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 June 30, 2004

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)

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 [ ]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [X] No [ ]

Number of Ordinary Shares outstanding as of August 2, 2004: 133,897,051
(Includes 1,660,670 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, except per share amounts)
(Unaudited)

2

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.

3

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.

4

FORM 10-Q

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

See accompanying notes to the consolidated financial statements.

5

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

See accompanying notes to the consolidated financial statements.

6

FORM 10-Q

NOBLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF ACCOUNTING

The accompanying consolidated financial statements of Noble Corporation
("Noble" or, together with its consolidated subsidiaries, unless the context
requires otherwise, the "Company", "we", "our" and words of similar import) have
been prepared 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 accounting principles generally accepted
in the United States of America for complete financial statements. All
significant intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made in the prior year consolidated financial
statements to conform to the classifications used in the 2004 consolidated
financial statements. These reclassifications have no impact on net income. 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 for the year ended December
31, 2003.

NOTE 2 - ACQUISITIONS

On June 25, 2004, we purchased the Okhi (renamed the Noble Mark Burns),
a 300 feet Levingston 111-S designed independent leg jackup rig, for $29,500,000
in cash. The unit is currently in the Dalian New Shipyard in Dalian, China,
where we are performing refurbishments and upgrades. We are marketing the unit
for operation in the Middle East, India and South East Asia. The rig is
currently equipped to operate in 230 feet of water.

On July 16, 2004, we exercised our option to purchase the Maersk Viking
(renamed the Noble Cees van Diemen), a MODEC 300C, independent leg, cantilever
jackup rig, for an exercise price of $32,900,000. In June 2003, we paid an
option fee of $15,000,000 for the right to acquire the unit. Our aggregate
purchase price for the rig was therefore $47,900,000. The rig is currently in
the United Arab Emirates and is being assimilated into our Middle East fleet,
which is now comprised of 12 units. The rig is scheduled to commence an 880-day
contract in Qatar in mid-September 2004 after an upgrade program.

NOTE 3 - STOCK-BASED COMPENSATION PLANS

We have several stock-based compensation plans. As permitted by
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation ("SFAS 123") and as amended by SFAS No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure ("SFAS 148"), we have
chosen to continue using the intrinsic value method of accounting for
stock-based compensation awards in accordance with APB Opinion 25. No
compensation expense was recognized in the three and six month periods ended
June 30, 2004 and 2003 related to stock option awards.

7

FORM 10-Q

The following table reflects pro forma net income and net income per
share had we elected to adopt the fair value approach of SFAS 123 (in thousands,
except per share amounts):

NOTE 4 - NET INCOME PER SHARE

The following table reconciles the basic and diluted net income per
share ("EPS") computations for the three and six month periods ended June 30,
2004 and 2003 (in thousands, except per share amounts):

Included in diluted shares are ordinary share equivalents relating to
outstanding stock options of 1,164,000 shares and 1,005,000 shares for the three
month periods ended June 30, 2004 and 2003, respectively, and 1,183,000 and
1,100,000 shares for the six months ended June 30, 2004 and 2003, respectively.
The computation of diluted net income per share for the three month periods
ended June 30, 2004 and 2003 did not include options to purchase 2,112,000 and
1,842,000 ordinary shares, respectively, while the computation for the six month
periods ended June 30, 2004 and 2003 did not include options to purchase
2,081,000 and 1,842,000, respectively, because the options' exercise prices were
greater than the average market price of the ordinary shares. Excluded from the
basic and diluted share amounts above are shares held in a Rabbi Trust, which
will be used for future funding of the Company's benefit plans. The number of
shares in the Rabbi Trust was 1,661,000 and 1,734,000 at June 30, 2004 and 2003,
respectively. Shares in the Rabbi Trust are included in the number of ordinary
shares legally outstanding as of August 2, 2004, as reflected on the cover of
this Form 10-Q, and are accounted for as Treasury Stock in our Consolidated
Balance Sheets.

We repurchased 1,087,000 of our ordinary shares during the three and
six month periods ended June 30, 2004 at a total cost of $39,714,000. Ordinary
shares that were repurchased were automatically cancelled and retired pursuant
to Cayman Islands law. These repurchases were recorded as a decrease of $109,000
and $39,605,000 to the balances of our ordinary shares and capital in excess of
par value, respectively, on our Consolidated Balance Sheet.

8

FORM 10-Q

NOTE 5 - MARKETABLE SECURITIES

As of June 30, 2004, we owned marketable equity securities with a fair
market value of $11,078,000, of which $10,768,000 was included in a Rabbi Trust
for 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 June 30, 2004 at their fair value. The remaining
investment in marketable equity securities, with a fair market value of $310,000
at June 30, 2004, is classified as available for sale and is included in "Other
assets" in the Consolidated Balance Sheets at its fair market value. As of June
30, 2004, we also owned marketable debt securities with a fair market value of
$93,256,000. These investments are classified as available for sale and are
included in "Investment in marketable securities" in the Consolidated Balance
Sheet at June 30, 2004 at their fair market value.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

Noble Asset Company Limited ("NACL"), a wholly-owned, indirect
subsidiary of Noble, has been named one of 21 parties served a Show Cause Notice
issued by the Commissioner of Customs (Prev.), Mumbai, India. The Show Cause
Notice concerns alleged violations of Indian Customs laws and regulations
regarding one of our jackup drilling rigs. The Commissioner alleges certain
violations to have occurred before, at the time of, and after NACL acquired the
rig from the rig's previous owner. In connection with the export of the rig from
India in 2001, NACL posted a bank guarantee in the amount of $3,300,000 and a
customs bond in the amount of $21,340,000, both of which remain in place. We
maintain that NACL has acted in accordance with all Indian Customs laws and
regulations and believe the Show Cause Notice is without merit as against NACL.
In the purchase agreement for the rig, NACL received contractual indemnification
against liability for Indian customs duty from the rig's previous owner. We do
not believe the resolution of this matter will have a material adverse effect on
our financial position, results of operations or cash flows.

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

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 June 30, 2004, we had
approximately $35,000,000 of outstanding purchase commitments related to these
projects.

NOTE 7 - PARENT GUARANTEE OF REGISTERED SECURITIES ISSUED BY SUBSIDIARY

Noble and Noble Holding (U.S.) Corporation ("Noble Holding"), a
wholly-owned subsidiary of Noble, are guarantors for certain debt securities
issued by Noble Drilling Corporation ("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 balances of the 6.95% Senior Notes and the
7.50% Senior Notes at June 30, 2004 were $149,950,000 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 guarantees of these securities are 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. These consolidating financial statements
present Noble's and Noble Holding's investments in both consolidated and
unconsolidated affiliates using the equity method of accounting.

9

FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
JUNE 30, 2004
(In thousands, except per share amounts)
(Unaudited)

10

FORM 10-Q
NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2003
(In thousands, except per share amounts)
(Unaudited)

11

FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED JUNE 30, 2004
(In thousands)
(Unaudited)

12

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED JUNE 30, 2003
(In thousands)
(Unaudited)

13

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2004
(In thousands)
(Unaudited)

14

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2003
(In thousands)
(Unaudited)

15

FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004
(In thousands)
(Unaudited)

16

FORM 10-Q

NOBLE CORPORATION AND OTHER SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003
(In thousands)
(Unaudited)

NOBLE
HOLDING NOBLE
NOBLE (SUBSIDIARY DRILLING OTHER CONSOLIDATING
(GUARANTOR) GUARANTOR) (ISSUER) SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- --------- ------------- ------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES

Net income ......................................... $ 83,159 $ 73,532 $ 89,437 $ 85,549 $ (248,518) $ 83,159

Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, and amortization of deferred
repair and maintenance ...................... -- -- 2,256 83,402 -- 85,658
Deferred income tax provision ................. -- -- 2,115 1,311 -- 3,426
Loss on sales of marketable securities ........ -- -- -- 336 -- 336
Equity in income of joint ventures ............ -- -- -- (341) -- (341)
Compensation expense from stock-based plans ... 2,332 -- -- -- -- 2,332
Equity earnings in affiliates ................. (60,138) (89,437) (98,943) -- 248,518 --
Other ......................................... -- -- (1,711) 747 -- (964)
Changes in current assets and liabilities:
Accounts receivable .......................... -- -- (1,678) (13,096) -- (14,774)
Accounts receivable from affiliates .......... -- -- 14,966 -- (14,966) --
Other current assets ......................... (8,908) -- (2,602) (1,292) -- (12,802)
Accounts payable ............................. -- -- 24 (20,119) -- (20,095)
Accounts payable to affiliates ............... (3,396) 24,333 -- (35,903) 14,966 --
Other current liabilities .................... 196 (370) 3,166 (11,639) -- (8,647)
----------- ----------- --------- ------------- ------------ ---------
Net cash provided by operating activities.. 13,245 8,058 7,030 88,955 -- 117,288
----------- ----------- --------- ------------- ------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and related capital upgrades ........ -- -- -- (120,326) -- (120,326)
Other capital expenditures ....................... -- -- (5,675) (24,974) -- (30,649)
Deferred repair and maintenance expenditures ..... -- -- (1,355) (13,076) -- (14,431)
Repayments from joint venture .................... -- -- -- 287 -- 287
Repayments from affiliates........................ 8,058 -- -- -- (8,058) --
Investment in marketable securities .............. (32,000) -- -- (21,700) -- (53,700)
Proceeds from sales and maturities of
marketable securities ....................... 23,000 -- -- 36,771 -- 59,771
----------- ----------- --------- ------------- ------------ ---------
Net cash used for investing activities .... (942) -- (7,030) (143,018) (8,058) (159,048)
----------- ----------- --------- ------------- ------------ ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt ....................... -- (8,058) -- (31,356) 8,058 (31,356)
Proceeds from issuance of ordinary shares ....... 3,100 -- -- -- -- 3,100
Decrease in restricted cash ..................... -- -- -- 1,477 -- 1,477
----------- ----------- --------- ------------- ------------ ---------
Net cash provided by (used for)
financing activities ...................... 3,100 (8,058) -- (29,879) 8,058 (26,779)
----------- ----------- --------- ------------- ------------ ---------
INCREASE(DECREASE) IN CASH
AND CASH EQUIVALENTS .......................... 15,403 -- -- (83,942) -- (68,539)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ........................... 9,317 -- -- 183,192 -- 192,509
----------- ----------- --------- ------------- ------------ ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ................................. $ 24,720 $ -- $ -- $ 99,250 $ -- $ 123,970
=========== =========== ========= ============= ============ =========

17

NOTE 8 - 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
domestic and international offshore contract drilling and engineering and
consulting services. Although these segments are generally influenced by the
same economic factors, each represents a distinct service to the oil and gas
industry. Each of our drilling rigs is considered by us to be an operating
segment within our domestic and international offshore contract drilling
services reportable segments, and these operating segments are aggregated to
comprise our domestic and international contract drilling services reportable
segments in accordance with SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information ("SFAS 131").

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

All intersegment sales pricing is based on current market conditions.
We evaluate the performance of our operating segments based on operating
revenues and net income. Summarized financial information of our reportable
segments for the three and six months ended June 30, 2004 and 2003 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.

18

FORM 10-Q

The following table is a reconciliation of reportable segment net
income (loss) to our consolidated totals for the three and six months ended June
30, 2004 and 2003 (in thousands).

NOTE 9 - EMPLOYEE BENEFIT PLANS

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

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

19

Pension costs for the three and six months ended June 30, 2004 and 2003
includes the following components (in thousands):

We previously disclosed in our financial statements for the year ended
December 31, 2003 that we expect to contribute approximately $5,000,000 to our
pension plans in 2004. As of June 30, 2004, there has been no change to this
expectation. We funded a total of $461,000 to our pension plans during the six
months ended June 30, 2004.

NOTE 10 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Our North Sea operations have a significant amount of its cash
operating expenses payable in either the Euro or British Pound. To reduce our
exposure to fluctuations in these currencies over the remainder of 2004, we
entered into forward contracts in March and April of this year to purchase
1,400,000 Euros and 1,200,000 British Pounds, respectively, per month for the
months April 2004 through December 2004. These contracts represent approximately
50 percent of our forecasted Euro and British Pound requirements for the
remainder of this year. These forward contracts are being accounted for as cash
flow hedges under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities (an amendment of FASB
Statement No. 133), and SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. During the three and six months ended June
30, 2004, we reversed a net unrealized gain of $9,000 upon the settlement of
forward contracts. We recognized a net unrealized gain on outstanding contracts
during the three and six months ended June 30, 2004 of $210,000 and $233,000,
respectively. The cumulative net unrealized gain on these forward contracts of
$233,000 is included in "Accumulated other comprehensive income" in our
Consolidated Balance Sheet at June 30, 2004. We did not recognize a gain or loss
in our Consolidated Statements of Income for the three and six months ended June
30, 2004 related to these forward contracts.

20

The balance of the net unrealized gain related to our foreign currency
forward contracts included in Accumulated other comprehensive income and related
activity for the three and six months ended June 30, 2004 is presented in the
following table:

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.

We have identified factors that could cause actual plans or results to
differ materially from those included in any forward-looking statements. These
factors include, but are not limited to, the following:

o volatility in crude oil and natural gas prices;

o changes in our customers' drilling programs or budgets due to
their own internal corporate events, changes in the markets
and prices for oil and gas, or shifts in the relative
strengths of various geographic drilling markets brought on by
things such as a general economic slowdown, or regional or
worldwide recession, any of which could result in
deterioration in demand for our drilling services;

o our inability to execute any of our business strategies;

o changes in tax laws, tax treaties or tax regulations or the
interpretation or enforcement thereof, including taxing
authorities not agreeing with our assessment of the effects of
such laws, treaties and regulations;

o 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;

o intense competition in the drilling industry;

o changes in the rate of economic growth in the U.S. or in other
major international economies;

o political and economic conditions in markets where we from
time to time operate;

o adverse weather (such as hurricanes and monsoons) and seas;

o operational risks (such as blowouts, fires and loss of
production);

o changes in oil and gas drilling technology or in our
competitors' drilling rig fleets that could make our drilling
rigs less competitive or require major capital investment to
keep them competitive;

21

o costs and effects of unanticipated legal and administrative
proceedings;

o cost overruns or delays in shipyard repair, maintenance,
conversion or upgrade projects;

o limitations on our insurance coverage or our inability to
obtain or maintain insurance coverage at rates and with
deductible amounts that we believe are commercially
reasonable;

o 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;

o requirements and potential liability imposed by governmental
regulation of the drilling industry (including environmental
regulation);

o acts of war or terrorism;

o significant changes in trade, monetary or fiscal policies
worldwide, including changes in interest rates; and

o currency fluctuations between the U.S. dollar and other
currencies.

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.

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 59 mobile
offshore drilling units located in key markets worldwide. This fleet consists of
13 semisubmersibles (including five Noble EVA-4000TM semisubmersibles), three
dynamically positioned drillships, 40 jackup rigs and three submersibles. Eight
of our jackup rigs and one of our semisubmersibles are capable of operating in
harsh environments. In addition to the rigs in our fleet described above, we
have purchased an option to acquire the premium jackup, the Maersk Valiant.
We anticipate the option will become exercisable by us around November 15, 2004.
Approximately 80 percent of the fleet is currently deployed in international
markets, principally including the Middle East, Mexico, the North Sea, Brazil,
West Africa, India and the Mediterranean Sea. We provide technologically
advanced drilling-related products and services designed to create value for our
customers. We also provide labor contract drilling services, well site and
project management services, and engineering services.

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

Our results of operations depend on the levels of activity in offshore
oil and gas exploration, development and production in markets worldwide.
Historically, oil and gas prices and market expectations of potential changes in
these prices have significantly affected that level of activity. These prices
are extremely volatile. International markets are influenced more by oil prices
than natural gas prices. Despite oil prices in the first six months of 2004
being favorable for demand for our services, drilling activity in certain
international markets, including the North Sea and West Africa, was generally
weaker in this period than the first six months of 2003. We believe that
operators in these international markets have been reluctant to increase
drilling activity due to the uncertainty surrounding the worldwide economy, the
political unrest in the Middle East (including the military action in Iraq),
Nigeria and Venezuela, and difficulties in obtaining funding from
government-affiliated oil companies.

Natural gas prices during the first six months of 2004 averaged $5.84
per thousand cubic feet (source: average Henry Hub closing bidweek price).
Despite these price levels, operators generally have not significantly increased
drilling activities in the U.S. Gulf of Mexico in water depths applicable to
jackups and submersibles due principally to a lack of quality drilling
prospects. We believe that drilling activity levels in water depths applicable
to semisubmersibles are beginning to show signs of improvement.

22

Oil and gas companies continue to work through the effects of industry
consolidation. We expect that further consolidation among our customer base,
which can inhibit capital spending on exploration and development, could dampen
drilling activity levels.

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. Since the beginning of 2000,
we have added two deepwater semisubmersibles to our fleet and have acquired two
additional semisubmersible baredeck hulls. We have incorporated this focus into
our broader, long-standing business strategy to actively expand our
international and deepwater capabilities through acquisitions, rig upgrades and
modifications and to deploy assets in important geological areas. We have also
increased the number of jackups in key international markets. Since the
beginning of 2000, through several acquisitions we have added eight jackups to
our international fleet and have acquired an option to purchase another jackup.
We have also mobilized nine jackups from the U.S. Gulf of Mexico to various
international markets, including Mexico, the Middle East and the Mediterranean
Sea.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003

GENERAL

Net income for the second quarter of 2004 (the "Current Quarter") was
$34,381,000, or $0.26 per diluted share, on operating revenues of $253,009,000,
compared to net income for the second quarter of 2003 (the "Comparable Quarter")
of $43,738,000, or $0.33 per diluted share, on operating revenues of
$247,920,000.

The following table sets forth operating revenues and operating costs
and expenses for each of our reportable segments (for additional information
regarding our reportable segments, see Note 8 of our accompanying consolidated
financial statements) for the periods indicated:

RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES

The following table sets forth the average rig utilization, operating
days and average dayrates for our rig fleet for the three months ended June 30,
2004 and 2003:

- ----------

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

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

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

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

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

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

24

INTERNATIONAL CONTRACT DRILLING SERVICES

The following table sets forth the operating revenues and the operating
costs and expenses for our international contract drilling services for the
three months ended June 30, 2004 and 2003:

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

OPERATING REVENUES. International contract drilling services revenues
increased $6,844,000 due to additional operating days in our Middle East
division, which includes India and the Mediterranean Sea, and Mexico, partially
offset by weaker market conditions in the North Sea and a shipyard project on
one of our deepwater drillships in Brazil. We had an additional 316 operating
days in our Middle East division in the Current Quarter due primarily to the
acquisition of the Noble Gene House and Noble Charlie Yester premium jackups in
July 2003 and September 2003, respectively, and the mobilization of the Noble
Carl Norberg premium jackup to the Mediterranean Sea from the U.S. Gulf of
Mexico in December 2003. The Noble Carl Norberg began a 14-month contract in
January 2004 following its mobilization to the Mediterranean Sea. In Mexico, we
experienced an increase of 91 operating days due to the mobilization of the
Noble Bill Jennings from the U.S. Gulf of Mexico in August 2003.

Since September 2002, we have mobilized a total of seven jackups from
the U.S. Gulf of Mexico to Mexico for long-term contracts with Petroleos
Mexicanos ("Pemex"). The mobilization of these jackup rigs was pursuant to our
long-standing business strategy of deploying our assets in important geological
regions. We believe the long-term financial returns for our jackup rigs will be
higher in international regions due to relatively fewer quality drilling
prospects in the U.S. Gulf of Mexico at water depths applicable to these units.
As a result, we made the strategic decision to mobilize these units to Mexico
for long-term contracts.

Market conditions in the North Sea have weakened over the past year.
Utilization in the Current Quarter decreased to 81 percent as compared to 95
percent in the Comparable Quarter, as three of our eight premium jackups in the
region experienced a combined 152 stacked (non-operating) days during the
Current Quarter. In addition, the average dayrate on our North Sea units
decreased nearly $10,000, from $60,150 to $50,247. We believe the gradual
maturing of the North Sea basin contributed to the decrease in average dayrates
in the region. We also believe that improvement in dayrates in this region will
be driven by the independent operators, who historically have been more
aggressive than major oil and gas companies in developing smaller reserve
targets. Market conditions appear to be improving in the North Sea, as two of
the three units that had experienced stacked time during the Current Quarter are
currently operating. In Brazil, the Noble Roger Eason drillship was in the
shipyard for all of the Current Quarter, versus operating the entire Comparable
Quarter. We are currently performing regulatory maintenance and upgrades to this
unit, which we estimate to be completed during the third quarter of 2004. Upon
completion of the shipyard work, the unit will commence a 700-day contract with
Petrobras at a dayrate of $96,250, plus performance bonuses. Our deepwater
semisubmersible in Brazil, the Noble Paul Wolff, experienced less downtime in
the Current Quarter versus the Comparable Quarter, which partially offset the
fewer operating days for the Noble Roger Eason.

Average dayrates and utilization on our six jackups in West Africa were
relatively flat between the Current Quarter and Comparable Quarter. Two rigs
that were previously stacked began long-term contracts during the Current
Quarter, with two remaining stacked. We recently began upgrades and
refurbishments to our deepwater semisubmersible Noble Homer Ferrington in
preparation for a two-year contract with ExxonMobil in Nigeria. Nigeria
traditionally has the largest

25

concentration of drilling rigs in West Africa. Demand in Nigeria began to
decline in the latter part of 2002 due to political unrest attributable to
elections and strikes. Although this unrest declined towards the end of 2003,
demand did not improve as our customers were in the process of obtaining
approval for projects from the government-affiliated oil companies. Due to
geology which is favorable for offshore exploration and production, we believe
the prospects for drilling activity in West Africa are good and that our
operations in the region will provide financial returns over time which are
comparable to other key international regions. As a result, we have elected to
keep our six jackups in this market currently. We believe that the long-term
contracts we began in the Current Quarter, combined with the awarding of a
long-term contract for the Noble Homer Ferrington semisubmersible, support our
favorable outlook for this region.

OPERATING COSTS AND EXPENSES. International contract drilling services
expenses increased $11,292,000 primarily due to the additional operating days in
our Middle East and Mexico divisions. The increase was largely attributable to
the mobilization of the Noble Bill Jennings and Noble Carl Norberg jackups from
the U.S. Gulf of Mexico to Mexico and the Mediterranean Sea, respectively, and
the acquisition of the Noble Charlie Yester and Noble Gene House jackup rigs,
which are both in our Middle East operating division. We also experienced labor
increases in all regions. Depreciation expense in our international contract
drilling services segment increased $4,936,000 due to the mobilization of the
two jackup rigs from the U.S. Gulf of Mexico and the acquisition of the Noble
Charlie Yester and Noble Gene House. See the discussion below under "Other
Items" regarding selling, general and administrative expenses.

DOMESTIC CONTRACT DRILLING SERVICES

The following table sets forth the operating revenues and the operating
costs and expenses for our domestic contract drilling services for the three
months ended June 30, 2004 and 2003:

RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES

The following table sets forth the average rig utilization, operating
days and average dayrates for our rig fleet for the six months ended June 30,
2004 and 2003:

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

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

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

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

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

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

30

INTERNATIONAL CONTRACT DRILLING SERVICES

The following table sets forth the operating revenues and the operating
costs and expenses for our international contract drilling services for the six
months ended June 30, 2004 and 2003:

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

33

OPERATING REVENUES. Revenues from our labor contract drilling services
increased $6,554,000 due to the start of a new labor contract in the North Sea
for five drilling platforms during the Current Period. Foreign exchange
fluctuations related to our operations in Canada on the Hibernia project also
resulted in higher revenues. We are paid for this work in Canadian dollars, and
the Canadian dollar was stronger in the Current Period than in the Comparable
Period. In addition, contractual provisions covering the Hibernia project
allowed for increases in the labor, maintenance and administrative portions of
the dayrate on the project during the Current Period. Engineering, consulting
and other revenues increased $3,054,000 due to increased activity on an
engineering services engagement in the North Sea.

OPERATING COSTS AND EXPENSES. Excluding reimbursables, operating costs
and expenses for our other services increased $8,711,000 due to the additional
labor contract for five drilling platforms in the North Sea, the stronger
Canadian dollar, higher labor, maintenance and administrative costs related to
our Hibernia project in Canada, and the increased activity on an engineering
services engagement in the North Sea.

OTHER ITEMS

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2,872,000 due to additional professional fees
associated with compliance under the requirements of the Sarbanes-Oxley Act of
2002, additional stock-based compensation expense, additional retirement
expenses and higher insurance premiums for corporate-related policies.

INTEREST EXPENSE. Interest expense decreased $3,155,000 due to the
continued retirement of debt since the beginning of the Comparable Period. Since
January 1, 2003, we have made repayments of long-term debt totaling
$110,628,000, including $30,048,000 in the Current Period.

OTHER, NET. Other, net increased $3,631,000 due to additional equity in
income from our 50 percent equity interest in Noble Crosco Drilling Ltd., a
joint venture which owns the Panon jackup rig, and additional foreign exchange
losses in the Comparable Period. The Panon was in the shipyard for two months
during the Comparable Period, whereas the rig operated the entire Current
Period.

INCOME TAX PROVISION. Income tax provision decreased $681,000 due to
lower pretax earnings, partially offset by a higher effective tax rate in the
Current Period. The effective tax rate was 13 percent in the Current Period
compared to 11 percent in the Comparable Period. The higher effective tax rate
in the Current Period was a result of additional earnings from rigs owned by
U.S. subsidiaries which were operating in Mexico, India and the Mediterranean
Sea.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

Our principal capital resource in the Current Period was net cash
provided by operating activities of $126,795,000, which compared to $117,288,000
in the Comparable Period. Although net income in the Current Period was
$20,518,000 less than the Comparable Period, $15,952,000 of the decrease was
attributable to increased depreciation and the amortization of deferred repairs
and maintenance expenditures. In addition, our change in working capital was
$17,629,000 higher in the Current Period than the Comparable Period.

At June 30, 2004, we had cash and cash equivalents of $116,395,000,
$93,256,000 of marketable debt securities and $57,233,000 of funds available
under our bank credit facility. We had working capital, including cash, of
$218,207,000 and $177,936,000 at June 30, 2004 and December 31, 2003,
respectively. Total debt as a percentage of total debt plus shareholders' equity
decreased to 20 percent at June 30, 2004 from 21 percent at December 31, 2003
and 24 percent at June 30, 2003.

We repurchased 1,087,000 of our ordinary shares during the Current
Quarter and Current Period at a total cost of $39,714,000. Additional
repurchases, if any, may be made on the open market or in private transactions
at prices determined by us. Share repurchases are effected pursuant to the share
repurchase program which our board of directors authorized and adopted and which
we announced on January 31, 2002. The program authorization covers an aggregate
of 15,000,000 ordinary shares. As of August 2, 2004, 9,162,000 shares remained
available under this authorization. Proceeds from the exercise of stock options
by employees of the Company were $24,186,000 in the Current Period, as compared
to $3,100,000

34

in the Comparable Period. The sales price of our ordinary shares reached a high
of $42.91 in the Current Period, as compared to a high of $38.40 in the
Comparable Period.

CAPITAL EXPENDITURES

Capital expenditures totaled $64,579,000 and $74,954,000 for the
Current Quarter and Comparable Quarter, respectively, and $78,450,000 and
$150,975,000 for the Current Period and Comparable Period, respectively.
Included in capital expenditures for the Current Quarter and Current Period was
$29,500,000 for the acquisition of the Okhi (renamed the Noble Mark Burns), a
300 feet Levingston 111-S designed independent leg jackup unit that is currently
equipped to operate in 230 feet of water. Expenditures in the Comparable Period
included capital upgrade costs for the Noble Clyde Boudreaux, Noble Lorris
Bouzigard and Noble Therald Martin of $24,333,000, $14,833,000 and $52,960,000,
respectively. Deferred repair and maintenance expenditures totaled $13,290,000
and $8,205,000 for the Current Quarter and Comparable Quarter, respectively, and
$22,691,000 and $14,431,000 for the Current Period and Comparable Period,
respectively. We expect our capital expenditures and deferred repair and
maintenance expenditures for the period July 1 through December 31, 2004 will
aggregate approximately $140,000,000 and $30,000,000, respectively, including
$62,000,000 for the exercise of options to purchase two additional jackup
drilling rigs, and $10,000,000 for a portion of the related capital upgrades of
those two units. We exercised the first of these two options in July 2004,
acquiring the Maersk Viking (renamed the Noble Cees van Diemen) premium jackup
rig for an exercise price of $32,900,000. Together with the option fee of
$15,000,000 we paid in June 2003, the aggregate purchase price for the rig was
therefore $47,900,000. The estimate of capital expenditures and deferred repair
and maintenance expenditures for the period July 1 through December 31, 2004
also includes approximately $20,000,000 for the Noble Homer Ferrington
semisubmersible related to the unit's upgrade and refurbishment in preparation
for a two-year contract in Nigeria. We expect this project to be completed
during the fourth quarter of 2004.

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 June 30, 2004, we had
approximately $35,000,000 of outstanding purchase commitments related to these
projects, which are included in the projected 2004 capital expenditure and
deferred repair and maintenance amounts above.

Certain projects currently under consideration could require, if they
materialize, capital expenditures or other cash requirements not included in the
above estimates. 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 the planned capital expenditures include
delays and cost overruns in shipyards, shortages of equipment, latent damage or
deterioration to hull, equipment and machinery in excess of engineering
estimates and assumptions, and changes in design criteria or specifications
during repair or construction.

CREDIT FACILITIES AND LONG-TERM DEBT

Noble Drilling Corporation ("Noble Drilling"), an indirect,
wholly-owned subsidiary of Noble Corporation ("Noble"), has in place a
$200,000,000 bank credit agreement (the "Credit Agreement"), which extends
through May 30, 2006. Noble and one of its wholly-owned subsidiaries, Noble
Holding (U.S.) Corporation, unconditionally guarantee the performance of Noble
Drilling under the Credit Agreement. As of June 30, 2004, we had outstanding
borrowings and outstanding letters of credit of $125,000,000 and $17,767,000,
respectively, under the Credit Agreement, with $57,233,000 remaining available
thereunder. Additionally, as of June 30, 2004, we had other letters of credit
and third-party corporate guarantees totaling $32,326,000 and $40,382,000 of
performance and customs bonds supported by surety bonds.

At June 30, 2004, total long-term debt was $559,528,000, including
current maturities of $26,991,000, compared to total long-term debt of
$589,573,000, including current maturities of $47,666,000, at December 31, 2003.
At June 30, 2003, total long-term debt was $638,790,000, including current
maturities of $71,371,000.

We believe that our cash and cash equivalents, net cash provided by
operating activities, available borrowings under lines of credit, and access to
other financing sources will be adequate to meet our anticipated short-term and
long-term liquidity requirements, including capital expenditures and scheduled
debt repayments.

35

CONTINGENCIES

Noble Asset Company Limited ("NACL"), a wholly-owned, indirect
subsidiary of Noble, has been named one of 21 parties served a Show Cause Notice
issued by the Commissioner of Customs (Prev.), Mumbai, India. The Show Cause
Notice concerns alleged violations of Indian Customs laws and regulations
regarding one of our jackup drilling rigs. The Commissioner alleges certain
violations to have occurred before, at the time of, and after NACL acquired the
rig from the rig's previous owner. In connection with the export of the rig from
India in 2001, NACL posted a bank guarantee in the amount of $3,300,000 and a
customs bond in the amount of $21,340,000, both of which remain in place. We
maintain that NACL has acted in accordance with all Indian Customs laws and
regulations and believe the Show Cause Notice is without merit as against NACL.
In the purchase agreement for the rig, NACL received contractual indemnification
against liability for Indian customs duty from the rig's previous owner. We do
not believe the resolution of this matter will have a material adverse effect on
our financial position, results of operations or cash flows.

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

ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 requires a company to consolidate a variable
interest entity, as defined, when the company will absorb a majority of the
variable interest entity's expected losses or receive a majority of the variable
interest entity's expected residual returns. FIN 46 also requires certain
disclosures relating to consolidated variable interest entities and
unconsolidated variable interest entities in which a company has a significant
variable interest. In December 2003, the FASB issued FIN 46-R, which amended the
effective date of FIN 46 other than for variable interest entities which are
special purpose entities created prior to February 1, 2003. Pursuant to FIN
46-R, except for special purpose entities, the consolidation and disclosure
provisions of FIN 46 are effective for reporting periods ending after March 15,
2004. The disclosure and consolidation provisions of FIN 46 applied immediately
to special purpose entities. We did not consolidate our equity interest in our
Noble Crosco Drilling Ltd. joint venture under the provisions of FIN 46-R, and
therefore the adoption of FIN 46-R did not have a material impact on our
consolidated results of operations, cash flows or financial position.

In December 2003, the FASB issued SFAS 132 (revised 2003), Employers'
Disclosures about Pensions and Other Postretirement Benefits, an amendment of
FASB Statements No. 87, 88 and 106, and a revision of FASB Statement No. 132
("SFAS 132 (revised 2003)"). SFAS 132 (revised 2003) revises employers'
disclosures about pension plans and other postretirement benefit plans. SFAS 132
(revised 2003) does not change the measurement or recognition of those plans
required by SFAS No. 87, Employer's Accounting for Pensions, SFAS No. 88,
Employer's Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and SFAS No. 106, Employer's
Accounting for Postretirement Benefits Other than Pensions. The new rules
require additional disclosures about the assets, obligations, cash flows, and
net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. The new disclosures are effective for fiscal
periods ending after December 15, 2003, with a delayed effective date until
fiscal years ending after June 15, 2004 for certain disclosures regarding
foreign plans. Beginning in the first interim period commencing after December
15, 2003, SFAS 132 (revised 2003) requires companies to disclose in their
interim financial reports net periodic benefit costs (and the components of
those costs) for pension and other postretirement benefits and updated
information on expected contributions. See Note 9 to our accompanying
consolidated financial statements for the disclosures required by SFAS 132
(revised 2003).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential for loss due to a change in the value of a
financial instrument as a result of fluctuations in interest rates, currency
exchange rates or equity prices. We own investments in both marketable equity
and debt securities. To mitigate the risk of losses, these investments are
marked to market periodically and are monitored by management to assure
compliance with policies established by the Company. A portion of the marketable
equity securities we own, consisting primarily of interests in mutual funds, are
held by a Rabbi Trust established and maintained by us in connection with the
Noble Drilling Corporation 401(k) Savings Restoration Plan. Any decrease in the
fair value of these investments would result in a

36

comparable decrease in the deferred compensation plan obligation and would not
materially affect our consolidated results of operations, cash flows or
financial position.

We are subject to market risk exposure related to changes in interest
rates on our Credit Agreement. Interest on our Credit Agreement is at an agreed
upon percentage point spread above LIBOR. At June 30, 2004, there was
$125,000,000 of outstanding borrowings under our Credit Agreement. An immediate
change of one percent in the interest rate would cause a $1,250,000 change in
interest expense on an annual basis.

We conduct business internationally; however, a substantial majority of
the value of our foreign transactions are denominated in U.S. Dollars. With
minor exceptions, we structure our drilling contracts in U.S. Dollars to
mitigate our exposure to fluctuations in foreign currencies. Other than trade
accounts receivable and trade accounts payable, which mostly offset each other,
we do not currently have any other significant assets, liabilities or financial
instruments that are sensitive to foreign currency exchange rates.

Our North Sea operations have a significant amount of its cash
operating expenses payable in either the Euro or British Pound. To reduce our
exposure to fluctuations in these currencies over the remainder of 2004, we
entered into forward contracts in March and April of this year to purchase
1,400,000 Euros and 1,200,000 British Pounds, respectively, per month for the
months April 2004 through December 2004. These contracts represent approximately
50 percent of our forecasted Euro and British Pound requirements for the
remainder of this year. These forward contracts are being accounted for as cash
flow hedges under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities (an amendment of FASB
Statement No. 133), and SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. During the three and six months ended June
30, 2004, we reversed a net unrealized gain of $9,000 upon the settlement of
forward contracts. We recognized a net unrealized gain on outstanding contracts
during the three and six months ended June 30, 2004 of $210,000 and $233,000,
respectively. The cumulative net unrealized gain on these forward contracts of
$233,000 is included in "Accumulated other comprehensive income" in our
Consolidated Balance Sheet at June 30, 2004. We did not recognize a gain or loss
in our Consolidated Statements of Income for the three and six months ended June
30, 2004 related to these forward contracts.

ITEM 4. CONTROLS AND PROCEDURES

Noble's Chairman and Chief Executive Officer, James C. Day, and Noble's
Senior Vice President and Chief Financial Officer, Mark A. Jackson, have
overseen and participated in an evaluation of the Company's disclosure controls
and procedures as of the end of the period covered by this report. On the basis
of this evaluation, Mr. Day and Mr. Jackson have concluded that the Company's
disclosure controls and procedures are functioning effectively. The Company's
disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Company in the reports that it files with or
submits to the Securities and Exchange Commission is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms.

There were no changes in the Company's internal control over financial
reporting that occurred during the quarter ended June 30, 2004 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

37

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES

ISSUER PURCHASES OF EQUITY SECURITIES (1)

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

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

(b) Reports on Form 8-K

We furnished a Form 8-K on April 5, 2004, which included our
Fleet Status Update as of April 5, 2004 as Exhibit 99.1.

We furnished a Form 8-K on April 15, 2004, which included our
press release dated April 15, 2004 as Exhibit 99.1, announcing
financial results for the quarter ended March 31, 2004.

We furnished a Form 8-K/A on April 16, 2004, which amended the
Form 8-K we furnished on April 15, 2004.

We furnished a Form 8-K on May 20, 2004, which included our
Fleet Status Update as of May 20, 2004 as Exhibit 99.1.

38

SIGNATURES

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

NOBLE CORPORATION

DATE: August 9, 2004 By: /s/ Mark A. Jackson
----------------------------------------
Mark A. Jackson,
Senior Vice President,
Chief Financial Officer, Treasurer,
Controller and Assistant Secretary
(Principal Financial and Accounting
Officer)

39

INDEX TO EXHIBITS

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

40