1999 THIRD QUARTER REPORT

November 3, 1999

To Our Shareholders:

Financial Highlights

Net income was 19% better than the 1998 third quarter (our previous all time record high) and is nearly three and one-half times what Cal Dive earned in the second quarter of this year.

Operational Highlights

*           Diana:  The MSV Uncle John shattered all deepwater records for a subsea construction vessel at Exxon’s high profile Diana field.  CDI installed two 50-ton suction piles, a 70 and 92-ton manifold and five subsea trees (approximately 40 tons each) in 4,800 feet of water. We believe this is the first time a vessel other than a drilling rig has ever completed such tasks.  All of the items were lowered to the seabed on a drillstring from the derrick on the Uncle John, while two Triton XL ROV systems handled positioning.  The project was a financial success for Cal Dive while saving Exxon an estimated 20% from the depressed drill rig rates of the third quarter.  The Uncle John crew performed extraordinarily well as did our carefully selected subcontractors: Canyon Offshore (ROV), Fugro (derrick operation), SKI Enterprises (fabrication) and John Chance (survey services).  A unique aspect of the project involved a material barge positioning the 92-ton manifold beneath the Uncle John, with the vessel then lifting the manifold on its derrick before lowering to the ocean floor.  This revolutionary approach is an integral feature of the Q4000, our newbuild vessel designed to work in ultra-deepwater.

*    Cooper: CDI commenced the Cooper field abandonment, the first ever Deepwater subsea decommissioning project in the Gulf of Mexico, as a fully managed turnkey project. Just under 20% of Q3 revenues were derived from this project as Cal Dive removed a one-of-a-kind freestanding production riser, a 12-point mooring system, the floating production unit and a variety of subsea equipment.  Given the unique challenges of decommissioning Deepwater facilities, it was essential for CDI to function as prime contractor so we could select subcontractors which had necessary state-of-the-art technology available.  Three CDI vessels, the Uncle John, Witch Queen and Dove, performed a number of complex operations deploying these services during the quarter.  Technical aspects of the project, the largest ever undertaken by Cal Dive, are featured in the October issue of Offshore magazine.

*           Salvage Operations:  The Sonat salvage project (the second largest project ever undertaken by CDI) was completed during Q3 in addition to abandonment work for Chevron, Forcenergy, Samedan and Murphy.  CDI salvage assets and subcontracted derrick and pipelay equipment added $7.0 million to third quarter revenues, more than double the same period in 1998.  Nine-month revenues from salvage activities (including ERT) reached $40 million, achieving our corporate goal of 30% of consolidated sales.

*           ERT:  We reloaded our mature property base by acquiring 20 offshore blocks during the first four months of 1999 and tripling the number of operated wells.  With the hay in the barn we then implemented an aggressive well exploitation program which included the acquisition of 3D seismic on properties owned by ERT and five rig recompletions.  As a result, monthly production increased to almost one bcf equivalent during the quarter, an increase of 84% over the first half of this year and a level three times that of the same period in 1998.  The significantly enhanced production coincided with an average Q3 gas price of $2.62/mcf in contrast to the $1.92 realized in the first half of this year.

Two ERT operating policies came into play during the quarter.  First, we will sell ERT assets (offshore leases, platforms, compressors, etc.) when the expected future revenue stream can be accelerated in a single transaction.  Second, ERT is not in the exploration business.  3D seismic and ERT mapping identified a prospect which was successfully drilled by Hall-Houston on a promoted basis during Q3. When Hall-Houston proposed drilling a second well, ERT negotiated a sale of its interest in the two blocks involved.  You will recall that ERT sold two offshore blocks to Petsec in 1997 and two last year to Amerada Hess. The well exploitation work completed during the quarter also enabled ERT to assess and adjust the carrying value of three ERT fields, including one where a third party vendor damaged the reservoir formation.  The net result of the Hall-Houston transaction and the 1999 Well Exploitation Program was to add approximately 10 cents to third quarter earnings per share.      

Respectfully submitted,