8	)	114,531		88,508		(22.7	)
Operating income
Operating income
FPSO business	16,882		20,769			23.0
FPSO business	23,559		22,160			(5.9	)	11,752		8,880		(24.4	)
SPM business	(283	)	(3,933	)		1290.1
SPM business	540		(5,927	)		(1197.6	)	1,016		(3,625	)	(456.8	)
Total	16,599		16,836			1.4
Total	24,099		16,233			(32.6	)	12,768		5,255		(58.8	)
Financial income and expense
Financial income and expense
Interest income	373		355			(4.8	)
Interest income	1,766		2,080			17.8		767		1,091		42.2
Interest expense	(18,439	)	(18,748	)		1.7
Interest expense	(23,343	)	(25,672	)		10.0		(11,276	)	(13,063	)	15.8
Currency exchange results	1,097		(455	)		(141.5	)
Currency exchange results	228		(9,539	)		(4283.8	)	(2,137	)	(6,963	)	225.8
Total	(16,969	)	(18,848	)		11.1
Total	(21,349	)	(33,131	)		55.2		(12,646	)	(18,935	)	49.7
Income before taxes	(370	)	(2,012	)		444.1
Income/(loss) before taxes	2,750		(16,898	)		(714.5	)	122		(13,680	)	(11313.1	)
Income taxes	(6,417	)	(639	)		(90.0	)
Income taxes	(11,772	)	(12,901	)		9.6		(6,077	)	(7,932	)	30.5
Net income before minority interest	6,047		(2,651	)		(143.9	)
Net income/(loss)	14,522		(3,997	)		(127.5	)	6,199		(5,748	)	(192.7	)
Minority interest	2,462		2,776			12.8
EBITDA(1)
Net income	3,585		(5,427	)		(251.4	)
FPSO business	62,331		61,940			(0.6	)	31,121		28,777		(7.5	)
EBITDA(1)
SPM business	568		(5,901	)		(1138.9	)	1,031		(3,612	)	(450.3	)
FPSO business	42,847		47,960			(11.9	)
Total	62,899		56,039			(10.9	)	32,152		25,165		(21.7	)
SPM business	(269	)	(3,902	)		1350.6
Total	42,578		44,058			(3.5	)

Note:

(1) A reconciliation of EBITDA to net income (loss) and net cash provided by operating activities is included under “Unaudited Other Financial Data and Ratios”.

~~Six~~ Three Months Ended ~~June~~March 3031, 2007 ~~2005~~ Compared with ~~Six~~three Months Ended ~~June~~March 3031, ~~2004~~ 2006

Revenues

Revenues were U.S.$~~195~~106.07 million during the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2007, ~~down~~up 1018.54% from U.S.$~~218~~90.01 million in the ~~six~~three months ended ~~June~~March 3031, ~~2004~~2006. Revenues from our FPSO business were U.S.$~~162~~74.12 million in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~ 2007, down 101.80% from U.S.$~~181~~74.89 million in the ~~six~~three months ended ~~June~~March 3031, ~~2004.~~ 2006. Revenues from our SPM business were U.S.$32.95 million in the ~~six months~~three months ended ~~June~~March 3031, ~~2005~~2007, ~~down~~up 9113.09% from U.S.$3615.12 million in the ~~six~~ three months ended ~~June~~March 3031, ~~2004~~ 2006.

Revenues from our FPSO business decreased by U.S.$190.7 million in the ~~six~~three months ended ~~June~~March 3031, ~~2005.~~2007 ~~The~~due ~~payments received~~to ~~under~~a ~~our~~decrease ~~service agreement with PetroSA for the reimbursable expenses~~in ~~incurred~~total incontract ~~connection~~revenues ~~with the installation~~ of ~~subsea equipment on the Sable Field during the six months ended June 30, 2005 decreased by~~ U.S.$12.~~8 million~~9 ~~compared with the six months ended June 30~~million, ~~2004~~partly ~~because~~offset ~~the~~by ~~work has~~charter ~~been~~income ~~finalized during 2004. The payments received in relation to the reimbursement~~ of ~~expenses incurred in connection with the installation of a new~~ ~~water injection facility on the Haewene Brim decreased by~~ U.S.$262.92 million ~~during~~from the ~~six~~Hanne ~~months ended June 30~~Knutsen, ~~2005~~which ~~compared~~was ~~with~~delivered ~~the~~and ~~six~~started ~~months~~trading ~~ended~~on June 3029, ~~2004~~2006. ~~because~~The ~~the~~decrease ~~water injection facility has been installed~~ in ~~October 2004 and we are currently~~ ~~in the close out phase of the project. This~~ total ~~decrease~~contract ~~of U.S.$28.7 was partially offset by an increase in~~ revenues ofcompared ~~U.S.$9.0 million. U.S.$4.1 million was attributable~~ to ~~increased revenues as a result of redeployment of~~ the ~~Munin~~three tomonths ~~the~~ended ~~Xijiang Field, U.S.$4.3~~March ~~million~~31, 2006 was ~~attributable~~mainly due to anaccrued ~~extension~~revenues offor the ~~contract~~Glas ~~for~~Dowr ~~three~~recognized ~~years~~in ~~with Amerada Hess for~~ the ~~Uisge Gorm~~first ~~where~~quarter ~~the~~of ~~Company~~2006. ~~receives~~That anaccrued ~~operational~~revenue ~~fee~~was inbased ~~GBP~~on ~~and a~~the ~~U.S.$.~~minimum ~~tariff~~guaranteed ~~per~~production ~~barrel~~that ~~produced~~applied asduring ~~of January 1, 2005. In addition, revenues generated by~~ the ~~Bleo~~minimum ~~Holm increased~~contract ~~by U~~period.~~S.$0.6 million~~ Since in the ~~six~~minimum ~~months~~contract ~~ended~~period ~~June 30,~~has ~~2005 compared with the six months~~ ended ~~June 30~~late 2006, ~~2004~~no ~~due~~such ~~to higher~~revenues ~~operational income~~ occurred in the ~~six~~first ~~months ended~~quarter ~~June 30,~~of ~~2005~~2007.

Revenues from our SPM business ~~decreased~~increased by U.S.$317.23 million in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2007 primarily attributable to a lower work in process of the reimbursement of expenses incurred in connection with the installation of a new water injection facility on the Haewene Brim which resulted in a decrease of revenues of U.S.$14.0 million in the six months ended June 30, 2005 compared with the six months ended June 30, 2004. The SPM revenues increased with U.S.$10.8 million due to a higher level of SPM activities in the ~~six~~ three months ended ~~June~~March ~~30 2005~~31, 2007, compared with the ~~six~~three months ended ~~June~~March 3031, ~~2004~~ 2006. ~~The~~This ~~higher level of SPM activities~~ was ~~mainly~~ mainly due to SPM delivery contracts for the development of buoy mooring systems ~~during~~and turret ~~2004~~mooring systems which were awarded ~~late~~ in ~~the~~late ~~year~~2005 and ~~which~~early ~~will~~2006 ~~largely generate~~and ~~revenues during 2005. We do not expect payments under the contracts to~~which ~~have~~are anow ~~material~~generating ~~effect on our results of operations in the future~~revenues.

Operations Expenses

Operations expenses were U.S.$~~134~~58.2 million in the three ~~six~~ months ended ~~June~~March 3031, ~~2005~~2007, ~~down~~up 1131.61% from U.S.$~~151~~44.84 million in the ~~six~~three months ended ~~June~~March 3031, ~~2004~~2006. In our FPSO business, our operations expenses were U.S.$9622.39 million in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~ 2007, down 1722.71% from U.S.$~~117~~29.04 million in the ~~six~~ three months ended ~~June~~March 3031, ~~2004~~ 2006. In our SPM business, operations expenses amounted to U.S.$3735.93 million in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2007, up 8135.84% from U.S.$3415.80 million in the ~~six~~three months ended ~~June~~March 3031, ~~2004~~2006.

~~The~~Operations ~~U.S.$20.7 million decrease in the operations~~ expenses of our FPSO business ~~during~~decreased ~~the six months ended June 30, 2005~~by ~~was primarily attributable to a decrease in reimbursement of expenses incurred in connection with the installation of a new water injection facility on the Haewene Brim~~ U.S.$266.95 million ~~and a decrease~~ in ~~commissioning~~the ~~and~~three ~~start-up~~months ~~costs~~ended ~~U.S.$3.9~~March ~~million~~31, ~~associated with~~2007 ~~our service agreement with PetroSA relating to the Glas Dowr~~ compared ~~with the six months~~to ~~ended June~~March 3031, ~~2004.~~2006, Inwhich ~~addition,~~was wedue ~~signed~~primarily ato ~~heads~~lower oftender ~~terms~~costs onand ~~July 14,~~higher ~~2005~~recovery ~~for~~of ~~replacing~~overhead ~~the FPSO agreement with~~ costs.

27Operations expenses of our SPM business increased by U.S.$20.3 million during the three months ended March 31, 2007. This increase was attributable to a higher level of SPM activities in the three months ended March 31, 2007, compared with the three months ended March 31, 2006, due to SPM delivery contracts for the development of buoy mooring systems and turret mooring systems which were awarded in late 2005 and early 2006. Included in these increased operating expenses are provisions for expected losses on certain projects that were identified and recognized during the first quarter of 2007.

Talisman. As a consequence, the FPSO agreement will be terminated and replaced by a bareboat charter agreement. In the charter agreement, Talisman, in its role as operator of the Ross Field for the Bleo Holm, will take over the role of duty holder and be responsible for all of the operations onshore and offshore, including resourcing. Bluewater will no longer provide onshore support. Part of the heads of terms is us paying Talisman U.S.$4.3 million for maintenance and repair work which have been accrued for in the six months ended June 30, 2005 but not yet carried out. In addition the operations expenses increased with U.S.$5.8 million as a result of higher FPSO tender activities in the six months ended June 30 2005, compared with the six months ended June 30, 2004.

Operations expenses of our SPM business increased by U.S.$3.1 million during the six months ended June 30, 2005. Of this increase, U.S.$14.0 million was attributable to a higher level of SPM activities during the six months ended June 30, 2005 compared with the six months ended June 30, 2004 which was fully offset by the lower work in process of the reimbursement of expenses incurred in connection with the installation of a new water injection facility on the Haewene Brim of U.S.$14.0 million in the six months ended June 30, 2005 compared with the six months ended June 30, 2004. Operations expenses increased by U.S.$3.1 million due to the costs of arbitration proceedings in relation to the alleged failure of the Company to pay for additional work during the six months ended June 30, 2005 compared with the six months ended June 30, 2004.

Selling, General and Administrative Expenses

Selling, general and administrative expenses amounted to U.S.$54.9 5 million in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~ 2007, up 2140.01% from U.S.$43.9 2 million in the ~~six~~three months ended ~~June~~March 3031, ~~2004~~ 2006. The increase of U.S.$1.03 million in selling, general and administrative expenses ~~during the six month ended June 30, 2005 compared with the six months ended June 30, 2004~~ was ~~due~~attributable to an increase in the cost of administrative supporting personnel ~~of U.S.$0.5 million~~, and an increase in ~~advertising~~office-related costs ~~of U~~.~~S.$0.3 million and an increase in professional services of U.S.$0.2 million.~~

Depreciation of Tangible Fixed Assets

Charges for depreciation of tangible fixed assets amounted to U.S.$3927.82 million in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2007, up 4.8% from U.S.$3826.80 million in the ~~six months~~three months ended ~~June~~March 3031, ~~2004~~2006. The increase of U.S.$1.02 million in the ~~amount~~ amount of these charges resulted ~~primarily~~ from ~~the increase in~~ depreciation charges that we recorded in respect of the ~~Munin as~~Hanne aKnutsen, ~~result~~which ofwas delivered ~~capitalization of repair~~ and ~~lifetime~~started ~~extension~~trading ~~work~~on ~~following the~~June 29, ~~redeployment of the Munin to the Xijiang Field and Lufeng reconnection~~2006.

Operating Expenses

Due to the foregoing factors, total operating expenses were U.S.$~~178~~89.89 million in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2007, ~~down~~up 722.82% from U.S.$~~193~~73.95 million in the ~~six~~three months ended ~~June~~March 3031, ~~2004~~ 2006.

Operating Income

Due to the foregoing factors, operating income amounted to U.S.$16.28 million in the ~~six months~~three months ended ~~June~~March 3031, ~~2005~~2007, ~~down~~up 321.64% from U.S.$2416.16 million in the ~~six months~~three months ended ~~June~~March 3031, ~~2004~~2006. Our operating margin decreased to 815.38% of ~~our~~ our revenues in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2007, compared to 1118.14% of our revenues in the ~~six~~three months ended ~~June~~March 3031, ~~2004~~2006.

Financial Income and Expense

Net financial expense amounted to U.S.$3318.18 million in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2007, up 5511.21% from U.S.$2117.30 million in the ~~six~~three months ended ~~June~~March 3031, ~~2004~~ 2006.

28Our interest expense increased from U.S.$18.4 million in the three months ended March 31, 2006 to U.S.$18.7 million in the three months ended March 31, 2007. This U.S.$0.3 million increase was due to higher interest expense of U.S.$2.6 million mainly related to our corporate facility, which was largely offset by higher capitalized interest of U.S.$2.3 million.

~~Our~~Interest ~~interest~~income ~~expense~~was ~~increased from~~ U.S.$230.34 million in the ~~six months ended 2004 to U.S.$25.7 million~~three ~~in the six~~ months ended ~~2005. Despite the decrease of our debt from U.S.$567.3~~March ~~million~~31, in2007 ~~the~~and ~~six months ended 2004 to U.S.$552.8 million~~ in the ~~six~~three months ended ~~2005 the interest costs increased by U.S.$2.4~~March ~~million~~31, ~~as a result of a relatively higher interest rate~~2006.

~~Interest~~Currency ~~income~~exchange ~~was~~resulted in a loss of U.S.$20.15 million in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~ 2007, upcompared ~~17.8%~~with ~~from~~ a gain of U.S.$1.8 1 million in the ~~six~~three months ended ~~June~~March 3031, 2006. ~~2004,~~The ~~due~~movement toof ~~lower interest~~the ~~rates~~U.S. indollar and the ~~six~~euro ~~months~~exchange ~~ended~~rates ~~June 30,~~from ~~2004~~€/U. ~~Currency exchange~~S.$1.3186 ~~results~~in ~~were~~2006 ato ~~loss of~~ €/U.S.$91.~~5 million~~ 33140 in the ~~six~~three months ended ~~June~~March 3031, ~~2005,~~ ~~compared~~2007 ~~with~~and afrom ~~gain of~~ £/U.S.$01.~~2 million~~9660 in ~~the~~2006 ~~six months ended June 30,~~to ~~2004.~~ £/U.S.$51.296054 ~~million~~in ofthe ~~this~~three ~~decrease~~months ~~was~~ended ~~attributable~~March 31, to2007 ~~our~~resulted ~~sterling~~in ~~and~~a loss ~~Euro~~in ~~foreign currency exchange contracts. In~~ the ~~six~~three months ended ~~June~~March 3031, ~~2005,~~ ~~we recognized U~~2007.~~S.$4.9 million~~ ofThis ~~loss~~compared onto ~~these~~a ~~foreign~~movement ~~currency exchange~~of ~~contracts compared to~~ €/U.S.$~~0.3 million gain in the six months~~ ~~ended~~from ~~June 30, 2004~~€/U. ~~In addition, the transfer of £20 million~~S.$1.1845 ~~restricted~~in ~~deposits~~2005 to €/U.S. ~~dollar restricted deposits resulted in a lower~~$1.21020 ~~revaluation result~~ in the ~~six~~three months ended ~~June~~March 3031, ~~2005,~~2006 ~~compared to the six month ended June 30, 2004~~ and ~~the~~from ~~movement of the~~ £/U.S.$1.72041 ~~dollar~~in ~~and the Euro~~2005 ~~exchange~~to ~~rates~~£/U.S.$1.73904 ~~resulted~~ in ~~a loss in~~ the ~~six~~three ~~month~~months ended ~~June~~March 3031, ~~2005~~2006, ~~compared~~ towhich resulted in a gain in the ~~six~~three ~~month~~months ended ~~June~~March 3031, ~~2004~~2006.

Income before Taxes

Due to the foregoing factors, ~~income/(~~loss) before taxes was U.S.$~~(16~~2.9)0 million in the ~~six~~ three months ended ~~June~~March 3031, ~~2005~~ 2007, ~~down~~up ~~714~~444.51% from U.S.$20.84 million in the ~~six~~ three months ended ~~June~~March 3031, ~~2004~~ 2006. As a percentage of revenues, our ~~income/(~~loss) before taxes decreased from 1(4.32)% in the ~~six~~three months ended ~~June~~March 3031, ~~2004~~2006 to (8 1.7)9% in the ~~six~~three months ended ~~June~~ March 3031, ~~2005~~2007.

Income Taxes and Net Income

We recorded U.S.$120.96 million of income tax ~~credits~~charges in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~ 2007, upas compared ~~9.6%~~to ~~from~~ U.S.$116.84 million inof ~~the six months ended June 30, 2004. These~~ income tax credits ~~consisted of current tax charges of U.S.$1.3 million~~ in the ~~six~~three months ended ~~June~~March 3031, ~~2005, up 62~~2006.5% ~~from~~These ~~U.S.$0.8 million in~~income ~~the six months ended June 30, 2004, and deferred~~ tax ~~credits~~charges ~~of U.S.$14.2 million~~ in the ~~six~~first ~~months~~quarter ~~ended June 30, 2005, up 12.7%~~of ~~from~~2007 ~~U.S.$12.6 million~~consisted inof ~~the~~current ~~six~~tax ~~months ended June 30, 2004~~charges. The ~~deferred~~ ~~tax~~income ~~credits primarily resulted from the increase of~~ tax ~~loss carry-forwards which resulted from our internal restructuring. After taking into account income tax~~ credits, ~~net income/(loss) amounted to U.S.$(4.0) million~~ in the ~~six~~first three months ended ~~June~~March 3031, ~~2005,~~2006 ~~down~~consisted ~~127.5%~~of ~~from~~current tax charges of U.S.$140.5 million inand ~~the six months ended June 30, 2004.~~

~~Three Months Ended June 30, 2005 Compared with Three Months Ended June 30, 2004~~28

~~Revenues~~deferred tax credits of U.S.$6.9 million. The deferred tax credits were due to the increase of tax loss carry-forwards caused by our internal restructuring recorded in the three months ended March 31, 2006. The amount of tax credits that we can deduct depends on, among other things, our aggregate losses and the projected realization of these tax losses based on future taxable income. The Company evaluates future realization of these losses carried forward, considering the Company’s history of earnings, projected earnings based on current contracts as well as future contracts, the applicable tax rates, non-deductible interest as a result of thin cap rules and the maximum carry forward period of the tax losses. Based this analysis, the Company decided not to increase the deferred tax asset during the three months ended March 31, 2007.

Revenues were U.S.$93.8 million during the three months ended June 30, 2005, down 26.3% from U.S.$127.3 million in the three months ended June 30, 2004. Revenues from our FPSO business were U.S.$83.1 million in the three months ended June 30, 2005, down 20.4% from U.S.$104.3 million in the three months ended June 30, 2004. Revenues from our SPM business were U.S.$10.7 million in the three months ended June 30, 2005, down 53.5% from U.S.$23.0 million in the three months ended June 30, 2004.

Revenues from our FPSO business decreased by U.S.$21.2 million in the three months ended June 30, 2005. This decrease was mainly attributable to the decrease in payments received in relation to the reimbursement of expenses incurred in connection with the installation of a new water injection facility on the Haewene Brim. The revenues decreased with U.S.$22.6 million during the three months ended June 30, 2005 compared with the three months ended June 30, 2004 because the water injection facility has been installed in October 2004 and we are currently in the close out phase of the project. The revenues increased with U.S.$1.4 million due to an extension of the contract for three years with Amerada Hess for

the Uisge Gorm where the Company receives an operational fee in GBP and a U.S.$. tariff per barrel produced as of January 1, 2005.

Revenues from our SPM business decreased by U.S.$12.3 million in the three months ended June 30, 2005, fully attributable to a lower work in process of the reimbursement of expenses incurred in connection with the installation of a new water injection facility on the Haewene Brim.

Operations Expenses

Operations expenses were U.S.$66.1 million in the three months ended June 30, 2005, down 29.2% from U.S.$93.3 million in the three months ended June 30, 2004. In our FPSO business, our operations expenses were U.S.$52.2 million in the three months ended June 30, 2005, down 27.1% from U.S.$71.7 million in the three months ended June 30, 2004. In our SPM business, operations expenses amounted to U.S.$13.9 million in the three months ended June 30, 2005, down 35.9% from U.S.$21.6 million in the three months ended June 30, 2004.

The U.S.$19.5 million decrease in the operations expenses of our FPSO business during the three months ended June 30, 2005 was primarily attributable to a decrease in the reimbursement of expenses incurred in connection with the installation of a new water injection facility on the Haewene Brim of U.S.$22.6 million and a decrease in commissioning and start-up costs of U.S.$2.7 million associated with our service agreement with PetroSA relating to the Glas Dowr compared with the three months ended June 30, 2004. In addition, we signed a heads of terms on July 14, 2005 for replacing the FPSO agreement with Talisman. As a consequence, the FPSO agreement will be terminated and replaced by a charter agreement. In the charter agreement, Talisman, in its role as operator of the Ross Field for the Bleo Holm, will take over the role of duty holder and be responsible for all of the operations onshore and offshore, including resourcing. Bluewater will no longer provide onshore support. Part of the heads of terms is Bluewater paying Talisman U.S.$4.3 million for maintenance and repair work which have been accrued for in the six months ended June 30, 2005 but not yet carried out. In addition the operations expenses increased with U.S.$1.5 million as a result of higher FPSO tender activities in the three months ended June 30, 2005, compared with the three months ended June 30, 2004.

Operations expenses of our SPM business decreased by U.S.$7.7 million during the three months ended June 30, 2005. SPM operating expenses decreased by U.S.$12.4 million due to the lower work in process of the reimbursement of expenses incurred in connection with the installation of a new water injection facility on the Haewene Brim in the three months ended June 30, 2005 compared with the three months ended June 30, 2004. SPM operating expenses increased by U.S.$3.3 million attributable to a higher level of SPM activities during the three months ended June 30, 2005 compared with the three months ended June 30, 2004. In addition operations expenses increased by U.S.$1.4 million due to the costs of arbitration proceedings in relation to the alleged failure of the Company to pay for additional work during the three months ended June 30, 2005 compared with the three months ended June 30, 2004.

Selling, General and Administrative Expenses

Selling, general and administrative expenses amounted to U.S.$3.1million in the three months ended June 30, 2005, up 27.2% from U.S.$2.4 million in the three months ended June 30, 2004. The increase of U.S.$0.7 million in selling, general and administrative expenses was due to was due to an increase in administrative supporting personnel and an increase in advertising costs because of higher tender activity as well as an increase in professional services in part due to the Jotun project.

Depreciation of Tangible Fixed Assets

Charges for depreciation of tangible fixed assets amounted to U.S.$19.9 million in the three months ended June 30, 2005, up 2.7% from U.S.$19.4 million in three months ended June 30, 2004. The increase

of U.S.$0.5 million in the amount of these charges resulted primarily from the increase in depreciation charges that we recorded in respect of the Munin as a result of capitalization of repair and lifetime extension work following the redeployment of the Munin to the Xijiang Field and Lufeng reconnection.

Operating Expenses

Due to the foregoing factors, total operating expenses were U.S.$88.5 million in the three months ended June 30, 2005, down 22.7% from U.S.$114.5 million in the three months ended June 30, 2004.

Operating Income

Due to the foregoing factors, operating income amounted to U.S.$5.3 million in the three months ended June 30, 2005, down 58.8% from U.S.$12.8 million in the three months ended June 30, 2004. Our operating margin decreased to 5.6% of our revenues in the three months ended June 30, 2005, compared to 10.0% of our revenues in the three months ended June 30, 2004.

Financial Income and Expense

Net financial expense amounted to U.S.$18.9 million in the three months ended June 30, 2005, up 49.7% from US$12.6 million in the three months ended June 30, 2004.

Our interest expense increased from U.S.$11.3 million in the three months ended June 30, 2004 to U.S.$13.1 million in the three months ended June 30, 2005. Despite the decrease of our debt from U.S.$567.3 million in the three months ended June 30, 2004 to U.S.$552.8 million in the three months ended June 30, 2005 the interest costs increased by U.S.$1.8 million as a result of a relatively higher interest rate under both its corporate credit facility and its 101¤4% Senior Notes due 2012 due to a fixed-to-floating interest rate swap transaction .

Interest income was U.S.$1.1 million in the three months ended June 30, 2005, up 42.2% from U.S.$0.8 million in the three months ended June 30, 2004, due to a relatively higher cash balance during the three months ended June 30, 2005, compared to the three months ended June 30, 2004. The currency exchange result was a loss of U.S.$7.0 million in the three months ended June 30, 2005, compared with a loss of U.S.$2.1 million in the three months ended June 30, 2004 and was mainly attributable to our sterling and Euro foreign currency exchange contracts. In the three months ended June 30, 2005, we recognized U.S.$4.2 million of loss on these foreign currency exchange contracts compared to U.S.$0.5 million loss in the three months ended June 30, 2004. In addition, the movement of the U.S. dollar and the Euro exchange rates resulted in a loss of U.S.$1.2 million in the three months ended June 30, 2005, compared to a gain in the three months ended June 30, 2004.

Income before Taxes

Due to the foregoing factors, income/(loss) before taxes was U.S.$(13.7) million in the three months ended June 30, 2005, down 11,313.1% from U.S.$0.1 million in the three months ended June 30, 2004. As a percentage of revenues, our income/(loss) before taxes decreased from 0.1% in the three months ended June 30, 2004 to (14.6)% in the three months ended June 30, 2005.

Income Taxes and Net Income

We recorded U.S.$7.9 million of income tax credits in the three months ended June 30, 2005, up 30.5% from U.S.$6.1 million in the three months ended June 30, 2004. These income tax credits consisted of current tax charges of U.S.$0.5 million in the three months ended June 30, 2005, up 0% from U.S.$0.5 million in the three months ended June 30, 2004, and deferred tax credits of U.S.$8.4 million in the three months ended June 30, 2005, up 27.3% from U.S.$6.6 million in the three months ended June 30, 2004. The deferred tax credits primarily resulted from an increase in tax loss carry-forwards which resulted from our internal restructuring. The amount of tax credit that we can deduct depends on, among other things, our aggregate losses and the applicable tax rate. After taking into account income tax credits, net income/(loss) amounted to U.S.$(5.7) million in the three months ended June 30, 2005, down 192.7% from U.S.$6.2 million in the three months ended June 30, 2004.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash flows generated from our operations and external debt. Our primary uses of cash are to fund working capital, to service indebtedness and to fund investments in new FPSOs. We believe that our working capital is sufficient to satisfy current requirements.

Net Cash Provided by Operating Activities

Net cash provided by operating activities consists of operating income earned from our service agreements and our SPM delivery contracts, adjusted for investments in working capital and non-cash items, such as depreciation and amortization. Working capital is defined as our current assets less our current liabilities. Net cash ~~used~~provided inby operating activities was U.S.$2027.9 4 million in the ~~six~~three months ~~ended~~ ~~June~~ended March 3031, ~~2005~~2007 and net cash ~~provided~~used byin operating activities was U.S.$286.54 million in the ~~six~~three months ended ~~June~~March 3031, ~~2004~~2006. The ~~decrease~~ increase in net cash flow provided by operating activities from the ~~six~~ three months ended ~~June~~March 3031, ~~2004~~ 2006 to the ~~six~~three months ended ~~June~~March 3031, 2007 ~~2005~~ was primarily attributable to a ~~relative~~ ~~higher level of SPM activities resulting in a~~ decrease of ~~the~~operating ~~work~~assets inand ~~process~~liabilities ~~and~~caused anby ~~increase of~~ the ~~trade receivables. The~~ changes in working capital ~~include~~including movements in work in process, billings in excess of cost and unrealized income, trade and other receivables, other liabilities and accrued expenses, accounts payable and prepaid expenses.

Furthermore, an amount of U.S.$38.0 million was included in the Other Receivables as per June 30, 2005 related to the Joint Venture with ExxonMobil (See Note 12 Other Receivables).

Net Cash (Used in) Investing Activities

Net cash (used in~~) investing~~ investing activities depends primarily on the amount of capital expenditures that we make in connection with the construction, modification or acquisition of FPSOs. Net cash (used in) investing activities totaled U.S.$951.94 million in the ~~six~~ three months ended ~~June~~March 3031, ~~2004~~2007 and U.S.$519.04 million in the ~~six months~~three months ended ~~June~~March 3031, ~~2005~~2006. The cash used in investing activities in the ~~six months~~first ~~ended~~quarter ~~June 30,~~of ~~2004~~2007 ~~were~~consisted ~~expenditures~~primarily inof ~~relation~~U.S.$38.0 tomillion ~~the~~for ~~modification~~work ofperformed in connection with the ~~Munin~~conversion inof ~~connection~~our ~~with~~existing ~~its~~hull Aoka Mizu ~~redeployment~~into an FPSO and U.S.$12.4 million of payments related to ~~the~~investments ~~Xijiang~~made during ~~Field~~2006. These investments made in ~~the~~2006 ~~South~~related ~~China~~primarily ~~Sea~~to stock buoys and anthe ~~investment~~ conversion of the Aoka Mizu. In addition, U.S.$3.0 .8 million was invested in equipment for the ~~shares~~Glas Dowr and ofU.S.$0.2 ~~Emerald~~million ~~Energy~~was ~~Resources~~invested ~~Ltd~~in office equipment. The ~~investing~~investment activities during in the ~~six~~first ~~months ended~~quarter ~~June 30,~~of ~~2005~~2006 consisted primarily of U.S.$114.0 million for ~~work~~a down ~~performed~~payment in ~~connection~~relation ~~with~~to ~~building~~the ~~two~~purchase ~~stock~~of the Hanne ~~buoy’s~~Knutsen, ~~approximately~~a ~~U.S.$1.0 million~~trading ~~related~~vessel towhich ~~equipment~~was ondelivered to the ~~Uisge~~Company ~~Gorm~~on June 29, 2006, and U.S.$04.2 6 million ~~related to~~for ~~equipment~~work onperformed in connection with the ~~Munin~~conversion of ~~and~~our existing hull Aoka Mizu into an FPSO. U.S.$0.4 6 million towas ~~expenditures~~also oninvested ~~certain~~for ~~office~~work ~~equipment.~~performed Inin ~~addition~~connection wewith ~~invested~~two stock buoys and U.S.$20.4 2 million infor ~~the~~expenditures ~~shares~~on ofcertain ~~Emerald Energy Resources~~office ~~Ltd~~equipment.

32Net Cash Provided by Financing Activities

Net ~~Cash~~cash ~~Provided~~provided by financing ~~(Used~~activities is primarily driven by our borrowing activities. These cash flows amounted to U.S.$35.6 million in) ~~Financing~~the ~~Activities~~three months ended March 31, 2007 and U.S.$13.4 million

Net cash provided by (used in) financing activities is primarily driven by our borrowing activities. These cash flows amounted to U.S.$(18.8) million in the six months ended June 30, 2004 and U.S.$8.4 million in the six months ended June 30, 2005. Our net indebtedness typically increases while we are modifying, developing or acquiring an FPSO, while our net indebtedness tends to decrease if we are not engaged in those activities. The decrease in net cash (used in) financing activities in the six months ended June 30, 2005 resulted from approximately U.S.$7.7 million in drawdowns from our credit facility and the release of approximately U.S.$0.7 million of our restricted deposits compared to approximately U.S.$20.0 million in repayments under our credit facility and the release of approximately U.S.$1.2 million of our restricted deposits in the six months ended June 30, 2004. We used the release of our restricted deposits of U.S.$1.2 million in the six months ended June 30, 2004 partly for the modification of the Munin in connection with its redeployment to the Xijiang Field. In the six months ended June 30, 2005 we used the release of our restricted deposits of U.S.$0.7 million partly for investment in the shares of Emerald Energy Resources Ltd. The drawdowns in the six months ended June 30, 2005 will be used for a financial investment in the Jotun FPSO which will be effective July 1, 2005. The drawdown on June 30, 2005 is held for deposit and is included in cash and cash equivalents.29

in the three months ended March 31, 2006. Our net indebtedness typically increases while we are modifying, developing or acquiring an FPSO, while our net indebtedness tends to decrease if we are not engaged in those activities. The net cash provided by financing activities in the three months ended March 31, 2007 resulted from approximately U.S.$78.5 million in proceeds from our credit facility offset by U.S.$42.9 million in repayments under the long-term bank loans. In the three months ended March 31, 2006, we primarily used the proceeds from our credit facility for the down payment of the Hanne Knutsen and for investment in relation to work performed in connection with the conversion of our existing hull Aoka Mizu into an FPSO.

Financing Arrangements and Contractual Obligations

As of ~~June~~March 3031, ~~2005~~2007, we did not have any short-term bank debt under working capital facilities or our credit facility. We had total long-term bank debt of U.S.$~~215~~411.~~0 million~~6 million incurred under our credit facility (including the short term portion), a long term bank debt of U.S.$226.1 million in relation to the purchase of the FPSO Jotun A and cash and cash equivalents of U.S.$6353.92 million. We also had U.S.$335.0 million aggregate principal amount of 101¤4% Senior Notes due 2012 outstanding and U.S.$~~147~~156.05 million of indebtedness outstanding under the subordinated Marenco loan.

Credit Facility. Our credit facility is a U.S.$600.0 million revolving credit facility that we entered into in January 2002 with an international syndicate of banks led by Barclays Capital, Fortis Bank and ING Bank. The facility has a tenor of eight years and may be used to finance the development of new FPSOs and for general corporate purposes. Its structure includes a borrowing base, calculated according to the present value of cash flows we earn or expect to earn under our FPSO service agreements and a proportion of the residual value of our assets. The facility may be drawn upon at any time up to the lower of the current amount of the facility limit and the borrowing base. The facility limit, which was U.S.$360.0 million as of June 30, 2005, reduces by U.S.$20.0 million per quarter and is scheduled to reach zero in December 2009. Interest is payable at a rate that is equal to a margin over LIBOR. The margin, which is currently 1.400%, varies from 1.300% to 1.700% depending on certain factors. As of June 30, 2005, the applicable interest rate was 4.6%.

On June 29, 2006, the Company refinanced its outstanding debt under the U.S.$600.0 million revolving credit facility with funds drawn under a U.S.$850.0 million syndicated secured reducing the RCF. The RCF has been used to refinance outstanding amounts under the existing U.S.$600.0 million revolving credit facility, to finance the construction of the FPSO Aoka Mizu, to purchase the Hanne Knutsen, and will be used to upgrade existing FPSOs and for general corporate purposes. The costs incurred in arranging the corporate credit facility have been capitalized as debt arrangement fees under non-current assets and are amortized over the term of the facility. The margin, which is currently 0.60%, could increase to a maximum of 0.85% depending on, among other factors, the amount outstanding under the facility. As of March 31, 2007 the interest rate on the corporate credit facility including margin was approximately 5.92%.

The following table presents certain information regarding the expected availability of funding under our credit facility in its current form during the periods indicated.

	Year ending December 31,
	2005		2006		2007		2008		2009
	2007		2008		2009		2010		2011
	(in U.S.$ millions)
Facility limit		~~320~~850		~~240~~764		~~160~~593		80421	0	421
Borrowing base(1)		334		291		274		253	N/A

Note:

~~(1) Based~~As of March 31, 2007 the maximum available amount based on our current FPSO fleet except for FPSO Jotun was U.S.$790.0 million, ~~Our~~being ~~credit~~66.7% of the aggregate fair market at March 31, 2007. U.S.$411.6 million has been drawn down on the facility ~~terminates~~and intherefore ~~December~~the remaining borrowing capacity under the RCF is U.S.$378.4 million as of March ~~2009~~31, 2007.

33Other Financing Arrangements.

~~Other Financing Arrangements.~~ In addition to the ~~credit~~ credit facility described above, we also have entered into the following ~~financing~~ financing arrangements.

· ~~101¤4%~~Long-term ~~Senior Notes due 2012~~loan. On ~~In February~~July ~~2002~~1, we ~~issued U.S.$260.0 million aggregate principal amount of 101¤4% Senior Notes due 2012 through our finance subsidiary~~2005, ~~Bluewater Finance Limited, at a price of 98.47% of~~ the ~~principal amount thereof. We used the gross proceeds from the~~Company ~~issuance~~entered tointo ~~repay~~a ~~approximately~~ U.S.$~~248~~175.~~5 million~~0 ~~of indebtedness outstanding under our credit facility and to pay approximately U.S.$7.5~~ million ofloan ~~costs~~agreement ~~relating~~ to finance the ~~issuance.~~acquisition ~~In April 2003, we issued an additional U.S.$75.0 million aggregate principal amount~~ of ~~101¤4%~~ ~~Senior Notes due 2012 through our finance subsidiary, Bluewater Finance Limited, at~~ a ~~price of 100.5~~55% ofownership ~~the aggregate principal amount thereof plus accrued~~ interest ~~from~~in ~~and~~PR ~~including~~Jotun ~~February 15, 2003 to but excluding the issue date~~DA. WeThe ~~used~~loan ~~approximately~~will ~~U.S.$75.4 million~~amortize ~~of the gross proceeds from the issuance, excluding the accrued interest from and including February 15, 2003~~ to ~~but~~zero ~~excluding~~over ~~the issue date, to repay approximately~~a ~~U.S.$73.4 million~~period of ~~indebtedness~~six ~~outstanding~~years ~~under our credit facility~~ and toa ~~pay~~quarter, anby ~~estimated U.S.$2.0~~September ~~million~~2011. ofInterest ~~costs relating to the~~equals ~~issuance~~0. ~~The 101¤4~~60% ~~Senior~~ ~~Notes~~over ~~due 2012 have been fully and unconditionally guaranteed, on a joint and several basis, by our other group companies.~~

· Subordinated Marenco Loan. We have borrowings outstanding under a loan from Marenco Investments Limited, our affiliate, that is fully subordinated to both our credit facility and the guarantees of our 101¤4% Senior Notes due 2012. As of June 30, 2005, the total amount of this loan (including accrued interest) was U.S.$147.0 million. Interest is payable at a rate of 7.0% per annum; however, cash interest payments on the loan can be made only in accordance with the provisions of our credit facility and the restricted payment provisions of the indenture for our 101¤4% Senior Notes due 2012. In the six months ended June 30, 2005 and in the three months ended June 30, 2005, we accrued approximately U.S.$4.9 million and U.S.$2.5 million, respectively, of interest on the loan.

~~· Guarantee Facilities~~LIBOR. WeThe ~~are party to a~~non-recourse ~~U.S.$10.0 million~~loan ~~guarantee~~is ~~facility~~secured with ~~Lloyds TSB,~~ a ~~U.S.$20.0 million performance~~mortgage ~~guarantee~~over ~~facility~~the ~~with~~FPSO ~~ING Bank~~ and aan ~~€15.0 million (U.S.$18.1 million)~~assignment ~~performance~~of ~~guarantee~~the ~~facility with Nationale Borg.~~bareboat ~~The~~charter ~~facilities~~contract ~~enable~~with usthe toJotun ~~give~~field ~~bank~~partners ~~guarantees~~ to ~~our~~the ~~suppliers~~lenders. ~~As of June 30, 2005, we had U.S.$14.6 million outstanding under our guarantee facilities.~~

On July 1, 2005, PR Jotun DA entered into a U.S.$143.2 million loan agreement with SMNAS to finance the acquisition of the FPSO Jotun A. The loan will amortize to zero over a period of six years and a quarter, by September 2011. Interest equals 5%.

· 101¤4% Senior Notes due 2012. In February 2002, we issued U.S.$260.0 million aggregate principal amount of 101¤4% Senior Notes due 2012 through our finance subsidiary, Bluewater Finance Limited, at a price of 98.47% of the principal amount thereof. We used the gross proceeds from the issuance to repay approximately U.S.$248.5 million of indebtedness outstanding under our credit facility and to pay approximately U.S.$7.5 million of costs relating to the issuance. In April 2003, we issued an additional U.S.$75.0 million aggregate principal amount of 101¤4% Senior Notes due 2012 through Bluewater Finance Limited, at a price of 100.5% of the aggregate principal amount thereof plus accrued interest from and including February 15, 2003 to but excluding the issue date. We used approximately U.S.$75.4 million of the gross proceeds from the issuance, excluding the accrued interest from and including February 15, 2003 to but excluding the issue date, to repay approximately U.S.$73.4 million of indebtedness outstanding under our credit facility and to pay an estimated U.S.$2.0 million of costs relating to the issuance. The 101¤4% Senior Notes due 2012 have been fully and unconditionally guaranteed, on a joint and several basis, by our other group companies.

· Subordinated Marenco Loan. We have borrowings outstanding under a loan from Marenco Investments Limited, our affiliate, that is fully subordinated to both our credit facility and the guarantees of our 101¤4% Senior Notes due 2012. As of March 31, 2007, the total amount of this loan (including accrued interest) was U.S.$156.5 million. Interest is payable at a rate of 7.0% per annum; however, cash interest payments on the loan can be made only in accordance with the provisions of our credit facility and the restricted payment provisions of the indenture for our 101¤4% Senior Notes due 2012. In the three months ended March 31, 2007 and in the three months ended March 31, 2006, we accrued approximately U.S.$2.6 million and U.S.$2.5 million, respectively, of interest on the loan.

· Guarantee Facilities. We are party to a U.S.$10.0 million guarantee facility with Lloyds TSB, a U.S.$20.0 million performance guarantee facility with ABN-AMRO Bank, a €20.0 million (U.S.$25.3 million) performance guarantee facility with Nationale Borg and a U.S.$20 million guarantee facility with ING. The facilities enable us to give bank guarantees to our suppliers. As of March 31, 2007, we had U.S.$39.7 million of obligations guaranteed under these facilities.

Capital Expenditures

From time to time, we are required to make capital expenditures in respect of our FPSOs and our SPM development projects. In the ~~six~~first ~~months~~quarter ~~ended~~of ~~June 30,~~2007 ~~2004~~ our capital expenditures related primarily to ~~modifications~~ ~~that~~work weperformed ~~made to the Munin~~ in connection with ~~its redeployment to~~ the ~~Xijiang Field in the South China~~ ~~Sea.~~conversion ~~The investment during the six months ended June 30, 2005 consisted primarily~~ of ~~work~~our ~~performed~~existing inhull ~~connection~~Aoka ~~with~~Mizu ~~building~~into ~~two stock buoy’s and~~an ~~capital equipment on the Uisge Gorm~~FPSO.

The investments made during the first quarter of 2006 consisted of a down payment in relation to the purchase of the Hanne Knutsen and work performed in connection with the conversion of our existing hull Aoka Mizu into an FPSO.

Our future capital expenditures will depend primarily on the projects that we undertake.

Research and Development

We have focused our research and development activities on technology that is integral to our FPSO and SPM businesses. We have an in-house design and engineering team consisting of engineers trained in a number of disciplines. We also access new sources of information or technology by entering into strategic alliances with equipment manufacturers, oil and gas companies, universities or by participating in joint industry programs. While the market for our products and services is subject to continual technological changes, development cycles from initial conception through introduction can extend over several years. Our efforts have resulted in the development of a number of inventions, new processes and techniques, many of which have been incorporated as improvements to our product lines. Our research and

3431

number of disciplines. We also access new sources of information or technology by entering into strategic alliances with equipment manufacturers, oil and gas companies, universities or by participating in joint industry programs. While the market for our products and services is subject to continual technological change, development cycles from initial conception through introduction can extend over several years. Our efforts have resulted in the development of a number of inventions, new processes and techniques, many of which have been incorporated as improvements to our product lines. Our research and development activity has led to a number of patents or patent applications, principally in the area of SPM systems. During the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2007 and ~~the~~ the three months ended ~~June~~March 3031, ~~2005~~2006, our research and development expenditures were approximately U.S.$0.2 million and U.S.$0.~~1 million, respectively compared to U.S.$0.~~2 million ~~and U.S.$0.1 million during the six months ended June 30~~, ~~2004 and the three months ended June 30, 2004~~ respectively.

Off-balance Sheet Arrangements

We are not a party to any material off-balance sheet financial arrangements.

Tabular Disclosure of Contractual Obligations

The following table presents the scheduled maturities of our contractual obligations including estimated interest expenses, assuming that any available rollover provisions were inapplicable, as of ~~June~~March 3031, ~~2005~~2007.

Total

1 year

1-3 years

3-5 years

~~Thereafter~~>5 years

Payments due by Period (in U.S.$ thousands)

Long-term debt obligations

~~838~~1,~~200~~338,915

57119,~~003~~518

~~252~~285,~~312~~621

~~126~~635,~~978~~451

348,325

~~401,907~~

Long-term loan, related party

~~252~~264,~~603~~297

—

264,297

~~252,603~~

Operating lease obligations

1124,~~527~~631

13,~~660~~072

25,~~687~~912

46,~~441~~846

8,801

~~2,739~~

Total

1,~~102~~677,~~330~~843

58122,~~663~~590

~~254~~291,~~999~~533

~~131~~642,~~419~~297

621,423

~~657,249~~

Quantitative and Qualitative Exposure to Market Risk

In the ordinary course of our business, we are exposed to a variety of market risks arising from fluctuations in interest rates and foreign currency exchange rates but generally are not exposed under our service agreements to any material risks relating to the price of oil. To manage the market risks to which we are exposed, we enter into market sensitive instruments based on internal policies and guidelines that are designed to mitigate our exposure to any adverse effects of changes in market conditions. We do not enter into market sensitive instruments for trading or speculative purposes. While we do not anticipate that the use of market sensitive instruments will have a material adverse effect on our consolidated financial position, results of operation or prospects, we cannot guarantee that our mitigation strategy will continue to be effective.

Interest Rate Sensitivity

The majority of our indebtedness consists of advances under our credit facility and our outstanding 101¤4% Senior Notes due 2012. We expect that in the future we will continue to have ~~significant~~ significant indebtedness under our revolving credit facility and that our 101¤4% Senior Notes due 2012 will continue to be outstanding. Advances under the credit facility bear interest at rates typically expressed as a margin over the appropriate interbank rate. Under the documentation of the credit facility, we are required at any time to ~~have~~hedge the net present value of the proportion of the facility fee income that we expect to receive during the minimum contract period of our service agreements swapped to fixed rates. As of December 31, 2004, and as of June 30, 2005 this represented approximately 20.3% and 12.7% of the outstanding indebtedness under the facility. To reduce the interest ~~expense relating to our 101¤4% Senior Notes due 2012, we have entered into a fixed-to-floating interest~~ rate ~~swap~~ ~~transaction~~risk ~~that enables us to swap the equivalent of the fixed rate amount of interest that is payable~~ on U.S.$335.0 million aggregate principal amount of our 101¤4% Senior Notes due 2012 for a floating rate amount of interest that would be payable on an equal amount of indebtedness. Under the swap, we receive payments that are calculated at aleast ~~fixed rate of 101¤4~~60% ~~and make interest payments that are calculated at a floating rate that is equal to a margin~~ of ~~6.32% over LIBOR. As of February 15, 2005~~ the ~~margin changed to~~outstanding 6amount.~~44%. In the future, we expect to manage our interest rate risk exposure through the use of a combination of fixed and floating rate debt and interest rate swaps.~~

To reduce the interest expense relating to our 101¤4% Senior Notes due 2012, we entered into a fixed-to-floating interest rate swap transaction that enabled us to swap the equivalent of the fixed rate amount of interest that is payable on U.S.$335.0 million aggregate principal amount of our 101¤4% Senior

Notes due 2012 for a floating rate amount of interest that would be payable on an equal amount of indebtedness. Under the swap, we received payments that were calculated at a fixed rate of 101¤4% and made interest payments that were calculated at a floating rate that was equal to a margin of 6.32% over LIBOR. As of February 15, 2005 the margin changed to 6.44%.

On April 21, 2006, the Company cancelled the remainder of the fixed-to-floating interest rate swap transaction in relation to the U.S.$335.0 million aggregate principal amount of the 101¤4% Senior Notes due 2012, which was already partially cancelled for the period from August 15, 2005 to August 15, 2007.

To limit the interest exposure after July 3, 2006 on the long-term bank loan entered into on July 1, 2005 for financing of the acquisition of the 55% ownership interest in PR Jotun DA, the Company purchased an interest rate cap. This interest rate cap has a strike rate of 4.4%, limiting the maximum interest costs including margin to 5%. The interest rate cap has a starting notional amount of U.S.$143.9 million and the reduction schedule of the notional amount of the cap is aligned with the repayment schedule of the loan.

On August 10, 2006 and August 11, 2006, the Company purchased interest rate caps to limit its interest rate exposure on U.S.$300 million of the total outstanding amount under its corporate credit facility. These interest rate caps have a strike rate of 6.5%, limiting the maximum interest costs on that principal amount to 6.5% excluding margin. The interest rate caps have a fixed notional amount of U.S.$200.0 million, U.S.$50.0 million and U.S.$50.0 million and are aligned with the maturity of the refinanced corporate facility.

The tables below provide information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations that were outstanding as of December 31, 2006 and as of March 31, 2007. For debt obligations, the tables present our principal cash flows and related weighted average interest rates by expected maturity dates under our existing debt arrangements. For interest rate caps, the tables present notional amounts and weighted average interest rates by expected (contractual) maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. The information is presented in U.S. dollars, which is our reporting currency. The instrument’s actual cash flows are also denominated in U.S. dollars.

	Expected Maturity Date as of December 31,
Liabilities	2007		2008		2009		2010		2011		Thereafter		Total		Fair Value
	(in thousands of U.S.$ equivalents)
Long-Term Debt
Fixed rate debt	—		—		—		—		—		153,823		153,823		173,864
Average interest rate	7.0	%	7.0	%	7.0	%	7.0	%	7.0	%	7.0	%	—		—
Fixed rate debt(1)	—		—		—		—		—		335,000	(1)	335,000	(1)	351,750
Average interest rate	10.25	%	10.25	%	10.25	%	10.25	%	10.25	%	10.25	%	—		—
Variable rate debt(2)	—		—		—		—		113,354		250,000		363,354		—
Average interest rate	LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M
Variable rate debt(3)	28,105		27,578		28,931		28,387		18,676		—		131,677		—
Average interest rate	LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		—		—		—
Fixed rate debt(4)	22,995		22,563		23,671		23,226		15,280		—		107,735		—
Average interest rate	5	%	5	%	5	%	5	%	5	%	—		—		—
Interest Rate Caps
Variable cap(3)	28,105		27,578		28,931		28,387		18,676		—		131,677		2,209
Average pay rate	4.4	%	4.4	%	4.4	%	4.4	%	4.4	%	—		—		—
Average receive rate	LIBOR		LIBOR		LIBOR		LIBOR		LIBOR		—		—		—
Variable cap(2)	—		—		—		—		113,354		186,646		300,000		1,084
Average pay rate	6.5	%	6.5	%	6.5	%	6.5	%	6.5	%	6.5	%	—		—
Average receive rate	LIBOR		LIBOR		LIBOR		LIBOR		LIBOR		LIBOR		—		—

Notes:

(1) While indebtedness in respect of our 101¤4% Senior Notes due 2012 amounted to U.S.$310.4 million as of December 31, 2006, the U.S.$335.0 million aggregate principal amount of the 101¤4% Senior Notes due 2012 is payable upon maturity. Interest is payable at a rate that is equal to 10.25%.

(2) Represents indebtedness under our credit facility. Interest is payable at a rate that is equal to a margin over LIBOR. The margin varies from 0.60% to 0.85% depending on certain factors and is currently set at 0.60%. On August 10, 2006 and August 11, 2006, the Company purchased interest rate caps to limit its interest rate exposure on U.S.$300 million of the total outstanding amount under its corporate credit facility. These interest rate caps have a strike rate of 6.5%, limiting the maximum interest costs on that principal amount to 6.5% excluding margin. The interest rate caps have fixed notional amounts of U.S.$200.0 million, U.S.$50.0 million and U.S.$50.0 million and are aligned with the maturity of the refinanced corporate facility.

(3) Represents indebtedness of the Company under our Jotun loan agreement. Interest is payable at a rate that is equal to a specified margin over a monthly average of LIBOR for one month (or shorter applicable period). The margin is currently set at 0.60%. To limit its interest exposure after July 3, 2006, the Company purchased an interest rate cap which has a strike rate of 4.4%, limiting the maximum interest costs to 5%. The interest rate cap has a starting notional amount of U.S.$143.9 million and the reduction schedule of the notional amount of the cap is aligned with the repayment schedule of the loan.

(4) Represents indebtedness of PR Jotun DA to Standard Marine Nordsjo AS SMNAS. Interest is payable at a rate of 5%.

The tables below provide information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations that were outstanding as of December 31, 2004 and as of June 30, 2005. For debt obligations, the tables present our principal cash flows and related weighted average interest rates by expected maturity dates under our existing debt arrangements. For interest rate swaps, the tables present notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the swap. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. The information is presented in U.S. dollars, which is our reporting currency. The instrument’s actual cash flows are also denominated in U.S. dollars.

	Expected Maturity Date as of March 31,
Liabilities	2007		2008		2009		2010		2011		Thereafter		Total		Fair Value
	(in thousands of U.S.$ equivalents)
Long-Term Debt
Fixed rate debt	—		—		—		—		—		156,539		156,539		171,020
Average interest rate	7.0	%	7.0	%	7.0	%	7.0	%	7.0	%	7.0	%	—		—
Variable rate debt(1)	—		—		—		—		—		335,000	(1)	335,000	(1)	350,075
Average interest rate	10.25	%	10.25	%	10.25	%	10.25	%	10.25	%	10.25	%	—		—
Variable rate debt(2)	—		—		—		—		161,600		250,000		411,600		—
Average interest rate	LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M
Variable rate debt(3)	27,539		27,849		29,294		27,749		11,952		—		124,383		—
Average interest rate	LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		—		—		—
Fixed rate debt(4)	22,532		22,786		23,968		22,704		9,779		—		101,769		—
Average interest rate	5	%	5	%	5	%	5	%	5	%	—		—		—
Interest Rate Caps
Variable cap(3)	27,539		27,849		29,294		27,749		11,952		—		124,383		1,768
Average pay rate	4.4	%	4.4	%	4.4	%	4.4	%	4.4	%	—		—		—
Average receive rate	LIBOR		LIBOR		LIBOR		LIBOR		LIBOR		—		—		—
Variable cap(2)	—		—		—		—		161,600		138,500		300,000		672
Average pay rate	6.5	%	6.5	%	6.5	%	6.5	%	6.5	%	6.5	%	—		—
Average receive rate	LIBOR		LIBOR		LIBOR		LIBOR		LIBOR		LIBOR		—		—

	Expected Maturity Date As of December 31,														Fair
Liabilities	2005		2006		2007		2008		2009		Thereafter		Total		Value
	(in thousands U.S.$ equivalents)
Long-Term Debt
Fixed rate debt	—		—		—		—		—		142,085		142,085		153,630
Average interest rate	7.0	%	7.0	%	7.0	%	7.0	%	7.0	%	7.0	%	—		—
Variable rate debt(1)	—		—		—		—		—		335,000		335,000	(1)	365,150
Average interest rate	LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		—		—
Variable rate debt(2)	—		—		47,358		80,000		80,000		—		207,358		—
Average interest rate	LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		—		—
Interest Rate Swaps
Variable to Fixed	35,092		7,006		—		—		—		—		42,098		(288	)
Average pay rate	3.463	%	3.463	%	—		—		—		—		—		—
Average receive rate	LIBOR		LIBOR		—		—		—		—		—		—

Notes:

(1) ~~Represents~~While indebtedness in respect of our 101¤4% Senior Notes due 2012, ~~which~~amounted ~~are the subject of a fixed-~~to~~-floating rate swap transaction that enables us to swap~~ ~~the~~U.S.$309.2 million ~~equivalent~~as of ~~the~~March 31, ~~fixed~~2006, ~~rate~~the ~~amount of interest that is payable on~~ U.S.$335.0 million aggregate principal amount of ~~our~~the 101¤4% Senior Notes due 2012 ~~for~~is ~~a floating rate amount of interest that would be~~ payable ~~on an equal amount of~~upon ~~indebtedness~~maturity. ~~Under~~Interest ~~the~~is ~~current~~payable ~~swap, we receive payments that are calculated~~ at a ~~fixed~~ rate ~~of 101¤4% and make payments~~ that ~~are calculated at a floating rate that~~ is equal to ~~a margin of 6~~10.3225% ~~over LIBOR~~. ~~While we recorded U.S.$337.9 million of indebtedness under the 101¤4% Senior Notes due 2012 as of December 31, 2004, only U.S.$335.0 million is payable upon maturity.~~

(2) Represents indebtedness under our credit facility. Interest is payable at a rate that is equal to a margin over LIBOR. The margin varies from 10.~~300~~60% to 10.~~700~~850% depending on certain factors and is currently set at 10.~~400~~60%. On August 10, 2006 and August 11, 2006, the Company purchased interest rate caps to limit its interest rate exposure on U.S.$300 million of the total outstanding amount under its corporate credit facility. These interest rate caps have a strike rate of 6.5%, limiting the maximum interest costs on that principal amount to 6.5% excluding margin. The interest rate caps have fixed notional amounts of U.S.$200.0 million, U.S.$50.0 million and U.S.$50.0 million and are aligned with the maturity of the refinanced corporate facility.

	Expected Maturity Date As of June 30,														Fair
Liabilities	2005		2006		2007		2008		2009		Thereafter		Total		Value
	(in thousands U.S.$ equivalents)
Long-Term Debt
Fixed rate debt	—		—		—		—		—		147,017		147,017		151,062
Average interest rate	7.0	%	7.0	%	7.0	%	7.0	%	7.0	%	7.0	%	—		—
Variable rate debt(1)	—		—		—		—		—		335,000		335,000	(1)	361,800
Average interest rate	LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		—		—
Variable rate debt(2)	—		15,025		80,000		80,000		40,000		—		215,025		—
Average interest rate(2)	LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		LIBOR+M		—		—		—
Interest Rate Swaps
Variable to Fixed	27,244		—		—		—		—		—		27,244		9
Average pay rate	3.463	%	—		—		—		—		—		—		—
Average receive rate	LIBOR		—		—		—		—		—		—		—

at 0.60%. To limit its interest exposure after July 3, 2006, the Company purchased an interest rate cap which has a strike rate of 4.4%, limiting the maximum interest costs to 5%. The interest rate cap has a starting notional amount of U.S.$143.9 million and the reduction schedule of the notional amount of the cap is aligned with the repayment schedule of the loan.

~~Notes:~~(4) Represents indebtedness of PR Jotun DA to SMNAS. Interest is payable at a rate of 5%.

(1) While indebtedness in respect of our 101¤4% Senior Notes due 2012 amounted to U.S.$337.7 million as of June 30, 2005, the U.S.$335.0 million aggregate principal amount of the 101¤4% Senior Notes due 2012 is payable upon maturity. Interest is payable at a rate that is equal to LIBOR plus 6.44%.

(2) Interest is payable at a rate that is equal to a specified margin over a monthly average of LIBOR for one month (or shorter applicable period). The margin varies from 1.300% to 1.700% depending on certain factors and is currently set at 1.400%.

Exchange Rate Sensitivity

~~Our~~The Company’s revenues are primarily denominated in U.S. dollars and, to a lesser extent, sterling and Euro. In the ~~six~~first ~~months~~quarter of ~~ended June 30~~2007, ~~2005~~ ~~and~~approximately in£4.3 million (U.S.$8.4 million) of the ~~three~~Company’s revenues ~~months~~was ~~ended~~denominated ~~June 30,~~in ~~2005,~~sterling and approximately € ~~£27~~3.5 2 million (U.S.$494.3 2 million) ~~and~~was ~~approximately~~denominated in Euro. In the first quarter of 2006, approximately £185.1 4 million (U.S.$329.4 million), ~~respectively,~~ of ~~our~~the ~~total~~Company’s revenues ~~were~~was denominated in sterling and approximately € 1.1 million (U.S.$1.3 million) was denominated in Euro. Our expenses are denominated primarily in U.S. dollars and to a lesser degree, ~~euro,~~Euro ~~sterling~~ and ~~rand~~sterling. We are exposed to fluctuations in foreign currency exchange rates, because a portion of our expenses and financial indebtedness is denominated in currencies that are different from our revenues. ~~Our~~The Company’s policy is to match, through our FPSO ~~service~~ service agreements, to the ~~extent possible, the~~ revenues in a particular currency with ~~our~~ ~~operating~~its operating costs in that currency, thereby minimizing the risk associated ~~with~~ with fluctuations in foreign currency exchange rates. WeThe Company also ~~match~~matches ~~our~~its indebtedness denominated in U.S. dollars with ~~our~~its revenues denominated in U.S. dollars. WeThe ~~purchase~~Company purchases foreign currency exchange contracts from financial institutions to ~~assist~~the usextent inof ~~minimizing~~ any residual exposure. WeThe ~~manage~~Company manages ~~our~~its outstanding currency exposure on a regular basis and ~~net~~nets these exposures across ~~our~~ its operations as a group. Gains and losses related to specific currency transactions are recognized as part of ~~our~~its income from financing activities. In the six months ended June 30, 2005 we changed our policy in relation to projects to hedge against the risk of fluctuations in foreign currency exchange rates for expenditures in currencies other than the project currency. Currency hedging contracts are, to the extent possible, entered into shortly after contract award and on a project to project basis, thereby minimizing the risk associated with fluctuations in foreign currency exchange rates. For certain predetermined projects hedge accounting is applied: Gains and losses related to project specific currency transactions are recognized as part of our accumulated other comprehensive income/(loss).

In the years 2006 and 2007 the Company entered into foreign currency exchange contracts in relation to projects to hedge against the risk of fluctuations in foreign currency exchange rates for expenditures in currencies other than the project currency. The Company has designated certain foreign currency exchange contracts as cash flow hedges. For such contracts designated and that qualify as cash flow hedges, gains and losses related to project specific currency transactions are recognized as part of our accumulated other comprehensive income/(loss).

The total contract/notional amount and the value of our foreign currency exchange contracts as of June 30, 2005 are as follows:

	Expected Maturity Date As of June 30, 2005
	Total	Fair Value
	(in U.S.$ thousands)
Forward Exchange Agreements
(Receive €/Pay U.S.$)
Aggregate Amount	84,944		(6,874	)
(Receive £/Pay U.S.$)
Aggregate Amount	38,804		(1,196	)
(Receive ZAR/Pay U.S.$)
Aggregate Amount	8,982		(287	)
	132,730		(8,357	)

The total contract/notional amount and the value of our foreign currency exchange contracts as of June 30, 2005 accounted for as cash flow hedges under FAS 133 are as follows:

	Expected Maturity Date As of June 30, 2005
	Total	Fair Value
	(in U.S.$ thousands)
Forward Exchange Agreements
(Receive €/Pay U.S.$)
Aggregate Amount	38,792		(3,421	)
(Receive £/Pay U.S.$)
Aggregate Amount	1,703		(63	)
	40,495		(3,484	)

These foreign currency exchange contracts mature on various dates through 2005 and 2006 and are included at fair value in the other liabilities and accrued expenses.

DISCLOSURE CONTROLS AND PROCEDURES

The information included in this section concerns the evaluation of disclosure controls and procedures and internal controls referred to in the Certifications included in our annual report for the year ended December 31, 2004 under “Certifications”. This information should be read in conjunction with the statements set forth in the “Certifications” for a more complete understanding of the topics presented.

Controls Evaluation and Related Certifications

As of the six months ended June 30, 2005, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls are procedures designed to ensure that information is accumulated, recorded, processed, summarized and communicated to our management, including Mr. Hugo Heerema (our principal executive officer) and Mr. Kees Voormolen (our principal financial officer), in a manner that enables our management to make timely decisions regarding required disclosures and to ensure that our annual and other filings with the Securities and Exchange Commission are filed within required time periods. In connection with this evaluation, we also reviewed our internal controls, because we believe that those controls are important to the efficacy of our disclosure controls and procedures. Internal Controls are procedures designed to provide reasonable assurance that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use and our transactions are properly recorded and reported, in each case to permit the preparation of our financial statements in conformity with U.S. GAAP.

Definition of Disclosure Controls and Scope of Controls Evaluation

The establishment and evaluation of our disclosure controls and procedures and our internal controls was performed under the supervision and with the participation of our managing directors and executive officers, including Mr. Heerema and Mr. Voormolen, and included a review of the controls’ objectives and design, our implementation of the controls and the effect of the controls on the information generated for use in this interim report. In the course of evaluation, we sought to identify data errors, problems with our controls and procedures and acts of fraud, if any, and to confirm, if necessary, that any appropriate corrective actions, including process improvements, were being undertaken. Our finance administration has, with the assistance of other members of our management, begun conducting this evaluation on a regular basis.

Limitations on the Effectiveness of Controls

In connection with our evaluation, we sought, among other things, to determine whether there were any “significant deficiencies” or “material weaknesses” in our internal controls and whether there were any identifiable acts of fraud involving personnel with a significant role in our internal controls. We believe that these inquiries are important to conducting a proper evaluation. They are also essential for enabling our principal executive officer and our principal financial officer to report any deficiencies to our independent auditors and our managing directors. In professional auditing literature, “significant deficiencies” are referred to as “reportable conditions,” which are control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in our consolidated financial statements. Auditing literature defines “material weakness” as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and the risk that such misstatements would not be detected within a timely period by employees in the normal course of performing their assigned functions. We also sought to identify other control issues in connection with our evaluation and to consider whether it is necessary to make any revision, improvement or correction to our procedures.

Conclusions

Based upon our evaluation, Mr. Heerema and Mr. Voormolen have concluded that our disclosure controls are effective to ensure that material information relating to us is made known to management, including Mr. Heerema and Mr. Voormolen, particularly during the period when our filings with the Securities and Exchange Commission are being prepared, and that our internal controls are effective to provide reasonable assurance that our financial statements are fairly presented in all material respects in conformity with U.S. GAAP.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AURELIA ENERGY N.V. (Registrant) By: /s/ V.M.G. Haseth-Portillo and R.J.G.A. Bremer MeesPierson Intertrust (Curaçao) N.V., Managing DirectorBy: V.M.G. Haseth-Portillo/R.J.G.A. Bremer Attorneys-in-Fact

	AURELIA ENERGY N.V.
	(Registrant)
	By:	/s/ G. E. ELIAS
	United International Trust N.V., Represented by G. E. Elias Managing Director
	By:	/s/ V.M.G. HASETH-PORTILLO
	Represented by V.M.G. Haseth-Portillo Attorney-in-Fact A
Date: May 30, 2007

~~Date: August 19, 2005~~38

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