Noble 10Q 2006 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
		THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period endedJune 30, 2006

		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
		THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from ___to ___

Commission file number: 0-13857

NOBLE CORPORATION

(Exact name of registrant as specified in its charter)


Cayman Islands		98-0366361
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

13135 South Dairy Ashford, Suite 800		77478
Sugar Land, Texas		(Zip code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (281) 276-6100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


		Large accelerated filerþ		Accelerated filero		Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yeso Noþ

Number of Ordinary Shares outstanding at July 31, 2006: 136,818,482

TABLE OF CONTENTS


			PAGE

PART I	ITEM 1.	FINANCIAL STATEMENTS		3
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		30
		Forward-Looking Statements		30
		Executive Overview		30
		Results of Operations		31
		Liquidity and Capital Resources		43
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		46
	ITEM 4.	CONTROLS AND PROCEDURES		47

PART II	ITEM 1.	LEGAL PROCEEDINGS		47
	ITEM 1A.	RISK FACTORS		48
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		49
	ITEM 6.	EXHIBITS		49
	SIGNATURES			50

	INDEX TO EXHIBITS			51
Certification of James C. Day Pursuant to Rule 13a-14a/15d-14a
Certification of Mark A. Jackson Pursuant to Rule 13a-14a/15d-14a
Certification of James C. Day Pursuant to Section 906
Certification of Mark A. Jackson Pursuant to Section 906

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)


	June 30,			December 31,
	2006			2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	223,890		$	121,845
Investments in marketable securities		37,113			44,457
Accounts receivable		384,172			276,688
Insurance receivables		58,921			51,565
Inventories		4,266			3,940
Prepaid expenses		24,945			10,064
Other current assets		28,765			13,896

Total current assets		762,072			522,455


PROPERTY AND EQUIPMENT
Drilling equipment and facilities		4,613,562			4,178,097
Other		71,318			66,698

		4,684,880			4,244,795
Accumulated depreciation		(1,339,539	)		(1,245,776	)

		3,345,341			2,999,019


INVESTMENTS IN MARKETABLE SECURITIES		1,555			673,639
OTHER ASSETS		150,215			151,254

	$	4,259,183		$	4,346,367


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	9,295		$	8,972
Accounts payable		118,012			93,914
Accrued payroll and related costs		84,328			78,558
Taxes payable		44,828			45,245
Interest payable		10,264			9,640
Other current liabilities		38,330			23,006

Total current liabilities		305,057			259,335

LONG-TERM DEBT		689,342			1,129,325
DEFERRED INCOME TAXES		239,848			227,589
OTHER LIABILITIES		6,081			6,290

		1,240,328			1,622,539


COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST		(7,655	)		(7,906	)

SHAREHOLDERS’ EQUITY
Ordinary shares-par value $0.10 per share; 400,000 shares authorized; 136,801 shares issued and outstanding in 2006; 137,009 shares issued and outstanding in 2005		13,680			13,701
Capital in excess of par value		960,191			1,024,470
Retained earnings		2,050,010			1,736,015
Restricted stock (unearned compensation)		—			(17,099	)
Accumulated other comprehensive income (loss)		2,629			(25,353	)

		3,026,510			2,731,734

	$	4,259,183		$	4,346,367

See accompanying notes to the consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)


	Three Months Ended June 30,
	2006			2005
OPERATING REVENUES
Contract drilling services	$	476,339		$	303,911
Reimbursables		20,640			18,655
Labor contract drilling services		17,967			17,531
Engineering, consulting and other		2,568			3,911

		517,514			344,008


OPERATING COSTS AND EXPENSES
Contract drilling services		180,621			145,907
Reimbursables		17,544			16,546
Labor contract drilling services		15,687			14,476
Engineering, consulting and other		7,276			5,733
Depreciation and amortization		62,545			59,529
Selling, general and administrative		10,655			10,099

		294,328			252,290


OPERATING INCOME		223,186			91,718

OTHER INCOME (EXPENSE)
Interest expense, net of amount capitalized		(1,773	)		(5,192	)
Other, net		1,893			2,876


INCOME BEFORE INCOME TAXES		223,306			89,402
INCOME TAX PROVISION		(43,545	)		(16,092	)


NET INCOME	$	179,761		$	73,310


NET INCOME PER SHARE:
Basic	$	1.31		$	0.54
Diluted	$	1.30		$	0.53

See accompanying notes to the consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)


	Six Months Ended June 30,
	2006			2005
OPERATING REVENUES
Contract drilling services	$	893,971		$	566,315
Reimbursables		43,712			43,157
Labor contract drilling services		35,198			35,672
Engineering, consulting and other		6,548			9,189

		979,429			654,333


OPERATING COSTS AND EXPENSES
Contract drilling services		348,526			289,929
Reimbursables		37,596			39,452
Labor contract drilling services		30,584			29,665
Engineering, consulting and other		10,706			11,621
Depreciation and amortization		121,906			115,906
Selling, general and administrative		20,940			17,917
Hurricane losses and recoveries, net		(4,404	)		—

		565,854			504,490


OPERATING INCOME		413,575			149,843

OTHER INCOME (EXPENSE)
Interest expense, net of amount capitalized		(14,252	)		(11,127	)
Other, net		4,394			6,211


INCOME BEFORE INCOME TAXES		403,717			144,927
INCOME TAX PROVISION		(78,725	)		(26,087	)


NET INCOME	$	324,992		$	118,840


NET INCOME PER SHARE:
Basic	$	2.38		$	0.88
Diluted	$	2.35		$	0.87

See accompanying notes to the consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


	Six Months Ended June 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	324,992		$	118,840
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		121,906			115,906
Deferred income tax provision		12,259			9,835
Equity in income of joint venture		—			(2,388	)
Distributions received from joint venture		—			2,194
Stock-based compensation expense		10,106			3,365
Other		11,517			1,158
Other changes in current assets and liabilities, net of acquired working capital:
Accounts receivable		(106,945	)		(42,624	)
Other current assets		(31,205	)		(11,347	)
Accounts payable		6,011			(8,326	)
Other current liabilities		21,919			3,584

Net cash provided by operating activities		370,560			190,197


CASH FLOWS FROM INVESTING ACTIVITIES
New construction and major capital upgrades		(281,672	)		(56,709	)
Other capital expenditures		(160,431	)		(52,376	)
Major maintenance expenditures		(26,782	)		(29,078	)
Proceeds from sales of property and equipment		—			993
Proceeds from Smedvig disposition		691,261			—
Investments in marketable securities		—			(23,349	)
Proceeds from sales and maturities of marketable securities		6,582			106,679
Increase in restricted cash		—			(28,920	)

Net cash provided by (used for) investing activities		228,958			(82,760	)


CASH FLOWS FROM FINANCING ACTIVITIES
Payments on bank credit facilities		(135,000	)		(65,000	)
Payments of other long-term debt		(604,404	)		(4,108	)
Net proceeds from employee stock transactions		7,642			53,955
Proceeds from issuance of senior notes, net of debt issuance costs		295,953			—
Dividends paid		(10,997	)		(5,429	)
Repurchases of ordinary shares		(50,667	)		—

Net cash used for financing activities		(497,473	)		(20,582	)


NET INCREASE IN CASH AND CASH EQUIVALENTS		102,045			86,855

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		121,845			58,790


CASH AND CASH EQUIVALENTS, END OF PERIOD	$	223,890		$	145,645

See accompanying notes to the consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands except per share amounts)
(Unaudited)


													Restricted			Accumulated
							Capital in						Stock			Other				Total
	Ordinary Shares						Excess of			Retained			(Unearned			Comprehensive				Shareholders'
	Shares			Amount			Par Value			Earnings			Compensation)			Income (Loss)				Equity
Balance at December 31, 2005		137,009		$	13,701		$	1,024,470		$	1,736,015		$	(17,099	)		$	(25,353	)	$	2,731,734
Stock-based compensation
Adoption of SFAS No. 123R		—			—			(17,099	)		—			17,099				—			—
Stock-based compensation		555			56			10,327			—			—				—			10,383
Contribution to employee benefit plans		45			4			3,477			—			—				—			3,481
Exercise of stock options		269			27			9,098			—			—				—			9,125
Restricted shares surrendered for withholding taxes or forfeited		(77	)		(8	)		(1,475	)		—			—				—			(1,483	)

Repurchases of ordinary shares		(1,000	)		(100	)		(68,607	)		—			—				—			(68,707	)
Net income		—			—			—			324,992			—				—			324,992
Dividends paid ($0.08 per share)		—			—			—			(10,997	)		—				—			(10,997	)
Other comprehensive income		—			—			—			—			—				27,982			27,982

Balance at June 30, 2006		136,801		$	13,680		$	960,191		$	2,050,010		$	—			$	2,629		$	3,026,510

See accompanying notes to the consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)


	Three Months Ended June 30,
	2006		2005
NET INCOME	$	179,761	$	73,310


OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments		1,327		(2,141	)
Unrealized holding gain on marketable securities		46		252
Unrealized gain (loss) on foreign currency forward contracts		1,998		(2,761	)


Other comprehensive income (loss)		3,371		(4,650	)

COMPREHENSIVE INCOME	$	183,132	$	68,660


	Six Months Ended June 30,
	2006		2005
NET INCOME	$	324,992	$	118,840


OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments		2,756		(3,486	)
Unrealized holding gain on marketable securities		19,523		386
Unrealized gain (loss) on foreign currency forward contracts		3,194		(2,492	)
Unrealized gain on interest rate swaps		2,509		—


Other comprehensive income (loss)		27,982		(5,592	)


COMPREHENSIVE INCOME	$	352,974	$	113,248

See accompanying notes to the consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Noble Corporation (“Noble” or, together with its consolidated subsidiaries, unless the context requires otherwise, the “Company”, “we”, “our” and words of similar import) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission as they pertain to Form 10-Q. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods, on a basis consistent with the annual audited consolidated financial statements. All such adjustments are of a normal recurring nature. The Consolidated Balance Sheet at December 31, 2005 is derived from the December 31, 2005 audited consolidated financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

NOTE 2 — STOCK-BASED COMPENSATION

Adoption of SFAS No. 123R

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),Share-Based Payment, (“SFAS No. 123R”) using the “Modified Prospective Application” method of transition, as defined in SFAS No. 123R. Upon adoption of SFAS No. 123R, the Company records the grant date fair value of share-based payment arrangements as compensation expense using a straight-line method over the service period. Stock-based compensation is expensed or capitalized based on the nature of the employee’s activities. Prior to adoption, the Company used the intrinsic value method of accounting for stock-based compensation awards in accordance with APB Opinion No. 25,Accounting for Stock Issued to Employees(“APB 25”), which generally resulted in no compensation expense for employee stock options with an exercise price greater than or equal to fair value on the date of grant. Under the Modified Prospective Application method, SFAS No. 123R applies to new awards and to awards modified, repurchased, or cancelled after December 31, 2005. Additionally, compensation cost for the portion of awards for which the requisite service had not been rendered and which were outstanding at December 31, 2005 is recognized as the requisite service is rendered on or after January 1, 2006. No transition adjustment is generally permitted for the deferred tax assets associated with outstanding equity instruments. These deferred tax assets will be recorded as a credit to additional paid-in capital when realized.

The adoption of SFAS No. 123R also reduced the number of fully diluted shares outstanding pursuant to SFAS No. 128,Earnings per Share. The “treasury stock method”, as defined in SFAS No. 128, includes unearned compensation and certain future tax benefits as “proceeds” in the determination of diluted shares outstanding, net of assumed treasury stock repurchases. Additionally, SFAS No. 123R requires that the excess tax benefit (tax deduction that is in excess of the compensation costs related tax benefit) be reported prospectively as Cash Flows from Financing Activities rather than Cash Flows from Operating Activities.

Prior to the adoption of SFAS No. 123R, the Company recognized forfeitures as they occurred. The adoption of this standard did not have a material effect on our financial statements and, as such, no cumulative effect of change in accounting principle was recorded.

The adoption of SFAS No. 123R reduced Operating Income and Income Before Income Taxes by $1.4 million and $2.8 million during the three and six months ended June 30, 2006, respectively. Net Income was reduced by $1.2 million ($0.01 per basic and diluted share) and $2.3 million ($0.02 per basic and diluted share) for the three and six months ended June 30, 2006, respectively. The adoption of SFAS No. 123R had no material effect on Cash Flows.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

Pursuant to the Modified Prospective Application method of transition, the Company has not adjusted results of operations for periods prior to January 1, 2006. The following table reflects pro forma net income and net income per share had we elected to adopt the fair value approach of SFAS No. 123 prior to January 1, 2006:


	Three Months			Six Months
	Ended			Ended
	June 30, 2005			June 30, 2005
Net income — as reported	$	73,310		$	118,840
Stock-based compensation expense, net of tax — as reported		1,266			2,187
Stock-based compensation expense, net of tax — pro forma		(3,486	)		(5,963	)

Net income — pro forma	$	71,090		$	115,064


Net income per share:
Basic — as reported	$	0.54		$	0.88
Basic — pro forma	$	0.52		$	0.85

Diluted — as reported	$	0.53		$	0.87
Diluted — pro forma	$	0.52		$	0.84

Stock Options

The Company has previously disclosed the fair value of stock options granted and the assumptions used in determining fair value, pursuant to SFAS No. 123. Reference is made to Note 1 to the consolidated financial statements included in the December 31, 2005 Form 10-K. The Company has historically used a Black-Scholes valuation model to determine the fair value of stock options granted. Stock options granted under the 1991 Stock Option and Restricted Stock Plan generally vest one-third annually and options granted to Directors under the 1992 Nonqualified Stock Option and Restricted Share Plan for Non-Employee Directors vest over one year. At December 31, 2005, outstanding stock options totaled 3,992,008, of which 3,175,786 were vested. Accordingly, 816,222 stock options vest over 2006 and future periods and are the options used to determine compensation expense pursuant to the transition provisions of SFAS No. 123R. The Company attributes the service period to the vesting period.

A summary of stock option activity under both the 1991 Plan and 1992 Plan at June 30, 2006 and the changes during the six months ended June 30, 2006 are presented below (actual amounts):


	Shares			Weighted-
	Underlying			Average
	Options			Exercise Price

January 1, 2006		3,992,008		$	36.14
Granted		134,598			76.43
Exercised		(268,855	)		33.80
Forfeited		(36,521	)		52.85

Outstanding at June 30, 2006 (1)		3,821,230			37.56

Exercisable at June 30, 2006 (1)		3,284,398		$	34.03


(1)		At June 30, 2006, the remaining weighted average contractual life for options outstanding and exercisable was 5.5 and 4.8 years, respectively. The aggregate intrinsic value of options outstanding and exercisable at June 30, 2006 was $140.9 million and $130.0 million, respectively.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

During the six months ended June 30, 2006, the Company granted 134,598 stock options at an exercise price equal to the market price of the Company’s ordinary shares on the date of grant and having a 10-year contractual term. Stock options totaling 110,598 vest equally over three years and the remaining 24,000 stock options vest over one year. Additional information with respect to options granted in 2006 is as follows (actual amounts):

Six Months Ended June 30, 2006


Weighted-average fair value per option granted	$	26.98

Weighted-average exercise price per option granted	$	76.43

Valuation assumptions:
Expected option term (years)		4.6
Expected volatility		34.00	%
Expected dividend yield		0.20	%
Risk-free interest rate		4.58	%

The fair value of each option grant is estimated on the date of grant using a Black-Scholes option pricing model. Assumptions used in the valuation are shown in the table above. Expected volatilities are based on implied volatilities of traded options on the Company’s ordinary shares, historical volatility of the Company’s ordinary shares, and other factors. The expected dividend yield is based on historical yields on the date of grant. The expected term of options granted represents the period of time that the options are expected to be outstanding and is derived from historical exercise behavior, current trends and values derived from lattice-based models. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of the status of the Company’s non-vested stock options at June 30, 2006, and changes during the six months ended June 30, 2006, is presented below (actual amounts):


	Shares			Weighted-
	Under			Average
	Outstanding			Grant-Date
	Options			Fair Value

Non-vested options at January 1, 2006		816,222		$	18.39
Granted		134,598			26.98
Vested		(378,498	)		18.45
Forfeited		(35,490	)		20.46


Non-vested options at June 30, 2006		536,832		$	20.36

At June 30, 2006, there was $12.7 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 1.8 years. The total fair value of stock options vested during the six months ended June 30, 2006 was $7.0 million. Compensation expense recognized during the six months ended June 30, 2006 related to stock options totaled $3.3 million, or $2.6 million net of income tax.

The intrinsic value of options exercised during the six months ended June 30, 2006 was approximately $13.0 million.

The Company issues new ordinary shares to meet the share requirements upon exercise of stock options. The Company has historically repurchased ordinary shares in the open market from time to time which minimizes the dilutive effect of stock-based compensation.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

Restricted Stock

At December 31, 2005, the Company had 158,297 shares of non-vested time-vested restricted stock outstanding and 304,627 shares of non-vested performance-vested restricted stock outstanding (at the maximum level of performance). Restricted stock is awarded for these two programs under the 1991 Stock Option and Restricted Stock Plan. The time-vested restricted stock awards generally vest over three years. The number of performance-vested restricted shares which vest will depend on the degree of achievement of specified corporate performance criteria over a three-year performance period.

In the six months ended June 30, 2006, the Company awarded 457,059 shares of time-vested restricted stock and 96,776 shares (at the maximum level of performance) of performance-vested restricted stock. The time-vested restricted stock vests equally over three years for one award and four years for another award, with a weighted-average vesting period of 3.3 years, and the weighted-average price of the underlying ordinary share on the date of award was $77.05 per ordinary share for time-vested restricted stock awards during the six months ended June 30, 2006. The performance-vested restricted stock vests provided the performance criteria specified in the plan are achieved. The performance period is defined as the three-year period from January 1, 2006 through December 31, 2008 for the 2006 award. Performance criteria include the Company’s performance relative to a defined index as well as a defined competitive peer group. The weighted-average price of the underlying ordinary share on the date of award was $75.85 per ordinary share for performance-vested restricted stock awards during the six months ended June 30, 2006.

A summary of the status of non-vested restricted shares at June 30, 2006, and changes during the six months ended June 30, 2006, is presented below (actual amounts):


				Weighted-					Weighted-
	Time-Vested			Average		Performance-Vested			Average
	Restricted			Grant-Date		Restricted Shares			Grant-Date
	Shares Outstanding			Fair Value		Outstanding (1)			Fair Value

Non-vested restricted shares at January 1, 2006		158,297		$	44.32		304,627		$	14.92
Granted		457,059			77.05		96,776			27.68
Vested		(66,193	)		56.74		—			—
Forfeited		(36,748	)		49.42		(53,998	)		15.97


Non-vested restricted shares at June 30, 2006		512,415		$	70.05		347,405		$	18.31


(1)		The number of performance-vested restricted shares shown equals the shares that would vest if the “maximum” level of performance is achieved. The minimum number of shares is zero and the “target” level of performance is 67 percent of the amounts shown.

At June 30, 2006, there was $35.9 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements awarded under the time-vested restricted stock plans. That cost is expected to be recognized over a remaining weighted-average period of 2.6 years. The total fair value of time-vested restricted shares vested during the six months ended June 30, 2006 was $3.8 million. At June 30, 2006, there was $3.6 million of total unrecognized compensation cost related to the performance-vested restricted stock plans. That cost is expected to be recognized over a remaining weighted-average period of 1.7 years. No performance-vested restricted shares vested during the six months ended June 30, 2006; however, compensation expense is accrued quarterly during the performance period. Compensation expense recognized during the six months ended June 30, 2006 related to all restricted stock totaled $7.1 million, or $5.7 million net of income tax.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

The time-vested restricted stock is valued on the date of award at the underlying Company ordinary share price at the date of award. The total potential compensation is recognized over the service period, net of estimated forfeitures. Prior to the adoption of SFAS No. 123R, unearned compensation was shown as a reduction of shareholders’ equity. The December 31, 2005 unearned compensation balance of $17.1 million was reclassified against Capital in Excess of Par Value upon adoption of SFAS No. 123R. In 2006 and future periods, par value (ordinary shares) will be recorded when the restricted stock is issued and Capital in Excess of Par Value will be recorded as the stock-based compensation cost is recognized for financial reporting purposes.

The total potential compensation for performance-vested restricted stock is recognized over the service period, net of estimated forfeitures, regardless of whether the performance thresholds are ultimately achieved. Performance-vested restricted stock awarded during the six months ended June 30, 2006 had a weighted-average fair value, determined as further described below, of $27.68 per share.

The performance-vested restricted stock is valued on the date of grant based on the estimated fair value. Estimated fair value is determined based on numerous assumptions, including an estimate of the likelihood that the Company’s stock price performance will achieve the targeted thresholds and the expected forfeiture rate. The fair value is calculated using a Monte Carlo Simulation Model, or other lattice-based projection models. The assumptions used to value the performance-vested restricted stock grants during the six months ended June 30, 2006 included historical volatility, risk-free interest rates, and expected dividends over a time period commensurate with the remaining term prior to vesting, as follows:


Valuation assumptions:
Expected volatility	30.00	%
Expected dividend yield	0.20	%
Risk-free interest rate	4.77	%

Additionally, similar assumptions were made for each of the companies included in the defined index and the peer group of companies in order to simulate the future outcome using the Monte Carlo Simulation Model.

NOTE 3 — NET INCOME PER SHARE

The following table reconciles the basic and diluted average shares outstanding for net income per share computations for the three and six-month periods ended June 30, 2006 and 2005 (shares in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Weighted-average shares outstanding — basic		136,800		136,065		136,759		135,637

Effect of potentially dilutive shares:
Stock options		1,397		1,235		1,441		1,299
Non-vested time-vested restricted stock		29		—		116		—
Non-vested performance-vested restricted stock		71		—		59		—

Weighted-average shares — diluted		138,297		137,300		138,375		136,936


Net income — basic and diluted	$	179,761	$	73,310	$	324,992	$	118,840

Net income per share:
Basic	$	1.31	$	0.54	$	2.38	$	0.88
Diluted	$	1.30	$	0.53	$	2.35	$	0.87

For the periods presented, there were no adjustments to net income for purposes of calculating basic or diluted net income per share. The computations of diluted net income per share for the three and six-month periods ended June 30, 2006 do not include stock options and restricted stock totaling 158,800 and 142,000 shares, respectively, because they were anti-dilutive. For the three and six-month periods ended June 30, 2005, the computations of diluted net income per share do not include stock options totaling 4,000 and 2,000 shares, respectively, because they were anti-dilutive.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

NOTE 4 — MARKETABLE SECURITIES

At June 30, 2006, we owned marketable equity and debt securities with a fair market value of $37.1 million. These investments are classified as available for sale and are included in current assets at June 30, 2006 at their fair market value. At June 30, 2006, we owned other marketable equity securities with a fair market value of $1.6 million. This investment is classified as available for sale and as a long-term asset at June 30, 2006 at its fair market value.

As previously reported, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) dated December 12, 2005 with Nora Smedvig, Peter T. Smedvig, Hjordis Smedvig, HKS AS, AS Veni, Petrus AS and Peder Smedvig Capital AS (collectively, the “Sellers”) relating to the Company’s acquisition, directly and indirectly, of 21,095,600 Class A shares and 2,501,374 Class B shares (collectively, the “Owned Shares”) of Smedvig. The Company completed its acquisition of the Owned Shares on December 23, 2005. The acquisition comprised 39.2 percent of the Class A shares and 28.9 percent of the total capital shares of Smedvig. The purchase price was NOK 200 per Class A share and NOK 150 per Class B share (the “Noble Purchase Price”), totaling NOK 4,594.3 million (or approximately US $691.1 million at the date of acquisition) before certain legal and other transaction costs. We financed the acquisition of the Owned Shares, including related transaction costs, with an aggregate of $700 million in new debt borrowings.

Subsequent to our acquisition of the Owned Shares, SeaDrill Limited, a Bermudian limited company (“SeaDrill”), reported that it had acquired control of 51.24 percent of the Class A shares and 52.47 percent of the Smedvig capital, after which SeaDrill made a mandatory offer (the “Mandatory Offer”) pursuant to Norwegian law (and a parallel tender offer in the U.S.) to purchase all the shares of Smedvig not already owned by SeaDrill at a price of NOK 205 per Class A share and NOK 165 per Class B share (the “SeaDrill Offer Price”).

On April 7, 2006, the Company sold the Owned Shares to SeaDrill pursuant to the Mandatory Offer for NOK 4,737.3 million. On April 10, 2006, the Company settled the forward currency contract described below and received $691.3 million. Also on April 10, 2006, the Company prepaid the outstanding principal amount of $600.0 million under a credit agreement, which terminated as a result of all parties thereto completing their obligations thereunder.

On April 18, 2006, pursuant to the Share Purchase Agreement, the Company paid to the Sellers the excess of the SeaDrill Offer Price over the Noble Purchase Price on the Owned Shares sold to SeaDrill (an aggregate of NOK 143.0 million, or $21.8 million), as a purchase price adjustment under the Share Purchase Agreement.

Our investment in Smedvig was accounted for in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, because of the lack of significant influence over the operating and financial policies of Smedvig. Our investment in Smedvig was classified as available-for-sale pursuant to SFAS No. 115. Accordingly, the fair value of our Smedvig investment was presented on the Consolidated Balance Sheet and unrealized holding gains or losses were excluded from earnings and reported in a separate component of shareholders’ equity, Accumulated Other Comprehensive Income (Loss), until realized on April 7, 2006. At December 31, 2005, the fair value of our Smedvig investment totaled $672.1 million and our cost basis totaled $691.8 million resulting in an unrealized loss of $19.7 million, which was included as a component of Accumulated Other Comprehensive Income (Loss). This unrealized loss had approximately recovered to the original cost by March 15, 2006, the date the forward currency contract described below was initiated.

On March 15, 2006, the Company entered into a forward currency contract which provided that the counterparty would pay to the Company $691.7 million in exchange for NOK 4,594.3 million on April 18, 2006. This transaction was entered into to hedge the foreign currency exposure on the Company’s investment in Smedvig. The Company accounted for this forward currency contract as a “fair value” hedge pursuant to SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities(“SFAS No. 133”). As a result, the change in fair value of the Smedvig investment from March 15, 2006 to April 7, 2006 was recognized in Other Income ($14.3 million) and the corresponding change in the fair value of the forward currency contract was charged to Other Income. The disposition of the investment in Smedvig shares, net of transaction costs, resulted in a loss of approximately $140,000 in the second quarter of 2006.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

NOTE 5 — PROPERTY AND EQUIPMENT

Interest is capitalized on construction-in-progress at the weighted average cost of debt outstanding during the period of construction. Capitalized interest for the three and six months ended June 30, 2006 was $9.1 million and $16.0 million, respectively, and for the three and six months ended June 30, 2005 was $2.6 million and $5.0 million, respectively.

In August 2005, in accordance with the provisions of our joint venture agreement, we acquired the remaining 50 percent equity interest in our Noble Crosco Drilling Ltd. joint venture, which owned thePanon,for an exercise price of $31.9 million. Operating results from thePanon, renamed theNoble Harvey Duhaney, have been fully consolidated since the date of acquisition. Prior to our acquisition of the remaining 50 percent equity interest, we accounted for our investment using the equity method. The equity in earnings of this joint venture through the date of acquisition is presented in Other, net in the Consolidated Statements of Income.

All of our units that sustained damage in 2005 as a result of Hurricanes Katrina and Rita had returned to work by April 2006. During the six months ended June 30, 2006, we recorded $4.4 million in loss of hire insurance for one of our units that suffered downtime attributable to Hurricane Rita. This financial impact is presented in Hurricane Losses and Recoveries, net as a component of Operating Costs and Expenses in our Consolidated Statements of Income for the six months ended June 30, 2006. Our insurance receivables at June 30, 2006 related to claims for hurricane damage was $58.9 million.

NOTE 6 — DEBT

In May 2006, Noble issued $300 million principal amount of 5.875% Senior Notes due 2013. Proceeds, net of discount and issuance costs, totaled $296.0 million. Interest on the 5.875% Senior Notes is payable semi-annually, in arrears, on June 1 and December 1 of each year. The 5.875% Senior Notes are redeemable, as a whole or from time to time in part, at our option on any date prior to maturity at a price equal to 100 percent of the principal amount being redeemed plus accrued and unpaid interest to the redemption date plus a make-whole premium, if any is required to be paid. The 5.875% Senior Notes are senior unsecured obligations of Noble and the indenture governing the 5.875% Senior Notes contains covenants that, among other things, limit our ability to create certain liens, engage in certain sale and lease-back transactions, and amalgamate, merge, consolidate and sell assets, except under certain conditions.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Our capital expenditures and major maintenance expenditures for 2006 are budgeted at approximately $1.4 billion. These expenditures include costs for three ultra-deepwater semisubmersibles, theNoble Clyde Boudreaux,Noble Dave BeardandNoble Danny Adkins, and two F&G JU-2000E enhanced premium independent leg cantilevered newbuild jackups under construction, theNoble Roger LewisandNoble Hans Deul. In June 2006, we entered into a contract with China Shipbuilding & Offshore International Co., Ltd./Dalian Shipbuilding Industry Co., Ltd. (“DSIC”) to construct a third F&G JU-2000E enhanced premium newbuild jackup to be named theNoble Scott Marks. The Company has budgeted the cost of this jackup at approximately $190 million. Certain expenditures will be made for this jackup in 2006, including payments for certain long lead-time items. In connection with these as well as certain other projects, we have entered into certain commitments. At June 30, 2006, we had approximately $975 million of outstanding purchase commitments.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

Noble Asset Company Limited (“NACL”), a wholly-owned, indirect subsidiary of Noble, was named one of 21 parties served a Show Cause Notice (“SCN”) issued by the Commissioner of Customs (Prev.), Mumbai, India in August 2003. The SCN concerned alleged violations of Indian customs laws and regulations regarding one of our jackups. The Commissioner alleged certain violations to have occurred before, at the time of, and after NACL acquired the rig from the rig’s previous owner. In the purchase agreement for the rig, NACL received contractual indemnification against liability for Indian customs duty from the rig’s previous owner. In connection with the export of the rig from India in 2001, NACL posted a bank guarantee in the amount of $3.2 million and a customs bond in the amount of $20.9 million, both of which remain in place. NACL filed its initial replies to the SCN in December 2003. NACL appeared through counsel before the Commissioner in September 2004 and made oral arguments and written submissions. In March 2005, the Commissioner passed an order against NACL and the other parties cited in the SCN, as anticipated, confirming his findings consistent with his allegations in the SCN and seeking (i) to invoke the bank guarantee posted on behalf of NACL as a fine, (ii) to demand duty of (a) $16.3 million plus interest related to a 1997 alleged import and (b) $18.6 million plus interest related to a 1999 alleged import, provided that the duty and interest demanded in (b) shall not be payable if the duty and interest demanded in (a) is paid by NACL, and (iii) to assess penalty ($430,800) against NACL. NACL promptly filed a Writ Petition in the High Court, Bombay, and obtained from the court a favorable order staying the Commissioner from invoking the guarantee and confirming NACL’s right to appeal the order of the Commissioner to the Customs, Excise & Service Tax Appellate Tribunal (“CESTAT”). At a hearing on April 5, 2006, the CESTAT upheld NACL’s appeal, thereby overturning the Commissioner’s March 2005 order against NACL in its entirety, and informed the parties that it would issue a written judgement of its decision. On August 8, 2006, we received CESTAT’s written judgment upholding NACL’s appeal on all grounds and setting aside the duty demand, interest and penalty. NACL will now seek return on NACL’s bank guarantee and customs bond referenced above. We do not know at this time whether the Commissioner will appeal such judgment. NACL continues to pursue contractual indemnification against liability for Indian customs duty and related costs and expenses against the rig’s previous owner in arbitration proceedings in London, which proceedings the parties have temporarily stayed pending issuance of CESTAT’s judgment and any further developments in the Indian proceeding. We do not believe the ultimate resolution of this matter will have a material adverse effect on our financial position, results of operations or cash flows.

We operate in a number of countries throughout the world and our income tax returns filed in those jurisdictions are subject to review and examination by tax authorities in those jurisdictions. Certain of our tax returns have been examined for the 2000 through 2003 periods and audit claims have been assessed for approximately $28 million (including interest and penalties). Additional audit claims of approximately $10 to $15 million attributable to such tax returns are considered by the Company to be probable of assessment. Additional audits are in process and it is possible the tax authorities will examine years beyond the current periods. In some countries, performance bonds have been provided as required by local law in order to contest the claims. We have contested, or intend to contest, most of the audit findings, including through litigation if necessary. We accrue for income tax contingencies that we believe are probable of occurring and where the amount of the contingency can be reasonably estimated. While we cannot predict or provide assurance as to the outcome of these tax matters, we do not believe the ultimate resolution of these matters will have a material adverse effect on our financial position, results of operations or cash flows.

In August 2004, an indirect, wholly-owned subsidiary of Noble was served as a named defendant in two lawsuits filed in the Circuit Courts of the State of Mississippi involving numerous other companies (not affiliated with Noble) as co-defendants. In December 2004, such subsidiary was served as a named defendant in a third lawsuit filed in Mississippi Circuit Court. The lawsuits seek an unspecified amount of monetary damages on behalf of approximately 131 named individuals alleging personal injury, including claims under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the period 1965 through 1986. Although the lawsuits continue to be in procedural stages, supplemental pleadings recently filed by plaintiffs reflect that only approximately 21 or fewer of the approximately 131 named individuals may have claims that they were employed by our subsidiary or otherwise associated with our drilling operations. Of these 21, only eight have followed applicable court orders to amend their complaints against us by the applicable deadline. We intend to defend vigorously against the litigation, and based on information currently available, we do not believe the resolution of these lawsuits will have a material adverse effect on our financial position, results of operations or cash flows.

We are a defendant in certain claims and litigation arising out of operations in the normal course of business. In the opinion of management, uninsured losses, if any, will not be material to our financial position, results of operations or cash flows.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

NOTE 8 — EMPLOYEE BENEFIT PLANS

We have a U.S. noncontributory defined benefit pension plan which covers substantially all salaried employees and a U.S. noncontributory defined benefit pension plan which covers certain field hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified domestic plans”). These plans are governed by the Noble Drilling Corporation Retirement Trust. The benefits from these plans are based primarily on years of service and, for the salaried plan, employees’ compensation near retirement. These plans qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions to the qualified domestic plans when required. The benefit amount that can be covered by the qualified domestic plans is limited under ERISA and the Internal Revenue Code of 1986, as amended. Therefore, we maintain an unfunded, nonqualified excess benefit plan designed to maintain benefits for all employees at the formula level in the qualified domestic plans. We refer to the qualified domestic plans and the excess benefit plan collectively as the “domestic plans.”

Each of Noble Drilling (U.K.) Limited, Noble Enterprises Limited and Noble Drilling (Nederland) B.V., all indirect, wholly-owned subsidiaries of Noble, maintains a pension plan which covers all of its salaried, non-union employees (collectively referred to as our “international plans”). Benefits are based on credited service and the average of the highest three years of qualified salary within the past 10 years of participation.

Pension costs for the three and six months ended June 30, 2006 and 2005 include the following components:


	Three Months Ended June 30,
	2006						2005
	International			Domestic			International			Domestic

Service cost	$	776		$	1,357		$	628		$	1,183
Interest cost		792			1,236			679			1,015
Return on plan assets		(899	)		(1,449	)		(758	)		(1,068	)
Amortization of prior service cost		—			84			—			65
Amortization of transition obligation		39			—			62			—
Recognized net actuarial loss (gain)		88			344			(19	)		214

Net pension expense	$	796		$	1,572		$	592		$	1,409


	Six months Ended June 30,
	2006						2005
	International			Domestic			International			Domestic

Service cost	$	1,552		$	2,714		$	1,256		$	2,368
Interest cost		1,584			2,472			1,357			2,030
Return on plan assets		(1,798	)		(2,898	)		(1,517	)		(2,136	)
Amortization of prior service cost		—			168			—			130
Amortization of transition obligation		78			—			125			—
Recognized net actuarial loss (gain)		176			688			(38	)		428

Net pension expense	$	1,592		$	3,144		$	1,183		$	2,820

We expect to contribute, subject to applicable law, approximately $14 million in the aggregate to our pension plans in 2006, with $4.9 million and $9.1 million allocated to international and domestic plans, respectively. During the six months ended June 30, 2006, we made contributions to our international and domestic plans of $3.6 million and $0, respectively.

We presently sponsor the Noble Drilling Corporation 401(k) Savings Restoration Plan (“Restoration Plan”). The Restoration Plan is a nonqualified, unfunded employee benefit plan under which certain highly compensated employees of the Company may elect to defer compensation in excess of amounts deferrable under the Company’s 401(k) savings plan and, subject to certain limitations specified in such plan, receive employer matching contributions (which are made in Noble’s ordinary shares). The employer matching amount is limited in the same manner as are employer matching contributions under the Company’s 401(k) savings plan. The Restoration Plan has no assets, and amounts “contributed” to the Restoration Plan are kept by the Company for general corporate purposes. The investments selected by employees and associated returns are tracked on a phantom basis. Accordingly, the Company has a liability to the employee for amounts originally contributed plus phantom investment income or less phantom investment losses. The Company is at risk for phantom investment income and, conversely, benefits should phantom investment losses occur. At June 30, 2006, the Company’s liability under the Restoration Plan and a separate Canadian plan totaled $19.2 million.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

NOTE 9 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We periodically enter into derivative instruments to manage our exposure to fluctuations in interest rates and foreign currency exchange rates, and we may conduct hedging activities in future periods to mitigate such exposure. We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative or trading purposes, nor are we a party to leveraged derivatives.

Our North Sea operations have a significant amount of their cash operating expenses payable in either the Euro or British Pound. Since February 2005 the Company has maintained approximately one year of forward currency contracts settling monthly in Euro and British Pounds. The forward contracts settled in 2005 represented approximately two-thirds of our forecasted Euro and British Pound requirements for 2005. The forward contracts settling in 2006 and 2007 represent approximately 61 percent and 13 percent, respectively, of our forecasted Euro and British Pound requirements. The notional amounts of forward contracts outstanding at June 30, 2006 were approximately 27.7 million Euros and 12.7 million British Pounds, respectively. The aggregate notional amount of these forward contracts, expressed in U.S. dollars, was $57.3 million at June 30, 2006.

All of the above foreign currency forward contracts were accounted for as cash flow hedges under SFAS No. 133, as amended by SFAS No. 138,Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB Statement No. 133),and SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The fair market value of those derivative instruments is included in Other Current Assets or Other Current Liabilities with the cumulative unrealized gain or loss included in Accumulated Other Comprehensive Income (Loss) in our Consolidated Balance Sheets. Hedge effectiveness is measured quarterly based on the relative cumulative changes in fair value between derivative contracts and the hedge item over time. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings. We did not recognize a gain or loss due to hedge ineffectiveness in our Consolidated Statements of Income during the three and six-month periods ended June 30, 2006 and 2005 related to these derivative instruments.

Reference is made to Note 4 above for discussion of the forward currency contract entered into on March 15, 2006 to hedge the Company’s investment in Smedvig.

The balance of the net unrealized gain or loss related to our foreign currency forward contracts and interest rate swaps included in Accumulated Other Comprehensive Income (Loss) and related activity for the three and six months ended June 30, 2006 and 2005 is as follows:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2006		2005			2006			2005

Net unrealized gain (loss) at beginning of period	$	(201)	$	269		$	(3,906	)	$	—
Activity during period:
Net unrealized gain (loss) on outstanding foreign currency forward contracts		1,998		(2,761	)		3,194			(2,492	)
Settlement of interest rate swaps		—		—			2,509			—

Net unrealized gain (loss) at June 30	$	1,797	$	(2,492	)	$	1,797		$	(2,492	)

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

NOTE 10 — SEGMENT AND RELATED INFORMATION

We provide diversified services for the oil and gas industry. Our reportable segments consist of the primary services we provide, which include international and domestic offshore contract drilling and engineering and consulting services. Although these segments are generally influenced by the same economic factors, each represents a distinct service to the oil and gas industry. Each of our drilling rigs is considered by us to be an operating segment within our international and domestic offshore contract drilling services reportable segments, and these operating segments are aggregated to comprise our international and domestic contract drilling services reportable segments in accordance with SFAS No. 131,Disclosure about Segments of an Enterprise and Related Information(“SFAS 131”).

The Company’s international contract drilling services segment conducts operations in the Middle East, Mexico, the North Sea, Brazil, West Africa, India and the Mediterranean Sea, and our domestic contract drilling services segment conducts operations in the U.S. Gulf of Mexico. Our engineering and consulting services segment, as represented by our Noble Technology Services Division, provides drilling-related products and services, well site management, project management, technical services, and operations support for our downhole technology tools.

We evaluate the performance of our operating segments based on operating revenues and net income. Summarized financial information of our reportable segments for the three and six months ended June 30, 2006 and 2005 is shown in the following table. The “Other” column includes results of labor contract drilling services, other insignificant operations and corporate related items.


	International		Domestic		Engineering
	Contract		Contract		&
	Drilling		Drilling		Consulting
	Services		Services		Services			Other			Total

Three Months Ended June 30, 2006

Revenues from external customers	$	351,823	$	140,398	$	1,998		$	23,295		$	517,514
Depreciation and amortization		49,328		12,986		190			41			62,545
Interest expense, net of amount capitalized		6,460		3,510		42			(8,239	)		1,773
Income tax provision (benefit)		16,361		25,647		(2,112	)		3,649			43,545
Segment profit (loss)		121,635		52,462		(4,002	)		9,666			179,761
Total assets (at end of period)		2,897,973		1,176,054		24,373			160,783			4,259,183
Capital expenditures		154,886		95,967		—			2,810			253,663

Three Months Ended June 30, 2005

Revenues from external customers	$	233,212	$	84,504	$	4,749		$	21,543		$	344,008
Depreciation and amortization		46,993		11,770		99			667			59,529
Interest expense, net of amount capitalized		4,884		3,212		35			(2,939	)		5,192
Income tax provision (benefit)		8,921		8,578		29			(1,436	)		16,092
Segment profit (loss)		48,854		26,300		(2,764	)		920			73,310
Total assets (at end of period)		2,209,937		1,044,615		31,396			125,089			3,411,037
Capital expenditures		41,466		11,823		21			21,455			74,765

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)


	International		Domestic		Engineering
	Contract		Contract		&
	Drilling		Drilling		Consulting
	Services		Services		Services			Other			Total

Six Months Ended June 30, 2006

Revenues from external customers	$	646,409	$	282,266	$	5,386		$	45,368		$	979,429
Depreciation and amortization		95,424		26,129		273			80			121,906
Interest expense, net of amount capitalized		12,729		7,260		84			(5,821	)		14,252
Income tax provision (benefit)		26,281		53,013		(2,387	)		1,818			78,725
Segment profit (loss)		208,917		111,587		(4,315	)		8,803			324,992
Total assets (at end of period)		2,897,973		1,176,054		24,373			160,783			4,259,183
Capital expenditures		289,618		174,621		—			4,646			468,885

Six Months Ended June 30, 2005

Revenues from external customers	$	448,113	$	145,315	$	15,856		$	45,049		$	654,333
Depreciation and amortization		91,336		22,783		197			1,590			115,906
Interest expense, net of amount capitalized		9,768		6,460		71			(5,172	)		11,127
Income tax provision (benefit)		16,602		9,827		508			(850	)		26,087
Segment profit (loss)		84,013		34,444		(3,858	)		4,241			118,840
Total assets (at end of period)		2,209,937		1,044,615		31,396			125,089			3,411,037
Capital expenditures		84,129		28,052		278			25,704			138,163

NOTE 11 — ACCOUNTING PRONOUNCEMENTS

On March 31, 2006, the Financial Accounting Standards Board (“FASB”) issued an Exposure Draft of proposed SFAS,Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of SFAS Nos. 87, 88, 106, and 132(R).The FASB has announced its intention to issue a final statement in the third quarter of 2006, effective for fiscal years ending after December 15, 2006. The Exposure Draft contains a number of amendments to current accounting for defined benefit plans; however, the primary provision is the requirement to recognize in the statement of financial position the overfunded or underfunded status of a defined benefit plan measured as the difference between the fair value of plan assets and the projected benefit obligation. Shareholders’ equity would also be increased or decreased (through “other comprehensive income”) for the overfunded or underfunded status. Because this is an Exposure Draft, the Statement may not be issued in its current form or on the timeframe planned. At December 31, 2005, the projected benefit obligations of the Company’s plans exceeded plan assets by approximately $22 million under the accounting rules then in effect.

In June 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48”). FIN 48 is effective for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 prescribes a two step process of (1) determination of whether it is more likely than not (defined as a likelihood of more than 50 percent) that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes and (2) measuring the amount of benefit to recognize in the financial statements determined as the largest amount of benefit that is greater than 50 percent of being realized upon ultimate settlement. Management has not completed its analysis of the impact of FIN 48.

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts.)

NOTE 12 — GUARANTEES OF REGISTERED SECURITIES

Noble and Noble Holding (U.S.) Corporation (“NHC”), a wholly-owned subsidiary of Noble, are guarantors for certain debt securities issued by Noble Drilling Corporation (“Noble Drilling”). These debt securities consist of Noble Drilling’s 6.95% Senior Notes due 2009 and its 7.50% Senior Notes due 2019. The outstanding principal balances of the 6.95% Senior Notes and the 7.50% Senior Notes at June 30, 2006 were $150.0 million and $201.7 million, respectively. Noble Drilling is an indirect, wholly-owned subsidiary of Noble and a direct, wholly-owned subsidiary of NHC. Noble’s and NHC’s guarantees of the 6.95% Senior Notes and the 7.50% Senior Notes are full and unconditional. In December 2005, Noble Drilling Holding LLC (“NDH”), an indirect wholly-owned subsidiary of Noble, became a co-obligor on (and effectively a guarantor of) the 6.95% Senior Notes and the 7.50% Senior Notes.

In connection with the issuance of Noble’s 5.875% Senior Notes (see Note 6), Noble Drilling guaranteed the payment of the 5.875% Senior Notes. Noble Drilling’s guarantee of the 5.875% Senior Notes is full and unconditional.

The following consolidating financial statements of Noble, NHC and NDH combined, Noble Drilling and all other subsidiaries present investments in both consolidated and unconsolidated affiliates using the equity method of accounting.

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
June 30, 2006
(In thousands)
(Unaudited)


			NHC and NDH				Noble			Other			Consolidating
	Noble		Combined				Drilling			Subsidiaries			Adjustments			Total
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	132,732		$	328		$	—		$	90,830		$	—		$	223,890
Investment in marketable securities		—			15,489			—			21,624			—			37,113
Accounts receivable		—			3,161			13,702			367,309			—			384,172
Insurance receivables		—			—			—			58,921			—			58,921
Inventories		—			—			—			4,266			—			4,266
Prepaid expenses		—			245			321			24,379			—			24,945
Accounts receivable from affiliates		401,989			—			465,270			—			(867,259	)		—
Other current assets		50			139			247			60,853			(32,524	)		28,765

Total current assets		534,771			19,362			479,540			628,182			(899,783	)		762,072


PROPERTY AND EQUIPMENT
Drilling equipment and facilities		—			758,829			101,102			3,753,631			—			4,613,562
Other		—			—			—			71,318			—			71,318

		—			758,829			101,102			3,824,949			—			4,684,880
Accumulated depreciation		—			(48,958	)		(58,223	)		(1,232,358	)		—			(1,339,539	)

		—			709,871			42,879			2,592,591			—			3,345,341


NOTES RECEIVABLE FROM AFFILIATES		511,836			—			44,159			694,370			(1,250,365	)		—
INVESTMENTS IN AFFILIATES		2,295,976			2,493,579			2,209,719			—			(6,999,274	)		—
INVESTMENTS IN MARKETABLE SECURITIES		—			—			—			1,555			—			1,555
OTHER ASSETS		4,109			3,116			3,820			139,170			—			150,215

	$	3,346,692		$	3,225,928		$	2,780,117		$	4,055,868		$	(9,149,422	)	$	4,259,183


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	—		$	—		$			$	9,295		$	—		$	9,295
Accounts payable		18,605			2,760			1,402			95,245			—			118,012
Accrued payroll and related costs		—			74			15,451			68,803			—			84,328
Taxes payable		—			—			—			44,828			—			44,828
Interest payable		1,835			21,922			7,587			11,444			(32,524	)		10,264
Accounts payable to affiliates		—			327,657			—			539,602			(867,259	)		—
Other current liabilities		—			—			817			37,513			—			38,330

Total current liabilities		20,440			352,413			25,257			806,730			—	)		305,057

LONG-TERM DEBT		299,742			—			351,666			37,934			—			689,342
NOTES PAYABLE TO AFFILIATES		—			694,370			—			555,995			(1,250,365	)		—
DEFERRED INCOME TAXES		—			(2,700	)		12,279			230,269			—			239,848
OTHER LIABILITIES		—			1,043			2,304			2,734			—			6,081

		320,182			1,045,126			391,506			1,633,662			(2,150,148	)		1,240,328


COMMITMENTS AND CONTINGENCIES		—			—			—			—			—			—

MINORITY INTEREST		—			—			—			(7,655	)		—			(7,655	)


SHAREHOLDERS’ EQUITY
Ordinary shares-par value $0.10 per share		13,680			—			—			—			—			13,680
Capital in excess of par value		960,191			1,149,966			870,743			531,652			(2,552,361	)		960,191
Retained earnings		2,050,010			1,030,940			1,517,868			1,895,580			(4,444,388	)		2,050,010
Accumulated other comprehensive income (loss)		2,629			(104	)		—			2,629			(2,525	)		2,629

		3,026,510			2,180,802			2,388,611			2,429,861			(6,999,274	)		3,026,510

	$	3,346,692		$	3,225,928		$	2,780,117		$	4,055,868		$	(9,149,422	)	$	4,259,183

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
December 31, 2005
(In thousands)
(Unaudited)


				NHC and NDH			Noble			Other			Consolidating
	Noble			Combined			Drilling			Subsidiaries			Adjustments			Total
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	13,957		$	3,119		$	—		$	104,769		$	—		$	121,845
Investment in marketable securities		—			18,036			—			26,421			—			44,457
Accounts receivable		—			4,129			8,611			263,948			—			276,688
Insurance receivables		—			—			—			51,565			—			51,565
Inventories		—			—			—			3,940			—			3,940
Prepaid expenses		—			251			321			9,492			—			10,064
Accounts receivable from affiliates		273,597			—			524,596			—			(798,193	)		—
Other current assets		—			172			247			42,354			(28,877	)		13,896

Total current assets		287,554			25,707			533,775			502,489			(827,070	)		522,455


PROPERTY AND EQUIPMENT
Drilling equipment and facilities		—			568,119			99,591			3,510,387			—			4,178,097
Other		—			—			—			66,698			—			66,698

		—			568,119			99,591			3,577,085			—			4,244,795
Accumulated depreciation		—			(37,843	)		(56,143	)		(1,151,790	)		—			(1,245,776	)

		—			530,276			43,448			2,425,295			—			2,999,019


NOTES RECEIVABLE FROM AFFILIATES		511,835			—			744,159			1,345,577			(2,601,571	)		—
INVESTMENTS IN AFFILIATES		1,960,241			2,238,517			2,029,863			—			(6,228,621	)		—
INVESTMENTS IN MARKETABLE SECURITIES		672,104			—			—			1,535			—			673,639
OTHER ASSETS		—			4,105			4,404			142,745			—			151,254

	$	3,431,734		$	2,798,605		$	3,355,649		$	4,417,641		$	(9,657,262	)	$	4,346,367


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	—		$	21,562		$	—		$	8,972		$	(21,562	)	$	8,972
Accounts payable		—			2,398			1,805			89,711			—			93,914
Accrued payroll and related costs		—			—			16,388			62,170			—			78,558
Taxes payable		—			—			—			45,245			—			45,245
Interest payable		—			—			8,718			8,237			(7,315	)		9,640
Accounts payable to affiliates		—			167,416			—			630,777			(798,193	)		—
Other current liabilities		—			—			146			22,860			—			23,006

Total current liabilities		—			191,376			27,057			867,972			(827,070	)		259,335

LONG-TERM DEBT		—			32,421			1,086,661			10,243			—			1,129,325
NOTES PAYABLE TO AFFILIATES		700,000			645,577			—			1,255,994			(2,601,571	)		—
DEFERRED INCOME TAXES		—			(2,700	)		13,016			217,273			—			227,589
OTHER LIABILITIES		—			1,043			2,509			2,738			—			6,290

		700,000			867,717			1,129,243			2,354,220			(3,428,641	)		1,622,539


COMMITMENTS AND CONTINGENCIES		—			—			—			—			—			—

MINORITY INTEREST		—			—			—			(7,906	)		—			(7,906	)


SHAREHOLDERS’ EQUITY
Ordinary shares-par value $0.10 per share		13,701			—			—			—			—			13,701
Capital in excess of par value		1,024,470			1,149,965			870,744			374,810			(2,395,519	)		1,024,470
Retained earnings		1,736,015			781,160			1,355,662			1,721,870			(3,858,692	)		1,736,015
Restricted stock (unearned compensation)		(17,099	)		—			—			—			—			(17,099	)
Accumulated other comprehensive income (loss)		(25,353	)		(237	)		—			(25,353	)		25,590			(25,353	)

		2,731,734			1,930,888			2,226,406			2,071,327			(6,228,621	)		2,731,734

	$	3,431,734		$	2,798,605		$	3,355,649		$	4,417,641		$	(9,657,262	)	$	4,346,367

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
Three Months Ended June 30, 2006
(In thousands)
(Unaudited)


				NHC and NDH				Noble			Other				Consolidating
	Noble			Combined				Drilling			Subsidiaries				Adjustments				Total
OPERATING REVENUES
Contract drilling services	$	—			$	9,564		$	12,595			$	454,180			$	—		$	476,339
Reimbursables		—				60			41				20,539				—			20,640
Labor contract drilling services		—				—			—				17,967				—			17,967
Engineering, consulting and other		—				12,740			—				2,568				(12,740	)		2,568

		—				22,364			12,636				495,254				(12,740	)		517,514


OPERATING COSTS AND EXPENSES
Contract drilling services		3,470				5,257			1,436				183,198				(12,740	)		180,621
Reimbursables		—				45			41				17,458				—			17,544
Labor contract drilling services		—				—			—				15,687				—			15,687
Engineering, consulting and other		—				—			—				7,276				—			7,276
Depreciation and amortization		—				6,215			1,204				55,126				—			62,545
Selling, general and administrative		1,107				558			169				8,821				—			10,655
Hurricane losses and recoveries, net		—				—			—				—				—			—

		4,577				12,075			2,850				287,566				(12,740	)		294,328


OPERATING INCOME (LOSS)		(4,577	)			10,289			9,786				207,688				—			223,186

OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)		185,306				166,670			79,037				—				(431,013	)		—
Interest expense, net of amount capitalized		(1,886	)			(13,464	)		(7,567	)			10,184				10,960			(1,773	)
Other, net		918				111			(4,576	)			16,400				(10,960	)		1,893


INCOME BEFORE INCOME TAXES		179,761				163,606			76,680				234,272				(431,013	)		223,306
INCOME TAX (PROVISION) BENEFIT		—				3,836			825				(48,206	)			—			(43,545	)


NET INCOME	$	179,761			$	167,442		$	77,505			$	186,066			$	(431,013	)	$	179,761

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
Three Months Ended June 30, 2005
(In thousands)
(Unaudited)


							Noble			Other			Consolidating
	Noble			NHC			Drilling			Subsidiaries			Adjustments			Total
OPERATING REVENUES
Contract drilling services	$	—		$	—		$	6,944		$	296,967		$	—		$	303,911
Reimbursables		—			—			1			18,654			—			18,655
Labor contract drilling services		—			—			—			17,531			—			17,531
Engineering, consulting and other		—			—			13			3,898			—			3,911

		—			—			6,958			337,050			—			344,008


OPERATING COSTS AND EXPENSES
Contract drilling services		9			—			1,142			144,756			—			145,907
Reimbursables		—			—			1			16,545			—			16,546
Labor contract drilling services		—			—			—			14,476			—			14,476
Engineering, consulting and other		—			—			—			5,733			—			5,733
Depreciation and amortization		—			—			1,747			57,782			—			59,529
Selling, general and administrative		369			—			202			9,528			—			10,099

		378			—			3,092			248,820						252,290


OPERATING INCOME (LOSS)		(378	)		—			3,866			88,230			—			91,718

OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)		73,134			66,664			68,864			—			(208,662	)		—
Interest expense		—			(11,605	)		(7,250	)		2,058			11,605			(5,192	)
Other, net		554			—			—			13,927			(11,605	)		2,876


INCOME BEFORE INCOME TAXES		73,310			55,059			65,480			104,215			(208,662	)		89,402
INCOME TAX (PROVISION) BENEFIT		—			4,062			1,184			(21,338	)		—			(16,092	)

NET INCOME	$	73,310		$	59,121		$	66,664		$	82,877		$	(208,662	)	$	73,310

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
Six Months Ended June 30, 2006
(In thousands)
(Unaudited)


				NHC and NDH				Noble			Other				Consolidating
	Noble			Combined				Drilling			Subsidiaries				Adjustments				Total

OPERATING REVENUES
Contract drilling services	$	—			$	18,984		$	21,434			$	853,553			$	—		$	893,971
Reimbursables		—				205			67				43,440				—			43,712
Labor contract drilling services		—				—			—				35,198				—			35,198
Engineering, consulting and other		—				25,340			—				6,548				(25,340	)		6,548

		—				44,529			21,501				938,739				25,340			979,429


OPERATING COSTS AND EXPENSES
Contract drilling services		8,527				9,906			3,030				352,403				(25,340	)		348,526
Reimbursables		—				143			67				37,386				—			37,596
Labor contract drilling services		—				—			—				30,584				—			30,584
Engineering, consulting and other		—				—			—				10,706				—			10,706
Depreciation and amortization		—				12,428			2,547				106,931				—			121,906
Selling, general and administrative		1,386				1,067			338				18,149				—			20,940
Hurricane losses and recoveries, net		—				—			—				(4,404	)			—			(4,404	)

		9,913				23,544			5,982				551,755				(25,340	)		565,854


OPERATING INCOME (LOSS)		(9,913	)			20,985			15,519				386,984				—			413,575

OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)		335,736				300,025			161,651				—				(797,412	)		—
Interest expense, net of amount capitalized		(1,889	)			(26,775	)		(25,895	)			18,385				21,922			(14,252	)
Other, net		1,058				111			(16,778	)			41,925				(21,922	)		4,394


INCOME BEFORE INCOME TAXES		324,992				294,346			134,497				447,294				(797,412	)		403,717
INCOME TAX (PROVISION) BENEFIT		—				7,673			9,504				(95,902	)			—			(78,725	)


NET INCOME	$	324,992			$	302,019		$	144,001			$	351,392			$	(797,412	)	$	324,992

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
Six Months Ended June 30, 2005
(In thousands)
(Unaudited)


							Noble			Other			Consolidating
	Noble			NHC			Drilling			Subsidiaries			Adjustments			Total

OPERATING REVENUES
Contract drilling services	$	—		$	—		$	14,360		$	551,955		$	—		$	566,315
Reimbursables		—			—			2			43,155			—			43,157
Labor contract drilling services		—			—			—			35,672			—			35,672
Engineering, consulting and other		—			—			43			9,146			—			9,189

		—			—			14,405			639,928			—			654,333


OPERATING COSTS AND EXPENSES
Contract drilling services		34			—			3,056			286,839			—			289,929
Reimbursables		—			—			2			39,450			—			39,452
Labor contract drilling services		—			—			—			29,665			—			29,665
Engineering, consulting and other		—			—			—			11,621			—			11,621
Depreciation and amortization		—			—			3,189			112,717			—			115,906
Selling, general and administrative		215			—			450			17,252			—			17,917

		249			—			6,697			497,544						504,490


OPERATING INCOME (LOSS)		(249	)		—			7,708			142,384			—			149,843

OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)		117,215			104,014			108,430			—			(329,659	)		—
Interest expense		—			(23,197	)		(14,500	)		3,373			23,197			(11,127	)
Other, net		1,958			—			(1	)		27,451			(23,197	)		6,211


INCOME BEFORE INCOME TAXES		118,924			80,817			101,637			173,208			(329,659	)		144,927
INCOME TAX (PROVISION) BENEFIT		(84	)		8,154			2,377			(36,534	)		—			(26,087	)

NET INCOME	$	118,840		$	88,971		$	104,014		$	136,674		$	(329,659	)	$	118,840

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2006
(In thousands)
(Unaudited)


				NHC and NDH				Noble			Other			Consolidating
	Noble			Combined				Drilling			Subsidiaries			Adjustments			Total

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	324,992			$	302,019		$	144,001		$	351,392		$	(797,412	)	$	324,992
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		—				12,428			2,547			106,931			—			121,906
Deferred income tax provision		—				—			—			12,259			—			12,259
Distributions received from joint ventures		—				—			—			—			—			—
Stock-based compensation expense		10,106				—			—			—			—			10,106
Equity earnings in affiliates		(335,736	)			(300,025	)		(161,651	)		—			797,412			—
Other		—				3,675			(2,013	)		9,855			—			11,517
Other changes in current assets and liabilities, net of acquired working capital:
Accounts receivable		—				(968	)		5,091			(111,068	)		—			(106,945	)
Other current assets		50				(33	)		—			(31,222	)		—			(31,205	)
Accounts payable		—				436			(403	)		5,978			—			6,011
Other current liabilities		1,835				21,922			(1,397	)		(441	)		—			21,919

Net cash provided by (used for) operating activities		1,247				39,454			(13,825	)		343,684			—			370,560


CASH FLOWS FROM INVESTING ACTIVITIES
New construction and major capital upgrades		—				(190,710	)		—			(90,962	)		—			(281,672	)
Other capital expenditures		—				—			(1,511	)		(158,920	)		—			(160,431	)
Major maintenance expenditures		—				(678	)		—			(26,104	)		—			(26,782	)
Repayments from affiliates		—				—			—			12,526			(12,526	)		—
Notes receivable from affiliates		—				—			27,896			—			(27,896	)		—
Proceeds from Smedvig disposition		691,261				—			—			—			—			691,261
Proceeds from sales and maturities of marketable securities		—				—			—			6,582			—			6,582

Net cash provided by (used for) investing activities		691,261				(191,388	)		26,385			(256,878	)		(40,422	)		228,958


CASH FLOWS FROM FINANCING ACTIVITIES
Payments of other long-term debt		—				(12,526	)		(600,000	)		(4,404	)		12,526			(604,404	)
(Payments)/Borrowing on credit facilities, net		—				—			(135,000	)		—			—			(135,000	)
Accounts receivable from affiliates		(787,768	)			—			—			—			787,768			—
Accounts payable to affiliates		—				161,669			722,440			(96,341	)		(787,768	)		—
Note payable to affiliate		(27,896	)			—			—			—			27,896			—
Proceeds from issuance of ordinary shares		7,642				—			—			—			—			7,642
Proceeds from issuance of Senior Notes		295,953				—			—			—			—			295,953
Payments of dividends		(10,997	)			—			—			—			—			(10,997	)
Repurchase of ordinary shares		(50,667	)			—			—			—			—			(50,667	)

Net cash provided by (used for) financing activities		(573,733	)			149,143			(12,560	)		(100,745	)		40,422			(497,473	)


INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		118,775				(2,791	)		—			(13,939	)		—			102,045
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		13,957				3,119			—			104,769			—			121,845

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	132,732			$	328		$	—		$	90,830		$	—		$	223,890

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2005
(In thousands)
(Unaudited)


							Noble			Other			Consolidating
	Noble			NHC			Drilling			Subsidiaries			Adjustments			Total

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	118,840		$	88,971		$	104,014		$	136,674		$	(329,659	)	$	118,840
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		—			—			3,189			112,717			—			115,906
Deferred income tax provision		—			—			—			9,835			—			9,835
Loss on sales of marketable securities		—			—			—			48			—			48
Equity in income of joint ventures		—			—			—			(2,388	)		—			(2,388	)
Distributions received from joint venture		—			—			—			2,194			—			2,194
Compensation expense from stock-based plans		3,365			—			—			—			—			3,365
Equity earnings in affiliates		(117,215	)		(104,014	)		(108,430	)		—			329,659			—
Other		—			—			207			903			—			1,110
Changes in current assets and liabilities:
Accounts receivable		—			—			(734	)		(41,890	)		—			(42,624	)
Accounts receivable from affiliates		(8,842	)		—			67,495			—			(58,653	)		—
Other current assets		19,918			—			1,146			(32,411	)		—			(11,347	)
Accounts payable		—			—			(631	)		(7,695	)		—			(8,326	)
Accounts payable to affiliates		—			17,062			—			(75,715	)		58,653			—
Other current liabilities		(1,455	)		7,637			(1,169	)		(1,429	)		—			3,584

Net cash provided by operating activities		14,611			9,656			65,087			100,843			—			190,197


CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades		—			—			—			(56,709	)		—			(56,709	)
Other capital expenditures		—			—			(42	)		(52,334	)		—			(52,376	)
Deferred repair and maintenance expenditures		—			—			(45	)		(29,033	)		—			(29,078	)
Proceeds from sales of property and equipment		—			—			—			993			—			993
Repayments from affiliates		—			—			—			9,656			(9,656	)		—
Investment in marketable securities		—			—			—			(23,349	)		—			(23,349	)
Proceeds from sales and maturities of marketable securities		23,600			—			—			83,079			—			106,679
Increase in restricted cash		(28,920	)		—			—			—			—			(28,920	)

Net cash used for investing activities		(5,320	)		—			(87	)		(67,697	)		(9,656	)		(82,760	)


CASH FLOWS FROM FINANCING ACTIVITIES
Payments of borrowings on credit facility		—			—			(65,000	)		—			—			(65,000	)
Payments of long-term debt		—			—			—			(4,108	)		—			(4,108	)
Payments to affiliates		—			(9,656	)		—			—			9,656			—
Proceeds from issuance of ordinary shares		53,955			—			—			—			—			53,955
Payments of dividends		(5,429	)		—			—			—			—			(5,429	)

Net cash provided by (used for) financing activities		48,526			(9,656	)		(65,000	)		(4,108	)		9,656			(20,582	)


INCREASE IN CASH AND CASH EQUIVALENTS		57,817			—			—			29,038			—			86,855
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		8,130			—			—			50,660			—			58,790

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	65,947		$	—		$	—		$	79,698		$	—		$	145,645

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations, industry conditions, and indebtedness covenant compliance are forward-looking statements. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should” and similar expressions are intended to be among the statements that identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to have been correct. We have identified factors that could cause actual plans or results to differ materially from those included in any forward-looking statements. These factors include those referenced or described in “Item 1A. Risk Factors” of Part II included herein, or in our other U.S. Securities and Exchange Commission filings, among others. Such risks and uncertainties are beyond our ability to control, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. You should consider these risks when you are evaluating us.

EXECUTIVE OVERVIEW

Demand for drilling services depends on a variety of economic and political factors, including worldwide demand for oil and gas, the ability of OPEC to set and maintain production levels and pricing, the level of production of non-OPEC countries and the policies of the various governments regarding exploration and development of their oil and gas reserves.

Our results of operations depend on the levels of activity in offshore oil and gas exploration, development and production in markets worldwide. Historically, oil and gas prices and market expectations of potential changes in these prices have significantly affected that level of activity. Generally, higher oil and natural gas prices or our customers’ expectations of higher prices result in a greater demand for our services. These prices are extremely volatile. The average Brent oil price was $65.64 per barrel for the first six months of 2006, or 32 percent higher than the average Brent oil price of $49.66 per barrel for the first six months of the previous year. The continuation of higher oil prices during the first six months of 2006 supported increases in drilling activity in oil markets worldwide.

Similar increases in natural gas prices domestically have resulted in increased levels of drilling activity in the offshore U.S. Gulf of Mexico. While natural gas prices have moderated in recent periods, natural gas prices during the first six months of 2006 averaged $7.06 per thousand cubic feet (average Henry Hub closing bidweek price), 7 percent higher than the first six months of 2005, when prices averaged $6.62 per thousand cubic feet.

As a result of the increase in worldwide drilling activities described above, at June 30, 2006, approximately 97 percent of our operating days were committed for 2006 and 71 percent for 2007.

We cannot predict the future level of demand for our drilling services or future conditions in the offshore contract drilling industry. Decreases in the level of demand for our drilling services have an adverse effect on our results of operations.

Our long-standing business strategy continues to be the active expansion of our worldwide offshore drilling and deepwater capabilities through acquisitions, upgrades and modifications, and the deployment of our drilling assets in important geological areas. Since the beginning of 2001 we have added seven jackups, two deepwater semisubmersibles, and two ultra-deepwater semisubmersible baredeck hulls to our worldwide fleet through acquisitions. We continued execution of our active expansion strategy in 2005 with the signing of long-term contracts for three ultra-deepwater semisubmersibles, theNoble Clyde Boudreaux,Noble Dave BeardandNoble Danny Adkins. We also signed long-term contracts for two F&G JU-2000E enhanced premium independent leg cantilevered newbuild jackups under construction, theNoble Roger LewisandNoble Hans Deul. In June 2006, we entered into a contract with China Shipbuilding & Offshore International Co., Ltd./Dalian Shipbuilding Industry Co., Ltd (“DSIC”) to construct a third F&G JU-2000E enhanced premium newbuild jackup to be named theNoble Scott Marks. As previously reported, all three F&G JU-2000E newbuild jackups have been contracted or committed to by our customers.

RESULTS OF OPERATIONS

Hurricane Losses and Recoveries

As previously reported, all of our units that sustained damage in 2005 as a result of Hurricanes Katrina and Rita had returned to work by April 2006. During the six months ended June 30, 2006, we recorded $4.4 million in loss of hire insurance for one of our units that suffered downtime attributable to Hurricane Rita. This financial impact is presented in Hurricane Losses and Recoveries, net as a component of Operating Costs and Expenses in our Consolidated Statements of Income for the six months ended June 30, 2006. Our insurance receivable at June 30, 2006 related to claims for hurricane damage was $58.9 million.

Renewal of 2006 — 2007 Marine and Energy Package, Excess Liability, and Protection and Indemnity Programs

For information regarding the Company’s renewal of its insurance program during the first quarter of 2006, see the discussion in “Item 1A. Risk Factors” of Part II included herein.

For the Three Months Ended June 30, 2006 and 2005

General

Net income for the three months ended June 30, 2006 (the “Current Quarter”) was $179.8 million, or $1.30 per diluted share, on operating revenues of $517.5 million, compared to net income for the three months ended June 30, 2005 (the “Comparable Quarter”) of $73.3 million, or $0.53 per diluted share, on operating revenues of $344.0 million.

The following table sets forth operating revenues and operating costs and expenses for each of our reportable segments for the periods indicated (for additional information regarding our reportable segments, see Note 10 of the accompanying condensed consolidated financial statements):


	International			Domestic
	Contract			Contract			Engineering
	Drilling			Drilling			& Consulting
	Services			Services			Services				Other			Total
	(In thousands)
Three Months Ended June 30, 2006

Operating Revenues:
Contract drilling services		$	338,750	$	137,589			$	—		$	—		$	476,339
Reimbursables			12,517		2,704				91			5,328			20,640
Labor contract drilling services			—		—				—			17,967			17,967
Engineering, consulting and other			556		105				1,907			—			2,568

			351,823		140,398				1,998			23,295			517,514


Operating Costs and Expenses:
Contract drilling services			140,880		39,741				—			—			180,621
Reimbursables			10,639		2,298				78			4,529			17,544
Labor contract drilling services			—		—				—			15,687			15,687
Engineering, consulting and other			352		(46	)			7,167			(197	)		7,276
Depreciation and amortization			49,328		12,986				190			41			62,545
Selling, general and administrative			5,877		3,804				631			343			10,655
Hurricane losses and recoveries, net			—		—				—			—			—

			207,076		58,783				8,066			20,403			294,328


Operating Income		$	144,747	$	81,615			$	(6,068	)	$	2,892		$	223,186


	International			Domestic
	Contract			Contract		Engineering
	Drilling			Drilling		& Consulting
	Services			Services		Services				Other		Total
	(In thousands)
Three Months Ended June 30, 2005

Operating Revenues:
Contract drilling services		$	224,518	$	79,393		$	—		$	—	$	303,911
Reimbursables			7,933		4,826			1,884			4,012		18,655
Labor contract drilling services			—		—			—			17,531		17,531
Engineering, consulting and other			761		285			2,865			—		3,911

			233,212		84,504			4,749			21,543		344,008


Operating Costs and Expenses:
Contract drilling services			113,107		32,800			—			—		145,907
Reimbursables			6,195		4,602			1,919			3,830		16,546
Labor contract drilling services			—		—			—			14,476		14,476
Engineering, consulting and other			195		134			5,216			188		5,733
Depreciation and amortization			46,993		11,770			99			667		59,529
Selling, general and administrative			7,012		2,513			234			340		10,099

			173,502		51,819			7,468			19,501		252,290


Operating Income		$	59,710	$	32,685		$	(2,719	)	$	2,042	$	91,718

Rig Utilization, Operating Days and Average Dayrates

The following table sets forth the average rig utilization, operating days and average dayrates for our rig fleet for the three months ended June 30, 2006 and 2005:


	Average Rig
	Utilization (1)						Operating Days (2)				Average Dayrate
	Three Months Ended						Three Months Ended				Three Months Ended
	June 30,						June 30,				June 30,
	2006			2005			2006		2005		2006		2005

International (3):														��
Jackups		98	%		97	%		3,672		3,266	$	72,601	$	51,747
Semisubmersibles ->6,000’(4)(7)		100	%		100	%		182		182		145,698		158,779
Semisubmersibles -<6,000’(5)		100	%		100	%		91		91		196,709		84,742
Drillships		100	%		95	%		273		260		96,313		72,707

Total International		98	%		97	%		4,218		3,799	$	80,311	$	59,099


Domestic (6):
Jackups		N/A			100	%		—		182	$	N/A	$	60,865
Semisubmersibles ->6,000’ (4)		100	%		96	%		364		348		273,779		125,866
Semisubmersibles -<6,000’ (5)		100	%		100	%		168		182		128,147		77,611
Submersibles		97	%		95	%		264		258		61,402		40,267

Total Domestic		99	%		97	%		796		970	$	172,950	$	81,848


Total Company		98	%		97	%		5,014		4,769	$	95,011	$	63,726


(1)		Information reflects our policy of reporting on the basis of the number of actively marketed rigs in our fleet. Percentages reflect the results of rigs only during the period in which they are owned or operated by us.

(2)		Information reflects the number of days that our rigs were operating under contractual terms.

(3)		“International” encompasses contract drilling services conducted in the Middle East, Mexico, the North Sea, Brazil, West Africa, India and the Mediterranean Sea.

(4)		These units have water depth ratings of 6,000 feet or greater depending on the unit.

(5)		These units have water depth ratings of less than 6,000 feet.

(6)		“Domestic” encompasses contract drilling services conducted in the U.S. Gulf of Mexico.

(7)		For discussion of factors affecting average dayrates, see “International Contract Drilling Services — Operating Revenues” below.

International Contract Drilling Services

The following table sets forth the operating revenues and the operating costs and expenses for our international contract drilling services for the three months ended June 30, 2006 and 2005:


					Operating Costs
	Operating Revenues				and Expenses
	Three Months Ended				Three Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
	(In thousands)

Contract drilling services	$	338,750	$	224,518	$	140,880	$	113,107
Reimbursables (1)		12,517		7,933		10,639		6,195
Engineering, consulting and other		556		761		352		195
Depreciation and amortization		N/A		N/A		49,328		46,993
Selling, general and administrative		N/A		N/A		5,877		7,012

Total	$	351,823	$	233,212	$	207,076	$	173,502


(1)		We record reimbursements from customers for out-of-pocket expenses as revenues and the related direct cost as operating expenses. Changes in the amount of these reimbursables do not have a material effect on our financial position, results of operations or cash flows.

Operating Revenues.International contract drilling services revenues increased $114.2 million as strong demand for drilling rigs drove higher operating days and average dayrates. Approximately $80.6 million of the revenue increase was the result of higher average dayrates and approximately $33.6 million of the revenue increase was the result of the higher number of operating days. Average dayrates for our international fleet increased from $59,099 to $80,311, or $21,212 per day (36 percent) in the Current Quarter as compared to the Comparable Quarter. Higher average dayrates were received across all rig categories with the exception of semisubmersibles greater than 6,000’ where one rig was contracted for the entire Current Quarter but received reduced dayrates for a 7 day shipyard period and a 17 day downtime period during the quarter. Operating days increased from 3,799 in the Comparable Quarter to 4,218 in the Current Quarter or 419 days (11 percent). JackupsNoble Harvey DuhaneyandNoble Mark Burnswere fleet additions in August 2005 which added 182 additional operating days in the Current Quarter as compared to the Comparable Quarter. TheNoble Jimmy Puckettand theNoble Lewis Duggercontributed 88 additional operating days in the Current Quarter as both rigs were in the shipyard for upgrades and refurbishments in the Comparable Quarter. Additionally, our strategic decision to relocate theNoble Tom Jobeand theNoble Eddie Paulfrom the U.S. Gulf of Mexico in March 2006 and April 2006, respectively, to international waters contributed 123 additional operating days in the Current Quarter. Utilization of our international fleet increased to 98 percent from 97 percent in the Comparable Quarter.

Operating Costs and Expenses.International contract drilling services expenses increased $27.8 million, or 25 percent in the Current Quarter as compared to the prior year period. Approximately $14 million of this increase was the result of higher operating days in the Current Quarter as compared to the Comparable Quarter. The balance of the increase primarily results from higher costs of fleet insurance, higher compensation, including retention programs designed to retain key rig and operations personnel, higher repair and maintenance costs, and higher agency fees in those countries where we retain agents who are compensated based on a percentage of revenues. Daily contract drilling services costs were $33,400 in the Current Quarter as compared to $29,800 in the Comparable Quarter, or an increase of 12 percent for the reasons described above. The daily contract drilling services costs are also influenced by the area of operations in our international operations as the cost structure varies across geographic regions. Depreciation and amortization increased to $49.3 million in the Current Quarter as compared to $47.0 million in the Comparable Quarter, or 5 percent, primarily resulting from the addition of units to the international fleet as described under Operating Revenues above as well as capital expenditures on our fleet since the Comparable Quarter.

Domestic Contract Drilling Services

The following table sets forth the operating revenues and the operating costs and expenses for our domestic contract drilling services for the three months ended June 30, 2006 and 2005:


					Operating Costs
	Operating Revenues				and Expenses
	Three Months Ended				Three Months Ended
	June 30,				June 30,
	2006		2005		2006			2005
	(In thousands)

Contract drilling services	$	137,589	$	79,393	$	39,741		$	32,800
Reimbursables (1)		2,704		4,826		2,298			4,602
Engineering, consulting and other		105		285		(46	)		134
Depreciation and amortization		N/A		N/A		12,986			11,770
Selling, general and administrative		N/A		N/A		3,804			2,513

Total	$	140,398	$	84,504	$	58,783		$	51,819


(1)		We record reimbursements from customers for out-of-pocket expenses as revenues and the related direct cost as operating expenses. Changes in the amount of these reimbursables do not have a material effect on our financial position, results of operations or cash flows.

Operating Revenues.Domestic contract drilling services revenues increased $58.2 million as strong demand for drilling rigs in the U.S. Gulf of Mexico market drove higher average dayrates. Approximately $88.3 million of the revenue increase was the result of higher average dayrates while a 174 day reduction in operating days reduced revenues by approximately $30.1 million. Average dayrates for our domestic fleet increased from $81,848 to $172,950, or $91,102 per day (111 percent) in the Current Quarter as compared to the Comparable Quarter. Higher average dayrates were received across all rig categories. Operating days decreased from 970 in the Comparable Quarter to 796 in the Current Quarter or 174 days (18 percent). Lower operating days resulted primarily from the relocation of theNoble Tom Jobeand theNoble Eddie Paulfrom the U.S. Gulf of Mexico to international waters in Mexico during early March and April 2006, respectively constituting an aggregate reduction of 182 days. This relocation is part of Noble’s strategic decision to move certain units to regions with greater geological and financial potential. The reduction in operating days is partially offset as theNoble Paul Romanoand theNoble Lester Pettuswhich had 32 additional days in the Current Quarter due to regulatory inspections and repairs in the Comparable Quarter. Utilization of our domestic fleet increased to 99 percent from 97 percent in the Comparable Quarter.

Operating Costs and Expenses.Operating costs and expenses for our domestic contract drilling services increased $6.9 million or 21 percent in the Current Quarter as compared to the prior year period. The higher operating costs and expenses primarily results from higher costs of fleet insurance, higher compensation, including retention programs designed to retain key rig and operations personnel, and higher repair and maintenance costs. Daily contract drilling services costs for our domestic fleet were $49,900 in the Current Quarter as compared to $33,800 in the Comparable Quarter, or an increase of 48 percent. In addition to the reasons described above, daily drilling costs were lower in the Comparable Quarter in part because two jackups, which have lower daily operating costs, were operating in the Gulf of Mexico in 2005 while no jackups were operated domestically in the Current Quarter. Depreciation and amortization increased to $13.0 million in the Current Quarter as compared to $11.8 million in the Comparable Quarter, or 10 percent, due to higher depreciation associated with rig upgrades and major maintenance in prior periods.

Engineering & Consulting Services

The following table sets forth the operating revenues and the operating costs and expenses for our engineering and consulting services for the three months ended June 30, 2006 and 2005:


					Operating Costs
	Operating Revenues				and Expenses
	Three Months Ended				Three Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
	(In thousands)

Engineering, consulting and other		$ 1,907		$ 2,865		$ 7,167		$ 5,216
Reimbursables (1)		91		1,884		78		1,919
Depreciation and amortization		N/A		N/A		190		99
Selling, general and administrative		N/A		N/A		631		234

Total		$ 1,998		$ 4,749		$ 8,066		$ 7,468


(1)		We record reimbursements from customers for out-of-pocket expenses as revenues and the related direct cost as operating expenses. Changes in the amount of these reimbursables do not have a material effect on our financial position, results of operations or cash flows.

Operating Revenues.Excluding reimbursables, operating revenues for our engineering and consulting services segment decreased $958,000 primarily due to reduced project levels.

Operating Costs and Expenses.Engineering, consulting and other expenses increased $2.0 million primarily due to a pre-tax loss of $3.8 million ($0.02 per diluted share) on the sale of the software business of our Maurer Technology Incorporated (“Maurer”) subsidiary in June 2006. The loss on this sale by Maurer included the write-off of goodwill totaling $4.8 million. Excluding the Maurer transaction, costs and expenses declined $1.9 million due to reduced project levels.

Other

The following table sets forth the operating revenues and the operating costs and expenses for our other services for the three months ended June 30, 2006 and 2005:


					Operating Costs
	Operating Revenues				and Expenses
	Three Months Ended				Three Months Ended
	June 30,				June 30,
	2006		2005		2006			2005
	(In thousands)

Labor contract drilling services		$ 17,967		$ 17,531		$ 15,687			$ 14,476
Reimbursables (1)		5,328		4,012		4,529			3,830
Engineering, consulting and other		—		—		(197	)		188
Depreciation and amortization		N/A		N/A		41			667
Selling, general and administrative		N/A		N/A		343			340

Total		$ 23,295		$ 21,543		$ 20,403			$ 19,501


(1)		We record reimbursements from customers for out-of-pocket expenses as revenues and the related direct cost as operating expenses. Changes in the amount of these reimbursables do not have a material effect on our financial position, results of operations or cash flows.

Operating Revenues.Our labor contract drilling service revenues increased $436,000 due primarily to additional crew requests from our customers for the managed North Sea units partially offset by fewer operating days for these units.

Operating Costs and Expenses.Operating costs and expenses for labor contract drilling services increased $1.2 million due primarily to additional labor costs from our managed North Sea platform operations and unfavorable exchange rates.

Other Items

Selling, General and Administrative Expenses.Consolidated selling, general and administrative expenses increased $556,000 to $10.7 million in the Current Quarter from $10.1 million in the Comparable Quarter primarily due to the initial adoption of SFAS No. 123R,Share-Based Payment, (“SFAS No. 123R”) expenses related to our employee benefit and retention plans, and higher professional services fees.

Interest Expense.Interest expense, net of amount capitalized, decreased $3.4 million primarily due to $6.5 million of additional interest capitalization in the Current Quarter as compared to the Comparable Quarter, offset by higher interest expense of $3.1 million primarily from higher levels of borrowings in the Current Quarter. Each of these factors are attributable to the higher level of capital expenditures in 2006 as compared to 2005.

Other, net.Other, net decreased $983,000 primarily due to the acquisition of the remaining 50 percent equity interest in a joint venture with Noble Crosco Drilling, Ltd., in August 2005 reducing equity earnings in the Current Quarter as compared to the Comparable Quarter by $1.3 million.

Income Tax Provision.The income tax provision increased $27.5 million mainly due to higher pre-tax earnings and an increase in the effective tax rate from 18 percent in 2005 to 19.5 percent in 2006, due primarily to the increase in pre-tax earnings of U.S. owned assets.

For the Six Months Ended June 30, 2006 and 2005

General

Net income for the six months ended June 30, 2006 (the “Current Period”) was $325.0 million, or $2.35 per diluted share, on operating revenues of $979.4 million, compared to net income for the six months ended June 30, 2005 (the “Comparable Period”) of $118.8 million, or $0.87 per diluted share, on operating revenues of $654.3 million.


	International		Domestic
	Contract		Contract			Engineering
	Drilling		Drilling			& Consulting
	Services		Services			Services			Other			Total
	(In thousands)
Six Months Ended June 30, 2006

Operating Revenues:
Contract drilling services		$ 620,906		$ 273,065			$ —			$ —			$ 893,971
Reimbursables		24,498		8,933			111			10,170			43,712
Labor contract drilling services		—		—			—			35,198			35,198
Engineering, consulting and other		1,005		268			5,275			—			6,548

		646,409		282,266			5,386			45,368			979,429


Operating Costs and Expenses:
Contract drilling services		270,808		77,718			—			—			348,526
Reimbursables		19,896		8,371			88			9,241			37,596
Labor contract drilling services		—		—			—			30,584			30,584
Engineering, consulting and other		476		(156	)		10,587			(201	)		10,706
Depreciation and amortization		95,424		26,129			273			80			121,906
Selling, general and administrative		11,451		7,110			798			1,581			20,940
Hurricane losses and recoveries, net		—		(4,404	)		—			—			(4,404	)

		398,055		114,768			11,746			41,285			565,854


Operating Income		$ 248,354		$ 167,498			$ (6,360	)		$ 4,083			$ 413,575


		International		Domestic
		Contract		Contract		Engineering
		Drilling		Drilling		& Consulting
		Services		Services		Services			Other		Total
	(In thousands)
Six Months Ended June 30, 2005

Operating Revenues:
Contract drilling services			$ 429,680		$ 136,635		$ —			$ —		$ 566,315
Reimbursables			17,267		8,162		8,910			8,818		43,157
Labor contract drilling services			—		—		—			35,672		35,672
Engineering, consulting and other			1,166		518		6,946			559		9,189

			448,113		145,315		15,856			45,049		654,333


Operating Costs and Expenses:
Contract drilling services			227,525		62,404		—			—		289,929
Reimbursables			14,107		7,807		8,957			8,581		39,452
Labor contract drilling services			—		—		—			29,665		29,665
Engineering, consulting and other			347		306		10,251			717		11,621
Depreciation and amortization			91,336		22,783		197			1,590		115,906
Selling, general and administrative			12,081		4,688		468			680		17,917

			345,396		97,988		19,873			41,233		504,490


Operating Income			$ 102,717		$ 47,327		$ (4,017	)		$ 3,816		$ 149,843

Rig Utilization, Operating Days and Average Dayrates

The following table sets forth the average rig utilization, operating days and average dayrates for our rig fleet for the six months ended June 30, 2006 and 2005:


	Average Rig
	Utilization (1)						Operating Days (2)				Average Dayrate
	Six Months Ended						Six Months Ended				Six Months Ended
	June 30,						June 30,				June 30,
	2006			2005			2006		2005		2006		2005

International (3):
Jackups		99	%		96	%		7,182		6,352	$	68,831	$	51,461
Semisubmersibles ->6,000’(4)(7)		100	%		100	%		362		362		117,636		151,951
Semisubmersibles -<6,000’(5)		100	%		93	%		181		168		155,299		74,507
Drillships		100	%		81	%		543		440		100,229		80,175

Total International		99	%		95	%		8,268		7,322	$	75,098	$	58,683


Domestic (6):
Jackups		86	%		100	%		155		362	$	101,112	$	58,356
Semisubmersibles ->6,000’ (4)		100	%		85	%		724		618		257,759		116,499
Semisubmersibles -<6,000’ (5)		100	%		100	%		348		362		126,097		65,735
Submersibles		82	%		97	%		444		528		60,228		37,343

Total Domestic		93	%		94	%		1,671		1,870	$	163,462	$	73,067


Total Company		98	%		95	%		9,939		9,192	$	89,946	$	61,610


(1)		Information reflects our policy of reporting on the basis of the number of actively marketed rigs in our fleet. Percentages reflect the results of rigs only during the period in which they are owned or operated by us.

(2)		Information reflects the number of days that our rigs were operating under contractual terms.

(3)		“International” encompasses contract drilling services conducted in the Middle East, Mexico, the North Sea, Brazil, West Africa, India and the Mediterranean Sea.

(4)		These units have water depth ratings of 6,000 feet or greater depending on the unit.

(5)		These units have water depth ratings of less than 6,000 feet.

(6)		“Domestic” encompasses contract drilling services conducted in the U.S. Gulf of Mexico.

(7)		For discussion of factors affecting average dayrates, see “International Contract Drilling Services — Operating Revenues” below.

International Contract Drilling Services

The following table sets forth the operating revenues and the operating costs and expenses for our international contract drilling services for the six months ended June 30, 2006 and 2005:


					Operating Costs
	Operating Revenues				and Expenses
	Six Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
	(In thousands)

Contract drilling services	$	620,906	$	429,680	$	270,808	$	227,525
Reimbursables (1)		24,498		17,267		19,896		14,107
Labor contract drilling services		—		—		—		—
Engineering, consulting and other		1,005		1,166		476		347
Depreciation and amortization		N/A		N/A		95,424		91,336
Selling, general and administrative		N/A		N/A		11,451		12,081

Total	$	646,409	$	448,113	$	398,055	$	345,396


(1)		We record reimbursements from customers for out-of-pocket expenses as revenues and the related direct cost as operating expenses. Changes in the amount of these reimbursables do not have a material effect on our financial position, results of operations or cash flows.

Operating Revenues.International contract drilling services revenues increased $191.2 million as strong demand for drilling rigs drove higher operating days and average dayrates. Approximately $120.3 million of the revenue increase was the result of higher average dayrates and approximately $70.9 million of the revenue increase was the result of the higher number of operating days. Average dayrates for our international fleet increased from $58,683 to $75,098, or $16,415 per day (28 percent) in the Current Period as compared to the Comparable Period. Higher average dayrates were received across all rig categories with the exception of semisubmersibles greater than 6,000’ where one rig was contracted for the entire Current Period which received reduced dayrates for a 97 day shipyard period and a 17 day downtime period during the Current Period. Operating days increased from 7,322 in the Comparable Period to 8,268 in the Current Period or 946 days (13 percent). JackupsNoble Harvey DuhaneyandNoble Mark Burnswere fleet additions in August 2005 which added 362 additional operating days in the Current Period as compared to the Comparable Period. In the Current Period, there were 262 fewer shipyard and regulatory inspection days than in the Comparable Period. Additionally, our strategic decision to relocate theNoble Tom Jobeand theNoble Eddie Paulfrom the U.S. Gulf of Mexico in March 2006 and April 2006, respectively, to international waters contributed 123 additional operating days in the Current Period. Utilization of our international fleet increased to 99 percent from 95 percent in the Comparable Period.

Operating Costs and Expenses.International contract drilling services expenses increased $43.3 million, or 19 percent in the Current Period as compared to the prior year period. Approximately $31 million of this increase was the result of higher operating days in the Current Period as compared to the Comparable Period. The balance of the increase primarily results from higher costs of fleet insurance, higher compensation, including retention programs designed to retain key rig and operations personnel, higher repair and maintenance costs, and higher agency fees in those countries where we retain agents who are compensated based on a percentage of revenues. Daily contract drilling services costs were $32,800 in the Current Period as compared to $31,100 in the Comparable Period, or an increase of 5 percent, for the reasons described above. The daily contract drilling services costs are also influenced by the area of operations in our international operations as the cost structure varies across geographic regions. Depreciation and amortization increased to $95.4 million in the Current Period as compared to $91.3 million in the Comparable Period, or 4 percent, primarily resulting from the addition of units to the international fleet as described under Operating Revenues above as well as capital expenditures on our fleet since the Comparable Period.

Domestic Contract Drilling Services

The following table sets forth the operating revenues and the operating costs and expenses for our domestic contract drilling services for the six months ended June 30, 2006 and 2005:


					Operating Costs
	Operating Revenues				and Expenses
	Six Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006			2005
	(In thousands)

Contract drilling services	$	273,065	$	136,635	$	77,718		$	62,404
Reimbursables (1)		8,933		8,162		8,371			7,807
Engineering, consulting and other		268		518		(156	)		306
Depreciation and amortization		N/A		N/A		26,129			22,783
Selling, general and administrative		N/A		N/A		7,110			4,688
Hurricane losses and recoveries, net		—		—		(4,404	)		—

Total	$	282,266	$	145,315	$	114,768		$	97,988


(1)		We record reimbursements from customers for out-of-pocket expenses as revenues and the related direct cost as operating expenses. Changes in the amount of these reimbursables do not have a material effect on our financial position, results of operations or cash flows.

Operating Revenues.Domestic contract drilling services revenues increased $136.4 million as strong demand for drilling rigs in the U.S. Gulf of Mexico market drove higher average dayrates. Approximately $168.9 million of the revenue increase was the result of higher average dayrates while a 199 day reduction in operating days reduced revenues by approximately $32.5 million. Average dayrates for our domestic fleet increased from $73,067 to $163,462, or $90,395 per day (124 percent) in the Current Period as compared to the Comparable Period. Higher average dayrates were received across all rig categories. Operating days decreased from 1,870 in the Comparable Period to 1,671 in the Current Period or 199 days (11 percent). Lower operating days resulted primarily from the relocation of theNoble Tom Jobeand theNoble Eddie Paulfrom the U.S. Gulf of Mexico to international waters in Mexico during early March and April 2006, respectively, constituting an aggregate reduction of 207 days. This relocation is part of our strategy to move certain units to regions with greater geological and financial potential. Additionally, theNoble Joe Alfordwas in the shipyard for 91 days during the Current Period for hurricane related repairs as compared to full employment in the Comparable Period. The reduction in operating days is partially offset by theNoble Paul Romanowhich had 106 additional days in the Current Period due to regulatory inspections and repairs in the Comparable Period. Utilization of our domestic fleet decreased to 93 percent from 94 percent in the Comparable Period.

Operating Costs and Expenses.Operating costs and expenses for our domestic contract drilling services increased $15.3 million or 25 percent in the Current Period as compared to the Comparable Period. The higher operating costs and expenses primarily results from higher costs of fleet insurance, higher compensation, including retention programs designed to retain key rig and operations personnel, and higher repair and maintenance costs. Daily contract drilling services costs for our domestic fleet were $46,500 in the Current Period as compared to $33,400 in the Comparable Period, or an increase of 39 percent, for the reasons described above. In addition to the reasons described above, daily drilling costs were lower in the Comparable Period in part because two jackups, which have lower daily operating costs, were operated in the Gulf of Mexico 362 days in the Comparable Period as compared to 155 days in the Current Period. Depreciation and amortization increased to $26.1 million in the Current Period as compared to $22.8 million in the Comparable Period, or 15 percent due to higher depreciation associated with rig upgrades and major maintenance in prior periods, partially offset by the relocation of two rigs to international waters in March and April of 2006, respectively.

For a description of financial impacts included in Hurricane Losses and Recoveries, net, as a component of Operating Costs and Expenses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Hurricane Losses and Recoveries.”

Engineering & Consulting Services

The following table sets forth the operating revenues and the operating costs and expenses for our engineering and consulting services for the six months ended June 30, 2006 and 2005:


					Operating Costs
	Operating Revenues				and Expenses
	Six Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
	(In thousands)

Engineering, consulting and other	$	5,275	$	6,946	$	10,587	$	10,251
Reimbursables (1)		111		8,910		88		8,957
Depreciation and amortization		N/A		N/A		273		197
Selling, general and administrative		N/A		N/A		798		468

Total	$	5,386	$	15,856	$	11,746	$	19,873


(1)		We record reimbursements from customers for out-of-pocket expenses as revenues and the related direct cost as operating expenses. Changes in the amount of these reimbursables do not have a material effect on our financial position, results of operations or cash flows.

Operating Revenues.Excluding reimbursables, operating revenues for our engineering and consulting services segment decreased $1.7 million primarily due to reduced project levels.

Operating Costs and Expenses.Engineering, consulting and other expenses increased $336,000 primarily due to a pre-tax loss of $3.8 million ($0.02 per diluted share) on the sale of the software business of Maurer in June 2006. The loss on this sale by Maurer included the write-off of goodwill totaling $4.8 million. Excluding the Maurer transaction, costs and expenses declined $3.5 million due to reduced project levels.

Other

The following table sets forth the operating revenues and the operating costs and expenses for our other services for the six months ended June 30, 2006 and 2005:


					Operating Costs
	Operating Revenues				and Expenses
	Six Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006			2005
	(In thousands)

Labor contract drilling services	$	35,198	$	35,672	$	30,584		$	29,665
Reimbursables (1)		10,170		8,818		9,241			8,581
Engineering, consulting and other		—		559		(201	)		717
Depreciation and amortization		N/A		N/A		80			1,590
Selling, general and administrative		N/A		N/A		1,581			680

Total	$	45,368	$	45,049	$	41,285		$	41,233


(1)		We record reimbursements from customers for out-of-pocket expenses as revenues and the related direct cost as operating expenses. Changes in the amount of these reimbursables do not have a material effect on our financial position, results of operations or cash flows.

Operating Revenues.Our labor contract drilling service revenues decreased $474,000 due primarily to fewer operating days for the managed North Sea units, partially offset by additional crew requests from our customers for these operations.

Operating Costs and Expenses.Operating costs and expenses for labor contract drilling services increased $919,000 due primarily to additional labor costs from our managed North Sea platform operations and unfavorable exchange rates.

Other Items

Selling, General and Administrative Expenses.Consolidated selling, general and administrative expenses increased $3.0 million to $20.9 million in the Current Period from $17.9 million in the Comparable Period primarily due to the initial adoption of SFAS No. 123R, expenses related to our employee benefit and retention plans, and higher professional services fees.

Interest Expense.Interest expense, net of amount capitalized, increased $3.1 million primarily due to additional interest costs of $14.1 million primarily from higher levels of borrowings in the Current Period, offset by $11.0 million of additional interest capitalization in the Current Period as compared to the prior year. Each of these factors are primarily attributable to the higher level of capital expenditures in 2006 as compared to 2005. Additionally, the higher interest incurred in the Current Period includes interest costs related to the investment in Smedvig of approximately $8.2 million.

Other, net.Other, net decreased $1.8 million primarily due to the acquisition of the remaining 50 percent equity interest in a joint venture with Noble Crosco Drilling, Ltd., in August 2005 reducing equity earnings in the Current Period as compared to the Comparable Period by $2.4 million.

Income Tax Provision.The income tax provision increased $52.6 million mainly due to higher pre-tax earnings and an increase in the effective tax rate from 18 percent in 2005 to 19.5 percent in 2006, due primarily to the increase in pre-tax earnings of U.S. owned assets.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our principal capital resource in the Current Period was net cash provided by operating activities of $370.6 million, which compared to $190.2 million in the Comparable Period. The increase in net cash provided by operating activities in the Current Period was primarily attributable to higher net income. At June 30, 2006, we had cash and cash equivalents of $223.9 million, investments in marketable securities totaling $37.1 million (excluding non-current investments), insurance receivables of $58.9 million and $293.6 million of funds available under our bank credit facility. We had working capital of $457.0 million and $263.1 million at June 30, 2006 and December 31, 2005, respectively. Total debt as a percentage of total debt plus shareholders’ equity was 19 percent at June 30, 2006 and 29 percent at December 31, 2005.

In May 2006, Noble issued $300 million principal amount of 5.875% Senior Notes due 2013. Proceeds, net of discount and issuance costs, totaled $296.0 million. The proceeds were used to repay the balance outstanding on the bank credit facility and for general corporate purposes.

In April 2006, the Company’s investment in Smedvig shares was sold for approximately $691.3 million. The Company used the proceeds to prepay the outstanding principal amount of $600 million under a credit agreement, as discussed further below.

Our board of directors authorized and adopted a share repurchase program in 2002. During the three months ended June 30, 2006, we repurchased 1,000,000 of our ordinary shares at an average price of $68.71 per share for a total cost of $68.7 million. Additional repurchases, if any, may be made on the open market or in private transactions at prices determined by us. The program authorization covers an aggregate of 15,000,000 ordinary shares. At June 30, 2006, 8,062,000 shares remained available under this authorization.

During the six months ended June 30, 2006, we made contributions to our international and domestic pension plans totaling $3.6 million. We expect to contribute, subject to applicable law, an aggregate of $14.0 million to our international and domestic pension plans in 2006.

The Company’s most recent quarterly dividend declaration, to be paid on September 1, 2006, was $0.04 per ordinary share, or approximately $22 million annualized. The declaration and payment of dividends in the future are at the discretion of Noble’s

board of directors and the amount thereof will depend on the Company’s results of operations, financial condition, cash requirements, future business prospects, contractual restrictions and other factors deemed relevant by Noble’s board of directors.

Capital Expenditures

Capital and major maintenance expenditures, totaled $468.9 million and $138.2 million for the six months ended June 30, 2006 and 2005, respectively.

Capital expenditures in the Current Period included $68.9 million for theNoble Clyde Boudreauxand $66.7 million towards the construction of theNoble Dave Beard. Other significant capital expenditures in the Current Period include $58.6 million toward the construction of theNoble Roger LewisandNoble Hans Deul, two F&G JU-2000E enhanced premium newbuild jackups under construction, $28.2 million towards theNoble Danny Adkins, and $14.6 million for theNoble Paul Wolff. In addition, major maintenance expenditures totaled $26.8 million in the Current Period.

Our capital expenditures and major maintenance expenditures for 2006 are budgeted at approximately $1.4 billion, which includes approximately $185 million for theNoble Dave Beard, $155 million for the upgrade of theNoble Clyde Boudreaux, $120 million for the construction of two jackups, theNoble Roger LewisandNoble Hans Deul, and $110 million for the construction of theNoble Danny Adkins. In connection with these and other projects, we have entered into certain commitments.

In June 2006, we entered into a contract with China Shipbuilding & Offshore International Co., Ltd./Dalian Shipbuilding Industry Co., Ltd (“DSIC”) to construct a third F&G JU-2000E enhanced premium newbuild jackup to be named theNoble Scott Marks. The Company has budgeted the cost of the jackup at approximately $190 million. Certain expenditures will be made for this jackup in 2006, including payments for certain long lead-time items.

We have entered into agreements with various vendors to purchase or construct property and equipment that generally have long-lead times for delivery. Any equipment purchased for a project on which we do not proceed would be used, where applicable, as capital spares for other units in our fleet. At June 30, 2006, we had approximately $975 million of outstanding purchase commitments.

Certain projects currently under consideration could require, if they materialize, capital expenditures or other cash requirements not included in the 2006 budget. In addition, we will continue to evaluate acquisitions of drilling units from time to time. Factors that could cause actual capital expenditures to materially exceed the planned capital expenditures include delays and cost overruns in shipyards, shortages of equipment, latent damage or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions, and changes in design criteria or specifications during repair or construction.

We believe that our cash and cash equivalents, investments in marketable securities, net cash provided by operating activities, available capacity under the bank credit facility, and access to other financing sources will be adequate to meet our anticipated short-term and long-term liquidity requirements, including capital expenditures and scheduled debt repayments.

Investment in Smedvig

To mitigate the Company’s foreign currency exposure on our investment in Smedvig shares, on March 15, 2006, the Company entered into a foreign currency contract that obligated the counterparty to pay the Company $691.7 million in exchange for NOK 4,594.3 million on April 18, 2006.

On April��7, 2006, the Company sold the Owned Shares to SeaDrill pursuant to the Mandatory Offer for NOK 4,737.3 million. On April 10, 2006, the Company settled the forward currency contract described above and received $691.3 million. Also on April 10, 2006, the Company prepaid the outstanding principal amount of $600.0 million under the GS Credit Agreement (as defined below under “Credit Facilities and Long-Term Debt”), which terminated as a result of all parties thereto completing their obligations thereunder.

Credit Facilities and Long-Term Debt

On December 22, 2005, Noble, Noble Holding (U.S.) Corporation (“NHC”) and Noble Drilling Corporation (“Noble Drilling”) entered into a credit agreement (the “GS Credit Agreement”) with Goldman Sachs Credit Partners L.P. (“Goldman Sachs”), pursuant to which Noble Drilling borrowed $600.0 million. Noble, NHC and Noble Drilling Holding LLC unconditionally guaranteed the performance of Noble Drilling under the GS Credit Agreement. Each of NHC, Noble Drilling and Noble Drilling Holding LLC is a direct or indirect wholly-owned subsidiary of Noble. On March 2, 2006, the parties to the GS Credit Agreement amended its terms, including provisions to extend the maturity through April 1, 2007 and to provide Goldman Sachs a right of syndication under certain conditions. In order to reduce our exposure to changes in interest rates between the date of borrowing and its expected refinancing, we entered into interest rate swaps on December 19, 2005 with notional amounts totaling $600.0 million. To provide for additional flexibility in the refinancing of the GS Credit Agreement, on January 27, 2006, we terminated these interest rate swaps at no cost to us. As described under Investment in Smedvig above, this credit facility was prepaid on April 10, 2006 with proceeds from the sale of the Owned Shares.

Noble Drilling has in place an unsecured revolving bank credit facility totaling $300.0 million, including a letter of credit facility totaling $50.0 million, which extends through November 30, 2009 (the “Bank Credit Agreement”). Noble and NHC have unconditionally guaranteed the performance of Noble Drilling under the Bank Credit Agreement. At June 30, 2006, we had no borrowings outstanding under the facility and letters of credit under the facility totaled $6.4 million leaving $293.6 million remaining available thereunder. At June 30, 2006, we had letters of credit and third-party guarantees of $68.7 million and performance and customs bonds totaling $104.3 million supported by surety bonds outstanding in addition to amounts outstanding under the Bank Credit Agreement.

In May 2006, Noble issued $300 million principal amount of 5.875% Senior Notes due June 1, 2013. Proceeds, net of discount and issuance costs, totaled $296.0 million. Interest on the 5.875% Senior Notes is payable semi-annually, in arrears, on June 1 and December 1 of each year. The 5.875% Senior Notes are redeemable, as a whole or from time to time in part, at our option on any date prior to maturity at prices equal to 100 percent of the outstanding principal amount of the notes redeemed plus accrued interest to the redemption date plus a make-whole premium, if any is required to be paid. The 5.875% Senior Notes are senior unsecured obligations and the indenture governing the 5.875% Senior Notes contains covenants that, among other things, limit our ability to create certain liens, engage in certain sale and lease-back transactions and merge, consolidate and sell assets, except under certain conditions.

Our debt decreased from $1,138.3 million (including current portion of $9.0 million) at December 31, 2005 to $698.6 million (including current portion of $9.3 million) at June 30, 2006, due to debt repayments of $739.4 million offset by the May 2006 issuance of $300 million principal amount of Senior Notes described above. At June 30, 2006 and December 31, 2005, we had no off-balance sheet debt. At June 30, 2006, we were in compliance with all our debt covenants.

ACCOUNTING PRONOUNCEMENTS

On March 31, 2006, the Financial Accounting Standards Board (“FASB”) issued an Exposure Draft of proposed SFAS,Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of SFAS Nos. 87,88,106, and 132(R). The FASB has announced its intention to issue a final statement in the third quarter of 2006, effective for fiscal years ending after December 15, 2006. The Exposure Draft contains a number of amendments to current accounting for defined benefit plans; however, the primary provision is the requirement to recognize in the statement of financial position the overfunded or underfunded status of a defined benefit plan measured as the difference between the fair value of plan assets and the projected benefit obligation. Shareholders’ equity would also be increased or decreased (through “other comprehensive income”) for the over or underfunded status. Because this is an Exposure Draft, the Statement may not be issued in its current form or on the timeframe planned. At December 31, 2005, the projected benefit obligations of the Company’s plans exceeded plan assets by approximately $22 million under the accounting rules then in effect.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential for loss due to a change in the value of a financial instrument as a result of fluctuations in interest rates, currency exchange rates or equity prices. We own investments in both marketable equity and debt securities. A one percent change in the June 30, 2006 closing price of these marketable equity and debt securities would impact the carrying value of these investments by $371,000 and $15,500, respectively. To mitigate the risk of losses, these investments are monitored by management to assure compliance with policies established by the Company.

We are subject to market risk exposure related to changes in interest rates on the Bank Credit Agreement. Interest on the Bank Credit Agreement is at an agreed upon percentage point spread from LIBOR. At June 30, 2006, there were no outstanding borrowings under the Bank Credit Agreement.

Our Senior Notes due 2009, 2013 and 2019 bear interest at fixed interest rates of 6.95%, 5.875% and 7.50% per annum, respectively. The Senior Notes due 2009 and 2019 currently trade at a premium to their face value with the Senior Note due 2013 currently trading at a discount to its face value. The estimated fair value of our Senior Notes due 2009, 2013 and 2019, based on quoted market prices, was $153.7 million, $296.4 million and $220.9 million, respectively, at June 30, 2006, respectively. This compares to carrying amounts (net of any unamortized discount) of $150.0 million, $299.7 million and $201.7 million, respectively. While our interest payments on these notes are at fixed rates, if U.S. Treasury rates were to change, the fair value of our Senior Notes could be impacted. We estimate that a one percent increase in interest

rates would decrease the fair value of our Senior Notes due 2009, 2013 and 2019 by approximately $3.7 million, $16.6 million and $18.1 million, respectively. As we have no current plans to retire or refinance our fixed rate notes, are not highly leveraged and are not aware of any conditions that would cause our credit rating to be negatively impacted in a manner that would force refinancing of our fixed rate debt, we believe our exposure to market risk associated with our fixed rate notes is minimal.

Although we conduct business globally, a substantial majority of the value of our foreign transactions are denominated in U.S. Dollars. With certain exceptions, typically involving national oil companies, we structure our drilling contracts in U.S. Dollars to mitigate our exposure to fluctuations in foreign currencies. Other than trade accounts receivable and trade accounts payable, which mostly offset one another, we do not currently have material amounts of assets, liabilities, or financial instruments that are sensitive to foreign currency exchange rates.

Our North Sea operations have a significant amount of their cash operating expenses payable in either the Euro or British Pound. Since February 2005, the Company has maintained approximately one year of forward currency contracts settling monthly in Euro and British Pounds. The forward contracts settled in 2005 represented approximately two-thirds of our forecasted Euro and British Pound requirements for 2005. The forward contracts settling in 2006 and 2007 represent approximately 61 percent and 13 percent, respectively, of our forecasted Euro and British Pound requirements. The notional amounts of forward contracts outstanding at June 30, 2006 were approximately 27.7 million Euros and 12.7 million British Pounds, respectively. The aggregate notional amount of these forward contracts, expressed in dollars, was $57.3 million at June 30, 2006.

ITEM 4. CONTROLS AND PROCEDURES

Noble’s Chairman of the Board and Chief Executive Officer, James C. Day, and Noble’s President and Chief Operating Officer and acting Chief Financial Officer, Mark A. Jackson, have overseen and participated in an evaluation of the Company’s disclosure controls and procedures at the end of the period covered by this report. On the basis of this evaluation, Mr. Day and Mr. Jackson have concluded that the Company’s disclosure controls and procedures are effective at June 30, 2006. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files with or submits to the U.S. Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and material information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

other parties cited in the SCN, as anticipated, confirming his findings consistent with his allegations in the SCN and seeking (i) to invoke the bank guarantee posted on behalf of NACL as a fine, (ii) to demand duty of (a) $16.3 million plus interest related to a 1997 alleged import and (b) $18.6 million plus interest related to a 1999 alleged import, provided that the duty and interest demanded in (b) shall not be payable if the duty and interest demanded in (a) is paid by NACL, and (iii) to assess penalty ($430,800) against NACL. NACL promptly filed a Writ Petition in the High Court, Bombay, and obtained from the court a favorable order staying the Commissioner from invoking the guarantee and confirming NACL’s right to appeal the order of the Commissioner to the Customs, Excise & Service Tax Appellate Tribunal (“CESTAT”). At a hearing on April 5, 2006, the CESTAT upheld NACL’s appeal, thereby overturning the Commissioner’s March 2005 order against NACL in its entirety, and informed the parties that it would issue a written judgment of its decision. On August 8, 2006, we received CESTAT’s written judgment upholding NACL’s appeal on all grounds and setting aside the duty demand, interest and penalty. NACL will now seek return of NACL’s bank guarantee and customs bond referenced above. We do not know at this time whether the Commissioner will appeal such judgment. NACL continues to pursue contractual indemnification against liability for Indian customs duty and related costs and expenses against the rig’s previous owner in arbitration proceedings in London, which proceedings the parties have temporarily stayed pending issuance of CESTAT’s judgment and any further developments in the Indian proceeding. We do not believe the ultimate resolution of this matter will have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors as previously disclosed in our Form 10-K for the year ended December 31, 2005 in response to Item 1A to Part I of Form 10-K, and in our Form 10-Q for the quarter ended March 31, 2006 in response to Item 1A to Part II of Form 10-Q, except to the extent the following item is updated or otherwise modified:

We may have difficulty obtaining insurance in the future and we cannot fully insure against all of the risk and hazards we face.

No assurance can be given that we will be able to obtain or maintain adequate insurance in the future at rates and with deductible amounts that we consider commercially reasonable or that we will be able to obtain insurance against some risks.

The 2005 losses incurred in the oil and gas industry because of Hurricanes Katrina and Rita have made insurance difficult to obtain, if available at all, or at reasonable prices. The insurance industry does not have capacity to provide insurance at amounts available in prior years, if at all. The insurance industry has priced premiums for 2006 renewal programs of insured parties that suffered storm losses in 2005 on a basis designed to recover recent underwriting losses in an accelerated manner.

During the course of our renewals in the first quarter of 2006 of our marine and energy package, excess liability and protection and indemnity programs, we experienced substantial increases in year over year premiums as anticipated. The marine energy insurance market has experienced tightened coverage terms and conditions, as is particularly evidenced by the introduction of U.S. named windstorm aggregate coverage limits. An aggregate coverage limit has been placed on our U.S. named windstorm coverage equal to the highest scheduled value for any unit in our U.S. Gulf of Mexico fleet. Our loss of hire coverage is now subject to a 45 day wait for all losses not associated with a U.S. Gulf of Mexico named windstorm, which now has a 60 day wait. The Company currently has eight units in the U.S. Gulf of Mexico, consisting of five semisubmersibles and three submersibles, as well as one semisubmersible under construction in Pascagoula, Mississippi. In our 2006-2007 insurance renewal, we were successful in obtaining a bifurcation of the Gulf of Mexico into U.S. and Mexican waters as rated by underwriters. Due to our 2005 losses, we experienced a substantial increase in premium for the renewal of our U.S. Gulf of Mexico named windstorm coverage. However, we renewed our named windstorm coverage in the Mexican Gulf of Mexico at the same premium rating as for other parts of the world. We maintained a $10 million deductible on our marine package coverage, and we generally maintained the same terms and conditions related to the operational risks generally as were in place under our expiring coverage. In addition, we renewed and expanded our coverage for excess liability and the provisions for removal of wreck, debris and collision.

Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage and environmental risks generally are not fully insurable. Our insurance policies and contractual rights to indemnity may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage or rights to indemnity for all risks, including loss of hire insurance on certain rigs. Uninsured exposures may include war risk, activities prohibited by U.S. laws and regulations, radiation hazards, certain loss or damage to property on board our rigs and losses relating to terrorist acts or strikes. If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could adversely affect our financial position, results of operations or cash flows. There can be no assurance that those parties with contractual obligations to indemnify us will necessarily be financially able to indemnify us against all these risks.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities


						Total Number of Shares		Maximum Number of
	Total Number					Purchased as Part of		Shares that May Yet Be
	of Shares			Average Price		Publicly Announced		Purchased Under the
Period	Purchased			Paid per Share		Plans or Programs (2)		Plans or Programs (2)
April 1 — April 30, 2006		18,107	(1)	$	81.77		-		9,062,000
May 1 — May 31, 2006		100,000		$	67.82		100,000		8,962,000
June 1 — June 30, 2006		900,000		$	68.80		900,000		8,062,000


(1)		Consists of ordinary shares surrendered to the Company by employees for withholding taxes upon the vesting of restricted stock.

(2)		All share repurchases were made in the open market and were effected pursuant to the share repurchase program which our Board of Directors authorized and adopted and which we announced on January 31, 2002. The program authorization covers an aggregate of 15,000,000 ordinary shares, and has no date of expiration.

ITEM 6. EXHIBITS

The information required by this Item 6 is set forth in the Index to Exhibits accompanying this quarterly report and is incorporated herein by reference.

SIGNATURES

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


	NOBLE CORPORATION
DATE: August 8, 2006	By:	/s/ MARK A. JACKSON
		Mark A. Jackson
		President and Chief Operating Officer and acting Chief Financial Officer (Duly authorized officer and principal financial officer)

INDEX TO EXHIBITS


EXHIBIT
NUMBER		EXHIBIT

4.1		Indenture, dated as of May 26, 2006, between Noble Corporation, as Issuer, and JPMorgan Chase Bank, National Association, as Trustee (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 26, 2006 and incorporated herein by reference).

4.2		First Supplemental Indenture, dated as of May 26, 2006, between Noble Corporation, as Issuer, Noble Drilling Corporation, as Guarantor, and JPMorgan Chase Bank, National Association, as Trustee (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on May 26, 2006 and incorporated herein by reference).

4.3		Specimen Note for the 5.875% Senior Notes due 2013 of Noble Corporation (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed on May 26, 2006 and incorporated herein by reference).

31.1		Certification of James C. Day Pursuant to SEC Rule 13a-14(a) or Rule 15d-14(a).

31.2		Certification of Mark A. Jackson Pursuant to SEC Rule 13a-14(a) or Rule 15d-14(a).

32.1+		Certification of James C. Day Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2+		Certification of Mark A. Jackson Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


+		Furnished in accordance with Item 601(b)(32)(ii) of Regulation S-K.

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. sophomore Avg

Noble 10-Q2006 Q2 Quarterly report

Content analysis