News Column

NOBLE CORP PLC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 8, 2014

The following discussion is intended to assist you in understanding our financial position at June 30, 2014, and our results of operations for the three and six months ended June 30, 2014 and 2013. The following discussion should be read in conjunction with the consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2013 filed by Noble Corporation plc, a company registered under the laws of England and Wales ("Noble-UK"), and Noble Corporation, a Cayman Islands company ("Noble-Cayman").



Forward-Looking Statements

This Quarterly 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 contract backlog, fleet status, our financial position, business strategy, timing or results of acquisitions or dispositions, repayment of debt, borrowings under our credit facilities or other instruments, completion, delivery dates and acceptance of our newbuild rigs, future capital expenditures, contract commitments, dayrates, contract commencements, extension or renewals, contract tenders, the outcome of any dispute, litigation, audit or investigation, plans and objectives of management for future operations, foreign currency requirements, results of joint ventures, indemnity and other contract claims, construction and upgrade of rigs, industry conditions, access to financing, impact of competition, governmental regulations and permitting, availability of labor, worldwide economic conditions, taxes and tax rates, indebtedness covenant compliance, dividends and distributable reserves, and timing for compliance with any new regulations 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 be correct. These forward-looking statements speak only as of the date of this report on Form 10-Q and we undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law. We have identified factors including but not limited to operating hazards and delays, risks associated with operations outside the U.S., actions by regulatory authorities, customers, joint venture partners, contractors, lenders and other third parties, legislation and regulations affecting drilling operations, costs and difficulties relating to the integration of businesses, factors affecting the level of activity in the oil and gas industry, supply and demand of drilling rigs, factors affecting the duration of contracts, the actual amount of downtime, factors that reduce applicable dayrates, violations of anti-corruption laws, hurricanes and other weather conditions and the future price of oil and gas 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 Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2013, our Quarterly Reports on Form 10-Q and in our other filings with the U.S. Securities and Exchange Commission ("SEC"). We cannot control such risk factors and other uncertainties, 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 and uncertainties when you are evaluating us.



Paragon Offshore plc Spin-off Transaction

On August 1, 2014, we completed the previously announced plan to reorganize our business by means of a spin-off of a wholly-owned subsidiary, Paragon Offshore plc ("Paragon Offshore"). The spin-off was accomplished through a pro rata distribution by us of all of the ordinary shares of Paragon Offshore to our shareholders. Our shareholders received one share of Paragon Offshore for every three shares of Noble owned as of July 23, 2014, the record date for the distribution. Paragon Offshore's assets and liabilities consist of most of our standard specification drilling units and related assets, liabilities and business. Paragon Offshore's fleet consists of five drillships, three semisubmersibles, 34 jackups and one floating production storage and offloading unit ("FPSO"). Paragon Offshore is also responsible for the Hibernia platform operations offshore Canada. In connection with the spin-off, we received approximately $1.7 billion in cash as settlement of intercompany notes issued by Paragon Offshore to Noble as consideration for the business contributed to Paragon Offshore. Noble used these funds to repay outstanding third-party debt of Noble-Cayman and its subsidiaries. 36



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In connection with the separation and spin-off, we entered into a master separation agreement and other agreements described in Note 12 to our financial statements in this report.

Because the spin-off distribution was completed after June 30, 2014, the accounts of Paragon Offshore and its subsidiaries are reflected as continuing operations in our consolidated financial statements in this report and are part of our results of operations discussed throughout this report.



Executive Overview

We are a leading offshore drilling contractor for the oil and gas industry. We perform contract drilling services with our fleet of mobile offshore drilling units located worldwide. As of August 1, 2014, our fleet consists of 15 jackups, 11 semisubmersibles and 9 drillships, including three units under construction as follows: one dynamically positioned, ultra-deepwater, harsh environment

drillships; and two high-specification, heavy-duty, harsh environment jackups. Our fleet is located in the United States, Brazil, Argentina, the North Sea, the Mediterranean, West Africa, the Middle East, Asia and Australia. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921. Outlook The business environment for offshore drillers during the first six months of 2014 has been challenging. While the price of Brent Crude, a key factor in determining customer activity levels, remained strong throughout the period, there has been a decrease in contracting activity particularly for ultra-deepwater and deepwater rigs with delays in projects, as operators evaluate development costs. In addition, supply is expected to increase due to a significant number of newbuild units that are forecast to enter the market over the next 12 months and the number of drilling contracts that will roll over during such period, particularly in the deepwater and ultra-deepwater segments. While we believe the short-term outlook has downside risks, we continue to have confidence in the long-term fundamentals for the industry. These fundamental factors include stable crude oil prices, favorable exploration results, geographic expansion of deepwater drilling activities, a growing backlog of multi-year field development programs and greater access by our customers to promising offshore regions, as evidenced by the Australian government releasing 30 oil and gas blocks for bidding and the energy reform legislation in Mexico that could potentially lead to an increase in drilling activity in Mexican waters.



Results and Strategy

Our goal is to be the preferred offshore drilling contractor for the oil and gas industry based upon the following core principles:

operate in a manner that provides a safe working environment for our

employees while protecting the environment and our assets; provide an attractive investment vehicle for our shareholders; and



deliver superior customer service through a diverse and technically advanced

fleet operated by proficient crews.

Our business strategy has also focused on the active expansion of our worldwide deepwater and high specification jackup capabilities through construction, modifications and acquisitions, the deployment of our drilling assets in important oil and gas producing areas throughout the world and the divestiture of our standard specification drilling units. 37



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We have actively expanded our offshore deepwater drilling and high specification jackup capabilities in recent years through the construction and acquisition of rigs. As part of this technical and operational expansion, we plan to continue to evaluate opportunities to enhance our fleet to achieve greater technological capability, which we believe will lead to increased drilling efficiencies and the ability to complete the increasingly more complex programs required by our customers. During the first six months of 2014, we continued to execute our newbuild program, completing the following milestones:



we commenced operations in the first quarter of 2014 on the Noble Regina

Allen, a high-specification, heavy duty, harsh environment jackup, under an

18-month contract in the North Sea;



we commenced operations in the first quarter of 2014 on the Noble Houston

Colbert, a high-specification, heavy duty, harsh environment jackup, under a

22-month contract in Argentina;



we completed construction of the Noble Sam Turner, a high-specification,

heavy duty, harsh environment jackup, which was delivered from the shipyard

during the first quarter of 2014 and is scheduled to complete acceptance

testing and begin operations under a two-year contract in the North Sea in

the third quarter of 2014;



we completed construction of the Noble Sam Croft, a dynamically positioned,

ultra-deepwater, harsh environment drillship, which was delivered from the

shipyard during the second quarter of 2014 and is scheduled to complete

acceptance testing and begin operations under a three-year contract in the

U.S. Gulf of Mexico in the third quarter of 2014;



we completed construction of the Noble Tom Prosser, a high-specification,

heavy duty, harsh environment jackup, which was delivered from the shipyard

during the second quarter of 2014. This unit is currently undergoing final

commissioning and crew familiarization, and is scheduled to complete acceptance testing and begin operations under an 18-month contract in Australia in the first quarter of 2015;



we continued construction of the Noble Tom Madden, a dynamically positioned,

ultra-deepwater, harsh environment drillship, which is scheduled to be

delivered from the shipyard in the third quarter of 2014. The unit will then

mobilize to the U.S. Gulf of Mexico where it is expected to begin operations

under a three-year contract in the first quarter of 2015;



we continued construction of the Noble Sam Hartley, a high-specification,

heavy duty, harsh environment jackup, which is scheduled to be completed in

the fourth quarter of 2014; and



we continued construction of our CJ70, an ultra-high specification jackup.

While we cannot predict the future level of demand or dayrates for our drilling services or future conditions in the offshore contract drilling industry, we continue to believe we are well positioned within the industry and that our newbuild activity will further strengthen our position.



Contract Drilling Services Backlog

We maintain a backlog (as defined below) of commitments for contract drilling services. The following table sets forth, as of June 30, 2014, the amount of our contract drilling services backlog and the percent of available operating days committed for the periods indicated and, because the Paragon Offshore spin-off occurred after such date, includes backlog of $2.3 billion associated with the Paragon Offshore fleet: Year Ending December 31, Total 2014 (1)



2015 2016 2017 2018-2023

(In millions) Contract Drilling Services Backlog Semisubmersibles/Drillships (2) (6) $ 10,067$ 1,459$ 2,659$ 1,956$ 1,253$ 2,740 Jackups (3) 3,286 919 1,204 496 230 437 Total (4) $ 13,353$ 2,378$ 3,863$ 2,452$ 1,483$ 3,177 Percent of Available Days Committed (5) Semisubmersibles/Drillships 72 % 59 % 40 % 24 % 9 % Jackups 76 % 46 % 13 % 4 % 1 % Total 74 % 50 % 23 % 11 % 9 %



(1) Represents a six-month period beginning July 1, 2014.

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Table of Contents (2) Our drilling contracts with PetrÓleo Brasileiro S.A. ("Petrobras") provide an

opportunity for us to earn performance bonuses based on reaching targets for

downtime experienced for our rigs operating offshore Brazil. Our backlog

includes an amount equal to 50 percent of potential performance bonuses for

such rigs, or $74 million.

The drilling contracts with Royal Dutch Shell, PLC ("Shell") for the Noble Globetrotter I, Noble Globetrotter II, Noble Jim Thompson, Noble Clyde Boudreaux, Noble Max Smith, Noble Don Taylor and the Noble Jim Day provide opportunities for us to earn performance bonuses based on key performance indicators as defined by the contract. Our backlog includes an amount equal to 25 percent of potential performance bonuses for these rigs, or $162 million.

(3) PetrÓleos Mexicanos ("Pemex") has the ability to cancel its drilling

contracts on 30 days or less notice without Pemex's making an early

termination payment. At June 30, 2014, we had 10 rigs contracted to Pemex in

Mexico, and our backlog includes approximately $308 million related to such

contracts. All Pemex contracts are with Paragon Offshore.

(4) Some of our drilling contracts provide the customer with certain early

termination rights.

(5) Percent of available days committed is calculated by dividing the total

number of days our rigs are operating under contract for such period, or

committed days, by the product of the total number of our rigs, including

cold stacked rigs, and the number of calendar days in such period. Committed

days do not include the days that a rig is stacked or the days that a rig is

expected to be out of service for significant overhaul, repairs or

maintenance. Percentages take into account additional capacity from the

estimated dates of deployment of our newbuild rigs that are scheduled to

commence operations during 2014 through 2016.

(6) Noble and a subsidiary of Shell are involved in joint ventures that own and

operate both the Noble Bully I and the Noble Bully II. Under the terms of the

joint venture agreements, each party has an equal 50 percent share in both

vessels. As of June 30, 2014, the combined amount of backlog for these rigs

totals $1.9 billion, all of which is included in our backlog. Noble's

proportional interest in the backlog for these rigs was $927 million.

Our contract drilling services backlog reflects estimated future revenues attributable to both signed drilling contracts and letters of intent that we expect to realize. A letter of intent is generally subject to customary conditions, including the execution of a definitive drilling contract. It is possible that some customers that have entered into letters of intent will not enter into signed drilling contracts. We calculate backlog for any given unit and period by multiplying the full contractual operating dayrate for such unit by the number of days remaining in the period. The reported contract drilling services backlog does not include amounts representing revenues for mobilization, demobilization and contract preparation, which are not expected to be significant to our contract drilling services revenues, amounts constituting reimbursables from customers or amounts attributable to uncommitted option periods under drilling contracts or letters of intent. The amount of actual revenues earned and the actual periods during which revenues are earned may be materially different than the backlog amounts and backlog periods set forth in the table above due to various factors, including, but not limited to, shipyard and maintenance projects, unplanned downtime, achievement of bonuses, weather conditions and other factors that result in applicable dayrates lower than the full contractual operating dayrate. In addition, amounts included in the backlog may change because drilling contracts may be varied or modified by mutual consent or customers may exercise early termination rights contained in some of our drilling contracts or decline to enter into a drilling contract after executing a letter of intent. As a result, our backlog as of any particular date may not be indicative of our actual operating results for the periods for which the backlog is calculated. See Part I, Item 1A, "Risk Factors - We can provide no assurance that our current backlog of contract drilling revenue will be ultimately realized" in our Annual Report on Form 10-K for the year ended December 31, 2013.



As of June 30, 2014, we estimate Shell and Freeport-McMoRan Copper & Gold represented approximately 52 percent and 10 percent of our backlog, respectively.

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Results of Operations

For the Three Months Ended June 30, 2014 and 2013

Net income attributable to Noble-UK for the three months ended June 30, 2014 (the "Current Quarter") was $235 million, or $0.91 per diluted share, on operating revenues of $1.24 billion, compared to net income for the three months ended June 30, 2013 (the "Comparable Quarter") of $177 million, or $0.69 per diluted share, on operating revenues of $1.02 billion. As a result of Noble-UK conducting all of its business through Noble-Cayman and its subsidiaries, the financial position and results of operations for Noble-Cayman, and the reasons for material changes in the amount of revenue and expense items between 2014 and 2013, would be the same as the information presented below regarding Noble-UK in all material respects, except operating income for Noble-Cayman for the three months ended June 30, 2014 and 2013 was $30 million and $18 million higher than operating income for Noble-UK for the same period. The operating income difference is primarily a result of executive costs directly attributable to Noble-UK for operations support and stewardship related services.



Rig Utilization, Operating Days and Average Dayrates

Operating results for our contract drilling services segment are dependent on three primary metrics: rig utilization, operating days and dayrates. The following table sets forth the average rig utilization, operating days and average dayrates for our rig fleet for the three months ended June 30, 2014 and 2013 (dollars in thousands): Average Rig Operating Average Utilization (1) Days (2) Dayrates Three Months Ended Three Months Ended Three Months Ended June 30, June 30, June 30, 2014 2013 2014 2013 % Change 2014 2013 % Change Jackups 80 % 92 % 3,272 3,594 -9 % $ 130,851$ 116,266 13 % Semisubmersibles 73 % 76 % 924 970 -5 % 394,605 370,117 7 % Drillships 92 % 78 % 1,001 637 57 % 407,259 311,490 31 % Other 0 % 0 % - - 0 % - - 0 % Total 79 % 83 % 5,197 5,201 0 % $ 231,003$ 187,537 23 %



(1) We define utilization for a specific period as the total number of days our

rigs are operating under contract, divided by the product of the total number

of our rigs, including cold stacked rigs, and the number of calendar days in

such period. Information reflects our policy of reporting on the basis of the

number of available rigs in our fleet, excluding newbuild rigs under

construction.

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

contract. 40



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Contract Drilling Services

The following table sets forth the operating results for our contract drilling services segment for the three months ended June 30, 2014 and 2013 (dollars in thousands): Three Months Ended June 30, Change 2014 2013 $ % Operating revenues: Contract drilling services $ 1,200,406$ 975,455$ 224,951 23 % Reimbursables (1) 29,291 28,000 1,291 5 % Other - 67 (67 ) ** $ 1,229,697$ 1,003,522$ 226,175 23 %



Operating costs and expenses:

Contract drilling services $ 577,134$ 487,971 $



89,163 18 %

Reimbursables (1) 21,481 22,469



(988 ) -4 %

Depreciation and amortization 249,701 209,082



40,619 19 %

General and administrative 26,845 26,378



467 2 %

Non-recurring spin-off related costs 1,441 - 1,441 ** 876,602 745,900 130,702 18 % Operating income $ 353,095$ 257,622$ 95,473 37 %



(1) We record reimbursements from customers for out-of-pocket expenses as

operating revenues and the related direct costs as operating expenses.

Changes in the amount of these reimbursables generally do not have a material

effect on our financial position, results of operations or cash flows.

** Not a meaningful percentage.

Operating Revenues. Changes in contract drilling services revenues for the Current Quarter as compared to the Comparable Quarter was driven by an increase in average dayrates, partially offset by a slight decrease in operating days. The 23 percent increase in average dayrates increased revenue by approximately $226 million, but the slight decrease in operating days decreased revenues by $1 million. The increase in contract drilling services revenues relates to our drillships, jackups and semisubmersibles, which generated approximately $209 million, $10 million and $6 million more revenue, respectively, in the Current Quarter. The increase in drillship revenues was driven by a 57 percent increase in operating days and a 31 percent increase in average dayrates, resulting in a $113 million and a $96 million increase in revenues, respectively, from the Comparable Quarter. The increase in both average dayrates and operating days was the result of the Noble Don Taylor, Noble Globetrotter II and Noble Bob Douglas, which commenced their contracts in August 2013, September 2013 and December 2013, respectively. Additionally, the Noble Roger Eason was fully operational during the Current Quarter, after receiving a reduced rate while in the shipyard to undergo its reliability upgrade project during the Comparable Quarter. The 13 percent increase in jackup average dayrates resulted in a $48 million increase in revenues from the Comparable Quarter. The increase in average dayrates resulted from favorable dayrate changes on new contracts across the jackup fleet, as well as the newbuild jackups operating at favorable dayrates. The 9 percent decline in operating days resulted in a $38 million decline in revenues driven by the Noble Gus Androes, Noble David Tinsley, Noble Gene Rosser and Noble Charlie Yester, which were off contract in the Current Quarter but experienced full utilization during the Comparable Quarter, coupled with increased downtime on the Noble Percy Johns and Noble Scott Marks during the Current Quarter. These decreases were partially offset by the contract commencements of the following newbuilds: Noble Mick O'Brien, Noble Regina Allen and Noble Houston Colbert in November 2013, January 2014 and March 2014, respectively, and the Noble Lewis Dugger, which was sold in July 2013, was fully utilized during the Comparable Quarter. 41



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The 7 percent increase in average dayrates on our semisubmersibles resulted in a $23 million increase in revenues from the Comparable Quarter. The increase in average dayrates is due to favorable dayrate changes on new contracts across the semisubmersible fleet, as well as the return to work of the Noble Paul Romano during the Current Quarter. The 5 percent decline in operating days resulted in a $17 million decline in revenues driven by the Noble Paul Wolff, which completed its contract during the Current Quarter but experienced full utilization during the Comparable Quarter. Operating Costs and Expenses. Contract drilling services operating costs and expenses increased $89 million for the Current Quarter as compared to the Comparable Quarter. A significant portion of the increase is due to the crew-up and operating expenses for our newbuild rigs as they commenced operating under contracts, which added approximately $70 million in expense in the Current Quarter. The remaining change was primarily driven by a $12 million increase in labor costs and a $9 million increase in mobilization due to the amortization of certain rig moves and the demobilization of rigs. These increases were partially offset by a $2 million decrease in maintenance and other rig-related expenses. The increase in depreciation and amortization in the Current Quarter from the Comparable Quarter was primarily attributable to assets placed in service, including the Noble Don Taylor, Noble Globetrotter II, Noble Mick O'Brien, Noble Bob Douglas, Noble Regina Allen and Noble Houston Colbert.



Other

The following table sets forth the operating results for our other services for the three months ended June 30, 2014 and 2013 (dollars in thousands):

Three Months Ended June 30, Change 2014 2013 $ % Operating revenues: Labor contract drilling services $ 8,146$ 13,603$ (5,457 ) -40 % Reimbursables (1) 2,520 260 2,260 869 % $ 10,666$ 13,863$ (3,197 ) -23 %



Operating costs and expenses:

Labor contract drilling services $ 6,261$ 9,349$ (3,088 ) -33 %

Reimbursables (1) 979 232



747 322 %

Depreciation and amortization 4,693 3,507



1,186 34 %

General and administrative 235 472



(237 ) -50 %

Non-recurring spin-off related costs 5,017 4,065 952 23 % 17,185 17,625 (440 ) -2 % Operating (loss)/income $ (6,519 )$ (3,762 )$ (2,757 ) 73 %



(1) We record reimbursements from customers for out-of-pocket expenses as

operating revenues and the related direct costs as operating expenses.

Changes in the amount of these reimbursables generally do not have a material

effect on our financial position, results of operations or cash flows.

Operating Revenues and Costs and Expenses. The decrease in both revenue and expense primarily relates to the cancellation of a project with our customer, Shell, for one of its rigs that was operating under a labor contract in Alaska.

Other Income and Expenses

Non-recurring spin-off related costs. Non-recurring spin-off related costs increased $2 million in the Current Quarter from the Comparable Quarter for professional fees and other costs incurred related to the Paragon Offshore spin-off transaction.

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Interest Expense, net of amount capitalized. Interest expense, net of amount capitalized, increased $12 million in the Current Quarter as compared to the Comparable Quarter. The increase is a result of a reduction in capitalized interest in the Current Quarter as compared to the Comparable Quarter due primarily to the completion of construction on three of our newbuild drillships and three of our newbuild jackups, coupled with increased borrowings outstanding under our credit facilities and commercial paper program. During the Current Quarter, we capitalized approximately 27 percent of total interest charges versus approximately 56 percent during the Comparable Quarter. Income Tax Provision. Our income tax provision increased $16 million in the Current Quarter driven by higher pre-tax income. The 35 percent increase in pre-tax earnings generated a $13 million increase in income tax expense. Additionally, a 6 percent increase in the effective tax rate during the Current Quarter increased income tax expense by an additional $3 million. The increase in the effective tax rate was a result of a change in the geographic mix of pre-tax earnings.



For the Six Months Ended June 30, 2014 and 2013

Net income attributable to Noble-UK for the six months ended June 30, 2014 (the "Current Period") was $491 million, or $1.90 per diluted share, on operating revenues of $2.5 billion, compared to net income for the six months ended June 30, 2013 (the "Comparable Period") of $327 million, or $1.27 per diluted share, on operating revenues of $2.0 billion. As a result of Noble-UK conducting all of its business through Noble-Cayman and its subsidiaries, the financial position and results of operations for Noble-Cayman, and the reasons for material changes in the amount of revenue and expense items between 2014 and 2013, would be the same as the information presented below regarding Noble-UK in all material respects, except operating income for Noble-Cayman for the six months ended June 30, 2014 and 2013 was $59 million and $37 million higher than operating income for Noble-UK for the same period. The operating income difference is primarily a result of executive costs directly attributable to Noble-UK for operations support and stewardship related services.



Rig Utilization, Operating Days and Average Dayrates

Operating results for our contract drilling services segment are dependent on three primary metrics: rig utilization, operating days and dayrates. The following table sets forth the average rig utilization, operating days and average dayrates for our rig fleet for the six months ended June 30, 2014 and 2013 (dollars in thousands): Average Rig Operating Average Utilization (1) Days (2) Dayrates Six Months Ended Six Months Ended Six Months Ended June 30, June 30, June 30, 2014 2013 2014 2013 % Change 2014 2013 % Change Jackups 83 % 92 % 6,684 7,192 -7 % $ 127,844$ 110,908 15 % Semisubmersibles 76 % 80 % 1,917 2,023 -5 % 393,577 344,568 14 % Drillships 92 % 80 % 1,991 1,306 52 % 400,612 313,398 28 % Other 0 % 0 % - - - - - - Total 82 % 84 % 10,592 10,521 1 % $ 227,211$ 180,984 26 %



(1) We define utilization for a specific period as the total number of days our

rigs are operating under contract, divided by the product of the total number

of our rigs, including cold stacked rigs, and the number of calendar days in

such period. Information reflects our policy of reporting on the basis of the

number of available rigs in our fleet, excluding newbuild rigs under

construction.

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

contract. 43



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Contract Drilling Services

The following table sets forth the operating results for our contract drilling services segment for the six months ended June 30, 2014 and 2013 (dollars in thousands): Six Months Ended June 30, Change 2014 2013 $ % Operating revenues: Contract drilling services $ 2,406,710$ 1,904,192$ 502,518 26 % Reimbursables (1) 65,424 48,711 16,713 34 % Other 1 77 (76 ) ** $ 2,472,135$ 1,952,980$ 519,155 27 %



Operating costs and expenses:

Contract drilling services $ 1,138,265$ 968,097 $



170,168 18 %

Reimbursables (1) 51,599 36,938



14,661 40 %

Depreciation and amortization 491,275 411,701



79,574 19 %

General and administrative 52,273 51,435



838 2 %

Non-recurring spin-off related costs 1,761 -



1,761 **

Gain on contract extinguishments - (1,800 ) 1,800 ** 1,735,173 1,466,371 268,802 18 % Operating income $ 736,962$ 486,609$ 250,353 51 %



(1) We record reimbursements from customers for out-of-pocket expenses as

operating revenues and the related direct costs as operating expenses.

Changes in the amount of these reimbursables generally do not have a material

effect on our financial position, results of operations or cash flows.

** Not a meaningful percentage.

Operating Revenues. Changes in contract drilling services revenues for the Current Period as compared to the Comparable Period were driven by increases in both average dayrates and operating days. The 26 percent increase in average dayrates increased revenues by approximately $490 million while the 1 percent increase in operating days increased revenue by $13 million. The change in contract drilling services revenues relates to our drillships, semisubmersibles and jackups, which generated approximately $389 million, $57 million and $57 million more revenue, respectively, in the Current Period. The increase in drillship revenues was driven by a 52 percent increase in operating days and a 28 percent increase in average dayrates, resulting in a $215 million and a $174 million increase in revenues, respectively, from the Comparable Period. The increase in both average dayrates and operating days was the result of the Noble Don Taylor, Noble Globetrotter II and Noble Bob Douglas, which commenced their contracts in August 2013, September 2013 and December 2013, respectively. Additionally, the Noble Roger Eason was fully operational during the Current Period, after receiving a reduced rate while in the shipyard to undergo its reliability upgrade project for a portion of the Comparable Period. The 14 percent increase in average dayrates on our semisubmersibles resulted in a $94 million increase in revenues from the Comparable Period. The increase in average dayrates is due to favorable dayrate changes on new contracts across the semisubmersible fleet, as well as the Noble Paul Romano returning to work during the Current Period. The 5 percent decline in operating days resulted in a $37 million decline in revenues driven by the Noble Paul Wolff and Noble Homer Ferrington, which completed their respective contracts during the Current Period but experienced full utilization during the Comparable Period. The 15 percent increase in jackup average dayrates resulted in a $113 million increase in revenues from the Comparable Period. The increase in average dayrates resulted from favorable dayrate changes on new contracts across the jackup fleet, as well as the newbuild jackups operating at favorable dayrates. The 7 percent decline in operating days resulted in a $56 million decline in revenues driven by the Noble Gus Androes, Noble Gene Rosser, Noble Charlie Yester and Noble David Tinsley, which were off contract for a portion of the Current Period but experienced full utilization during the Comparable Period and increased downtime on the Noble Percy Johns and Noble Scott Marks during the Current Period. Additionally, the Noble Lewis Dugger, which was sold in July 2013, was fully utilized during the Comparable Period. These decreases were partially offset by the contract commencements of the Noble Mick O'Brien, Noble Regina Allen and Noble Houston Colbert in November 2013, January 2014 and March 2014, respectively. 44



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Operating Costs and Expenses. Contract drilling services operating costs and expenses increased $170 million for the Current Period as compared to the Comparable Period. A significant portion of the increase was due to the crew-up and operating expenses for our newbuild rigs as they commenced operating under contracts, which added approximately $144 million in expenses during the Current Period. The remaining change was primarily driven by a $25 million increase in labor, the majority of which is due to rigs returning to work during the Current Period and a $16 million increase in mobilization due to the amortization of certain rig moves and the demobilization of rigs. These increases were partially offset by a $15 million decrease in maintenance and rig-related expense. The increase in depreciation and amortization in the Current Period from the Comparable Period was primarily attributable to assets placed in service, including the Noble Don Taylor, Noble Globetrotter II, Noble Mick O'Brien, Noble Bob Douglas, Noble Regina Allen and Noble Houston Colbert.



Other

The following table sets forth the operating results for our other services for the six months ended June 30, 2014 and 2013 (dollars in thousands):

Six Months Ended June 30, Change 2014 2013 $ % Operating revenues: Labor contract drilling services $ 16,358$ 34,657$ (18,299 ) -53 % Reimbursables (1) 3,040 723 2,317 320 % $ 19,398$ 35,380$ (15,982 ) -45 %



Operating costs and expenses:

Labor contract drilling services $ 12,487$ 21,598$ (9,111 ) -42 %

Reimbursables (1) 1,467 685



782 114 %

Depreciation and amortization 9,024 7,044



1,980 28 %

General and administrative 444 984



(540 ) -55 %

Non-recurring spin-off related costs 17,102 8,027 9,075 113 % 40,524 38,338 2,186 6 % Operating income $ (21,126 )$ (2,958 )$ (18,168 ) 614 %



(1) We record reimbursements from customers for out-of-pocket expenses as

operating revenues and the related direct costs as operating expenses.

Changes in the amount of these reimbursables generally do not have a material

effect on our financial position, results of operations or cash flows.

Operating Revenues and Costs and Expenses. The change in both revenue and expense primarily relates to the cancellation of a project with our customer, Shell, for one of its rigs operating under a labor contract in Alaska during 2013. Other Income and Expenses



Non-recurring spin-off related costs. Non-recurring spin-off related costs increased $11 million in the Current Period from the Comparable Period for professional fees and other costs incurred related to the Paragon Offshore spin-off transaction.

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Interest Expense, net of amount capitalized. Interest expense, net of amount capitalized, increased $25 million in the Current Period as compared to the Comparable Period. The increase is a result of lower capitalized interest in the Current Period as compared to the Comparable Period due primarily to the completion of construction on three of our newbuild drillships and three of our newbuild jackups, coupled with increased borrowings outstanding under our credit facilities and commercial paper program. During the Current Period, we capitalized approximately 26 percent of total interest charges versus approximately 54 percent during the Comparable Period. Income Tax Provision. Our income tax provision increased $36 million in the Current Period driven by higher pre-tax income. The 48 percent increase in pre-tax earnings generated a $34 million increase in income tax expense. Additionally, a 2 percent increase in the effective tax rate during the Current Period increased income tax expense by an additional $2 million. The increase in the effective tax rate was a result of a change in the geographic mix of pre-tax earnings.



Liquidity and Capital Resources

Overview

Net cash from operating activities for the Current Period was $1.0 billion and $646 million in the Comparable Period. The increase in net cash from operating activities in the Current Period was primarily attributable to a significant increase in net income and favorable collections of accounts receivable. We had working capital of $511 million and $339 million at June 30, 2014 and December 31, 2013, respectively. Our total debt as a percentage of total debt plus equity increased to 38.8 percent at June 30, 2014 from 38.0 percent at December 31, 2013, primarily as a result of an increase in commercial paper outstanding during the Current Period. Our principal sources of capital in the Current Period were the cash generated from operating activities noted above and borrowings under our commercial paper program. Cash generated during the Current Period was primarily used to fund our capital expenditure program.



Our currently anticipated cash flow needs, both in the short-term and long-term, may include the following:

committed capital expenditures, including expenditures for newbuild

projects currently underway; normal recurring operating expenses;



discretionary capital expenditures, including various capital upgrades;

non-recurring spin-off related costs; payments of dividends; and repayment of maturing debt. We currently expect to fund these cash flow needs with cash generated by our operations, cash on hand, borrowings under our existing or future credit facilities and commercial paper program, potential issuances of long-term debt, or asset sales. However, to adequately cover our expected cash flow needs, we may require capital in excess of the amount available from these sources, and we may seek additional sources of liquidity and/or delay or cancel certain discretionary capital expenditures as necessary.



At June 30, 2014, we had a total contract drilling services backlog of approximately $13.4 billion. Our backlog as of June 30, 2014 reflects a commitment of 74 percent of available days for the remainder of 2014 and 50 percent of available days for 2015. For additional information regarding our backlog, see "Contract Drilling Services Backlog."

Capital Expenditures

Our primary use of available liquidity during 2014 is for capital expenditures. Capital expenditures, including capitalized interest, totaled $1.2 billion for the six months ended June 30, 2014 and June 30, 2013, respectively. 46



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At June 30, 2014, we had three rigs under construction, and capital expenditures, excluding capitalized interest, for new construction during the first six months of 2014 totaled $836 million, as follows (in millions):

Rig type/name Currently under construction Drillships Noble Tom Madden $ 32.0 Jackups Noble Sam Hartley 4.6 Noble Jackup VII (CJ70-Mariner) 4.3 Recently completed construction projects Noble Sam Croft 353.2 Noble Tom Prosser 141.9 Noble Sam Turner 140.8 Noble Houston Colbert 134.9 Noble Globetrotter II 10.2 Noble Bob Douglas 9.3 Noble Don Taylor 3.2 Noble Regina Allen 1.3 Noble Mick O'Brien 0.5 Other 0.1 Total Newbuild Capital Expenditures $ 836.3



In addition to the newbuild expenditures noted above, capital expenditures during the first six months of 2014 consisted of the following:

$353 million for major projects, subsea related expenditures and upgrades and replacements to drilling equipment; and $27 million in capitalized interest. Our total capital expenditure estimate for 2014 is approximately $2.2 billion. In addition, we anticipate incurring capitalized interest, which may fluctuate as a result of the timing of completion of ongoing projects.



In connection with our capital expenditure program, as of June 30, 2014, we had outstanding commitments, including shipyard and purchase commitments, for approximately $1.3 billion, of which we expect to spend approximately $932 million within the next twelve months.

From time to time we consider possible projects that would require expenditures that are not included in our capital budget, and such unbudgeted expenditures could be significant. In addition, we will continue to evaluate acquisitions of drilling units from time to time. Other factors that could cause actual capital expenditures to materially exceed plan include delays and cost overruns in shipyards (including costs attributable to labor shortages), shortages of equipment, latent damage or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions, changes in governmental regulations and requirements and changes in design criteria or specifications during repair or construction.



Dividends

Our most recent quarterly dividend payment to shareholders, totaling approximately $97 million (or $0.375 per share), was declared on April 25, 2014 and paid on May 15, 2014 to holders of record on May 5, 2014. This payment represents the final tranche ($0.25 per share) of our previously approved annual dividend payment to shareholders, as well as an additional $0.125 per share declared by the Board of Directors in accordance with our current dividend policy. 47



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On July 25, 2014, our Board of Directors approved the payment of a quarterly dividend to shareholders of $0.375 per share. The payment is expected to total approximately $97 million, based on the number of shares currently outstanding. The declaration and payment of dividends require authorization of the Board of Directors of Noble-UK and such dividends on issued share capital may be paid only out of Noble-UK's "distributable reserves" on its statutory balance sheet. Noble-UK is not permitted to pay dividends out of share capital, which includes share premiums. The amount of future dividends will depend on our results of operations, financial condition, cash requirements, future business prospects, contractual restrictions and other factors deemed relevant by our Board of Directors.



Credit Facilities and Senior Unsecured Notes

Credit Facilities and Commercial Paper Program

We currently have three separate credit facilities with an aggregate maximum available capacity of $2.9 billion (together referred to as the "Credit Facilities"). We have established a commercial paper program, which allows us to issue up to $2.7 billion in unsecured commercial paper notes. Amounts issued under the commercial paper program are supported by the unused capacity under our Credit Facilities and, therefore, are classified as long-term on our Consolidated Balance Sheet. Outstanding commercial paper reduces availability under our Credit Facilities. Our total debt related to the Credit Facilities and commercial paper program was $2.3 billion at June 30, 2014 as compared to $1.6 billion at December 31, 2013. At June 30, 2014, we had approximately $631 million of available capacity under the Credit Facilities. The Credit Facilities provide us with the ability to issue up to $375 million in letters of credit in the aggregate. The issuance of letters of credit under the Credit Facilities reduces the amount available for borrowing. At June 30, 2014, we had no letters of credit issued under the Credit Facilities.



Senior Unsecured Notes

Our total debt related to senior unsecured notes was $3.7 billion at June 30, 2014 as compared to $4.0 billion at December 31, 2013. The decrease in senior unsecured notes outstanding is a result of the maturity of our $250 million 7.375% Senior Notes during March 2014, which was repaid using issuances under our commercial paper program. Covenants The Credit Facilities and commercial paper program are guaranteed by our indirect wholly-owned subsidiaries, Noble Holding International Limited ("NHIL") and Noble Holding Corporation ("NHC"). The covenants and events of default under the Credit Facilities are substantially similar, and each facility contains a covenant that limits our ratio of debt to total tangible capitalization, as defined in the Credit Facilities, to 0.60. At June 30, 2014, our ratio of debt to total tangible capitalization was approximately 0.39. We were in compliance with all covenants under the Credit Facilities as of June 30, 2014. In addition to the covenants from the Credit Facilities noted above, the indentures governing our outstanding senior unsecured notes contain covenants that place restrictions on certain merger and consolidation transactions, unless we are the surviving entity or the other party assumes the obligations under the indenture, and on the ability to sell or transfer all or substantially all of our assets. In addition, there are restrictions on incurring or assuming certain liens and sale and lease-back transactions. At June 30, 2014, we were in compliance with all our debt covenants. We continually monitor compliance with the covenants under our notes and expect to remain in compliance during the remainder of 2014.



Other

At June 30, 2014, we had letters of credit of $201 million and performance and temporary import bonds totaling $110 million supported by surety bonds outstanding. Certain of our subsidiaries issue guarantees to the temporary import status of rigs or equipment imported into certain countries in which we operate. These guarantees are issued in-lieu of payment of custom, value added or similar taxes in those countries. 48



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New Accounting Pronouncements

In April 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-08, which amends FASB Accounting Standards Codification ("ASC") Topic 205, "Presentation of Financial Statements" and ASC Topic 360, "Property, Plant, and Equipment." This ASU alters the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major effect on an entity's operations and finances, and calls for more extensive disclosures about a discontinued operation's assets, liabilities, income and expenses. The guidance is effective for all disposals, or classifications as held-for-sale, of components of an entity that occur within annual periods beginning on or after December 15, 2014. We are still evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures. In May 2014, the FASB issued ASU No. 2014-09, which amends ASC Topic 606, "Revenue from Contracts with Customers." The amendments in this ASU are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2016. We are still evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures. In June 2014, the FASB issued ASU No. 2014-12, which amends ASC Topic 718, "Compensation-Stock Compensation." The guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and should not be reflected in the estimate of the grant-date fair value of the award. The guidance is effective for annual periods beginning after December 15, 2015. The guidance can be applied prospectively for all awards granted or modified after the effective date or retrospectively to all awards with performance targets outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. We are still evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.


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