NOBLE CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002

OR

[ ] 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. Yes [X] No [ ]

Number of Ordinary Shares outstanding as of November 7, 2002: 133,838,692
(Includes 1,750,483 shares held in a Rabbi Trust)

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FORM 10-Q

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NOBLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)

See accompanying notes to the consolidated financial statements.

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FORM 10-Q

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

See accompanying notes to the consolidated financial statements.

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FORM 10-Q

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

See accompanying notes to the consolidated financial statements.

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FORM 10-Q

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

See accompanying notes to the consolidated financial statements.

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FORM 10-Q

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

See accompanying notes to the consolidated financial statements.

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FORM 10-Q

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - CORPORATE RESTRUCTURING

On April 30, 2002, Noble Corporation, a Cayman Islands company (which
we sometimes refer to in this report as "Noble"), became the successor to Noble
Drilling Corporation, a Delaware corporation (which we sometimes refer to as
"Noble Drilling"), as part of the internal corporate restructuring of Noble
Drilling and its subsidiaries. This restructuring was approved by the
stockholders of Noble Drilling at its 2002 annual stockholders meeting. The
restructuring was accomplished through the merger of an indirect, wholly owned
subsidiary of Noble Drilling with and into Noble Drilling. Noble Drilling
survived the merger and is now an indirect, wholly owned subsidiary of Noble. In
addition, as a result of the merger, all of the outstanding shares of common
stock (and the related preferred stock purchase rights) of Noble Drilling were
exchanged for ordinary shares (and related preferred share purchase rights) of
Noble. Noble and its subsidiaries, including Noble Drilling, continue to conduct
the businesses previously conducted by the Noble Drilling corporate group prior
to the merger. We accounted for the restructuring as a reorganization of
entities under common control. Consequently, the consolidated amounts of assets,
liabilities and shareholders' equity did not change as a result of the
restructuring.

Noble Drilling sought stockholder approval of and effected the
restructuring as a means to remain competitive in the global marketplace to
provide diversified services to the oil and gas industry. Under the restructured
organization, we gain flexibility to reduce our worldwide corporate effective
tax rate, increase the operational efficiencies of our business, and create a
corporate structure that is generally more favorable for expansion of our
business. Additionally, we believe Noble could be a more attractive investment
alternative to a wider range of investors.

For the nine months ended September 30, 2002, 64 percent of our
revenues and 87 percent of our net income was derived from drilling operations
outside of the United States. Our restructuring was in part driven by
inequitable treatment under current U.S. tax laws, which impose taxes on the
worldwide income of U.S. companies. This method of taxation places U.S.-based
multinationals at a competitive disadvantage. The parent companies of certain of
our competitors, including our two largest competitors, are incorporated in the
Cayman Islands and other non-U.S. countries that impose either no tax or tax at
rates substantially less than the United States.

As previously disclosed and widely reported in the media, several bills
have been introduced in the U.S. House of Representatives and the U.S. Senate
which deal with various aspects of corporate "inversions". Certain proposed
legislation, if enacted in its form as originally filed, would substantially
reduce or eliminate the benefits of the restructuring to Noble. Other proposed
legislation is also directed towards leveling the playing field with respect to
provisions in the U.S. Internal Revenue Code that put U.S. companies competing
in a global marketplace at a competitive disadvantage. Our consolidated
financial statements for the three months and nine months ended September 30,
2002 include a reduction in the income tax provision of $3,000,000 for tax
benefits attributable to this restructuring.

NOTE 2 - BASIS OF ACCOUNTING

The accompanying consolidated financial statements of Noble (together
with its consolidated subsidiaries, unless the context requires otherwise, the
"Company", "we", "our" and words of similar import) were adopted and assumed
from Noble Drilling upon the corporate restructuring (see Note 1). These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all disclosures required
by generally accepted accounting principles for complete financial statements.
All significant transactions among Noble and its consolidated subsidiaries have
been eliminated. The interim consolidated financial statements have not been
audited. However, in the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
consolidated financial statements have been included. Results of operations for
interim periods are not necessarily indicative of the results of operations that
may be expected for the entire year. These interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Annual Report on Form 10-K of Noble
Drilling for the year ended December 31, 2001.

Noble Drilling (Paul Romano) Inc. was formed on April 3, 1998 for the
purpose of owning the Noble Paul Romano and financing its conversion to a Noble
EVA-4000(TM) semisubmersible. Noble Drilling (Paul Romano) Inc. is an indirect,
wholly owned subsidiary of Noble and is operated in a fashion that is intended
to ensure that its assets and liabilities are distinct and separate from those
of the Company and its affiliates and that the creditors of Noble Drilling (Paul
Romano) Inc.

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FORM 10-Q

would be entitled to satisfy their claims from the assets of Noble Drilling
(Paul Romano) Inc. prior to any distribution to the Company or its affiliates.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections ("SFAS 145"). SFAS 145 rescinds FASB Statement No. 4, Reporting
Gains and Losses from Extinguishment of Debt, and an amendment of that
statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. SFAS 145 also rescinds FASB Statement No. 44,
Accounting for Intangible Assets of Motor Carriers and amends FASB Statement No.
13, Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. Under FASB Statement No.
4, all gains and losses from the extinguishment of debt were required to be
aggregated and, if material, classified as an extraordinary item, net of related
income taxes. Under SFAS 145, gains and losses from the extinguishment of debt
should be classified as extraordinary items only if they meet the criteria of
Accounting Principles Board Opinion No. 30 ("APB 30"). APB 30 distinguishes the
transactions that are part of an entity's recurring operations from those that
are unusual or infrequent or that meet the criteria for classification as an
extraordinary item. The provisions of SFAS 145 related to the rescission of FASB
Statement No. 4 are effective for fiscal years beginning after May 15, 2002. The
remaining provisions of SFAS 145 are effective for all financial statements
issued after May 15, 2002. During the quarter ended September 30, 2002 (the
"Current Quarter"), we elected to early adopt the provisions of SFAS 145.
Pursuant to our early adoption, we have included a $400,000 loss on the purchase
and retirement of $5,000,000 principal amount of our 7.50% Senior Notes due 2019
during the Current Quarter in income before income taxes in our Consolidated
Statements of Income for the three and nine months ended September 30, 2002. In
addition, we reclassified the extraordinary charge of $1,520,000 (before tax
effect of $532,000), related to the purchase and retirement of $43,305,000
principal amount of our 7.50% Senior Notes during the quarter ended September
30, 2001 to income before income taxes in our Consolidated Statements of Income
for the three and nine months ended September 30, 2001.

NOTE 3 - ACQUISITIONS

On May 3, 2002, as part of our strategy to expand our technology
initiative, we made several acquisitions. We acquired all of the shares of
WELLDONE Engineering GmbH ("WELLDONE") for $5,750,000 in cash. We agreed to pay
up to an additional $3,500,000 provided WELLDONE's tools achieve certain
operational and financial milestones during the period through May 3, 2004.
WELLDONE's primary asset is its ownership in the "Well Director(TM)", an
automatic rotary steerable drilling system, which was designed by and is
manufactured and marketed through DMT WELLDONE Drilling Services GmbH ("DMT
WELLDONE"). As a result of our acquisition of WELLDONE, we acquired WELLDONE's
50 percent joint venture interest in DMT WELLDONE, which is further described
below. We paid $2,650,000 to Deutsche Montan Technologie GmbH ("DMT"), the other
joint venturer in DMT WELLDONE, for the remaining 50 percent interest in the
joint venture.

In connection with the above described transaction, we also acquired 24
Well Director drilling tools and related assets owned by Phoenix Technology
Services, Ltd. ("Phoenix") for $6,000,000 in cash. We agreed to pay up to an
additional $3,000,000 provided certain operating performance milestones are
achieved during the period through year end 2004. In the transaction we also
acquired from Phoenix its worldwide marketing rights to the Well Director
drilling tools.

Pursuant to a related agreement, we and DMT each committed to fund
2,100,000 Euros to a new joint venture in which each party has a 50 percent
interest. The joint venture will in turn use such funds to retain DMT to conduct
research and development. This joint venture will own the intellectual property
rights of all new technology developed.

On March 27, 2002, we purchased two semisubmersible baredecks, Bingo
9000 Rig 3 and Bingo 9000 Rig 4, from subsidiaries of Ocean Rig ASA ("Ocean
Rig") for an aggregate purchase price of $45,000,000 in an all cash transaction.
In the transaction, Ocean Rig retained an option to repurchase the two baredecks
on or before March 27, 2003 for a purchase price of $56,000,000. In September
2002, we paid Ocean Rig $100,000 for the cancellation of this option to
repurchase.

On March 26, 2002, we purchased two semisubmersible drilling rigs, the
Noble Lorris Bouzigard (ex Transocean 96) and Noble Therald Martin (ex
Transocean 97), from subsidiaries of Transocean Inc. for an aggregate purchase
price of $31,000,000 in an all cash transaction. Each unit is a pentagon
designed semisubmersible currently capable of operating in water depths up to
2,350 feet and was upgraded in 1997. We are currently upgrading the living
quarters and drilling equipment on these units. In addition, we plan to upgrade
these units to work in deeper water depths.

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FORM 10-Q

NOTE 4 - EARNINGS PER SHARE

The following table reconciles the basic and diluted earnings per share
computations for the three and nine month periods ended September 30, 2002 and
2001 (in thousands, except per share amounts):

Included in diluted shares are ordinary share equivalents relating to
outstanding stock options of 1,053,000 shares and 756,000 shares for the three
month periods ended September 30, 2002 and 2001, respectively, and 1,299,000
shares and 1,408,000 shares for the nine month periods ended September 30, 2002
and 2001, respectively. Excluded from the basic and diluted share amounts above
for the three month and nine month periods ended September 30, 2002 are shares
held in a Rabbi Trust, which will be used for future Company fundings of benefit
plans. The number of shares in the Rabbi Trust was 1,764,000 at September 30,
2002. Shares in the Rabbi Trust are included in the number of ordinary shares
legally outstanding as of November 7, 2002, as reflected on the cover page of
this Form 10-Q, and are accounted for as Treasury Stock in our Consolidated
Balance Sheet at September 30, 2002.

NOTE 5 - MARKETABLE SECURITIES

As of September 30, 2002, we owned marketable equity securities with a
fair market value of $6,933,000, of which $6,537,000 of such securities were
held in a Rabbi Trust and allocated to participants in the Noble Drilling
Corporation 401(k) Savings Restoration Plan. The marketable securities included
in the Rabbi Trust are classified as trading securities and are included in
"Investment in marketable securities" in the Consolidated Balance Sheet at
September 30, 2002 at their fair market value. We recognized a net unrealized
holding loss of $976,000 and $1,335,000 related to these assets for the three
month and nine month periods ended September 30, 2002, respectively. In
addition, we recognized a net realized loss of $70,000 and $151,000 related to
these assets in the three month and nine month periods ended September 30, 2002,
respectively. The remaining investment in marketable equity securities, with a
fair market value of $396,000 at September 30, 2002, is classified as available
for sale and is included in "Other assets" in the Consolidated Balance Sheets at
its fair market value. On March 31, 2002, we recognized a realized loss of
$9,758,000 on this investment for a decline in fair value considered by
management to be other than temporary. We recognized an unrealized holding loss
of $490,000 and $806,000 on this investment for the three month and nine month
periods ended September 30, 2002, respectively.

As of September 30, 2002, we also owned marketable debt securities with
a fair market value of $56,777,000. These investments are classified as
available for sale and are included in "Investment in marketable securities" in
the Consolidated Balance Sheet at September 30, 2002 at their fair market value.
We recognized a net unrealized holding loss of $59,000 and $126,000 related to
these assets for the three month and nine month periods ended September 30,
2002, respectively. In addition, we recognized a net realized loss of $7,000 and
$79,000 related to these assets in the three month and nine month periods ended
September 30, 2002, respectively.

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FORM 10-Q

NOTE 6 - CREDIT FACILITIES

We have an unsecured revolving bank credit facility totaling
$200,000,000 (the "Credit Agreement"), including a letter of credit facility
totaling $50,000,000, through May 30, 2006. In connection with our
restructuring, Noble and one of its wholly owned subsidiaries, Noble Holding
(U.S.) Corporation ("Noble Holding"), have unconditionally guaranteed the
performance of Noble Drilling under the Credit Agreement. We are required to
maintain various affirmative and negative covenants, including two financial
covenants relating to interest coverage and debt to capital ratios. The Credit
Agreement contains restrictive covenants, including restrictions on incurring
additional indebtedness, and restrictions on permitting additional liens,
payment of dividends, transactions with affiliates, and mergers or
consolidations. As of September 30, 2002, we had outstanding letters of credit
of $28,769,000 and no outstanding borrowings under the Credit Agreement, with
$171,231,000 remaining available thereunder. Additionally, as of September 30,
2002, we had other letters of credit and corporate guarantees totaling
$12,300,000 outstanding, of which $3,300,000 is supported by a restricted cash
deposit. Also, $13,844,000 of performance and customs bonds are supported by
surety bonds.

NOTE 7 - INTERESTS IN DEEPWATER EXPLORATION PROPERTIES

In 2000, we received interests in several deepwater exploration
properties from Mariner Energy Inc. and Samedan Oil Corporation pursuant to the
settlements of a lawsuit with Mariner Energy and Samedan over employment of the
Noble Homer Ferrington semisubmersible and upon entering into a long-term
contract with each of these companies for use of the unit in the U.S. Gulf of
Mexico. Certain of these properties are currently in production. During the nine
months ended September 30, 2002, we reported income before income taxes from
such properties of $1,600,000.

On March 28, 2002, we sold our five percent working interest in Mariner
Energy's Falcon property to Pioneer Natural Resources USA, Inc. for $6,200,000
in cash and the assumption of liabilities related to our share of drilling and
development costs subsequent to June 30, 2001. We realized a gain of $5,908,000
upon the sale of our interest in this property.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

In connection with several projects, we have entered into agreements
with various vendors to purchase or construct property and equipment that
generally have long lead times for delivery. If we do not proceed with any
particular project, we may either seek to cancel outstanding purchase
commitments related to that project or complete the purchase of the property and
equipment. Any equipment purchased for a project on which we do not proceed
would be used, where applicable, as capital spares for other units in our fleet.
If we cancel any of the purchase commitments, the amounts ultimately paid by us,
if any, would be subject to negotiation. As of September 30, 2002, we had
approximately $85,000,000 of outstanding purchase commitments related to these
projects.

NOTE 9 - PARENT GUARANTEE OF REGISTERED SECURITIES ISSUED BY SUBSIDIARY

Upon completion of our corporate restructuring, Noble and Noble Holding
became guarantors for certain debt securities issued by Noble Drilling. These
debt securities include Noble Drilling's 6.95% Senior Notes due 2009 and its
7.50% Senior Notes due 2019. The outstanding principal balance of the 6.95%
Senior Notes and the 7.50% Senior Notes at September 30, 2002 was $149,931,000
and $201,695,000, respectively. Noble Drilling is an indirect, wholly owned
subsidiary of Noble and a direct, wholly owned subsidiary of Noble Holding.
Noble's and Noble Holding's guarantee of these securities is full and
unconditional.

The following consolidating financial statements of Noble, Noble
Holding, Noble Drilling and all other subsidiaries are included so that separate
financial statements of Noble Drilling are not required to be filed with the
Securities and Exchange Commission.

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FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2002
(In thousands)
(Unaudited)

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FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
(In thousands)

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FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2002
(In thousands)
(Unaudited)

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FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2001
(In thousands)
(Unaudited)

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FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2002
(In thousands)
(Unaudited)

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FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2001
(In thousands)
(Unaudited)

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FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(In thousands)
(Unaudited)

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FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(In thousands)
(Unaudited)

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FORM 10-Q

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
offshore contract drilling and engineering and consulting services. Although
both of these segments are generally influenced by the same economic factors,
each represents a distinct service to the oil and gas industry. Offshore
contract drilling services is then separated into international and domestic
contract drilling segments since there are certain economic and political risks
associated with each of these geographic markets and our management makes
decisions based on these markets accordingly.

Our international contract drilling segment conducts contract drilling
services in the North Sea, Brazil, West Africa, the Middle East, Mexico and
India. Our domestic contract drilling is conducted in the U.S. Gulf of Mexico.
Our engineering and consulting segment consists of the design and development of
drilling products and drilling related software programs by our Noble
Engineering & Development Limited and Maurer Technology Incorporated
subsidiaries, in addition to well site management, project management and
technical services performed by our Triton Engineering Services Company
subsidiary and the operations of WELLDONE's downhole technology tools, primarily
its automatic rotary steerable drilling system.

All intersegment sales pricing is based on current market conditions.
We evaluate the performance of our operating segments based on operating
revenues and earnings. Summarized financial information of our reportable
segments for the three and nine months ended September 30, 2002 and 2001 is
shown in the following table (in thousands). The "Other" column includes results
of labor contract drilling services, other insignificant operations and
corporate related items.

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FORM 10-Q

The following table is a reconciliation of reportable segment profit to
our consolidated totals for the three and nine months ended September 30, 2002
and 2001 (in thousands).

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FORM 10-Q

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

FORWARD-LOOKING STATEMENTS

This report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Form 10-Q, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations", regarding our
financial position, business strategy, plans and objectives of management for
future operations, industry conditions, and indebtedness covenant compliance,
are 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. Important factors
that could cause actual results to differ materially from our expectations
include, but are not limited to, changes in United States tax laws, or the
enactment of new United States tax laws, that may result in Noble being subject
to taxation in the United States on its worldwide earnings, other material
changes in the tax laws of the United States or other countries in which we
operate which could increase our effective tax rate, volatility in crude oil and
natural gas prices, the discovery of significant additional oil and/or gas
reserves or the construction of significant oil and/or gas delivery or storage
systems that impact regional or worldwide energy markets, potential
deterioration in the demand for our drilling services and resulting declining
dayrates, changes in our customers' drilling programs or budgets due to factors
discussed herein or due to their own internal corporate events, the cancellation
by our customers of drilling contracts or letter agreements or letters of intent
for drilling contracts or their exercise of early termination provisions
generally found in our drilling contracts, intense competition in the drilling
industry, changes in oil and gas drilling technology or in our competitors'
drilling fleets that could make our drilling rigs less competitive or require
major capital investment to keep them competitive, political and economic
conditions in the United States and in international markets where we operate,
acts of war or terrorism and the aftermath of the September 11, 2001 terrorist
attacks on the United States, cost overruns or delays on shipyard repair,
maintenance, conversion or upgrade projects, adverse weather (such as
hurricanes) and seas, operational risks (such as blowouts and fires),
limitations on our insurance coverage, and requirements and potential liability
imposed by governmental regulation of the drilling industry (including
environmental regulation). All of the foregoing 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. When used in this Form 10-Q,
the words "believes", "anticipates", "expects", "plans" and similar expressions
as they relate to the Company or its management are intended to identify
forward-looking statements.

As used herein, unless otherwise required by the context, the term
"Noble" refers to Noble Corporation (see "Corporate Restructuring" below), the
term "Noble Drilling" refers to Noble Drilling Corporation and the terms
"Company", "we", "our", and words of similar import refer to Noble and its
consolidated subsidiaries. The use herein of such terms as group, organization,
we, us, our and its, or references to specific entities, is not intended to be a
precise description of corporate relationships.

CORPORATE RESTRUCTURING

On April 30, 2002, Noble Corporation, a Cayman Islands company (which
we sometimes refer to in this report as "Noble"), became the successor to Noble
Drilling Corporation, a Delaware corporation (which we sometimes refer to as
"Noble Drilling"), as part of the internal corporate restructuring of Noble
Drilling and its subsidiaries. This restructuring was approved by the
stockholders of Noble Drilling at its 2002 annual stockholders meeting. The
restructuring was accomplished through the merger of an indirect, wholly owned
subsidiary of Noble Drilling with and into Noble Drilling. Noble Drilling
survived the merger and is now an indirect, wholly owned subsidiary of Noble. In
addition, as a result of the merger, all of the outstanding shares of common
stock (and the related preferred stock purchase rights) of Noble Drilling were
exchanged for ordinary shares (and related preferred share purchase rights) of
Noble. Noble and its subsidiaries, including Noble Drilling, continue to conduct
the businesses previously conducted by the Noble Drilling corporate group prior
to the merger. We accounted for the restructuring as a reorganization of
entities under common control. Consequently, the consolidated amounts of assets,
liabilities and shareholders' equity did not change as a result of the
restructuring.

Noble Drilling sought stockholder approval of and effected the
restructuring as a means to remain competitive in the global marketplace to
provide diversified services to the oil and gas industry. Under the restructured
organization, we gain flexibility to reduce our worldwide corporate effective
tax rate, increase the operational efficiencies of our business, and create a
corporate structure that is generally more favorable for expansion of our
business. Additionally, we believe Noble could be a more attractive investment
alternative to a wider range of investors.

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FORM 10-Q

For the nine months ended September 30, 2002, 64 percent of our
revenues and 87 percent of our net income was derived from drilling operations
outside of the United States. Our restructuring was in part driven by
inequitable treatment under current U.S. tax laws, which impose taxes on the
worldwide income of U.S. companies. This method of taxation places U.S.-based
multinationals at a competitive disadvantage. The parent companies of certain of
our competitors, including our two largest competitors, are incorporated in the
Cayman Islands and other non-U.S. countries that impose either no tax or tax at
rates substantially less than the United States.

As previously disclosed and widely reported in the media, several bills
have been introduced in the U.S. House of Representatives and the U.S. Senate
which deal with various aspects of corporate "inversions". Certain proposed
legislation, if enacted in its form as originally filed, would substantially
reduce or eliminate the benefits of the restructuring to Noble. Other proposed
legislation is also directed towards leveling the playing field with respect to
provisions in the U.S. Internal Revenue Code that put U.S. companies competing
in a global marketplace at a competitive disadvantage. Our consolidated
financial statements for the three months and nine months ended September 30,
2002 include a reduction in the income tax provision of $3,000,000 for tax
benefits attributable to this restructuring. We anticipate the reduction in the
income tax provision attributable to the benefits of this restructuring for the
12 months ended December 31, 2002 will approximate $9,000,000.

THE COMPANY

We are a leading provider of diversified services for the oil and gas
industry. We perform contract drilling services with our fleet of 53 offshore
drilling units located in key markets worldwide. Our fleet of floating deepwater
units consists of 13 semisubmersibles and three dynamically positioned
drillships, seven of which are designed to operate in water depths greater than
5,000 feet. Our premium fleet of 34 independent leg, cantilever jackup rigs
includes 21 units that operate in water depths of 300 feet and greater, four of
which operate in water depths of 360 feet and greater, and 11 units that operate
in water depths up to 250 feet. In addition, our fleet includes three
submersible drilling units. Nine of our drilling units are capable of operating
in harsh environments. Nearly two-thirds of the fleet is currently deployed in
international markets, principally including the North Sea, Brazil, West Africa,
the Middle East, Mexico and India. We also provide labor contract drilling
services, well site and project management services, and engineering services.
In addition, as part of our technology initiative, we design and develop
drilling products, drilling related software programs and technical solutions to
enhance drilling efficiency.

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.

Oil and natural gas prices remained steady during the third quarter of
2002. Demand for offshore drilling rigs in the U.S. Gulf of Mexico did not
improve as compared to the previous quarter, and as a result, dayrates on our
jackups in the Gulf improved only modestly during the recent quarter. Although
natural gas prices during the quarter were higher than prices of a year ago,
natural gas inventory storage levels remain high due to a strong supply of
natural gas during the first half of 2001. We believe that a continuation of
high natural gas inventory storage levels could adversely impact natural gas
prices and the demand for offshore drilling rigs in the U.S. Gulf of Mexico.
Drilling activity in many international markets, which are influenced more by
oil prices, remained strong as reflected by continued high utilization rates and
dayrates. Despite the exercise of early termination provisions by our customers
in the contracts for two of our rigs in West Africa, as recently disclosed, we
anticipate drilling activity in international markets generally to remain strong
during the remainder of 2002 and into 2003. Oil companies continue to work
through the effects of industry consolidation, which has inhibited capital
spending on exploration and development. We expect that further consolidation
among our customer base would dampen drilling activity levels near-term. We
cannot predict the future level of demand for our drilling services or future
conditions in the offshore contract drilling industry.

In recent years, we have focused on increasing the number of rigs in
our fleet capable of deepwater offshore drilling. We have incorporated this
focus into our broader, long-standing business strategy to actively expand our
international and offshore deepwater capabilities through acquisitions, rig
upgrades and modifications and to redeploy assets in important geological areas.

ACQUISITIONS

On May 3, 2002, as part of our strategy to expand our technology
initiative, we made several related acquisitions. We acquired all of the shares
of WELLDONE Engineering GmbH ("WELLDONE") for $5,750,000 in cash. We agreed to
pay up

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FORM 10-Q

to an additional $3,500,000 provided WELLDONE's tools achieve certain
operational and financial milestones during the period through May 3, 2004.
WELLDONE's primary asset is its ownership in the "Well Director(TM)", an
automatic rotary steerable drilling system, which was designed by and is
manufactured and marketed through DMT WELLDONE Drilling Services GmbH ("DMT
WELLDONE"). As a result of our acquisition of WELLDONE, we acquired WELLDONE's
50 percent joint venture interest in DMT WELLDONE, which is further described
below. We paid $2,650,000 to Deutsche Montan Technologie GmbH ("DMT"), the other
joint venturer in DMT WELLDONE, for the remaining 50 percent interest in the
joint venture.

In connection with the above described transaction, we also acquired 24
Well Director drilling tools and related assets owned by Phoenix Technology
Services, Ltd. ("Phoenix") for $6,000,000 in cash. We agreed to pay up to an
additional $3,000,000 provided certain operating performance milestones are
achieved during the period through year end 2004. In the transaction we also
acquired from Phoenix its worldwide marketing rights to the Well Director
drilling tools.

Pursuant to a related agreement, we and DMT each committed to fund
2,100,000 Euros to a new joint venture in which each party has a 50 percent
interest. The joint venture will in turn use such funds to retain DMT to conduct
research and development. This joint venture will own the intellectual property
rights of all new technology developed.

On March 27, 2002, we purchased two semisubmersible baredecks, Bingo
9000 Rig 3 and Bingo 9000 Rig 4, from subsidiaries of Ocean Rig ASA ("Ocean
Rig") for an aggregate purchase price of $45,000,000 in an all cash transaction.
In the transaction, Ocean Rig retained an option to repurchase the two bardecks
on or before March 27, 2003 for a purchase price of $56,000,000. In September
2002, we paid Ocean Rig $100,000 for the cancellation of this option to
repurchase.

On March 26, 2002, we purchased two semisubmersible drilling rigs, the
Noble Lorris Bouzigard (ex Transocean 96) and Noble Therald Martin (ex
Transocean 97), from subsidiaries of Transocean Inc. for an aggregate purchase
price of $31,000,000 in an all cash transaction. Each unit is a pentagon
designed semisubmersible currently capable of operating in water depths up to
2,350 feet and was upgraded in 1997. We are currently upgrading the living
quarters and drilling equipment on these units. In addition, we plan to upgrade
these units to work in deeper water depths.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

GENERAL

Net income for the third quarter of 2002 (the "Current Quarter") was
$49,153,000, or $0.37 per diluted share, on operating revenues of $234,719,000,
compared to net income for the third quarter of 2001 (the "Comparable Quarter")
of $76,970,000, or $0.58 per diluted share, on operating revenues of
$272,792,000.

RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES

The following table sets forth the average rig utilization rates,
operating days and average dayrates for our rig fleet for the three months ended
September 30, 2002 and 2001:

- ----------

(1) Information reflects our policy to report utilization rates based on
the number of actively marketed rigs in our fleet.

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FORM 10-Q

INTERNATIONAL OPERATIONS

The following table sets forth the operating revenues and gross margin
(operating revenues less direct operating expenses) for our international
operations for the three months ended September 30, 2002 and 2001:

OPERATING REVENUES. International contract drilling services revenues
increased $12,787,000 due to higher average dayrates in the North Sea and Middle
East and additional operating days in the Middle East, partially offset by lower
rig utilization in Brazil due to the drydocking of the Noble Leo Segerius during
the Current Quarter. Labor contract drilling services revenues decreased
$2,383,000 due to lower utilization on our North Sea labor contracts and fewer
equipment rentals on the Hibernia project in Canada. International engineering,
consulting and other revenues decreased $212,000 due to the termination of our
equipment fabrication services in the North Sea.

GROSS MARGIN. International contract drilling services gross margin
increased $4,308,000 due to higher average dayrates in the North Sea and Middle
East and additional operating days in the Middle East, partially offset by lower
rig utilization in Brazil. International labor contract drilling services gross
margin decreased $256,000 due to lower utilization on our North Sea labor
contracts. International engineering, consulting and other gross margin
decreased $778,000 due to the termination of our equipment fabrication services
in the North Sea and additional operating costs related to the testing of the
Well Director drilling tools acquired from Phoenix in May 2002.

DOMESTIC OPERATIONS

The following table sets forth the operating revenues and gross margin
(operating revenues less direct operating expenses) for our domestic operations
for the three months ended September 30, 2002 and 2001:

OPERATING REVENUES. Domestic contract drilling services revenues
decreased $46,831,000, as softer market conditions in the U.S. Gulf of Mexico
resulted in lower average dayrates and fewer operating days. Domestic
engineering, consulting and other revenues decreased $1,434,000 due to reduced
demand for drilling engineering services provided by our Triton Engineering
Services Company subsidiary ("Triton"), which was attributable to the softer
market conditions in the U.S. Gulf of Mexico.

GROSS MARGIN. Domestic contract drilling services gross margin
decreased $48,444,000 due to lower average dayrates and fewer operati