Noble 10-Q 2006 Q3 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 endedSeptember 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 October 31, 2006: 135,577,720

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		31
Forward-Looking Statements		31
Executive Overview		31
Results of Operations		32
Liquidity and Capital Resources		44
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		48
ITEM 4. CONTROLS AND PROCEDURES		49
PART II
ITEM 1. LEGAL PROCEEDINGS		49
ITEM 1A. RISK FACTORS		50
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		50
ITEM 6. EXHIBITS		51
SIGNATURES		52
INDEX TO EXHIBITS		53
Certification Pursuant to Rule 13a-14a/15d-14a
Certification Pursuant to Rule 13a-14a/15d-14a
Certification Pursuant to Section 906
Certification Pursuant to Section 906

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)

	September 30,			December 31,
	2006			2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	140,098		$	121,845
Investments in marketable securities		29,652			44,457
Accounts receivable		390,768			276,688
Insurance receivables		50,029			51,565
Inventories		4,565			3,940
Prepaid expenses		20,143			10,064
Other current assets		31,636			13,896
Total current assets		666,891			522,455
PROPERTY AND EQUIPMENT
Drilling equipment and facilities		4,911,179			4,178,097
Other		73,875			66,698
		4,985,054			4,244,795
Accumulated depreciation		(1,389,370	)		(1,245,776	)
		3,595,684			2,999,019
INVESTMENTS IN MARKETABLE SECURITIES		—			673,639
OTHER ASSETS		150,497			151,254
	$	4,413,072		$	4,346,367
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES				��
Current maturities of long-term debt	$	9,460		$	8,972
Accounts payable		132,990			93,914
Accrued payroll and related costs		93,273			78,558
Taxes payable		53,911			45,245
Interest payable		8,279			9,640
Other current liabilities		38,873			23,006
Total current liabilities		336,786			259,335
LONG-TERM DEBT		686,929			1,129,325
DEFERRED INCOME TAXES		237,380			227,589
OTHER LIABILITIES		5,977			6,290
		1,267,072			1,622,539
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST		(7,587	)		(7,906	)
SHAREHOLDERS’ EQUITY
Ordinary shares-par value $0.10 per share; 400,000 shares authorized; 135,586 shares issued and outstanding in 2006; 137,009 shares issued and outstanding in 2005		13,559			13,701
Capital in excess of par value		885,850			1,024,470
Retained earnings		2,251,756			1,736,015
Restricted stock (unearned compensation)		—			(17,099	)
Accumulated other comprehensive income (loss)		2,422			(25,353	)
		3,153,587			2,731,734
	$	4,413,072		$	4,346,367

See accompanying notes to the consolidated financial statements.

3

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

	Three Months Ended September 30,
	2006			2005
OPERATING REVENUES
Contract drilling services	$	513,325		$	328,101
Reimbursables		24,800			18,078
Labor contract drilling services		20,775			17,275
Engineering, consulting and other		3,086			3,751
		561,986			367,205
OPERATING COSTS AND EXPENSES
Contract drilling services		186,527			156,026
Reimbursables		21,534			15,219
Labor contract drilling services		17,027			14,967
Engineering, consulting and other		3,262			5,349
Depreciation and amortization		65,560			61,276
Selling, general and administrative		11,875			9,324
Hurricane losses and recoveries, net		—			10,465
		305,785			272,626
OPERATING INCOME		256,201			94,579
OTHER INCOME (EXPENSE)
Interest expense, net of amount capitalized		(882	)		(5,153	)
Other, net		2,037			2,093
INCOME BEFORE INCOME TAXES		257,356			91,519
INCOME TAX PROVISION		(50,184	)		(14,996	)
NET INCOME	$	207,172		$	76,523
NET INCOME PER SHARE:
Basic	$	1.53		$	0.56
Diluted	$	1.51		$	0.55

See accompanying notes to the consolidated financial statements.

4

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

	Nine Months Ended September 30,
	2006			2005
OPERATING REVENUES
Contract drilling services	$	1,407,296		$	894,416
Reimbursables		68,512			61,235
Labor contract drilling services		55,973			52,947
Engineering, consulting and other		9,634			12,940
		1,541,415			1,021,538
OPERATING COSTS AND EXPENSES
Contract drilling services		535,053			445,955
Reimbursables		59,130			54,671
Labor contract drilling services		47,611			44,632
Engineering, consulting and other		13,968			16,970
Depreciation and amortization		187,466			177,182
Selling, general and administrative		32,815			27,241
Hurricane losses and recoveries, net		(4,404	)		10,465
		871,639			777,116
OPERATING INCOME		669,776			244,422
OTHER INCOME (EXPENSE)
Interest expense, net of amount capitalized		(15,134	)		(16,280	)
Other, net		6,431			8,304
INCOME BEFORE INCOME TAXES		661,073			236,446
INCOME TAX PROVISION		(128,909	)		(41,083	)
NET INCOME	$	532,164		$	195,363
NET INCOME PER SHARE:
Basic	$	3.90		$	1.44
Diluted	$	3.86		$	1.42

See accompanying notes to the consolidated financial statements.

5

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

	Nine Months Ended September 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	532,164		$	195,363
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		187,466			177,182
Deferred income tax provision		9,791			23,745
Equity in income of joint venture		—			(2,790	)
Distributions received from joint venture		—			2,194
Share-based compensation expense		15,830			5,546
Hurricane losses and recoveries, net		—			10,465
Other		14,189			2,572
Other changes in current assets and liabilities, net of acquired working capital:
Accounts receivable		(113,541	)		(61,194	)
Other current assets		(21,861	)		(9,466	)
Accounts payable		32,614			903
Other current liabilities		38,610			(6,568	)
Net cash provided by operating activities		695,262			337,952
CASH FLOWS FROM INVESTING ACTIVITIES
New construction		(474,208	)		(89,497	)
Other capital expenditures		(266,426	)		(139,752	)
Major maintenance expenditures		(44,515	)		(50,140	)
Proceeds from sales of property and equipment		—			1,035
Proceeds from Smedvig disposition		691,261			—
Purchase of the remaining 50% equity interest in the Panon, net of cash acquired		—			(28,374	)
Investments in marketable securities		—			(24,149	)
Proceeds from sales and maturities of marketable securities		15,461			111,736
Net cash used for investing activities		(78,427	)		(219,141	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on bank credit facilities		(135,000	)		(65,000	)
Payments of other long-term debt		(606,667	)		(6,371	)
Net proceeds from employee stock transactions		10,932			68,611
Proceeds from issuance of senior notes, net of debt issuance costs		295,851			—
Dividends paid		(16,423	)		(8,168	)
Repurchases of ordinary shares		(147,275	)		—
Net cash used for financing activities		(598,582	)		(10,928	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		18,253			107,883
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		121,845			58,790
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	140,098		$	166,673

See accompanying notes to the consolidated financial statements.

6

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
Share-based compensation
Adoption of SFAS No. 123R		—			—			(17,099	)		—			17,099			—			—
Share-based compensation		617			62			16,282			—			—			—			16,344
Contribution to employee benefit plans		63			6			4,745			—			—			—			4,751
Exercise of stock options		286			29			10,199			—			—			—			10,228
Tax benefit of option exercises		—			—			2,733			—			—			—			2,733
Restricted shares surrendered for withholding taxes or forfeited		(83	)		(8	)		(2,021	)		—			—			—			(2,029	)
Repurchases of ordinary shares		(2,306	)		(231	)		(153,459	)		—			—			—			(153,690	)
Net income		—			—			—			532,164			—			—			532,164
Dividends paid ($0.12 per share)		—			—			—			(16,423	)		—			—			(16,423	)
Other comprehensive income		—			—			—			—			—			27,775			27,775
Balance at September 30, 2006		135,586		$	13,559		$	885,850		$	2,251,756		$	—		$	2,422		$	3,153,587

See accompanying notes to the consolidated financial statements.

7

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

	Three Months Ended September 30,
	2006			2005
NET INCOME	$	207,172		$	76,523
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments		760			(117	)
Unrealized holding gain on marketable securities		213			533
Unrealized gain (loss) on foreign currency forward contracts		(1,180	)		563
Other comprehensive income (loss)		(207	)		979
COMPREHENSIVE INCOME	$	206,965		$	77,502

	Nine Months Ended September 30,
	2006		2005
NET INCOME	$	532,164	$	195,363
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments		3,516		(3,603	)
Unrealized holding gain on marketable securities		19,736		919
Unrealized gain (loss) on foreign currency forward contracts		2,014		(1,929	)
Unrealized gain on interest rate swaps		2,509		—
Other comprehensive income (loss)		27,775		(4,613	)
COMPREHENSIVE INCOME	$	559,939	$	190,750

See accompanying notes to the consolidated financial statements.

8

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 — SHARE-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 cost using a straight-line method over the service period. Share-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 share-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 $1.2 million and $3.8 million during the three and nine months ended September 30, 2006, respectively. Net Income was reduced by $1.0 million ($0.01 per basic and diluted share) and $3.0 million ($0.02 per basic and diluted share) for the three and nine months ended September 30, 2006, respectively. The adoption of SFAS No. 123R had no material effect on Cash Flows.

9

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			Nine Months
	Ended			Ended
	September 30, 2005			September 30, 2005
Net income — as reported	$	76,523		$	195,363
Share-based compensation expense, net of tax — as reported		1,418			3,605
Share-based compensation expense, net of tax — pro forma		(2,907	)		(8,869	)
Net income — pro forma	$	75,034		$	190,099
Net income per share:
Basic — as reported	$	0.56		$	1.44
Basic — pro forma	$	0.55		$	1.40
Diluted — as reported	$	0.55		$	1.42
Diluted — pro forma	$	0.54		$	1.38

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 September 30, 2006 and the changes during the nine months ended September 30, 2006 are presented below (actual amounts):

				Weighted-
	Shares			Average
	Underlying Options			Exercise Price
January 1, 2006		3,992,008		$	36.14
Granted		188,218			72.97
Exercised		(286,036	)		35.76
Forfeited		(42,659	)		52.67
Outstanding at September 30, 2006 (1)		3,851,531			37.93
Exercisable at September 30, 2006 (1)		3,350,711		$	35.00

(1) At September 30, 2006, the remaining weighted average contractual life for options outstanding and exercisable was 5.3 and 4.8 years, respectively. The aggregate intrinsic value of options outstanding and exercisable at September 30, 2006 was $102.8 million and $98.2 million, respectively.

10

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 nine months ended September 30, 2006, the Company granted 188,218 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 164,218 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):

Nine Months Ended September 30, 2006
Weighted-average fair value per option granted	$	24.46
Weighted-average exercise price per option granted	$	72.97
Valuation assumptions:
Expected option term (years)		4.6
Expected volatility		34.0	%
Expected dividend yield		0.2	%
Risk-free interest rate		4.6	%

     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 September 30, 2006, and changes during the nine months ended September 30, 2006, is presented below (actual amounts):

				Weighted-
	Shares			Average
	Under Outstanding			Grant-Date
	Options			Fair Value
Non-vested options at January 1, 2006		816,222		$	18.39
Granted		188,218			24.46
Vested		(461,093	)		18.64
Forfeited		(42,527	)		20.16
Non-vested options at September 30, 2006		500,820		$	20.34

     At September 30, 2006, there was $10.7 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 nine months ended September 30, 2006 was $8.6 million. Compensation cost recognized during the nine months ended September 30, 2006 related to stock options totaled $5.1 million, or $4.1 million net of income tax.

     The intrinsic value of options exercised during the nine months ended September 30, 2006 was approximately $14.3 million and the Company realized an excess tax benefit of approximately $2.7 million for the amount of intrinsic value in excess of compensation cost recognized.

     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 share-based compensation.

11

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.

     During the nine months ended September 30, 2006, the Company awarded 519,880 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 five awards, four years for one award, and five years for one 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 $74.82 per ordinary share for time-vested restricted stock awards during the nine months ended September 30, 2006. The performance-vested restricted stock vests if 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 nine months ended September 30, 2006.

     A summary of the status of non-vested restricted shares at September 30, 2006, and changes during the nine months ended September 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		519,880			74.82		96,776			27.68
Vested		(165,706	)		65.12		—			—
Forfeited		(42,867	)		53.33		(53,998	)		15.97
Non-vested restricted shares at September 30, 2006		469,604		$	71.44		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 September 30, 2006, there was $32.8 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 nine months ended September 30, 2006 was $10.8 million. At September 30, 2006, there was $3.0 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 1.2 years. No performance-vested restricted shares vested during the nine months ended September 30, 2006; however, compensation cost is accrued quarterly during the performance period. Compensation cost recognized during the nine months ended September 30, 2006 related primarily to restricted stock totaled $14.0 million, or $11.2 million net of income tax.

12

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, the Ordinary Shares Par Value will be recorded when the restricted stock is issued and Capital in Excess of Par Value will be recorded as the share-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 nine months ended September 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. The assumptions used to value the performance-vested restricted stock grants during the nine months ended September 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	30.0	%
Expected dividend yield	0.2	%
Risk-free interest rate	4.8	%

     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 nine-month periods ended September 30, 2006 and 2005 (shares in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
Weighted-average shares outstanding — basic		135,665		136,708		136,392		136,013
Effect of potentially dilutive shares:
Stock options		1,255		1,405		1,379		1,334
Non-vested time-vested restricted stock		12		—		81		—
Non-vested performance-vested restricted stock		66		—		61		—
Weighted-average shares — diluted		136,998		138,113		137,913		137,347
Net income — basic and diluted	$	207,172	$	76,523	$	532,164	$	195,363
Net income per share:
Basic	$	1.53	$	0.56	$	3.90	$	1.44
Diluted	$	1.51	$	0.55	$	3.86	$	1.42

     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 nine-month periods ended September 30, 2006 do not include stock options and restricted stock totaling 160,602 and 371,956 shares, respectively, because they were anti-dilutive. For the three and nine-month periods ended

13

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

September 30, 2005, the computations of diluted net income per share do not include stock options totaling 10,000 shares, because they were anti-dilutive.

NOTE 4 — MARKETABLE SECURITIES

     At September 30, 2006, we owned marketable debt securities with a fair market value of $29.7 million. These investments are classified as available for sale and are included in current assets at September 30, 2006 at their 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.

14

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 nine months ended September 30, 2006 was $11.1 million and $27.1 million, respectively, and for the three and nine months ended September 30, 2005 was $3.4 million and $8.4 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 nine months ended September 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 nine months ended September 30, 2006. Our insurance receivables at September 30, 2006 related to claims for hurricane damage were $50.0 million.

     During the third quarter of 2005, we recorded a $20 million charge, net of insurance recoveries, for the non-reimbursable portion of damages sustained as a result of Hurricanes Katrina and Rita and $9.5 million in loss of hire insurance for our Noble EVA-4000™ semisubmersibles (theNoble Jim Thompson,Noble Max Smith,Noble Paul RomanoandNoble Amos Runner) that suffered downtime attributable to these events. These financial impacts are presented in Hurricane Losses and Recoveries, net as a component of Operating Costs and Expenses in our Consolidated Statements of Income.

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 approximately $296 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 were budgeted at approximately $1.4 billion, and we currently expect our total capital expenditures will range from $1.1 — $1.2 billion. In connection with our capital expenditure program, we have entered into certain commitments, including outstanding purchase commitments of approximately $900 million at September 30, 2006.

     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 (the “Commissioner”) 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 $3.3 million and a customs bond in the amount of $21.2 million, both of which remain in place. In March 2005, the Commissioner passed an order against NACL and the other parties cited in the SCN seeking (i) to invoke the bank

15

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

guarantee posted on behalf of NACL as a fine, (ii) to demand duty of (a) $16.5 million plus interest related to a 1997 alleged import and (b) $18.8 million plus interest related to a 1999 alleged import, provided that the duty and interest demanded in (b) would not be payable if the duty and interest demanded in (a) were paid by NACL, and (iii) to assess penalty ($436,600) against NACL. NACL appealed the order of the Commissioner to the Customs, Excise & Service Tax Appellate Tribunal (“CESTAT”). At a hearing on April 5, 2006, CESTAT upheld NACL’s appeal and thereby overturned the Commissioner’s March 2005 order against NACL in its entirety. CESTAT thereafter issued its written judgment dated August 8, 2006 upholding NACL’s appeal on all grounds and setting aside the duty demand, interest, fine and penalty. Counsel for the Commissioner has informed CESTAT that the Commissioner has appealed CESTAT’s order to the High Court of Mumbai although NACL has yet to be served with a copy of such appeal. 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 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). We believe audit claims of an additional approximately $10 — $15 million attributable to such tax returns may be assessed against the Company. 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 nine have followed applicable court orders to amend their complaints against us by the applicable deadline. Exposure related to these lawsuits is not currently determinable. 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.

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,

16

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

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 nine months ended September 30, 2006 and 2005 include the following components:

	Three Months Ended September 30,
	2006						2005
	International			Domestic			International			Domestic
Service cost	$	776		$	1,357		$	618		$	1,159
Interest cost		792			1,236			659			1,079
Return on plan assets		(899	)		(1,449	)		(733	)		(1,179	)
Amortization of prior service cost		—			84			—			111
Amortization of transition obligation		39			—			61			—
Recognized net actuarial loss (gain)		88			344			(18	)		162
Net pension expense	$	796		$	1,572		$	587		$	1,332

	Nine Months Ended September 30,
	2006						2005
	International			Domestic			International			Domestic
Service cost	$	2,328		$	4,071		$	1,855		$	3,478
Interest cost		2,376			3,708			1,977			3,238
Return on plan assets		(2,697	)		(4,347	)		(2,200	)		(3,538	)
Amortization of prior service cost		—			252			—			334
Amortization of transition obligation		117			—			183			—
Recognized net actuarial loss (gain)		264			1,032			(55	)		485
Net pension expense	$	2,388		$	4,716		$	1,760		$	3,997

     In August 2006, U.S. President Bush signed into law the Pension Protection Act of 2006 (“PPA”). The PPA will significantly impact pension funding calculations and requires that pension plans become fully funded over a seven-year period beginning in 2008. We anticipate that the PPA will increase the amount we are allowed to contribute to our domestic pension plans in the near term; however, the PPA and existing U.S. Internal Revenue Service regulations presently conflict. We are currently evaluating the PPA and its impact on our pension plan funding for 2006. During the nine months ended September 30, 2006, we made contributions to our international plans of $4.3 million. During the remainder of 2006, we expect to contribute, subject to applicable law, approximately $15.5 million in the aggregate to our pension plans, with $5.5 million and $10.0 million allocated to our international and domestic plans, 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 September 30, 2006, the Company’s liability under the Restoration Plan and a similar Canadian plan totaled $18.9 million.

17

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 and the Company maintains forward currency contracts settling monthly in Euro and British Pounds. The forward contracts that settled in 2005 and the first nine months of 2006 represented more than 60 percent of our forecasted Euro and British Pound requirements. The Euro-denominated forward contracts settling in the fourth quarter of 2006 and in 2007 and 2008 represent approximately 64 percent, 44 percent and 5 percent, respectively, of our forecasted Euro requirements. The British Pound-denominated forward contracts settling in the fourth quarter of 2006 and in 2007 represent approximately 54 percent and 15 percent, respectively, of our forecasted British Pound requirements. The notional amounts of forward contracts outstanding at September 30, 2006 were approximately 42.9 million Euros and 10.2 million British Pounds. The aggregate notional amount of these forward contracts, expressed in U.S. dollars, was $73.4 million at September 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. The fair market value of outstanding forward contracts was $617,000 at September 30, 2006. 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 nine-month periods ended September 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 nine months ended September 30, 2006 and 2005 is as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Net unrealized gain (loss) at beginning of period	$	1,797		$	(2,492	)	$	(3,906	)	$	—
Activity during period:
Settlement of forward contracts outstanding at beginning of period		(942	)		933			1,431			—
Net unrealized gain (loss) on outstanding foreign currency forward contracts		(238	)		(370	)		583			(1,929	)
Settlement of interest rate swaps		—			—			2,509			—
Net unrealized gain (loss) at September 30	$	617		$	(1,929	)	$	617		$	(1,929	)

18

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, and India, 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 nine months ended September 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.

19

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
Three Months Ended September 30, 2006
Revenues from external customers	$	390,757	$	143,372	$	1,836		$	26,021		$	561,986
Depreciation and amortization		52,823		12,052		15			670			65,560
Interest expense, net of amount capitalized		7,151		3,355		43			(9,667	)		882
Income tax provision (benefit)		21,200		29,131		(690	)		543			50,184
Segment profit (loss)		131,811		58,838		(1,109	)		17,632			207,172
Total assets (at end of period)		2,824,225		1,222,584		23,077			343,186			4,413,072
Capital expenditures		213,693		93,144		—			9,427			316,264
Three Months Ended September 30, 2005
Revenues from external customers	$	259,733	$	82,736	$	2,954		$	21,782		$	367,205
Depreciation and amortization		48,126		12,247		84			819			61,276
Interest expense, net of amount capitalized		4,882		2,722		38			(2,489	)		5,153
Income tax provision (benefit)		11,474		3,977		175			(630	)		14,996
Segment profit (loss)		64,264		12,536		(2,400	)		2,123			76,523
Total assets (at end of period)		2,349,819		1,077,043		30,081			135,269			3,592,212
Capital expenditures		89,237		8,902		—			148,845			246,984

	International		Domestic		Engineering
	Contract		Contract		&
	Drilling		Drilling		Consulting
	Services		Services		Services			Other			Total
Nine Months Ended September 30, 2006
Revenues from external customers	$	1,037,166	$	425,638	$	7,222		$	71,389		$	1,541,415
Depreciation and amortization		148,247		36,962		288			1,969			187,466
Interest expense, net of amount capitalized		19,881		10,615		127			(15,489	)		15,134
Income tax provision (benefit)		47,481		82,144		(3,077	)		2,361			128,909
Segment profit (loss)		340,728		170,425		(5,424	)		26,435			532,164
Total assets (at end of period)		2,824,225		1,222,584		23,077			343,186			4,413,072
Capital expenditures		480,686		260,565		—			43,898			785,149
Nine Months Ended September 30, 2005
Revenues from external customers	$	707,846	$	228,051	$	18,810		$	66,831		$	1,021,538
Depreciation and amortization		139,462		35,030		281			2,409			177,182
Interest expense, net of amount capitalized		14,650		9,182		109			(7,661	)		16,280
Income tax provision (benefit)		28,076		13,804		683			(1,480	)		41,083
Segment profit (loss)		148,277		46,980		(6,258	)		6,364			195,363
Total assets (at end of period)		2,349,819		1,077,043		30,081			135,269			3,592,212
Capital expenditures		173,366		36,954		—			174,827			385,147

20

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

NOTE 11 — ACCOUNTING PRONOUNCEMENTS

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158,Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of SFAS Nos. 87, 88, 106, and 132(R)(“SFAS No. 158”). The recognition and disclosure provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2006. The measurement date provisions are effective for fiscal years ending after December 15, 2008; however, these provisions have no impact on the Company as we currently use a December 31 measurement date for our pension plans. SFAS No. 158 contains a number of amendments to current accounting for defined benefit plans; however, the primary change is the requirement to recognize in the balance sheet 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 will also be increased or decreased (through “other comprehensive income”) for the overfunded or underfunded status. SFAS No. 158 does not change the determination of pension plan liabilities or assets, or the income statement recognition of periodic pension expense. At December 31, 2005, the projected benefit obligations of the Company’s plans exceeded plan assets by approximately $22 million. Had the Company adopted the provisions of SFAS No. 158 at that date, Other Assets would have been reduced by approximately $8 million, Other Liabilities would have been increased by approximately $26 million, Deferred Income Taxes would have been reduced by approximately $9 million and Shareholders’ Equity would have been reduced by approximately $25 million. The Company is unable to estimate the impact on the December 31, 2006 consolidated balance sheet and the ultimate amounts to be recorded upon adoption of SFAS No. 158 are dependent on a number of variables unknown at this time.

     In June 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48”) and is effective for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recorded 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) determining 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 more likely than not to be realized upon ultimate settlement. Management is currently analyzing the impact of FIN 48. We do not anticipate adopting FIN 48 prior to January 1, 2007.

     In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, rather, its application will be made pursuant to other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The provisions of SFAS No. 157 are to be applied prospectively upon adoption, except for limited specified exceptions. We do not expect the adoption of SFAS No. 157 to have a material impact on our financial position or results of operations.

     In September 2006, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(“SAB No. 108”). SAB No. 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. The SEC staff, in SAB No. 108, established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of a company’s financial statements and the related financial statement disclosures. SAB No. 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if SAB No. 108 had always been used or (ii) recording the cumulative effect of initially applying SAB No. 108. The Company will initially apply the provisions of SAB No. 108 on December 31, 2006. We do not expect the initial application of SAB No. 108 to result in a restatement of prior financial statements or the recording by us of a cumulative adjustment.

21

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 September 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 outstanding principal balance of the 5.875% Senior Notes at September 30, 2006 was $299.7 million.

     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.

22

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

			NHC and NDH			Noble			Other			Consolidating
	Noble		Combined			Drilling			Subsidiaries			Adjustments			Total
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	6,610	$	6,997		$	—		$	126,491		$	—		$	140,098
Investments in marketable securities		—		9,103			—			20,549			—			29,652
Accounts receivable		—		3,864			14,920			371,984			—			390,768
Insurance receivables		—		—			—			50,029			—			50,029
Inventories		—		—			—			4,565			—			4,565
Prepaid expenses		—		303			299			19,541			—			20,143
Accounts receivable from affiliates		431,021		—			461,630			—			(892,651	)		—
Other current assets		2		108			247			63,803			(32,524	)		31,636
Total current assets		437,633		20,375			477,096			656,962			(925,175	)		666,891
PROPERTY AND EQUIPMENT
Drilling equipment and facilities		—		922,468			102,880			3,885,831			—			4,911,179
Other		—		—			—			73,875			—			73,875
		—		922,468			102,880			3,959,706			—			4,985,054
Accumulated depreciation		—		(54,638	)		(59,259	)		(1,275,473	)		—			(1,389,370	)
		—		867,830			43,621			2,684,233			—			3,595,684
NOTES RECEIVABLE FROM AFFILIATES		511,835		—			44,159			683,560			(1,239,554	)		—
INVESTMENTS IN AFFILIATES		2,515,365		2,772,700			2,314,148			—			(7,602,213	)		—
OTHER ASSETS		3,893		4,578			3,635			138,391			—			150,497
	$	3,468,726	$	3,665,483		$	2,882,659		$	4,163,146		$	(9,766,942	)	$	4,413,072
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	—	$	—		$	—		$	9,460		$	—		$	9,460
Accounts payable		6,597		6,711			1,313			118,369			—			132,990
Accrued payroll and related costs		2,511		34			15,537			75,191			—			93,273
Taxes payable		—		—			—			53,911			—			53,911
Interest payable		6,277		19,153			1,199			14,174			(32,524	)		8,279
Accounts payable to affiliates		—		499,341			—			393,310			(892,651	)		—
Other current liabilities		—		—			2,348			36,525			—			38,873
Total current liabilities		15,385		525,239			20,397			700,940			(925,175	)		336,786
LONG-TERM DEBT		299,754		—			351,669			35,506			—			686,929
NOTES PAYABLE TO AFFILIATES		—		683,560			—			555,994			(1,239,554	)		—
DEFERRED INCOME TAXES		—		(2,700	)		13,200			226,880			—			237,380
OTHER LIABILITIES		—		1,043			2,201			2,733			—			5,977
		315,139		1,207,142			387,467			1,522,053			(2,164,729	)		1,267,072
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST		—		—			—			(7,587	)		—			(7,587	)
SHAREHOLDERS’ EQUITY
Ordinary shares-par value $0.10 per share		13,559		—			—			—			—			13,559
Capital in excess of par value		885,850		1,149,966			870,744			750,678			(2,771,388	)		885,850
Retained earnings		2,251,756		1,308,409			1,624,443			1,895,580			(4,828,432	)		2,251,756
Accumulated other comprehensive income (loss)		2,422		(34	)		5			2,422			(2,393	)		2,422
		3,153,587		2,458,341			2,495,192			2,648,680			(7,602,213	)		3,153,587
	$	3,468,726	$	3,665,483		$	2,882,659		$	4,163,146		$	(9,766,942	)	$	4,413,072

23

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
Investments 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 maturities 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

24

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

				NHC and NDH			Noble			Other			Consolidating
	Noble			Combined			Drilling			Subsidiaries			Adjustments			Total
OPERATING REVENUES
Contract drilling services	$	—		$	11,371		$	11,824		$	490,130		$	—		$	513,325
Reimbursables		—			169			106			24,525			—			24,800
Labor contract drilling services		—			—			—			20,775			—			20,775
Engineering, consulting and other		—			12,949			—			3,086			(12,949	)		3,086
		—			24,489			11,930			538,516			(12,949	)		561,986
OPERATING COSTS AND EXPENSES
Contract drilling services		6,131			6,062			3,062			184,221			(12,949	)		186,527
Reimbursables		—			143			106			21,285			—			21,534
Labor contract drilling services		—			—			—			17,027			—			17,027
Engineering, consulting and other		—			—			—			3,262			—			3,262
Depreciation and amortization		—			6,393			1,235			57,932			—			65,560
Selling, general and administrative		2,249			488			161			8,977			—			11,875
		8,380			13,086			4,564			292,704			(12,949	)		305,785
OPERATING INCOME (LOSS)		(8,380	)		11,403			7,366			245,812			—			256,201
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)		219,389			208,677			104,429			—			(532,495	)		—
Interest expense, net of amount capitalized		(4,611	)		(13,526	)		(6,565	)		12,538			11,282			(882	)
Other, net		774			(3,364	)		2,500			13,409			(11,282	)		2,037
INCOME BEFORE INCOME TAXES		207,172			203,190			107,730			271,759			(532,495	)		257,356
INCOME TAX (PROVISION) BENEFIT		—			3,834			(1,156	)		(52,862	)		—			(50,184	)
NET INCOME	$	207,172		$	207,024		$	106,574		$	218,897		$	(532,495	)	$	207,172

25

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

							Noble			Other			Consolidating
	Noble			NHC			Drilling			Subsidiaries			Adjustments			Total
OPERATING REVENUES
Contract drilling services	$	—		$	—		$	7,605		$	320,496		$	—		$	328,101
Reimbursables		—			—			27			18,051			—			18,078
Labor contract drilling services		—			—			—			17,275			—			17,275
Engineering, consulting and other		—			—			20			3,731			—			3,751
		—			—			7,652			359,553			—			367,205
OPERATING COSTS AND EXPENSES
Contract drilling services		66			—			1,295			154,665			—			156,026
Reimbursables		—			—			27			15,192			—			15,219
Labor contract drilling services		—			—			—			14,967			—			14,967
Engineering, consulting and other		—			—			—			5,349			—			5,349
Depreciation and amortization		—			—			1,446			59,830			—			61,276
Selling, general and administrative		601			—			(222	)		8,945			—			9,324
Hurricane losses and recoveries, net		—			—			—			10,465			—			10,465
		667			—			2,546			269,413						272,626
OPERATING INCOME (LOSS)		(667	)		—			5,106			90,140			—			94,579
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)		76,773			62,547			63,882			—			(203,202	)		—
Interest expense, net of amount capitalized		(2	)		(10,996	)		(7,160	)		2,009			10,996			(5,153	)
Other, net		419			—			—			12,670			(10,996	)		2,093
INCOME BEFORE INCOME TAXES		76,523			51,551			61,828			104,819			(203,202	)		91,519
INCOME TAX (PROVISION) BENEFIT		—			3,848			719			(19,563	)		—			(14,996	)
NET INCOME	$	76,523		$	55,399		$	62,547		$	85,256		$	(203,202	)	$	76,523

26

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

				NHC and NDH			Noble			Other			Consolidating
	Noble			Combined			Drilling			Subsidiaries			Adjustments			Total
OPERATING REVENUES
Contract drilling services	$	—		$	30,355		$	33,258		$	1,343,683		$	—		$	1,407,296
Reimbursables		—			374			173			67,965			—			68,512
Labor contract drilling services		—			—			—			55,973			—			55,973
Engineering, consulting and other		—			38,289			—			9,634			(38,289	)		9,634
		—			69,018			33,431			1,477,255			(38,289	)		1,541,415
OPERATING COSTS AND EXPENSES
Contract drilling services		14,658			15,968			6,092			536,624			(38,289	)		535,053
Reimbursables		—			286			173			58,671			—			59,130
Labor contract drilling services		—			—			—			47,611			—			47,611
Engineering, consulting and other		—			—			—			13,968			—			13,968
Depreciation and amortization		—			18,821			3,782			164,863			—			187,466
Selling, general and administrative		3,635			1,555			499			27,126			—			32,815
Hurricane losses and recoveries, net		—			—			—			(4,404	)		—			(4,404	)
		18,293			36,630			10,546			844,459			(38,289	)		871,639
OPERATING INCOME (LOSS)		(18,293	)		32,388			22,885			632,796			—			669,776
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)		555,125			508,702			266,080			—			(1,329,907	)		—
Interest expense, net of amount capitalized		(6,500	)		(40,301	)		(32,460	)		31,250			32,877			(15,134	)
Other, net		1,832			(3,253	)		(14,278	)		55,007			(32,877	)		6,431
INCOME BEFORE INCOME TAXES		532,164			497,536			242,227			719,053			(1,329,907	)		661,073
INCOME TAX (PROVISION) BENEFIT		—			11,507			8,348			(148,764	)		—			(128,909	)
NET INCOME	$	532,164		$	509,043		$	250,575		$	570,289		$	(1,329,907	)	$	532,164

27

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

							Noble			Other			Consolidating
	Noble			NHC			Drilling			Subsidiaries			Adjustments			Total
OPERATING REVENUES
Contract drilling services	$	—		$	—		$	21,965		$	872,451		$	—		$	894,416
Reimbursables		—			—			29			61,206			—			61,235
Labor contract drilling services		—			—			—			52,947			—			52,947
Engineering, consulting and other		—			—			63			12,877			—			12,940
		—			—			22,057			999,481			—			1,021,538
OPERATING COSTS AND EXPENSES
Contract drilling services		100			—			4,351			441,504			—			445,955
Reimbursables		—			—			29			54,642			—			54,671
Labor contract drilling services		—			—			—			44,632			—			44,632
Engineering, consulting and other		—			—			—			16,970			—			16,970
Depreciation and amortization		—			—			4,635			172,547			—			177,182
Selling, general and administrative		816			—			228			26,197			—			27,241
Hurricane losses and recoveries, net		—			—			—			10,465			—			10,465
		916			—			9,243			766,957						777,116
OPERATING INCOME (LOSS)		(916	)		—			12,814			232,524			—			244,422
OTHER INCOME (EXPENSE)
Equity earnings in affiliates (net of tax)		193,988			166,561			172,312			—			(532,861	)		—
Interest expense, net of amount capitalized		(2	)		(34,193	)		(21,660	)		5,382			34,193			(16,280	)
Other, net		2,377			—			(1	)		40,121			(34,193	)		8,304
INCOME BEFORE INCOME TAXES		195,447			132,368			163,465			278,027			(532,861	)		236,446
INCOME TAX (PROVISION) BENEFIT		(84	)		12,002			3,096			(56,097	)		—			(41,083	)
NET INCOME	$	195,363		$	144,370		$	166,561		$	221,930		$	(532,861	)	$	195,363

28

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

				NHC and NDH			Noble			Other			Consolidating
	Noble			Combined			Drilling			Subsidiaries			Adjustments			Total
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	532,164		$	509,043		$	250,575		$	570,289		$	(1,329,907	)	$	532,164
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		—			18,821			3,782			164,863			—			187,466
Deferred income tax provision		—			—			184			9,607			—			9,791
Share-based compensation expense		15,830			—			—			—			—			15,830
Equity earnings in affiliates		(555,125	)		(508,702	)		(266,080	)		—			1,329,907			—
Other		31,668			322			(1,072	)		(16,729	)		—			14,189
Other changes in current assets and liabilities, net of acquired working capital:
Accounts receivable		—			(265	)		6,309			(119,585	)		—			(113,541	)
Other current assets		2			(64	)		(22	)		(21,777	)		—			(21,861	)
Accounts payable		6,597			4,313			(492	)		22,196			—			32,614
Other current liabilities		8,788			19,187			(6,168	)		16,803			—			38,610
Net cash provided by (used for) operating activities		39,924			42,655			(12,984	)		625,667			—			695,262
CASH FLOWS FROM INVESTING ACTIVITIES
New construction		—			(354,349	)		—			(119,859	)		—			(474,208	)
Other capital expenditures		—			—			(3,289	)		(263,137	)		—			(266,426	)
Major maintenance expenditures		—			—			—			(44,515	)		—			(44,515	)
Repayments from affiliates		—			—			—			17,388			(17,388	)		—
Notes receivable from affiliates		—			—			27,896			—			(27,896	)		—
Proceeds from Smedvig disposition		691,261			—			—			—			—			691,261
Proceeds from sales and maturities of marketable securities		—			8,933			—			6,528			—			15,461
Net cash provided by (used for) investing activities		691,261			(345,416	)		24,607			(403,595	)		(45,284	)		(78,427	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on bank credit facilities		—			—			(135,000	)		—			—			(135,000	)
Payments of other long-term debt		—			—			(600,000	)		(6,667	)		—			(606,667	)
Accounts receivable from affiliates		(853,721	)		—			—			—			853,721			—
Accounts payable to affiliates		—			324,027			723,377			(193,683	)		(853,721	)		—
Note payable to affiliate		(27,896	)		(17,388	)		—			—			45,284			—
Net proceeds from employee stock transactions		10,932			—			—			—			—			10,932
Proceeds from issuance of senior notes, net of debt issuance costs		295,851			—			—			—			—			295,851
Dividends paid		(16,423	)		—			—			—			—			(16,423	)
Repurchases of ordinary shares		(147,275	)		—			—			—			—			(147,275	)
Net cash provided by (used for) financing activities		(738,532	)		306,639			(11,623	)		(200,350	)		45,284			(598,582	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(7,347	)		3,878			—			21,722			—			18,253
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		13,957			3,119			—			104,769			—			121,845
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	6,610		$	6,997		$	—		$	126,491		$	—		$	140,098

29

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

							Noble			Other			Consolidating
	Noble			NHC			Drilling			Subsidiaries			Adjustments			Total
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	195,363		$	144,370		$	166,561		$	221,930		$	(532,861	)	$	195,363
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		—			—			4,635			172,547			—			177,182
Deferred income tax provision		—			—			—			23,745			—			23,745
Equity in income of joint venture		—			—			—			(2,790	)		—			(2,790	)
Distributions received from joint venture		—			—			—			2,194			—			2,194
Share-based compensation expense		5,546			—			—			—			—			5,546
Equity earnings in affiliates		(193,988	)		(166,561	)		(172,312	)		—			532,861			—
Hurricane losses and recoveries, net		—			—			—			10,465			—			10,465
Other		—			—			(576	)		3,148			—			2,572
Other changes in current assets and liabilities, net of acquired working capital:
Accounts receivable		—			—			585			(61,779	)		—			(61,194	)
Accounts receivable from affiliates		(79,480	)		—			71,963			—			7,517			—
Other current assets		19,918			—			1,052			(30,436	)		—			(9,466	)
Accounts payable		—			—			(530	)		1,433			—			903
Accounts payable to affiliates		—			29,242			—			(21,725	)		(7,517	)		—
Other current liabilities		(1,455	)		7,561			(6,209	)		(6,465	)		—			(6,568	)
Net cash provided by (used for) operating activities		(54,096	)		14,612			65,169			312,267			—			337,952
CASH FLOWS FROM INVESTING ACTIVITIES
New construction		—			—			—			(89,497	)		—			(89,497	)
Other capital expenditures		—			—			(42	)		(139,710	)		—			(139,752	)
Major maintenance expenditures		—			—			(127	)		(50,013	)		—			(50,140	)
Proceeds from sales of property and equipment		—			—			—			1,035			—			1,035
Purchase of remaining 50% equity interest in the Panon, net of cash acquired		—			—			—			(28,374	)		—			(28,374	)
Repayments from affiliates		—			—			—			14,612			(14,612	)		—
Investment in marketable securities		—			—			—			(24,149	)		—			(24,149	)
Proceeds from sales and maturities of marketable securities		23,600			—			—			88,136			—			111,736
Net cash provided by (used for) investing activities		23,600			—			(169	)		(227,960	)		(14,612	)		(219,141	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on bank credit facilities		—			—			(65,000	)		—			—			(65,000	)
Payments of other long-term debt		—			—			—			(6,371	)		—			(6,371	)
Payments to affiliates		—			(14,612	)		—			—			14,612			—
Net proceeds from employee stock transactions		68,611			—			—			—			—			68,611
Dividends paid		(8,168	)		—			—			—			—			(8,168	)
Net cash provided by (used for) financing activities		60,443			(14,612	)		(65,000	)		(6,371	)		14,612			(10,928	)
INCREASE IN CASH AND CASH EQUIVALENTS		29,947			—			—			77,936			—			107,883
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		8,130			—			—			50,660			—			58,790
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	38,077		$	—		$	—		$	128,596		$	—		$	166,673

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

     The financial statements contained in this report on Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

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 the Organization of Petroleum Exporting Countries (“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 $66.97 per barrel for the first nine months of 2006, or 25 percent higher than the average Brent oil price of $53.60 per barrel for the first nine months of 2005. The higher average oil prices during the first nine months of 2006 supported increases in drilling activity in oil markets worldwide.

     Natural gas prices domestically averaged $8.82 per thousand cubic feet (average Henry Hub closing bidweek price) in 2005, a 20 year high. Natural gas prices have moderated during the first nine months of 2006, averaging $6.77 per thousand cubic feet, which is 12 percent lower than the first nine months of 2005, when prices averaged $7.69 per thousand cubic feet. The Company does not have significant exposure to the U.S. natural gas markets since only three submersibles are currently deployed in the shallow waters of the U.S. Gulf of Mexico.

     As a result of the increase in worldwide drilling activities described above, at September 30, 2006, 100 percent of our operating days were committed for the remainder of 2006 and approximately 78 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 have also signed construction contracts for three F&G JU-2000E enhanced premium

31

independent leg cantilevered newbuild jackups, theNoble Roger Lewis,Noble Hans DeulandNoble Scott Marks. As previously reported, all three F&G JU-2000E newbuild jackups have been contracted 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 nine months ended September 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 nine months ended September 30, 2006. Our insurance receivable at September 30, 2006 related to claims for hurricane damage was $50.0 million.

     During the third quarter of 2005, we recorded a $20 million charge, net of insurance recoveries, for the non-reimbursable portion of damages sustained as a result of Hurricanes Katrina and Rita and $9.5 million in loss of hire insurance for our Noble EVA-4000™ semisubmersibles (theNoble Jim Thompson,Noble Max Smith,Noble Paul RomanoandNoble Amos Runner) that suffered downtime attributable to these events.

For the Three Months Ended September 30, 2006 and 2005

   General

     Net income for the three months ended September 30, 2006 (the “Current Quarter”) was $207.2 million, or $1.51 per diluted share, on operating revenues of $562.0 million, compared to net income for the three months ended September 30, 2005 (the “Comparable Quarter”) of $76.5 million, or $0.55 per diluted share, on operating revenues of $367.2 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):

32

	International			Domestic
	Contract			Contract		Engineering
	Drilling			Drilling		&Consulting
	Services			Services		Services			Other		Total
	(In thousands)
Three Months Ended September 30, 2006
Operating Revenues:
Contract drilling services	$	372,818		$	140,507	$	—		$	—	$	513,325
Reimbursables		16,820			2,703		31			5,246		24,800
Labor contract drilling services		—			—		—			20,775		20,775
Engineering, consulting and other		1,119			162		1,805			—		3,086
		390,757			143,372		1,836			26,021		561,986
Operating Costs and Expenses:
Contract drilling services		152,968			33,559		—			—		186,527
Reimbursables		13,778			2,537		32			5,187		21,534
Labor contract drilling services		—			—		—			17,027		17,027
Engineering, consulting and other		(145	)		37		3,165			205		3,262
Depreciation and amortization		52,823			12,052		15			670		65,560
Selling, general and administrative		7,590			3,556		396			333		11,875
		227,014			51,741		3,608			23,422		305,785
Operating Income	$	163,743		$	91,631	$	(1,772	)	$	2,599	$	256,201

	International		Domestic
	Contract		Contract		Engineering
	Drilling		Drilling		&Consulting
	Services		Services		Services			Other		Total
	(In thousands)
Three Months Ended September 30, 2005
Operating Revenues:
Contract drilling services	$	248,536	$	79,565	$	—		$	—	$	328,101
Reimbursables		10,423		2,943		205			4,507		18,078
Labor contract drilling services		—		—		—			17,275		17,275
Engineering, consulting and other		774		228		2,749			—		3,751
��		259,733		82,736		2,954			21,782		367,205
Operating Costs and Expenses:
Contract drilling services		120,700		35,326		—			—		156,026
Reimbursables		8,053		2,740		242			4,184		15,219
Labor contract drilling services		—		—		—			14,967		14,967
Engineering, consulting and other		35		606		4,603			105		5,349
Depreciation and amortization		48,126		12,247		84			819		61,276
Selling, general and administrative		6,419		2,333		233			339		9,324
Hurricane losses and recoveries, net		—		10,465		—			—		10,465
		183,333		63,717		5,162			20,414		272,626
Operating Income	$	76,400	$	19,019	$	(2,208	)	$	1,368	$	94,579

33

   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 September 30, 2006 and 2005:

	Average Rig
	Utilization (1)						Operating Days (2)				Average Dayrate
	Three Months Ended						Three Months Ended				Three Months Ended
	September 30,						September 30,				September 30,
	2006			2005			2006		2005		2006		2005
International (3):
Jackups		97	%		98	%		3,652		3,440	$	79,485	$	55,271
Semisubmersibles — >6,000’(4)		100	%		100	%		184		184		166,951		153,274
Semisubmersibles — <6,000’(5)		83	%		100	%		153		92		163,221		84,315
Drillships		100	%		100	%		276		276		97,242		81,401
Total International		97	%		99	%		4,265		3,992	$	87,413	$	62,265
Domestic (6):
Jackups		N/A			100	%		—		184	$	N/A	$	68,990
Semisubmersibles — >6,000’ (4)		100	%		100	%		368		368		290,976		127,240
Semisubmersibles — <6,000’ (5)		90	%		96	%		83		176		155,307		69,241
Submersibles		100	%		67	%		276		184		74,529		42,590
Total Domestic		99	%		90	%		727		912	$	193,270	$	87,209
Total Company		97	%		97	%		4,992		4,904	$	102,821	$	66,904

(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, and India.
(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.

34

   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 September 30, 2006 and 2005:

					Operating Costs
	Operating Revenues				and Expenses
	Three Months Ended				Three Months Ended
	September 30,				September 30,
	2006		2005		2006			2005
	(In thousands)
Contract drilling services	$	372,818	$	248,536	$	152,968		$	120,700
Reimbursables (1)		16,820		10,423		13,778			8,053
Other		1,119		774		(145	)		35
Depreciation and amortization		N/A		N/A		52,823			48,126
Selling, general and administrative		N/A		N/A		7,590			6,419
Total	$	390,757	$	259,733	$	227,014		$	183,333

(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 $124.3 million, or 50 percent, as strong demand for drilling rigs drove higher operating days and average dayrates. Higher average dayrates increased revenues approximately $100 million and the higher number of operating days increased revenues approximately $24 million. Average dayrates for our international fleet increased from $62,265 to $87,413, or $25,148 (40 percent), in the Current Quarter as compared to the Comparable Quarter. Higher average dayrates were received across all rig categories in the Current Quarter as compared to the Comparable Quarter. Operating days increased from 3,992 in the Comparable Quarter to 4,265 in the Current Quarter or 273 days (7 percent). TheNoble Harvey DuhaneyandNoble Mark Burns, which were added to the fleet in August 2005, contributed 88 additional operating days in the Current Quarter as compared to the Comparable Quarter. Additionally, our strategic decision to relocate theNoble Tom Jobe,Noble Eddie PaulandNoble Therald Martinfrom the U.S. Gulf of Mexico to international markets in March, April and August 2006, respectively, contributed 276 operating days in the Current Quarter. The Current Quarter had an increase of 90 unpaid shipyard and regulatory inspection days as compared to the Comparable Quarter. Utilization of our international fleet decreased to 97 percent from 99 percent in the Comparable Quarter, primarily due to the higher number of unpaid shipyard days in the Current Quarter.

     Operating Costs and Expenses.International contract drilling services expenses increased $32.3 million, or 27 percent, in the Current Quarter as compared to the Comparable Quarter. Approximately $10 million of this increase was the result of the higher number of operating days in the Current Quarter as compared to the Comparable Quarter. The balance of the increase resulted primarily 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 $35,900 in the Current Quarter as compared to $30,200 in the Comparable Quarter, or an increase of 19 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 $52.8 million in the Current Quarter as compared to $48.1 million in the Comparable Quarter, or 10 percent, primarily resulting from the units added to the international fleet as described under Operating Revenues above as well as capital expenditures on our fleet since the Comparable Quarter.

35

   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 September 30, 2006 and 2005:

					Operating Costs
	Operating Revenues				and Expenses
	Three Months Ended				Three Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(In thousands)
Contract drilling services	$	140,507	$	79,565	$	33,559	$	35,326
Reimbursables (1)		2,703		2,943		2,537		2,740
Other		162		228		37		606
Depreciation and amortization		N/A		N/A		12,052		12,247
Selling, general and administrative		N/A		N/A		3,556		2,333
Hurricane losses and recoveries, net		—		—		—		10,465
Total	$	143,372	$	82,736	$	51,741	$	63,717

(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 $60.9 million, or 77 percent, as strong demand for drilling rigs in the U.S. Gulf of Mexico market drove higher average dayrates. Higher average dayrates increased revenues approximately $97 million while a 185 day decrease in operating days reduced revenues by approximately $36 million. Average dayrates for our domestic fleet increased from $87,209 to $193,270, or $106,061 (122 percent), in the Current Quarter as compared to the Comparable Quarter. Higher average dayrates were received across all rig categories. Operating days decreased from 912 in the Comparable Quarter to 727 in the Current Quarter or 185 days (20 percent). Lower operating days resulted primarily from the relocation of theNoble Tom Jobe,Noble Eddie PaulandNoble Therald Martinfrom the U.S. Gulf of Mexico to international markets in March, April and August 2006, respectively, representing an aggregate reduction of 268 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 by 97 fewer unpaid shipyard and regulatory inspection days in the Current Quarter as compared to the Comparable Quarter. Hurricanes Katrina and Rita had an adverse affect on operating days and average collected dayrates in the Comparable Quarter. Utilization of our domestic fleet increased to 99 percent from 90 percent in the Comparable Quarter.

     Operating Costs and Expenses.Operating costs and expenses for our domestic contract drilling services decreased $1.8 million or 5 percent in the Current Quarter as compared to the Comparable Quarter. Operating costs decreased by approximately $8 million because of fewer operating days in the Current Quarter as compared to the Comparable Quarter as described under Operating Revenues above. As adjusted for fewer operating days, operating costs and expenses increased approximately $7 million, primarily due to 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 $46,200 in the Current Quarter as compared to $38,700 in the Comparable Quarter, or an increase of 19 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 as compared to semisubmersibles, operated in the U.S. Gulf of Mexico in 2005 while no jackups were operated domestically in the Current Quarter. Depreciation and amortization decreased to $12.1 million in the Current Quarter as compared to $12.2 million in the Comparable Quarter, or 1 percent, due to higher depreciation associated with capital expenditures, offset by higher depreciation associated with capital expenditures.

     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.”

36

   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 September 30, 2006 and 2005:

					Operating Costs
	Operating Revenues				and Expenses
	Three Months Ended				Three Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(In thousands)
Engineering, consulting and other	$	1,805	$	2,749	$	3,165	$	4,603
Reimbursables (1)		31		205		32		242
Depreciation and amortization		N/A		N/A		15		84
Selling, general and administrative		N/A		N/A		396		233
Total	$	1,836	$	2,954	$	3,608	$	5,162

(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 $944,000 primarily due to reduced project levels, and the sale of the software business of our Maurer Technology Incorporated (“Maurer”) subsidiary in June 2006.

     Operating Costs and Expenses.Engineering, consulting and other expenses declined $1.4 million primarily due to reduced project levels, and the sale of the Maurer software business.

   Other

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

					Operating Costs
	Operating Revenues				and Expenses
	Three Months Ended				Three Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(In thousands)
Labor contract drilling services	$	20,775	$	17,275	$	17,027	$	14,967
Reimbursables (1)		5,246		4,507		5,187		4,184
Other		—		—		205		105
Depreciation and amortization		N/A		N/A		670		819
Selling, general and administrative		N/A		N/A		333		339
Total	$	26,021	$	21,782	$	23,422	$	20,414

(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 $3.5 million due primarily to billings under costs escalation clauses of revenue contracts in Canada, higher operating days in the North Sea and currency exchange fluctuations.

37

     Operating Costs and Expenses.Operating costs and expenses for labor contract drilling services increased $2.1 million due primarily to higher labor costs in Canada, higher operating days in the North Sea and currency exchange fluctuations.

   Other Items

     Selling, General and Administrative Expenses.Consolidated selling, general and administrative expenses increased $2.6 million to $11.9 million in the Current Quarter from $9.3 million in the Comparable Quarter primarily due to the initial adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123R,Share-Based Payment(“SFAS No. 123R”), expenses related to our employee benefit and retention plans, and the addition of personnel.

   �� Interest Expense.Interest expense, net of amount capitalized, decreased $4.3 million primarily due to $7.7 million of additional interest capitalization in the Current Quarter as compared to the Comparable Quarter, offset by higher interest expense of $3.4 million primarily from higher levels of borrowings in the Current Quarter. Each of these factors is attributable to the higher level of capital expenditures in 2006 as compared to 2005.

     Other, net.Other, net decreased $56,000. The Comparable Quarter included equity in earnings of a 50 percent owned joint venture totaling $0.4 million, which equity in earnings was eliminated subsequent to the August 2005 acquisition of the remaining 50 percent equity interest in a joint venture with Noble Crosco Drilling, Ltd. Additionally, the Current Quarter included a $3.5 million charge for the settlement and release of claims by an agent of the Company for commissions relating to certain of our Middle East Division activities. Interest and other income increased an aggregate of $3.9 million in the Current Quarter as compared to the Comparable Quarter.

     Income Tax Provision.The income tax provision increased $35.2 million due primarily to higher pre-tax earnings and an increase in the effective tax rate from 16.4 percent in 2005 to 19.5 percent in 2006. The higher effective tax rate resulted primarily from higher pre-tax earnings of U.S. owned assets, which generally have a higher statutory tax rate.

For the Nine Months Ended September 30, 2006 and 2005

   General

     Net income for the nine months ended September 30, 2006 (the “Current Period”) was $532.2 million, or $3.86 per diluted share, on operating revenues of $1.54 billion, compared to net income for the nine months ended September 30, 2005 (the “Comparable Period”) of $195.4 million, or $1.42 per diluted share, on operating revenues of $1.02 billion.

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     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)
Nine Months Ended September 30, 2006
Operating Revenues:
Contract drilling services	$	993,724	$	413,572		$	—		$	—	$	1,407,296
Reimbursables		41,318		11,636			142			15,416		68,512
Labor contract drilling services		—		—			—			55,973		55,973
Engineering, consulting and other		2,124		430			7,080			—		9,634
		1,037,166		425,638			7,222			71,389		1,541,415
Operating Costs and Expenses:
Contract drilling services		423,776		111,277			—			—		535,053
Reimbursables		33,674		10,908			120			14,428		59,130
Labor contract drilling services		—		—			—			47,611		47,611
Engineering, consulting and other		331		(119	)		13,752			4		13,968
Depreciation and amortization		148,247		36,962			288			1,969		187,466
Selling, general and administrative		19,041		10,666			1,194			1,914		32,815
Hurricane losses and recoveries, net		—		(4,404	)		—			—		(4,404	)
		625,069		165,290			15,354			65,926		871,639
Operating Income	$	412,097	$	260,348		$	(8,132	)	$	5,463	$	669,776

	International		Domestic
	Contract		Contract		Engineering
	Drilling		Drilling		& Consulting
	Services		Services		Services			Other		Total
	(In thousands)
Nine Months Ended September 30, 2005
Operating Revenues:
Contract drilling services	$	678,216	$	216,200	$	—		$	—	$	894,416
Reimbursables		27,690		11,105		9,115			13,325		61,235
Labor contract drilling services		—		—		—			52,947		52,947
Engineering, consulting and other		1,940		746		9,695			559		12,940
		707,846		228,051		18,810			66,831		1,021,538
Operating Costs and Expenses:
Contract drilling services		348,225		97,730		—			—		445,955
Reimbursables		22,160		10,547		9,199			12,765		54,671
Labor contract drilling services		—		—		—			44,632		44,632
Engineering, consulting and other		382		912		14,854			822		16,970
Depreciation and amortization		139,462		35,030		281			2,409		177,182
Selling, general and administrative		18,500		7,021		701			1,019		27,241
Hurricane losses and recoveries, net		—		10,465		—			—		10,465
		528,729		161,705		25,035			61,647		777,116
Operating Income	$	179,117	$	66,346	$	(6,225	)	$	5,184	$	244,422

39

   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 nine months ended September 30, 2006 and 2005:

	Average Rig
	Utilization (1)						Operating Days (2)				Average Dayrate
	Nine Months Ended						Nine Months Ended				Nine Months Ended
	September 30,						September 30,				September 30,
	2006			2005			2006		2005		2006		2005
International (3):
Jackups		98	%		97	%		10,834		9,792	$	72,497	$	52,799
Semisubmersibles — >6,000’(4)(7)		100	%		100	%		546		546		135,579		152,396
Semisubmersibles — <6,000’(5)		92	%		95	%		334		260		158,928		77,977
Drillships		100	%		87	%		819		716		99,238		80,648
Total International		98	%		96	%		12,533		11,314	$	79,289	$	59,947
Domestic (6):
Jackups		86	%		100	%		155		546	$	101,112	$	61,939
Semisubmersibles — >6,000’ (4)		100	%		90	%		1,092		986		268,954		120,508
Semisubmersibles — <6,000’ (5)		98	%		99	%		431		538		131,714		66,883
Submersibles		88	%		87	%		720		712		65,710		38,699
Total Domestic		95	%		93	%		2,398		2,782	$	172,465	$	77,714
Total Company		98	%		95	%		14,931		14,096	$	94,253	$	63,452

(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, and India.
(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.

40

   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 nine months ended September 30, 2006 and 2005:

					Operating Costs
	Operating Revenues				and Expenses
	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(In thousands)
Contract drilling services	$	993,724	$	678,216	$	423,776	$	348,225
Reimbursables (1)		41,318		27,690		33,674		22,160
Other		2,124		1,940		331		382
Depreciation and amortization		N/A		N/A		148,247		139,462
Selling, general and administrative		N/A		N/A		19,041		18,500
Total	$	1,037,166	$	707,846	$	625,069	$	528,729

(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 $315.5 million, or 47 percent, as strong demand for drilling rigs drove higher operating days and average dayrates. Higher average dayrates increased revenues approximately $219 million and the higher number of operating days increased revenues approximately $97 million. Average dayrates for our international fleet increased from $59,947 to $79,289, or $19,342 (32 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, which remained under contract for the entire Current Period, received reduced dayrates for a 97 day shipyard period and a 17 day downtime period during the Current Period. Operating days increased from 11,314 in the Comparable Period to 12,533 in the Current Period or 1,219 days (11 percent). TheNoble Harvey DuhaneyandNoble Mark Burns, which were added to the fleet in August 2005, contributed 450 operating days in the Current Period as compared to the Comparable Period. In the Current Period, there were 264 fewer unpaid shipyard and regulatory inspection days than in the Comparable Period. Additionally, our strategic decision to relocate theNoble Tom Jobe,Noble Eddie PaulandNoble Therald Martinfrom the U.S. Gulf of Mexico to international markets in March, April and August 2006, respectively, contributed 498 additional operating days in the Current Period. Utilization of our international fleet increased to 98 percent from 96 percent in the Comparable Period.

     Operating Costs and Expenses.International contract drilling services expenses increased $75.6 million, or 22 percent, in the Current Period as compared to the Comparable Period. Approximately $41 million of this increase was the result of the higher number of operating days in the Current Period as compared to the Comparable Period. The balance of the increase resulted primarily 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 $33,800 in the Current Period as compared to $30,800 in the Comparable Period, or an increase of 10 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 $148.3 million in the Current Period as compared to $139.5 million in the Comparable Period, or 6 percent, primarily resulting from units added to the international fleet as described under Operating Revenues above as well as capital expenditures on our fleet since the Comparable Period.

41

   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 nine months ended September 30, 2006 and 2005:

					Operating Costs
	Operating Revenues				and Expenses
	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006			2005
	(In thousands)
Contract drilling services	$	413,572	$	216,200	$	111,277		$	97,730
Reimbursables (1)		11,636		11,105		10,908			10,547
Other		430		746		(119	)		912
Depreciation and amortization		N/A		N/A		36,962			35,030
Selling, general and administrative		N/A		N/A		10,666			7,021
Hurricane losses and recoveries, net		—		—		(4,404	)		10,465
Total	$	425,638	$	228,051	$	165,290		$	161,705

(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 $197.4 million, or 91 percent, as strong demand for drilling rigs in the U.S. Gulf of Mexico market drove higher average dayrates. Higher average dayrates increased revenues approximately $264 million while a 384 day decrease in operating days reduced revenues by approximately $66 million. Average dayrates for our domestic fleet increased from $77,714 to $172,465, or $94,751 (122 percent), in the Current Period as compared to the Comparable Period. Higher average dayrates were received across all rig categories. Operating days decreased from 2,782 in the Comparable Period to 2,398 in the Current Period or 384 days (14 percent). Lower operating days resulted primarily from the relocation of theNoble Tom Jobe,Noble Eddie PaulandNoble Therald Martinfrom the U.S. Gulf of Mexico to international markets during March, April and August 2006, respectively, representing an aggregate reduction of 490 days. This relocation is part of our strategy to move certain units to regions with greater geological and financial potential. Additionally, the Current Period had 120 fewer unpaid shipyard and regulatory inspection days than the Comparable Period. Utilization of our domestic fleet increased to 95 percent from 93 percent in the Comparable Period.

     Operating Costs and Expenses.Operating costs and expenses for our domestic contract drilling services increased $13.6 million or 14 percent in the Current Period as compared to the Comparable Period. However, operating costs decreased by approximately $18 million because of fewer operating days in the Current Period as compared to the Comparable Period as described under Operating Revenues above. As adjusted for fewer operating days, operating costs and expenses increased approximately $31 million, primarily due to 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 $46,400 in the Current Period as compared to $35,100 in the Comparable Period, or an increase of 32 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 as compared to semisubmersibles, operated in the U.S. Gulf of Mexico 546 days in the Comparable Period as compared to 155 days in the Current Period. Depreciation and amortization increased to $37.0 million in the Current Period as compared to $35.0 million in the Comparable Period, or 6 percent, due to higher depreciation associated with capital expenditures since the Comparable Period, partially offset by the relocation of three rigs to international markets in March, April and August 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.”

42

   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 nine months ended September 30, 2006 and 2005:

					Operating Costs
	Operating Revenues				and Expenses
	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(In thousands)
Engineering, consulting and other	$	7,080	$	9,695	$	13,752	$	14,854
Reimbursables (1)		142		9,115		120		9,199
Depreciation and amortization		N/A		N/A		288		281
Selling, general and administrative		N/A		N/A		1,194		701
Total	$	7,222	$	18,810	$	15,354	$	25,035

(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 $2.6 million primarily due to reduced project levels, and the sale of the Maurer software business in June 2006.

     Operating Costs and Expenses.Engineering, consulting and other expenses decreased $1.1 million. The Current Period included a pre-tax loss of $3.8 million ($0.02 per diluted share) on the sale of the Maurer software business. 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 $4.9 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 nine months ended September 30, 2006 and 2005:

					Operating Costs
	Operating Revenues				and Expenses
	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(In thousands)
Labor contract drilling services	$	55,973	$	52,947	$	47,611	$	44,632
Reimbursables (1)		15,416		13,325		14,428		12,765
Other		—		559		4		822
Depreciation and amortization		N/A		N/A		1,969		2,409
Selling, general and administrative		N/A		N/A		1,914		1,019
Total	$	71,389	$	66,831	$	65,926	$	61,647

(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 $3.0 million due primarily to billings under costs escalation clauses of revenue contracts in Canada and the North Sea and currency exchange fluctuations, offset in part, by fewer operating days in the North Sea.

43

     Operating Costs and Expenses.Operating costs and expenses for labor contract drilling services increased $3.0 million due primarily to higher labor costs in Canada and the North Sea and currency exchange fluctuations, reduced in part, by fewer operating days in the North Sea.

   Other Items

     Selling, General and Administrative Expenses.Consolidated selling, general and administrative expenses increased $5.6 million to $32.8 million in the Current Period from $27.2 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 the addition of personnel.

     Interest Expense.Interest expense, net of amount capitalized, decreased $1.1 million primarily due to $18.8 million of additional interest capitalization in the Current Period as compared to the Comparable Period, offset by additional interest costs of $17.7 million primarily from higher levels of borrowings in the Current Period. Each of these factors is primarily attributable to the higher level of capital expenditures in 2006 as compared to 2005. Additionally, the interest incurred in the Current Period included interest costs of approximately $8.2 million related to the debt incurred in connection with our former investment in Smedvig.

     Other, net.Other, net decreased $1.9 million. The Comparable Period included $2.8 million of equity in earnings of a 50 percent owned joint venture that owned thePanon(renamed theNoble Harvey Duhaney). In August 2005, we acquired the remaining 50 percent equity interest in the joint venture. The Current Period includes a $3.5 million charge for the settlement and release of claims by an agent of the Company for commissions relating to certain of our Middle East Division activities. Interest and other income increased an aggregate of $4.0 million in the Current Period as compared to the Comparable Period.

     Income Tax Provision.The income tax provision increased $87.8 million due primarily to higher pre-tax earnings and an increase in the effective tax rate from 17.4 percent in 2005 to 19.5 percent in 2006. The higher effective tax rate resulted primarily from higher pre-tax earnings of U.S. owned assets, which generally have a higher statutory tax rate.

LIQUIDITY AND CAPITAL RESOURCES

   Overview

     Our principal capital resource in the Current Period was net cash provided by operating activities of $695.2 million, which compared to $338.0 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 September 30, 2006, we had cash and cash equivalents of $140.1 million, investments in marketable securities totaling $29.7 million, insurance receivables of $50.0 million and $293.6 million of funds available under our bank credit facility. We had working capital of $330.1 million and $263.1 million at September 30, 2006 and December 31, 2005, respectively. Total debt as a percentage of total debt plus shareholders’ equity was 18 percent at September 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 approximately $296 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 nine months ended September 30, 2006, we repurchased 2,300,000 of our ordinary shares at an average price of $66.65 per share for a total cost of $153.3 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 September 30, 2006, 6,762,000 shares remained available under this authorization. Additionally, during the Current Quarter, we completed an odd-lot offer to purchase ordinary shares by purchasing 5,780 shares tendered during the offer for $392,000.

44

     During the nine months ended September 30, 2006, we made contributions to our international and domestic pension plans totaling $4.3 million. We expect to contribute, subject to applicable law, an aggregate of $19.8 million to our international and domestic pension plans in 2006.

     The Company’s most recent quarterly dividend declaration, to be paid on December 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 $785.2 million and $385.2 million for the nine months ended September 30, 2006 and 2005, respectively.

     Capital expenditures for new construction in the Current Period totaling $474.2 million included $116.3 million for theNoble Clyde Boudreauxand $122.2 million for theNoble Dave Beard. Additionally, the Current Period included $143.4 million toward the construction of theNoble Roger Lewis,Noble Hans DeulandNoble Scott Marks, three F&G JU-2000E enhanced premium newbuild jackups under construction, and $38.6 million towards theNoble Danny Adkins. Also, certain preliminary work has begun on ourNoble Bingo 9000 Rig4 and $26.4 million has been expended year-to-date. Other capital expenditures totaling $266.4 million in the Current Period included approximately $107 million for major upgrade projects. Major maintenance expenditures totaled $44.5 million in the Current Period.

     Our capital expenditures and major maintenance expenditures for 2006 were budgeted at approximately $1.4 billion, and we currently expect our total capital expenditures will range from $1.1 — $1.2 billion. In connection with our capital expenditure program, we have entered into certain commitments, including outstanding purchase commitments of approximately $900 million at September 30, 2006.

     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

     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”).

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     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.

     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.

   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 September 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 September 30, 2006, we had letters of credit and third-party guarantees of $71.4 million and performance and customs bonds totaling $93.8 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 approximately $296 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 $1.14 billion (including current maturities of $9.0 million) at December 31, 2005 to $696.4 million (including current maturities of $9.5 million) at September 30, 2006, due to debt repayments of $741.7 million offset by the May 2006 issuance of $300 million principal amount of Senior Notes described above. At September 30, 2006 and December 31, 2005, we had no off-balance sheet debt. At September 30, 2006, we were in compliance with all our debt covenants.

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ACCOUNTING PRONOUNCEMENTS

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158,Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of SFAS Nos. 87, 88, 106, and 132(R)(“SFAS No. 158”). The recognition and disclosure provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2006. The measurement date provisions are effective for fiscal years ending after December 15, 2008; however, these provisions have no impact on the Company as we currently use a December 31 measurement date for our pension plans. SFAS No. 158 contains a number of amendments to current accounting for defined benefit plans; however, the primary change is the requirement to recognize in the balance sheet 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 will also be increased or decreased (through “other comprehensive income”) for the overfunded or underfunded status. SFAS No. 158 does not change the determination of pension plan liabilities or assets, or the income statement recognition of periodic pension expense. At December 31, 2005, the projected benefit obligations of the Company’s plans exceeded plan assets by approximately $22 million. Had the Company adopted the provisions of SFAS No. 158 at that date, Other Assets would have been reduced by approximately $8 million, Other Liabilities would have been increased by approximately $26 million, Deferred Income Taxes would have been reduced by approximately $9 million and Shareholders’ Equity would have been reduced by approximately $25 million. The Company is unable to estimate the impact on the December 31, 2006 consolidated balance sheet and the ultimate amounts to be recorded upon adoption of SFAS No. 158 are dependent on a number of variables unknown at this time.

     In June 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48”) and is effective for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recorded 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) determining 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 more likely than not to be realized upon ultimate settlement. Management is currently analyzing the impact of FIN 48. We do not anticipate adopting FIN 48 prior to January 1, 2007.

     In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, rather, its application will be made pursuant to other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The provisions of SFAS No. 157 are to be applied prospectively upon adoption, except for limited specified exceptions. We do not expect the adoption of SFAS No. 157 to have a material impact on our financial position or results of operations.

     In September 2006, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(“SAB No. 108”). SAB No. 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. The SEC staff, in SAB No. 108, established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of a company’s financial statements and the related financial statement disclosures. SAB No. 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if SAB No. 108 had always been used or (ii) recording the cumulative effect of initially applying SAB No. 108. The Company will initially apply the provisions of SAB No. 108 on December 31, 2006. We do not expect the initial application of SAB No. 108 to result in a restatement of prior financial statements or the recording by us of a cumulative adjustment.

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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. At September 30, 2006, we own investments in marketable debt securities totaling $29.7 million. A one percent change in the September 30, 2006 closing price of these marketable debt securities would impact the carrying value of these investments by $297,000. To mitigate the risk of losses, these investments are monitored by management to assure compliance with policies established by the Company.

     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 September 30, 2006, the Company’s liability under the Restoration Plan and a similar Canadian plan totaled $18.9 million. At September 30, 2006, a one percent increase in the fair value of the phantom investments would increase the Company’s liability by $189,000 and a one percent decline in the fair value of the phantom investments would reduce the Company’s liability by $189,000.

     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 September 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, and currently trade at a premium to their face value. The estimated fair value of our Senior Notes due 2009, 2013 and 2019, based on quoted market prices, was $154.9 million, $307.3 million and $234.1 million, respectively, at September 30, 2006. 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 $3.4 million, $16.6 million and $19.7 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.

     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 and the Company maintains forward currency contracts settling monthly in Euro and British Pounds. The forward contracts that settled in 2005 and the first nine months of 2006 represented more than 60 percent of our forecasted Euro and British Pound requirements. The Euro-denominated forward contracts settling in the fourth quarter of 2006 and in 2007 and 2008 represent approximately 64 percent, 44 percent and 5 percent, respectively, of our forecasted Euro requirements. The British Pound-denominated forward contracts settling in the fourth quarter of 2006 and in 2007 represent approximately 54 percent and 15 percent, respectively, of our forecasted British Pound requirements. The notional amounts of forward contracts outstanding at September 30,

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2006 were approximately 42.9 million Euros and 10.2 million British Pounds. The aggregate notional amount of these forward contracts, expressed in U.S. dollars, was $73.4 million at September 30, 2006. The fair market value of outstanding forward contracts was $617,000 at September 30, 2006. A one percent change in exchange rates for the Euro and British Pound would change the fair value of these forward contracts by approximately $740,000.

ITEM 4. CONTROLS AND PROCEDURES

     Noble’s Chief Executive Officer, President and Chief Operating Officer, Mark A. Jackson, and Noble’s Senior Vice President and Chief Financial Officer, Thomas L. Mitchell, have evaluated the Company’s disclosure controls and procedures at the end of the period covered by this report. On the basis of this evaluation, Mr. Jackson and Mr. Mitchell have concluded that the Company’s disclosure controls and procedures are effective at September 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 September 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

     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 (the “Commissioner”) 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 $3.3 million and a customs bond in the amount of $21.2 million, both of which remain in place. In March 2005, the Commissioner passed an order against NACL and the other parties cited in the SCN seeking (i) to invoke the bank guarantee posted on behalf of NACL as a fine, (ii) to demand duty of (a) $16.5 million plus interest related to a 1997 alleged import and (b) $18.8 million plus interest related to a 1999 alleged import, provided that the duty and interest demanded in (b) would not be payable if the duty and interest demanded in (a) were paid by NACL, and (iii) to assess penalty ($436,600) against NACL. NACL appealed the order of the Commissioner to the Customs, Excise & Service Tax Appellate Tribunal (“CESTAT”). At a hearing on April 5, 2006, CESTAT upheld NACL’s appeal and thereby overturned the Commissioner’s March 2005 order against NACL in its entirety. CESTAT thereafter issued its written judgment dated August 8, 2006 upholding NACL’s appeal on all grounds and setting aside the duty demand, interest, fine and penalty. Counsel for the Commissioner has informed CESTAT that the Commissioner has appealed CESTAT’s order to the High Court of Mumbai although NACL has yet to be served with a copy of such appeal. 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 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). We believe audit claims of an additional approximately $10 — $15 million attributable to such tax returns may be assessed against the Company. 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

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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 nine have followed applicable court orders to amend their complaints against us by the applicable deadline. Exposure related to these lawsuits is not currently determinable. 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.

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, except to the extent such risk factors have been updated or otherwise modified in our Form 10-Q for the quarter ended March 31, 2006 and our Form 10-Q for the quarter ended June 30, 2006.

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(1)		Paid per Share(1)(3)		Plans or Programs(2)(3)		Plans or Programs(2)
July 1 — July 31, 2006		—		—		—		8,062,000
August 1 — August 31, 2006		705,532	$	66.06		700,000		7,362,000
September 1 — September 30, 2006		600,248	$	63.94		600,000		6,762,000

(1)	Includes ordinary shares purchased by the Company pursuant to a voluntary program (also known as an odd-lot program) through which holders who own fewer than 100 ordinary shares may sell their shares to the Company. All shares submitted for sale under this offer were purchased by the Company. Shares purchased under the odd-lot offer in August totaled 5,532 at an average price of $67.96 ($376,000) and in September totaled 248 at an average price of $64.04 ($16,000).
(2)	All share repurchases, except those repurchased under our odd-lot program described in footnote (1) above, 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.
(3)	Shares repurchased in August totaled 700,000 shares at an average price of $66.05 ($46.2 million) and in September totaled 600,000 at an average price of $63.94 ($38.4 million).

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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.

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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: November 8, 2006	By:	/s/ MARK A. JACKSON
		Mark A. Jackson
		Chief Executive Officer, President and Chief Operating Officer (Duly authorized officer)

/s/ THOMAS L. MITCHELL 

Thomas L. Mitchell 

Senior Vice President and Chief Financial Officer
(Principal financial officer) 

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INDEX TO EXHIBITS

EXHIBIT
NUMBER	EXHIBIT
10.1	Summary of Noble Corporation Directors’ Compensation (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 27, 2006 and incorporated herein by reference).
31.1	Certification of Mark A. Jackson Pursuant to SEC Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification of Thomas L. Mitchell Pursuant to SEC Rule 13a-14(a) or Rule 15d-14(a).
32.1+	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.
32.2+	Certification of Thomas L. Mitchell 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.

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