DBRS Releases Report on Noble Corporation

Dominion Bond Rating Service (“DBRS”) confirmed the A (low) rating on Noble Corporation (“Noble” or the “Company”) on December 13, 2005, following its announcement that it would invest approximately US$691 million in Smedvig ASA (“Smedvig”), the Norwegian drilling contractor.

The rating and Stable trend reflect the following:
(1) Noble is well positioned in the volatile contract drilling industry due to modest debt and a flexible balance sheet (the Smedvig investment increased debt-to-capital to 29% at December 31, 2005; 26% net of cash). Financial flexibility is enhanced by a variable cost structure for both operating and capital expenses. Responding to strong markets as it has done in the past, Noble initiated a US$1.6 billion rig construction/upgrade program in 2005 that includes two new jack-ups and three major semisubmersible (“semis”) upgrade projects. To be completed over the next three years, these projects are supported by long-term contracts [four with Shell Oil Company (“Shell”)].

(2) Over the past five years, Noble has led its peer group in operating performance as measured by operating margin and return on common equity. The Company has gained its position by anticipating industry trends early and efficiently positioning its assets to benefit. Noble has grown conservatively, mostly acquiring and upgrading used equipment. The current construction projects and recent Smedvig investment will require management diligence to maintain this performance.

(3) Noble has operating diversity through a well-diversified fleet of 56 operating rigs and a good presence in most offshore regions around the world. In addition, Noble has four very large rig hulls, three of which are currently being upgraded (and the fourth likely to be contracted for upgrading soon), providing Noble a time-to-market and cost advantage for new deepwater rigs. Noble also has good geographic diversification, including a relatively good backlog of contracts with Petróleo Brasileiro SA (“Petrobras”) and Petróleos Mexicanos (“Pemex”), the national oil companies of Brazil and Mexico (and the two largest contractors of offshore rigs), and a strong market presence in all international regions except deepwater West Africa and the Asia/Pacific markets. The benefits were apparent during the recent Gulf of Mexico (GOM) hurricane season, when seven Noble rigs sustained minor damage, but operations were mostly unaffected.

(4) Noble’s fleet previously lacked some of the largest, most capable floating rigs (drillships and semis, collectively), but its three hull upgrade projects will partially address this deficiency.

(5) The offshore drilling industry remains fragmented, and though the cost of equipment remains a barrier to entry, expectations are for continued volatility across most market segments. New rig construction now stands at 64 units on order, most to be delivered over the next three years, including 49 jack-ups, many of which are currently not under contract. Speculative rig construction led to severe market weakness in the mid 1980s, and deepwater rig construction in the late 1990s led to some market softness in that market in 2003 and 2004 after contracts expired.

With continued market strength and its large backlog of business (increasingly under non-cancellable leases), Noble is in a strong position and will probably be able to complete its construction program with operating cash flow. Following the Smedvig investment, DBRS expects Noble will quickly restore strong liquidity by either terming out its debt or increasing its revolving debt commitments.