Edgar Filing: Noble Corp plc

Form 10-Q

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, 2014

¨	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: 001-36211

Noble Corporation plc

(Exact name of registrant as specified in its charter)


England and Wales (Registered Number 83549545)		98-0619597
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

Devonshire House, 1 Mayfair Place, London, England, W1J8AJ

(Address of principal executive offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: +44 20 3300 2300

Commission file number: 001-31306

Noble Corporation

(Exact name of registrant as specified in its charter)


Cayman Islands		98-0366361
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

Suite 3D Landmark Square, 64 Earth Close, P.O. Box 31327 George Town, Grand Cayman, Cayman Islands, KY1-1206

(Address of principal executive offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (345) 938-0293

Indicate by check mark whether each 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 each registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Noble Corporation plc:	Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨

Noble Corporation:	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

Number of shares outstanding and trading at July 31, 2014: Noble Corporation plc — 254,260,645

Number of shares outstanding at July 31, 2014: Noble Corporation — 261,245,693

Noble Corporation, a Cayman Islands company and a wholly owned subsidiary of Noble Corporation plc, a company registered under the laws of England and Wales, meets the conditions set forth in General Instructions H(1) (a) and (b) to Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format contemplated by paragraphs (b) and (c) of General Instruction H(2) of Form 10-Q.

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION
Item 1	Financial Statementss
	Noble Corporation plc (Noble-UK) Financial Statementss:
	Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013		3
	Consolidated Statements of Income for the three and six months ended June 30, 2014 and 2013		4
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013		5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013		6
	Consolidated Statements of Equity for the six months ended June 30, 2014 and 2013		7
	Noble Corporation (Noble-Cayman) Financial Statementss:
	Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013		8
	Consolidated Statements of Income for the three and six months ended June 30, 2014 and 2013		9
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013		10
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013		11
	Consolidated Statements of Equity for the six months ended June 30, 2014 and 2013		12
	Notes to Combined Consolidated Financial Statements		13
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
Item 3	Quantitative and Qualitative Disclosures About Market Risk		49
Item 4	Controls and Procedures		50
PART II	OTHER INFORMATION
Item 1	Legal Proceedings		51
Item 1A	Risk Factors		51
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		52
Item 6	Exhibits		52
	SIGNATURES		53
	Index to Exhibits		54

This combined Quarterly Report on Form 10-Q is separately 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”). Information in this filing relating to Noble-Cayman is filed by Noble-UK and separately by Noble-Cayman on its own behalf. Noble-Cayman makes no representation as to information relating to Noble-UK (except as it may relate to Noble-Cayman) or any other affiliate or subsidiary of Noble-UK. Since Noble-Cayman meets the conditions specified in General Instructions H(1)(a) and (b) to Form 10-Q, it is permitted to use the reduced disclosure format for wholly owned subsidiaries of reporting companies as stated in General Instructions H(2). Accordingly, Noble-Cayman has omitted from this report the information called for by Item 3 (Quantitative and Qualitative Disclosures about Market Risk) of Part I of Form 10-Q and the following items of Part II of Form 10-Q: Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds) and Item 3 (Defaults upon Senior Securities).

This report should be read in its entirety as it pertains to each Registrant. Except where indicated, the Consolidated Financial Statements and related Notes are combined. References in this Quarterly Report on Form 10-Q to “Noble,” the “Company,” “we,” “us,” “our” and words of similar meaning refer collectively to Noble-UK and its consolidated subsidiaries, including Noble-Cayman.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NOBLE CORPORATION PLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	June 30,			December 31,
	2014			2013
ASSETS
Current assets
Cash and cash equivalents	$	140,537		$	114,458
Accounts receivable		889,942			949,069
Taxes receivable		148,345			140,269
Prepaid expenses and other current assets		233,252			187,139

Total current assets		1,412,076			1,390,935

Property and equipment, at cost		20,391,892			19,198,767
Accumulated depreciation		(5,118,363	)		(4,640,677	)

Property and equipment, net		15,273,529			14,558,090

Other assets		304,295			268,932

Total assets	$	16,989,900		$	16,217,957

LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	365,961		$	347,214
Accrued payroll and related costs		148,447			151,161
Taxes payable		127,739			125,119
Dividends payable		—			128,249
Other current liabilities		258,667			300,172

Total current liabilities		900,814			1,051,915

Long-term debt		6,013,946			5,556,251
Deferred income taxes		233,419			225,455
Other liabilities		338,888			334,308

Total liabilities		7,487,067			7,167,929

Commitments and contingencies
Shareholders’ equity
Shares; 254,258 and 253,448 shares outstanding		2,543			2,534
Additional paid-in capital		828,879			810,286
Retained earnings		8,017,321			7,591,927
Accumulated other comprehensive loss		(71,264	)		(82,164	)

Total shareholders’ equity		8,777,479			8,322,583
Noncontrolling interests		725,354			727,445

Total equity		9,502,833			9,050,028

Total liabilities and equity	$	16,989,900		$	16,217,957

See accompanying notes to the unaudited consolidated financial statements.

NOBLE CORPORATION PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Operating revenues
Contract drilling services	$	1,200,406		$	975,455		$	2,406,710		$	1,904,192
Reimbursables		31,811			28,260			68,464			49,434
Labor contract drilling services		8,146			13,603			16,358			34,657
Other		—			67			1			77

		1,240,363			1,017,385			2,491,533			1,988,360

Operating costs and expenses
Contract drilling services		577,134			487,971			1,138,265			968,097
Reimbursables		22,460			22,701			53,066			37,623
Labor contract drilling services		6,261			9,349			12,487			21,598
Depreciation and amortization		254,394			212,589			500,299			418,745
General and administrative		27,080			26,850			52,717			52,419
Non-recurring spin-off related costs		6,458			4,065			18,863			8,027
Gain on contract extinguishment		—			—			—			(1,800	)

		893,787			763,525			1,775,697			1,504,709

Operating income		346,576			253,860			715,836			483,651
Other income (expense)
Interest expense, net of amount capitalized		(36,351	)		(24,665	)		(76,743	)		(51,966	)
Interest income and other, net		(328	)		955			(1,518	)		530

Income before income taxes		309,897			230,150			637,575			432,215
Income tax provision		(52,435	)		(36,824	)		(106,871	)		(71,176	)

Net income		257,462			193,326			530,704			361,039
Net income attributable to noncontrolling interests		(22,903	)		(16,706	)		(39,819	)		(34,359	)

Net income attributable to Noble Corporation	$	234,559		$	176,620		$	490,885		$	326,680

Net income per share
Basic	$	0.91		$	0.69		$	1.90		$	1.28
Diluted	$	0.91		$	0.69		$	1.90		$	1.27

See accompanying notes to the unaudited consolidated financial statements.

NOBLE CORPORATION PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Net income	$	257,462		$	193,326		$	530,704		$	361,039
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments		1,711			(2,180	)		2,720			477
Foreign currency forward contracts		706			(3,529	)		6,652			(4,731	)
Amortization of deferred pension plan amounts (net of tax provision of $253 and $730 for the three months ended June 30, 2014 and 2013, respectively, and $505 and $1,460 for the six months ended June 30, 2014 and 2013, respectively)		765			1,632			1,528			3,274

Other comprehensive income (loss), net		3,182			(4,077	)		10,900			(980	)
Net comprehensive income attributable to noncontrolling interests		(22,903	)		(16,706	)		(39,819	)		(34,359	)

Comprehensive income attributable to Noble Corporation	$	237,741		$	172,543		$	501,785		$	325,700

See accompanying notes to the unaudited consolidated financial statements.

NOBLE CORPORATION PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended
	June 30,
	2014			2013
Cash flows from operating activities
Net income	$	530,704		$	361,039
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		500,299			418,745
Deferred income taxes		10,127			(7,505	)
Amortization of share-based compensation		26,517			20,335
Net change in other assets and liabilities		(35,824	)		(146,549	)

Net cash from operating activities		1,031,823			646,065

Cash flows from investing activities
Capital expenditures		(1,216,404	)		(1,244,311	)
Change in accrued capital expenditures		(11,813	)		(39,047	)

Net cash from investing activities		(1,228,217	)		(1,283,358	)

Cash flows from financing activities
Net change in borrowings outstanding on bank credit facilities		707,472			941,653
Repayment of long-term debt		(250,000	)		(300,000	)
Dividends paid to noncontrolling interests		(41,910	)		(46,649	)
Financing costs on credit facilities		(386	)		(1,912	)
Dividend payments		(193,740	)		(66,672	)
Employee stock transactions		1,037			2,065
Repurchases of employee shares surrendered for taxes		—			(7,077	)

Net cash from financing activities		222,473			521,408

Net change in cash and cash equivalents		26,079			(115,885	)
Cash and cash equivalents, beginning of period		114,458			282,092

Cash and cash equivalents, end of period	$	140,537		$	166,207

See accompanying notes to the unaudited consolidated financial statements.

NOBLE CORPORATION PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

(Unaudited)


														Accumulated
					Additional									Other
	Shares				Paid-in			Retained			Treasury			Comprehensive			Noncontrolling			Total
	Balance		Par Value		Capital			Earnings			Shares			Loss			Interests			Equity
Balance at December 31, 2012		253,348	$	710,130	$	83,531		$	7,066,023		$	(21,069	)	$	(115,449	)	$	765,124		$	8,488,290
Employee related equity activity
Amortization of share-based compensation		—		—		20,335			—			—			—			—			20,335
Issuance of share-based compensation shares		601		1,688		(1,671	)		—			—			—			—			17
Exercise of stock options		131		365		3,161			—			—			—			—			3,526
Tax benefit of stock options exercised		—		—		(1,478	)		—			—			—			—			(1,478	)
Restricted shares forfeited or repurchased for taxes		—		—		—			—			(7,077	)		—			—			(7,077	)
Net income		—		—		—			326,680			—			—			34,359			361,039
Dividends		—		—		—			(256,723	)		—			—			—			(256,723	)
Dividends paid to noncontrolling interests		—		—		—			—			—			—			(46,649	)		(46,649	)
Other comprehensive income (loss), net		—		—		—			—			—			(980	)		—			(980	)

Balance at June 30, 2013		254,080	$	712,183	$	103,878		$	7,135,980		$	(28,146	)	$	(116,429	)	$	752,834		$	8,560,300

Balance at December 31, 2013		253,448	$	2,534	$	810,286		$	7,591,927		$	—		$	(82,164	)	$	727,445		$	9,050,028
Employee related equity activity
Amortization of share-based compensation		—		—		26,517			—			—			—			—			26,517
Issuance of share-based compensation shares		683		6		(8,952	)		—			—			—			—			(8,946	)
Exercise of stock options		127		3		2,548			—			—			—			—			2,551
Tax benefit of stock options exercised		—		—		(1,520	)		—			—			—			—			(1,520	)
Net income		—		—		—			490,885			—			—			39,819			530,704
Dividends		—		—		—			(65,491	)		—			—			—			(65,491	)
Dividends paid to noncontrolling interests		—		—		—			—			—			—			(41,910	)		(41,910	)
Other comprehensive income (loss), net		—		—		—			—			—			10,900			—			10,900

Balance at June 30, 2014		254,258	$	2,543	$	828,879		$	8,017,321		$	—		$	(71,264	)	$	725,354		$	9,502,833

See accompanying notes to the unaudited consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	June 30,			December 31,
	2014			2013
ASSETS
Current assets
Cash and cash equivalents	$	137,710		$	110,382
Accounts receivable		889,942			949,069
Taxes receivable		148,159			140,029
Prepaid expenses and other current assets		231,704			184,348

Total current assets		1,407,515			1,383,828

Property and equipment, at cost		20,353,341			19,160,350
Accumulated depreciation		(5,108,147	)		(4,631,678	)

Property and equipment, net		15,245,194			14,528,672

Other assets		304,366			269,014

Total assets	$	16,957,075		$	16,181,514

LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	352,233		$	345,910
Accrued payroll and related costs		142,552			143,346
Taxes payable		124,631			120,588
Other current liabilities		258,667			300,172

Total current liabilities		878,083			910,016

Long-term debt		6,013,946			5,556,251
Deferred income taxes		233,419			225,455
Other liabilities		338,888			334,308

Total liabilities		7,464,336			7,026,030

Commitments and contingencies
Shareholder equity
Ordinary shares; 261,246 shares outstanding		26,125			26,125
Capital in excess of par value		516,108			497,316
Retained earnings		8,296,416			7,986,762
Accumulated other comprehensive loss		(71,264	)		(82,164	)

Total shareholder equity		8,767,385			8,428,039
Noncontrolling interests		725,354			727,445

Total equity		9,492,739			9,155,484

Total liabilities and equity	$	16,957,075		$	16,181,514

See accompanying notes to the unaudited consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Operating revenues
Contract drilling services	$	1,200,406		$	975,455		$	2,406,710		$	1,904,192
Reimbursables		31,811			28,260			68,464			49,434
Labor contract drilling services		8,146			13,603			16,358			34,657
Other		—			67			1			77

		1,240,363			1,017,385			2,491,533			1,988,360

Operating costs and expenses
Contract drilling services		569,438			485,445			1,128,266			962,006
Reimbursables		22,460			22,701			53,066			37,623
Labor contract drilling services		6,261			9,402			12,487			21,651
Depreciation and amortization		253,774			212,232			499,084			417,983
General and administrative		11,489			15,588			23,421			30,431
Gain on contract extinguishment		—			—			—			(1,800	)

		863,422			745,368			1,716,324			1,467,894

Operating income		376,941			272,017			775,209			520,466
Other income (expense)
Interest expense, net of amount capitalized		(36,351	)		(24,665	)		(76,743	)		(51,966	)
Interest income and other, net		(215	)		705			(1,532	)		768

Income before income taxes		340,375			248,057			696,934			469,268
Income tax provision		(52,233	)		(35,730	)		(106,561	)		(69,744	)

Net income		288,142			212,327			590,373			399,524
Net income attributable to noncontrolling interests		(22,903	)		(16,706	)		(39,819	)		(34,359	)

Net income attributable to Noble Corporation	$	265,239		$	195,621		$	550,554		$	365,165

See accompanying notes to the unaudited consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Net income	$	288,142		$	212,327		$	590,373		$	399,524
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments		1,711			(2,180	)		2,720			477
Foreign currency forward contracts		706			(3,529	)		6,652			(4,731	)
Amortization of deferred pension plan amounts (net of tax provision of $253 and $730 for the three months ended June 30, 2014 and 2013, respectively, and $505 and $1,460 for the six months ended June 30, 2014 and 2013, respectively)		765			1,632			1,528			3,274

Other comprehensive income (loss), net		3,182			(4,077	)		10,900			(980	)
Net comprehensive income attributable to noncontrolling interests		(22,903	)		(16,706	)		(39,819	)		(34,359	)

Comprehensive income attributable to Noble Corporation	$	268,421		$	191,544		$	561,454		$	364,185

See accompanying notes to the unaudited consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended
	June 30,
	2014			2013
Cash flows from operating activities
Net income	$	590,373		$	399,524
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		499,084			417,983
Deferred income taxes		10,127			(7,505	)
Capital contribution by parent—share-based compensation		18,792			12,183
Net change in other assets and liabilities		(37,241	)		(146,377	)

Net cash from operating activities		1,081,135			675,808

Cash flows from investing activities
Capital expenditures		(1,216,270	)		(1,244,239	)
Change in accrued capital expenditures		(11,813	)		(39,047	)

Net cash from investing activities		(1,228,083	)		(1,283,286	)

Cash flows from financing activities
Net change in borrowings outstanding on bank credit facilities		707,472			941,653
Repayment of long-term debt		(250,000	)		(300,000	)
Dividends paid to noncontrolling interests		(41,910	)		(46,649	)
Financing costs on credit facilities		(386	)		(1,912	)
Distributions to parent company, net		(240,900	)		(100,960	)

Net cash from financing activities		174,276			492,132

Net change in cash and cash equivalents		27,328			(115,346	)
Cash and cash equivalents, beginning of period		110,382			277,375

Cash and cash equivalents, end of period	$	137,710		$	162,029

See accompanying notes to the unaudited consolidated financial statements.

NOBLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

(Unaudited)


										Accumulated
					Capital in					Other
	Shares				Excess of		Retained			Comprehensive			Noncontrolling			Total
	Balance		Par Value		Par Value		Earnings			Loss			Interests			Equity
Balance at December 31, 2012		261,246	$	26,125	$	470,454	$	7,384,828		$	(115,449	)	$	765,124		$	8,531,082
Net income		—		—		—		365,165			—			34,359			399,524
Capital contributions by parent — share-based compensation		—		—		12,183		—			—			—			12,183
Distributions to parent		—		—		—		(100,960	)		—			—			(100,960	)
Dividends paid to noncontrolling interests		—		—		—		—			—			(46,649	)		(46,649	)
Other comprehensive income (loss), net		—		—		—		—			(980	)		—			(980	)

Balance at June 30, 2013		261,246	$	26,125	$	482,637	$	7,649,033		$	(116,429	)	$	752,834		$	8,794,200

Balance at December 31, 2013		261,246	$	26,125	$	497,316	$	7,986,762		$	(82,164	)	$	727,445		$	9,155,484
Net income		—		—		—		550,554			—			39,819			590,373
Capital contributions by parent — share-based compensation		—		—		18,792		—			—			—			18,792
Distributions to parent		—		—		—		(240,900	)		—			—			(240,900	)
Dividends paid to noncontrolling interests		—		—		—		—			—			(41,910	)		(41,910	)
Other comprehensive income (loss), net		—		—		—		—			10,900			—			10,900

Balance at June 30, 2014		261,246	$	26,125	$	516,108	$	8,296,416		$	(71,264	)	$	725,354		$	9,492,739

See accompanying notes to the unaudited consolidated financial statements.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Note 1 — Organization and Basis of Presentation

On November 20, 2013, pursuant to the Merger Agreement dated as of June 30, 2013 between Noble Corporation, a Swiss corporation (“Noble-Swiss”), and Noble Corporation plc, a company registered under the laws of England and Wales (“Noble-UK”), Noble-Swiss merged with and into Noble-UK, with Noble-UK as the surviving company (the “Transaction”). In the Transaction, all of the outstanding ordinary shares of Noble-Swiss were cancelled, and Noble-UK issued, through an exchange agent, one ordinary share of Noble-UK in exchange for each ordinary share of Noble-Swiss.

The Transaction effectively changed the place of incorporation of our publicly traded parent holding company from Switzerland to the United Kingdom. As a result of the Transaction, Noble-UK owns and conducts the same businesses through the Noble group as Noble-Swiss conducted prior to the Transaction, except that Noble-UK is the parent company of the Noble group of companies.

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, and at June 30, 2014 we were also responsible for the operations on the Hibernia platform offshore Canada. At June 30, 2014, our fleet consisted of 14 semisubmersibles, 14 drillships, 49 jackups and one floating production storage and offloading unit (“FPSO”), including three units under construction as follows:

•

one dynamically positioned, ultra-deepwater, harsh environment drillship; and

•

two high-specification, heavy-duty, harsh environment jackups.

At June 30, 2014, our fleet was located in the United States, Mexico, Brazil, Argentina, the North Sea, the Mediterranean, West Africa, the Middle East, India, Asia and Australia. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921.

Noble Corporation, a Cayman Islands company (“Noble-Cayman”), is a direct, wholly-owned subsidiary of Noble-UK, our publicly-traded parent company. Noble-UK’s principal asset is all of the shares of Noble-Cayman. Noble-Cayman has no public equity outstanding. The consolidated financial statements of Noble-UK include the accounts of Noble-Cayman, and Noble-UK conducts substantially all of its business through Noble-Cayman and its subsidiaries.

The accompanying unaudited consolidated financial statements of Noble-UK and Noble-Cayman have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) as they pertain to Form 10-Q. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the financial position and results of operations for the interim periods, on a basis consistent with the annual audited consolidated financial statements. All such adjustments are of a recurring nature. The December 31, 2013 Consolidated Balance Sheets presented herein are derived from the December 31, 2013 audited consolidated financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed by both Noble-UK and Noble-Cayman. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Certain amounts in prior periods have been reclassified to conform to the current year presentation.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

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 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.

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. In subsequent reports, we expect to present the accounts of Paragon Offshore and its subsidiaries as discontinued operations.

Note 2 — Consolidated Joint Ventures

We maintain a 50 percent interest in two joint ventures, each with a subsidiary of Royal Dutch Shell plc (“Shell”) that own and operate the two Bully-class drillships. We have determined that we are the primary beneficiary. Accordingly, we consolidate the entities in our consolidated financial statements after eliminating intercompany transactions. Shell’s equity interests are presented as noncontrolling interests on our Consolidated Balance Sheets.

During the six months ended June 30, 2014, the Bully joint ventures approved and paid dividends totaling $84 million, of which $42 million was paid to our joint venture partner. During the six months ended June 30, 2013, the Bully joint ventures approved and paid dividends totaling $93 million, of which $47 million was paid to our joint venture partner.

The combined carrying amount of the Bully-class drillships at both June 30, 2014 and December 31, 2013 totaled $1.4 billion. These assets were primarily funded through partner equity contributions. Cash held by the Bully joint ventures totaled approximately $43 million at June 30, 2014 as compared to approximately $50 million at December 31, 2013. Operational results for the three and six months ended June 30, 2014 and 2013 are as follows:


	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
Operating revenues	$	98,217	$	87,478	$	185,403	$	177,773
Net income	$	46,956	$	35,914	$	84,676	$	73,413

Note 3 — Share Data

Share capital

As of June 30, 2014, Noble-UK had approximately 254.3 million shares outstanding and trading as compared to approximately 253.4 million shares outstanding and trading at December 31, 2013. Our Board of Directors may increase our share capital through the issuance of up to 53 million authorized shares (at current nominal value of $0.01 per share) without obtaining shareholder approval.

In April 2013, our shareholders approved the payment of a dividend aggregating $1.00 per share, which was declared by our Board of Directors and paid in four equal installments. The final payment of this obligation was made in May 2014, and included an additional dividend of $0.125 per share in accordance with our current dividend policy. The aggregate dividend paid in May 2014 was approximately $97 million, or $0.375 per share.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Earnings per share

The following table sets forth the computation of basic and diluted earnings per share for Noble-UK:


	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Allocation of net income
Basic
Net income attributable to Noble Corporation	$	234,559		$	176,620		$	490,885		$	326,680
Earnings allocated to unvested share-based payment awards		(3,776	)		(2,169	)		(8,048	)		(3,822	)

Net income to common shareholders—basic	$	230,783		$	174,451		$	482,837		$	322,858

Diluted
Net income attributable to Noble Corporation	$	234,559		$	176,620		$	490,885		$	326,680
Earnings allocated to unvested share-based payment awards		(3,774	)		(2,167	)		(8,046	)		(3,819	)

Net income to common shareholders—diluted	$	230,785		$	174,453		$	482,839		$	322,861

Weighted average shares outstanding—basic		254,238			253,295			254,090			253,184
Incremental shares issuable from assumed exercise of stock options		97			261			116			265

Weighted average shares outstanding—diluted		254,335			253,556			254,206			253,449

Weighted average unvested share-based payment awards		4,156			3,150			4,172			2,998

Earnings per share
Basic	$	0.91		$	0.69		$	1.90		$	1.28
Diluted	$	0.91		$	0.69		$	1.90		$	1.27
Dividends per share	$	0.38		$	0.13		$	0.75		$	0.26

Only those items having a dilutive impact on our basic earnings per share are included in diluted earnings per share. For the three months ended June 30, 2014 and 2013, approximately 1 million shares underlying stock options were excluded from the diluted earnings per share as such stock options were not dilutive.

Note 4 — Receivables from Customers

At June 30, 2014, we had a receivable of approximately $14 million related to the Noble Max Smith, which is being disputed by our customer, Petróleos Mexicanos (“Pemex”). This receivable has been classified as long-term and is included in “Other assets” on our Consolidated Balance Sheet. The disputed amount relates to lost revenues for downtime that occurred after our rig was damaged when one of Pemex’s supply boats collided with our rig in 2010. In January 2012, we filed a lawsuit against Pemex in Mexican court seeking recovery of this amount. This matter is currently proceeding through the Mexican judicial system. While we can make no assurances as to the outcome of this dispute, we believe we are entitled to the disputed amount.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Note 5 — Property and Equipment

Property and equipment, at cost, as of June 30, 2014 and December 31, 2013 for Noble-UK consisted of the following:


	June 30,		December 31,
	2014		2013
Drilling equipment and facilities	$	18,070,733	$	17,130,986
Construction in progress		2,068,119		1,854,434
Other		253,040		213,347

Property and equipment, at cost	$	20,391,892	$	19,198,767

Capital expenditures, including capitalized interest, totaled $1.2 billion for both the six months ended June 30, 2014 and 2013. Capitalized interest was $13 million and $27 million for the three and six months ended June 30, 2014, respectively, as compared to $32 million and $62 million for the three and six months ended June 30, 2013.

Note 6 — Debt

Long-term debt consisted of the following at June 30, 2014 and December 31, 2013:


	June 30,		December 31,
	2014		2013
Senior unsecured notes:
7.375% Senior Notes due March 2014	$	—	$	249,964
3.45% Senior Notes due August 2015		350,000		350,000
3.05% Senior Notes due March 2016		299,974		299,967
2.50% Senior Notes due March 2017		299,903		299,886
7.50% Senior Notes due March 2019		201,695		201,695
4.90% Senior Notes due August 2020		499,086		499,022
4.625% Senior Notes due March 2021		399,601		399,576
3.95% Senior Notes due March 2022		399,221		399,178
6.20% Senior Notes due August 2040		399,894		399,893
6.05% Senior Notes due March 2041		397,663		397,646
5.25% Senior Notes due March 2042		498,296		498,283

Total senior unsecured notes		3,745,333		3,995,110
Commercial paper program		2,268,613		1,561,141

Total long-term debt	$	6,013,946	$	5,556,251

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. The outstanding amounts of commercial paper reduce availability under our 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.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Senior Unsecured Notes

In March 2014, we repaid our $250 million 7.375% Senior Notes using issuances under our commercial paper program.

Covenants

The Credit Facilities 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 of our debt covenants. We continually monitor compliance with the covenants under our notes and expect to remain in compliance during the remainder of 2014.

Fair Value of Debt

Fair value represents the amount at which an instrument could be exchanged in a current transaction between willing parties. The estimated fair value of our senior notes was based on the quoted market prices for similar issues or on the current rates offered to us for debt of similar remaining maturities (Level 2 measurement).

The following table presents the estimated fair value of our long-term debt as of June 30, 2014 and December 31, 2013, respectively:


	June 30, 2014				December 31, 2013
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Senior unsecured notes:
7.375% Senior Notes due March 2014	$	—	$	—	$	249,964	$	253,634
3.45% Senior Notes due August 2015		350,000		359,532		350,000		363,019
3.05% Senior Notes due March 2016		299,974		310,058		299,967		309,878
2.50% Senior Notes due March 2017		299,903		307,420		299,886		302,891
7.50% Senior Notes due March 2019		201,695		235,163		201,695		232,839
4.90% Senior Notes due August 2020		499,086		548,520		499,022		528,597
4.625% Senior Notes due March 2021		399,601		429,755		399,576		413,868
3.95% Senior Notes due March 2022		399,221		408,265		399,178		390,520
6.20% Senior Notes due August 2040		399,894		456,520		399,893		421,720
6.05% Senior Notes due March 2041		397,663		452,273		397,646		417,312
5.25% Senior Notes due March 2042		498,296		514,529		498,283		476,873

Total senior unsecured notes		3,745,333		4,022,035		3,995,110		4,111,151
Commercial paper program		2,268,613		2,268,613		1,561,141		1,561,141

Total long-term debt	$	6,013,946	$	6,290,648	$	5,556,251	$	5,672,292

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Note 7 — Income Taxes

At June 30, 2014, the reserves for uncertain tax positions totaled $122 million (net of related tax benefits of $2 million). If the June 30, 2014 reserves are not realized, the provision for income taxes would be reduced by $122 million. At December 31, 2013, the reserves for uncertain tax positions totaled $127 million (net of related tax benefits of $2 million).

It is reasonably possible that our existing liabilities related to our reserve for uncertain tax positions may increase or decrease in the next 12 months primarily due to the completion of open audits or the expiration of statutes of limitation. However, we cannot reasonably estimate a range of changes in our existing liabilities due to various uncertainties, such as the unresolved nature of various audits.

Note 8 — Employee Benefit Plans

Pension costs include the following components:


	Three Months Ended June 30,
	2014						2013
	Non-U.S.			U.S.			Non-U.S.			U.S.
Service cost	$	1,433		$	2,541		$	1,349		$	2,681
Interest cost		1,472			2,714			1,252			2,262
Return on plan assets		(1,856	)		(3,846	)		(1,437	)		(3,276	)
Amortization of prior service cost		(5	)		56			—			57
Recognized net actuarial loss		316			651			395			1,910

Net pension expense	$	1,360		$	2,116		$	1,559		$	3,634


	Six Months Ended June 30,
	2014						2013
	Non-U.S.			U.S.			Non-U.S.			U.S.
Service cost	$	2,853		$	5,082		$	2,728		$	5,362
Interest cost		2,928			5,428			2,534			4,524
Return on plan assets		(3,691	)		(7,692	)		(2,908	)		(6,552	)
Amortization of prior service cost		(10	)		112			—			114
Recognized net actuarial loss		629			1,302			800			3,820

Net pension expense	$	2,709		$	4,232		$	3,154		$	7,268

During the three and six months ended June 30, 2014, we made contributions to our pension plans totaling $6 million and $7 million, respectively.

Note 9 — Derivative Instruments and Hedging Activities

We periodically enter into derivative instruments to manage our exposure to fluctuations in interest rates and foreign currency exchange rates. We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative or trading purposes, nor are we a party to leveraged derivatives.

For foreign currency forward contracts, hedge effectiveness is evaluated at inception based on the matching of critical terms between derivative contracts and the hedged item. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Cash Flow Hedges

Our North Sea, Mexico and Brazil operations have a significant amount of their cash operating expenses payable in local currencies. To limit the potential risk of currency fluctuations, we periodically enter into forward contracts, which settle monthly in the operations’ respective local currencies. All of these contracts have a maturity of less than 12 months. The forward contract settlements in the remainder of 2014 represent approximately 35 percent of these forecasted local currency requirements. The notional amount of the forward contracts outstanding, expressed in U.S. Dollars, was approximately $192 million at June 30, 2014. Total unrealized gains related to these forward contracts were approximately $7 million as of June 30, 2014 and were recorded as part of “Accumulated other comprehensive loss” (“AOCL”).

Financial Statement Presentation

The following table, together with Note 10, summarizes the financial statement presentation and fair value of our derivative positions as of June 30, 2014 and December 31, 2013:


		Estimated fair value
	Balance sheet classification	June 30, 2014		December 31, 2013
Asset derivatives
Cash flow hedges
Short-term foreign currency forward contracts	Other current assets	$	6,652	$	—

To supplement the fair value disclosures in Note 10, the following summarizes the recognized gains and losses of cash flow hedges and non-designated derivatives through AOCL or through “other income” for the three months ended June 30, 2014 and 2013:


	Gain/(loss) recognized through AOCL					Gain/(loss) reclassified from AOCL to “other income”					Gain/(loss) recognized through “other income”
	2014		2013			2014		2013			2014		2013
Cash flow hedges
Foreign currency forward contracts	$	5,067	$	(4,431	)	$	1,585	$	(300	)	$	—	$	—


	Gain/(loss) recognized through AOCL					Gain/(loss) reclassified from AOCL to “other income”					Gain/(loss) recognized through “other income”
	2014		2013			2014		2013			2014		2013
Cash flow hedges
Foreign currency forward contracts	$	3,873	$	(4,545	)	$	2,779	$	(186	)	$	—	$	—

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Note 10 — Fair Value of Financial Instruments

The following table presents the carrying amount and estimated fair value of our financial instruments recognized at fair value on a recurring basis:


	June 30, 2014
			Estimated Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets -
Marketable securities	$	8,590	$	8,590	$	—	$	—
Foreign currency forward contracts		6,652		—		6,652		—


	December 31, 2013
			Estimated Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets -
Marketable securities	$	7,230	$	7,230	$	—	$	—

The foreign currency forward contracts have been valued using actively quoted prices and quotes obtained from the counterparties to the contracts. Our cash and cash equivalents, accounts receivable and accounts payable are by their nature short-term. As a result, the carrying values included in the accompanying Consolidated Balance Sheets approximate fair value.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Note 11 — Accumulated Other Comprehensive Loss

The following tables set forth the changes in the accumulated balances for each component of AOCL, net of tax, for the six months ended June 30, 2014 and 2013.


	Gains / (Losses) on Cash Flow Hedges⁽¹⁾			Defined Benefit Pension Items⁽²⁾			Foreign Currency Items			Total
Balance at December 31, 2012	$	—		$	(95,071	)	$	(20,378	)	$	(115,449	)

Activity during period:
Other comprehensive income (loss) before reclassifications		(4,917	)		—			477			(4,440	)
Amounts reclassified from AOCL		186			3,274			—			3,460

Net other comprehensive income (loss)		(4,731	)		3,274			477			(980	)

Balance at June 30, 2013	$	(4,731	)	$	(91,797	)	$	(19,901	)	$	(116,429	)


Balance at December 31, 2013	$	—		$	(58,598	)	$	(23,566	)	$	(82,164	)

Activity during period:
Other comprehensive income before reclassifications		9,431			—			2,720			12,151
Amounts reclassified from AOCL		(2,779	)		1,528			—			(1,251	)

Net other comprehensive income		6,652			1,528			2,720			10,900

Balance at June 30, 2014	$	6,652		$	(57,070	)	$	(20,846	)	$	(71,264	)

(1)	Gains on cash flow hedges are related to our foreign currency forward contracts. Reclassifications from AOCL are recognized through “other income” on our Consolidated Statement of Income. See Note 9 for additional information.

(2)

Defined benefit pension items relate to actuarial losses and the amortization of prior service costs. Reclassifications from AOCL are recognized as expense on our Consolidated Statement of Income through either “contract drilling services” or “general and administrative”. See Note 8 for additional information.

Note 12 — Commitments and Contingencies

The Noble Homer Ferrington was under contract with a subsidiary of ExxonMobil Corporation (“ExxonMobil”), which entered into an assignment agreement with BP for a two-well farmout of the rig in Libya after successfully drilling two wells with the rig for ExxonMobil. In August 2010, BP attempted to terminate the assignment agreement claiming that the rig was not in the required condition, and ExxonMobil informed us that we must look to BP for payment of the dayrate during the assignment period. In August 2010, we initiated arbitration proceedings under the drilling contract against both BP and ExxonMobil. We do not believe BP had the right to terminate the assignment agreement and believe the rig was ready to operate under the drilling contract. The rig operated under farmout arrangements from March 2011 to the conclusion of the contract in the second quarter of 2012. We believe we are owed dayrate by either or both of these clients. The operating dayrate was approximately $538,000 per day for the work in Libya. The arbitration process is proceeding, and we intend to vigorously pursue these claims. As a result of the uncertainties noted above, we have not recognized any revenue during the assignment period and the matter could have a material positive effect on our results of operations or cash flows in the period the matter is resolved should the arbitration panel ultimately rule in our favor.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

In November 2012, the U.S. Coast Guard in Alaska conducted an inspection of our drillship, the Noble Discoverer, and cited a number of deficiencies to be remediated, including issues relating to the main propulsion and safety management system. We initiated a comprehensive effort to address the deficiencies identified by the Coast Guard and worked with the agency to keep it apprised of our progress. We began an internal investigation in conjunction with the Coast Guard inspection, and the Coast Guard then began its own investigation. We reported certain potential violations of applicable law to the Coast Guard identified as a result of our internal investigation. These related to what we believe were certain unauthorized disposals of collected deck and sea water from the Noble Discoverer, collected, treated deck water from the Kulluk and potential record-keeping issues with the oil record books for the Noble Discoverer and Kulluk and other matters. The Coast Guard referred the Noble Discoverer and Kulluk matters to the U.S. Department of Justice (“DOJ”) for further investigation. We are cooperating with the DOJ in connection with their investigation, which relates to the items described above, hazardous condition allegations with respect to the Noble Discoverer and other matters. We cannot predict when the DOJ will conclude the investigation and cannot provide any assurances with respect to the outcome. The DOJ is seeking criminal sanctions, including monetary penalties, against us, as well as some form of ongoing assurance of our operational compliance programs, and we are in settlement discussions with the DOJ. We believe it is probable that we will have to pay some amount in fines and penalties to resolve this matter and have reserved $12 million.

We previously reported on an action taken by the Nigerian Maritime Administration and Safety Agency, or NIMASA, against our previous Nigerian subsidiary (the “Paragon Nigeria Subsidiary”) in connection with Nigeria’s cabotage laws (the “Cabotage Action”) and a separate action taken by the Nigerian Industrial Training Fund against the Paragon Nigeria Subsidiary with respect to expatriate employee surcharges (the “ITF Action”). As a result of the spin-off of Paragon Offshore on August 1, 2014, the Cabotage Action and the ITF Action are, at the date of filing this report, the legal and contractual responsibility of Paragon Offshore and not of us.

We are from time to time a party to various lawsuits that are incidental to our operations in which the claimants seek an unspecified amount of monetary damages for personal injury, including injuries purportedly resulting from exposure to asbestos on drilling rigs and associated facilities. At June 30, 2014, there were 37 asbestos related lawsuits in which we are one of many defendants. These lawsuits have been filed in the United States in the states of Louisiana, Mississippi and Texas. We intend to vigorously defend against the litigation. We do not believe the ultimate resolution of these matters will have a material adverse effect on our financial position, results of operations or cash flows.

We are a defendant in certain claims and litigation arising out of operations in the ordinary course of business, the resolution of which, in the opinion of management, will not be material to our financial position, results of operations or cash flows. There is inherent risk in any litigation or dispute and no assurance can be given as to the outcome of these claims.

We operate in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. During 2013, the IRS completed its examination of our tax reporting for the taxable year ended December 31, 2008 and concluded that we were entitled to a refund. The congressional Joint Committee on Taxation took no exception to the conclusions reached by the IRS, and the refund, plus interest, was received in March 2014. The IRS also completed its examination of our tax reporting for the taxable year ended December 31, 2009, and informed us that it made no changes to our reported tax. During the first quarter of 2014, the IRS began its examination of our tax reporting for the taxable years ended December 31, 2010 and 2011. We believe that we have accurately reported all amounts in our 2010 and 2011 tax returns. Furthermore, we are currently contesting several non-U.S. tax assessments and may contest future assessments. We believe the ultimate resolution of the outstanding assessments, for which we have not made any accrual, will not have a material adverse effect on our consolidated financial statements. We recognize uncertain tax positions that we believe have a greater than 50 percent likelihood of being sustained. We cannot predict or provide assurance as to the ultimate outcome of any existing or future assessments.

Audit claims of approximately $345 million attributable to income, customs and other business taxes have been assessed against us. We have contested, or intend to contest, these assessments, including through litigation if necessary, and we believe the ultimate resolution, for which we have not made any accrual, will not have a material adverse effect on our consolidated financial statements. Tax authorities may issue additional assessments or pursue legal actions as a result of tax audits and we cannot predict or provide assurance as to the ultimate outcome of such assessments and legal actions.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

We have been notified by Petróleo Brasileiro S.A. (“Petrobras”) that it is currently challenging assessments by Brazilian tax authorities of withholding taxes associated with the provision of drilling rigs for its operations in Brazil during 2008 and 2009. Petrobras has also notified us that if Petrobras must ultimately pay such withholding taxes, it will seek reimbursement from us for the portion allocable to our drilling rigs. The amount of withholding tax that Petrobras indicates may be allocable to Noble drilling rigs that remain in our fleet as a result of the Paragon Offshore spin-off is approximately $36 million. We dispute the validity of the assessment, and we have notified Petrobras of our position. We will, if necessary, vigorously defend our rights.

During June 2014 and July 2014, there were two inadvertent discharges of drilling fluid on the Noble Roger Eason, one of our rigs operating offshore Brazil. We are currently in discussions with the Brazilian government, and have not been assessed any fines. As a result of the spin-off of Paragon Offshore, the Noble Roger Eason is part of Paragon Offshore’s fleet, and this matter is the legal and contractual responsibility of Paragon Offshore.

We maintain certain insurance coverage against specified marine perils, which includes physical damage and loss of hire. Damage caused by hurricanes has negatively impacted the energy insurance market, resulting in more restrictive and expensive coverage for U.S. named windstorm perils. Accordingly, we have elected to significantly reduce the named windstorm insurance on our rigs operating in the U.S. Gulf of Mexico. Presently, we insure the Noble Jim Thompson, Noble Amos Runner and Noble Driller for “total loss only” when caused by a named windstorm. For the Noble Bully I, our customer assumes the risk of loss due to a named windstorm event, pursuant to the terms of the drilling contract, through the purchase of insurance coverage (provided that we are responsible for any deductible under such policy) or, at its option, the assumption of the risk of loss up to the insured value in lieu of the purchase of such insurance. The remaining rigs in the U.S. Gulf of Mexico are self-insured for named windstorm perils. Our rigs located in the Mexico portion of the Gulf of Mexico remain covered by commercial insurance for windstorm damage. In addition, we maintain a physical damage deductible on our rigs of $25 million per occurrence. The loss of hire coverage applies only to our rigs operating under contract with a dayrate equal to or greater than $200,000 a day and is subject to a 45-day waiting period for each unit and each occurrence.

Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage and environmental risks generally are not fully insurable. Our insurance policies and contractual rights to indemnity may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage or rights to indemnity for all risks, including loss of hire insurance on most of the rigs in our fleet. Uninsured exposures may include expatriate activities prohibited by U.S. laws and regulations, radiation hazards, certain loss or damage to property on board our rigs and losses relating to shore-based terrorist acts or strikes. If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could materially adversely affect our financial position, results of operations or cash flows. Additionally, there can be no assurance that those parties with contractual obligations to indemnify us will necessarily be financially able to indemnify us against all these risks.

We carry protection and indemnity insurance covering marine third party liability exposures, which also includes coverage for employer’s liability resulting from personal injury to our offshore drilling crews. Our protection and indemnity policy currently has a standard deductible of $10 million per occurrence, with maximum liability coverage of $750 million.

In connection with our capital expenditure program, we had outstanding commitments, including shipyard and purchase commitments of approximately $1.3 billion at June 30, 2014.

We have entered into agreements with certain of our executive officers, as well as certain other employees. These agreements become effective upon a change of control of Noble-UK (within the meaning set forth in the agreements) or a termination of employment in connection with or in anticipation of a change of control, and remain effective for three years thereafter. These agreements provide for compensation and certain other benefits under such circumstances.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Paragon Offshore plc Spin-off Transaction

Prior to the completion of the spin-off of Paragon Offshore, Noble and Paragon Offshore entered into a Master Separation Agreement (“MSA”) and other agreements to effect the separation and spin-off and govern the relationship between the parties after the spin-off.

MSA

The general terms and conditions relating to the separation and spin-off are set forth in the MSA. The MSA identifies the assets transferred, liabilities assumed and contracts assigned either to Paragon Offshore by us or by Paragon Offshore to us in the separation and describes when and how these transfers, assumptions and assignments will occur. The MSA provides for, among other things, Paragon Offshore’s responsibility for liabilities relating to their business and the responsibility of Noble for liabilities related to our, and in certain limited cases, Paragon Offshore’s business, in each case irrespective of when the liability arose. The MSA also contains indemnification obligations and ongoing commitments by us and Paragon Offshore.

Employee Matters Agreement

The employee matters agreement allocates liabilities and responsibilities between us and Paragon Offshore relating to employment, compensation and benefits and other employment related matters.

Tax Sharing Agreement

The tax sharing agreement provides for the allocation of tax liabilities and benefits between us and Paragon Offshore and governs the parties’ assistance with tax-related claims.

Transition Services Agreements

Under two transition services agreements, we will continue to provide various interim support services to Paragon Offshore, and Paragon Offshore will provide various interim support services to us, including providing operational and administrative support for our remaining Brazilian operations.

Note 13 — Segment and Related Information

We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business, and the fact that all of our drilling fleet is dependent upon the worldwide oil industry. The mobile offshore drilling units comprising our offshore rig fleet operate in a single, global market for contract drilling services and are often redeployed globally due to changing demands of our customers, which consist largely of major non-U.S. and government owned/controlled oil and gas companies throughout the world. As of June 30, 2014, our contract drilling services segment conducts contract drilling operations in the United States, Mexico, Brazil, Argentina, the North Sea, the Mediterranean, West Africa, the Middle East, India, Asia and Australia.

We evaluate the performance of our operating segment based on revenues from external customers and segment profit. Summarized financial information of our reportable segment for the three and six months ended June 30, 2014 and 2013 is shown in the following tables. The “Other” column includes results of labor contract drilling services in Canada and Alaska, as well as corporate related items. The consolidated financial statements of Noble-UK include the accounts of Noble-Cayman, and Noble-UK conducts substantially all of its business through Noble-Cayman and its subsidiaries. As a result, the summarized financial information for Noble-Cayman is substantially the same as Noble-UK.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)


	Three Months Ended June 30,
	2014									2013
	Contract									Contract
	Drilling									Drilling
	Services			Other			Total			Services			Other			Total
Revenues from external customers	$	1,229,697		$	10,666		$	1,240,363		$	1,003,522		$	13,863		$	1,017,385
Depreciation and amortization		249,701			4,693			254,394			209,082			3,507			212,589
Segment operating income/ (loss)		353,095			(6,519	)		346,576			257,622			(3,762	)		253,860
Interest expense, net of amount capitalized		(84	)		(36,267	)		(36,351	)		(102	)		(24,563	)		(24,665	)
Income tax (provision)/ benefit		(60,031	)		7,596			(52,435	)		(41,240	)		4,416			(36,824	)
Segment profit/ (loss)		271,848			(37,289	)		234,559			199,811			(23,191	)		176,620
Total assets (at end of period)		16,132,649			857,251			16,989,900			14,777,991			688,095			15,466,086


	Six Months Ended June 30,
	2014									2013
	Contract									Contract
	Drilling									Drilling
	Services			Other			Total			Services			Other			Total
Revenues from external customers	$	2,472,135		$	19,398		$	2,491,533		$	1,952,980		$	35,380		$	1,988,360
Depreciation and amortization		491,275			9,024			500,299			411,701			7,044			418,745
Segment operating income/ (loss)		736,962			(21,126	)		715,836			486,609			(2,958	)		483,651
Interest expense, net of amount capitalized		(157	)		(76,586	)		(76,743	)		(222	)		(51,744	)		(51,966	)
Income tax (provision)/ benefit		(123,687	)		16,816			(106,871	)		(80,137	)		8,961			(71,176	)
Segment profit/ (loss)		574,459			(83,574	)		490,885			372,059			(45,379	)		326,680
Total assets (at end of period)		16,132,649			857,251			16,989,900			14,777,991			688,095			15,466,086

Note 14 — 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.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Note 15 — Net Change in Other Assets and Liabilities

The net effect of changes in other assets and liabilities on cash flows from operating activities is as follows:


	Noble-UK						Noble-Cayman
	Six months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Accounts receivable	$	67,689		$	(90,903	)	$	67,689		$	(90,903	)
Other current assets		(47,537	)		(68,614	)		(48,834	)		(70,214	)
Other assets		(39,612	)		1,191			(39,603	)		1,145
Accounts payable		17,497			32,125			5,073			32,222
Other current liabilities		(46,749	)		(8,057	)		(34,454	)		(6,336	)
Other liabilities		12,888			(12,291	)		12,888			(12,291	)

	$	(35,824	)	$	(146,549	)	$	(37,241	)	$	(146,377	)

Note 16 — Subsequent Events

Paragon Offshore plc Spin-off Transaction

As discussed in Note 1, we completed our spin-off of Paragon Offshore on August 1, 2014. As part of this 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. We used these funds to repay outstanding third-party debt of Noble-Cayman and its subsidiaries.

On July 18, 2014, Paragon Offshore incurred approximately $1.7 billion of debt consisting of:

•

$1.08 billion aggregate principal amount of senior notes in two separate tranches, comprising $500 million of 6.75% Senior Notes due 2022 and $580 million of 7.25% Senior Notes due 2024; and

•

$650 million of a senior secured term credit agreement, at an interest rate of LIBOR plus 2.75%, subject to a LIBOR floor of 1%, which has an initial term of seven years.

Subsequent to the spin-off, we have no obligation for any of Paragon Offshore’s outstanding debt.

UK Bareboat Tax Law

In July 2014, the UK government passed a new law that restricts deductions on certain related party transactions, such as those relating to the bareboat charter agreements used in connection with our UK continental shelf operations. This legislation, which became effective retroactively from April 1, 2014, will result in an increase in the effective tax rate reducing our net income on our consolidated operations and will be shown in our statement of operations beginning in the third quarter of 2014. This new legislation would be applicable to our operations in the UK irrespective of the place of incorporation of Noble-UK.

NOBLE CORPORATION PLC AND SUBSIDIARIES

NOBLE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share data)

Note 17 — Information about Noble-Cayman

Guarantees of Registered Securities

In May 2014, as part of the separation of Paragon Offshore, Noble Holding (U.S.) Corporation (“NHC”) assumed all of the obligations of Noble Drilling Corporation (“NDC”) under the Senior Notes due 2019, and NDC was released from all obligations under the Senior Notes due 2019. As such, we are removing NDC from the guarantor financial statements and NHC will no longer be combined with Noble Drilling Holding, LLC (“NDH”), as they are now issuers and guarantors on separate debt instruments. We have recast prior periods presented to conform to the guarantor structure as it exists at June 30, 2014.

Noble-Cayman or one or more subsidiaries of Noble-Cayman are a co-issuer, guarantor or otherwise obligated as of June 30, 2014 with respect to the following securities as follows:


	Issuer
Notes	(Co-Issuer(s))	Guarantor(s)
$350 million 3.45% Senior Notes due 2015	NHIL	Noble-Cayman
$300 million 3.05% Senior Notes due 2016	NHIL	Noble-Cayman
$300 million 2.50% Senior Notes due 2017	NHIL	Noble-Cayman
$202 million 7.50% Senior Notes due 2019	NHC	Noble-Cayman;
	NDH
	Noble Drilling Services 6 LLC (“NDS6”)
$500 million 4.90% Senior Notes due 2020	NHIL	Noble-Cayman
$400 million 4.625% Senior Notes due 2021	NHIL	Noble-Cayman
$400 million 3.95% Senior Notes due 2022	NHIL	Noble-Cayman
$400 million 6.20% Senior Notes due 2040	NHIL	Noble-Cayman
$400 million 6.05% Senior Notes due 2041	NHIL	Noble-Cayman
$500 million 5.25% Senior Notes due 2042	NHIL	Noble-Cayman

The following condensed consolidating financial statements of Noble-Cayman, NHC, NDH, NHIL, NDS6 and all other subsidiaries present investments in both consolidated and unconsolidated affiliates using the equity method of accounting.

NOBLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

June 30, 2014

(in thousands)


												Other
												Non-guarantor
	Noble-											Subsidiaries			Consolidating
	Cayman		NHC		NDH			NHIL		NDS6		of Noble			Adjustments			Total
ASSETS
Current assets
Cash and cash equivalents	$	5	$	—	$	1,330		$	—	$	—	$	136,375		$	—		$	137,710
Accounts receivable		—		—		45,464			—		—		844,478			—			889,942
Taxes receivable		—		58,014		299			—		—		89,846			—			148,159
Short-term notes receivable from affiliates		—		—		1,077,965			—		19,500		560,925			(1,658,390	)		—
Accounts receivable from affiliates		1,164,153		368,701		161,002			252,598		34,071		4,375,746			(6,356,271	)		—
Prepaid expenses and other current assets		—		—		2,373			21		—		229,310			—			231,704

Total current assets		1,164,158		426,715		1,288,433			252,619		53,571		6,236,680			(8,014,661	)		1,407,515

Property and equipment, at cost		—		—		2,135,178			—		—		18,218,163			—			20,353,341
Accumulated depreciation		—		—		(246,406	)		—		—		(4,861,741	)		—			(5,108,147	)

Property and equipment, net		—		—		1,888,772			—		—		13,356,422			—			15,245,194

Notes receivable from affiliates		3,304,753		—		879,154			1,980,391		5,000		2,096,075			(8,265,373	)		—
Investments in affiliates		9,378,489		1,437,748		6,084,404			10,055,746		6,291,130		—			(33,247,517	)		—
Other assets		3,943		—		7,015			21,253		576		271,579			—			304,366

Total assets	$	13,851,343	$	1,864,463	$	10,147,778		$	12,310,009	$	6,350,277	$	21,960,756		$	(49,527,551	)	$	16,957,075

LIABILITIES AND EQUITY
Current liabilities
Short-term notes payables from affiliates	$	—	$	171,925	$	—		$	—	$	760,720	$	725,745		$	(1,658,390	)	$	—
Accounts payable		—		—		8,594			—		—		343,639			—			352,233
Accrued payroll and related costs		—		—		7,951			—		—		134,601			—			142,552
Accounts payable to affiliates		1,025,178		61,519		3,278,835			45,051		13,352		1,932,336			(6,356,271	)		—
Taxes payable		—		—		—			—		—		124,631			—			124,631
Other current liabilities		1,173		—		32,505			57,053		4,412		163,524			—			258,667

Total current liabilities		1,026,351		233,444		3,327,885			102,104		778,484		3,424,476			(8,014,661	)		878,083

Long-term debt		2,268,613		—		—			3,543,638		201,695		—			—			6,013,946
Notes payable to affiliates		1,769,064		—		1,113,363			1,169,180		834,450		3,379,316			(8,265,373	)		—
Deferred income taxes		—		—		—			—		—		233,419			—			233,419
Other liabilities		19,930		—		30,999			—		—		287,959			—			338,888

Total liabilities		5,083,958		233,444		4,472,247			4,814,922		1,814,629		7,325,170			(16,280,034	)		7,464,336

Commitments and contingencies
Total shareholder equity		8,767,385		1,631,019		5,675,531			7,495,087		4,535,648		13,375,613			(32,712,898	)		8,767,385
Noncontrolling interests		—		—		—			—		—		1,259,973			(534,619	)		725,354

Total equity		8,767,385		1,631,019		5,675,531			7,495,087		4,535,648		14,635,586			(33,247,517	)		9,492,739

Total liabilities and equity	$	13,851,343	$	1,864,463	$	10,147,778		$	12,310,009	$	6,350,277	$	21,960,756		$	(49,527,551	)	$	16,957,075

NOBLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2013

(in thousands)


												Other
												Non-guarantor
	Noble-											Subsidiaries			Consolidating
	Cayman		NHC		NDH			NHIL		NDS6		of Noble			Adjustments			Total
ASSETS
Current assets
Cash and cash equivalents	$	1	$	—	$	402		$	4	$	—	$	109,975		$	—		$	110,382
Accounts receivable		—		—		34,038			—		—		915,031			—			949,069
Taxes receivable		—		52,307		—			—		—		87,722			—			140,029
Short-term notes receivable from affiliates		—		—		1,456,245			139,195		19,500		52,611			(1,667,551	)		—
Accounts receivable from affiliates		1,244,019		—		108,208			210,868		27,537		6,010,430			(7,601,062	)		—
Prepaid expenses and other current assets		—		—		6,336			—		—		178,012			—			184,348

Total current assets		1,244,020		52,307		1,605,229			350,067		47,037		7,353,781			(9,268,613	)		1,383,828

Property and equipment, at cost		—		—		2,340,216			—		—		16,820,134			—			19,160,350
Accumulated depreciation		—		—		(310,171	)		—		—		(4,321,507	)		—			(4,631,678	)

Property and equipment, net		—		—		2,030,045			—		—		12,498,627			—			14,528,672

Notes receivable from affiliates		3,304,753		—		124,216			2,367,555		5,000		1,390,500			(7,192,024	)		—
Investments in affiliates		8,601,712		2,907,379		6,595,591			9,456,735		5,440,004		—			(33,001,421	)		—
Other assets		6,256		—		6,332			22,681		639		233,106			—			269,014

Total assets	$	13,156,741	$	2,959,686	$	10,361,413		$	12,197,038	$	5,492,680	$	21,476,014		$	(49,462,058	)	$	16,181,514

LIABILITIES AND EQUITY
Current liabilities
Short-term notes payables from affiliates	$	—	$	52,611	$	139,195		$	—	$	750,000	$	725,745		$	(1,667,551	)	$	—
Accounts payable		—		—		5,310			—		—		340,600			—			345,910
Accrued payroll and related costs		—		—		8,582			—		—		134,764			—			143,346
Accounts payable to affiliates		1,104,410		653,049		4,032,776			216,866		21,173		1,572,788			(7,601,062	)		—
Taxes payable		—		—		827			—		—		119,761			—			120,588
Other current liabilities		412		—		22,106			62,431		4,412		210,811			—			300,172

Total current liabilities		1,104,822		705,660		4,208,796			279,297		775,585		3,104,469			(9,268,613	)		910,016

Long-term debt		1,561,141		—		—			3,793,414		201,696		—			—			5,556,251
Notes payable to affiliates		2,042,808		—		534,683			975,000		260,216		3,379,317			(7,192,024	)		—
Deferred income taxes		—		—		—			—		—		225,455			—			225,455
Other liabilities		19,931		—		24,502			—		—		289,875			—			334,308

Total liabilities		4,728,702		705,660		4,767,981			5,047,711		1,237,497		6,999,116			(16,460,637	)		7,026,030

Commitments and contingencies
Total shareholder equity		8,428,039		2,254,026		5,593,432			7,149,327		4,255,183		13,238,656			(32,490,624	)		8,428,039
Noncontrolling interests		—		—		—			—		—		1,238,242			(510,797	)		727,445

Total equity		8,428,039		2,254,026		5,593,432			7,149,327		4,255,183		14,476,898			(33,001,421	)		9,155,484

Total liabilities and equity	$	13,156,741	$	2,959,686	$	10,361,413		$	12,197,038	$	5,492,680	$	21,476,014		$	(49,462,058	)	$	16,181,514

NOBLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended June 30, 2014

(in thousands)


																Other
																Non-guarantor
	Noble-															Subsidiaries			Consolidating
	Cayman			NHC			NDH			NHIL			NDS6			of Noble			Adjustments			Total
Operating revenues
Contract drilling services	$	—		$	—		$	85,664		$	—		$	—		$	1,147,008		$	(32,266	)	$	1,200,406
Reimbursables		—			—			2,576			—			—			29,235			—			31,811
Labor contract drilling services		—			—			—			—			—			8,146			—			8,146
Other		—			—			—			—			—			—			—			—

Total operating revenues		—			—			88,240			—			—			1,184,389			(32,266	)		1,240,363

Operating costs and expenses
Contract drilling services		2,615			13,267			26,516			35,214			—			524,092			(32,266	)		569,438
Reimbursables		—			—			1,662			—			—			20,798			—			22,460
Labor contract drilling services		—			—			—			—			—			6,261			—			6,261
Depreciation and amortization		—			—			15,711			—			—			238,063			—			253,774
General and administrative		334			3,156			—			8,263			1			(265	)		—			11,489

Total operating costs and expenses		2,949			16,423			43,889			43,477			1			788,949			(32,266	)		863,422

Operating income (loss)		(2,949	)		(16,423	)		44,351			(43,477	)		(1	)		395,440			—			376,941
Other income (expense)
Equity earnings in affiliates, net of tax		285,396			93,044			116,173			283,077			118,105			—			(895,795	)		—
Interest expense, net of amounts capitalized		(22,466	)		(736	)		(7,151	)		(39,998	)		(7,955	)		(12,452	)		54,407			(36,351	)
Interest income and other, net		5,258			—			13,069			21,011			317			14,537			(54,407	)		(215	)

Income before income taxes		265,239			75,885			166,442			220,613			110,466			397,525			(895,795	)		340,375
Income tax provision		—			(27,054	)		(1,578	)		—			(1,547	)		(22,054	)		—			(52,233	)

Net Income		265,239			48,831			164,864			220,613			108,919			375,471			(895,795	)		288,142
Net income attributable to noncontrolling interests		—			—			—			—			—			(33,655	)		10,752			(22,903	)

Net income attributable to Noble Corporation		265,239			48,831			164,864			220,613			108,919			341,816			(885,043	)		265,239

Other comprehensive income, net		3,182			—			—			—			—			3,182			(3,182	)		3,182

Comprehensive income attributable to Noble Corporation	$	268,421		$	48,831		$	164,864		$	220,613		$	108,919		$	344,998		$	(888,225	)	$	268,421

NOBLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Six Months Ended June 30, 2014

(in thousands)


																Other
																Non-guarantor
	Noble-															Subsidiaries			Consolidating
	Cayman			NHC			NDH			NHIL			NDS6			of Noble			Adjustments			Total
Operating revenues
Contract drilling services	$	—		$	—		$	171,246		$	—		$	—		$	2,309,988		$	(74,524	)	$	2,406,710
Reimbursables		—			—			3,343			—			—			65,121			—			68,464
Labor contract drilling services		—			—			—			—			—			16,358			—			16,358
Other		—			—			—			—			—			1			—			1

Total operating revenues		—			—			174,589			—			—			2,391,468			(74,524	)		2,491,533

Operating costs and expenses
Contract drilling services		12,686			20,486			61,400			61,330			—			1,046,888			(74,524	)		1,128,266
Reimbursables		—			—			2,571			—			—			50,495			—			53,066
Labor contract drilling services		—			—			—			—			—			12,487			—			12,487
Depreciation and amortization		—			—			31,663			—			—			467,421			—			499,084
General and administrative		907			5,003			—			15,224			1			2,286			—			23,421

Total operating costs and expenses		13,593			25,489			95,634			76,554			1			1,579,577			(74,524	)		1,716,324

Operating income (loss)		(13,593	)		(25,489	)		78,955			(76,554	)		(1	)		811,891			—			775,209
Other income (expense)
Equity earnings in affiliates, net of tax		605,609			163,777			225,327			601,836			290,296			—			(1,886,845	)		—
Interest expense, net of amounts capitalized		(48,350	)		(963	)		(12,974	)		(86,491	)		(15,904	)		(24,746	)		112,685			(76,743	)
Interest income and other, net		6,888			—			26,749			46,968			630			29,918			(112,685	)		(1,532	)

Income before income taxes		550,554			137,325			318,057			485,759			275,021			817,063			(1,886,845	)		696,934
Income tax provision		—			(57,248	)		(2,585	)		—			(1,547	)		(45,181	)		—			(106,561	)

Net Income		550,554			80,077			315,472			485,759			273,474			771,882			(1,886,845	)		590,373
Net income attributable to noncontrolling interests		—			—			—			—			—			(63,641	)		23,822			(39,819	)

Net income attributable to Noble Corporation		550,554			80,077			315,472			485,759			273,474			708,241			(1,863,023	)		550,554

Other comprehensive income, net		10,900			—			—			—			—			10,900			(10,900	)		10,900

Comprehensive income attributable to Noble Corporation	$	561,454		$	80,077		$	315,472		$	485,759		$	273,474		$	719,141		$	(1,873,923	)	$	561,454

NOBLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended June 30, 2013

(in thousands)


																Other
																Non-guarantor
	Noble-															Subsidiaries			Consolidating
	Cayman			NHC			NDH			NHIL			NDS6			of Noble			Adjustments			Total
Operating revenues
Contract drilling services	$	—		$	—		$	86,313		$	—		$	—		$	912,063		$	(22,921	)	$	975,455
Reimbursables		—			—			2,735			—			—			25,525			—			28,260
Labor contract drilling services		—			—			—			—			—			13,603			—			13,603
Other		—			—			—			—			—			67			—			67

Total operating revenues		—			—			89,048			—			—			951,258			(22,921	)		1,017,385

Operating costs and expenses
Contract drilling services		1,016			5,816			14,062			25,636			—			461,836			(22,921	)		485,445
Reimbursables		—			—			2,489			—			—			20,212			—			22,701
Labor contract drilling services		—			—			—			—			—			9,402			—			9,402
Depreciation and amortization		—			—			15,321			—			—			196,911			—			212,232
General and administrative		667			2,122			—			9,403			1			3,395			—			15,588

Total operating costs and expenses		1,683			7,938			31,872			35,039			1			691,756			(22,921	)		745,368

Operating income (loss)		(1,683	)		(7,938	)		57,176			(35,039	)		(1	)		259,502			—			272,017
Other income (expense)
Equity earnings in affiliates, net of tax		233,129			7,291			98,181			240,658			87,425			—			(666,684	)		—
Interest expense, net of amounts capitalized		(37,472	)		(233	)		(5,205	)		(32,705	)		(11,669	)		(24,093	)		86,712			(24,665	)
Interest income and other, net		1,647			—			11,037			45,031			6,361			23,341			(86,712	)		705

Income before income taxes		195,621			(880	)		161,189			217,945			82,116			258,750			(666,684	)		248,057
Income tax provision		—			15,766			(1,467	)		—			—			(50,029	)		—			(35,730	)

Net Income		195,621			14,886			159,722			217,945			82,116			208,721			(666,684	)		212,327
Net income attributable to noncontrolling interests		—			—			—			—			—			(27,183	)		10,477			(16,706	)

Net income attributable to Noble Corporation		195,621			14,886			159,722			217,945			82,116			181,538			(656,207	)		195,621

Other comprehensive loss, net		(4,077	)		—			—			—			—			(4,077	)		4,077			(4,077	)

Comprehensive income attributable to Noble Corporation	$	191,544		$	14,886		$	159,722		$	217,945		$	82,116		$	177,461		$	(652,130	)	$	191,544

NOBLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Six Months Ended June 30, 2013

(in thousands)


																Other
																Non-guarantor
	Noble-															Subsidiaries			Consolidating
	Cayman			NHC			NDH			NHIL			NDS6			of Noble			Adjustments			Total
Operating revenues
Contract drilling services	$	—		$	—		$	133,270		$	—		$	—		$	1,814,293		$	(43,371	)	$	1,904,192
Reimbursables		—			—			3,321			—			—			46,113			—			49,434
Labor contract drilling services		—			—			—			—			—			34,657			—			34,657
Other		—			—			—			—			—			77			—			77

Total operating revenues		—			—			136,591			—			—			1,895,140			(43,371	)		1,988,360

Operating costs and expenses
Contract drilling services		1,935			11,260			25,043			49,849			—			917,290			(43,371	)		962,006
Reimbursables		—			—			2,823			—			—			34,800			—			37,623
Labor contract drilling services		—			—			—			—			—			21,651			—			21,651
Depreciation and amortization		—			—			30,183			—			—			387,800			—			417,983
General and administrative		1,292			4,014			—			18,116			1			7,008			—			30,431
Gain on contract extinguishments		—			—			—			—			—			(1,800	)		—			(1,800	)

Total operating costs and expenses		3,227			15,274			58,049			67,965			1			1,366,749			(43,371	)		1,467,894

Operating income (loss)		(3,227	)		(15,274	)		78,542			(67,965	)		(1	)		528,391			—			520,466
Other income (expense)
Equity earnings in affiliates, net of tax		435,894			16,021			186,394			466,115			203,453			—			(1,307,877	)		—
Interest expense, net of amounts capitalized		(70,779	)		(617	)		(12,383	)		(67,265	)		(23,390	)		(47,427	)		169,895			(51,966	)
Interest income and other, net		3,277			—			21,851			84,792			12,666			48,077			(169,895	)		768

Income before income taxes		365,165			130			274,404			415,677			192,728			529,041			(1,307,877	)		469,268
Income tax provision		—			11,868			(2,125	)		—			—			(79,487	)		—			(69,744	)

Net Income		365,165			11,998			272,279			415,677			192,728			449,554			(1,307,877	)		399,524
Net income attributable to noncontrolling interests		—			—			—			—			—			(54,721	)		20,362			(34,359	)

Net income attributable to Noble Corporation		365,165			11,998			272,279			415,677			192,728			394,833			(1,287,515	)		365,165

Other comprehensive loss, net		(980	)		—			—			—			—			(980	)		980			(980	)

Comprehensive income attributable to Noble Corporation	$	364,185		$	11,998		$	272,279		$	415,677		$	192,728		$	393,853		$	(1,286,535	)	$	364,185

NOBLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2014

(in thousands)


																Other
																Non-guarantor
	Noble-															Subsidiaries			Consolidating
	Cayman			NHC			NDH			NHIL			NDS6			of Noble			Adjustments			Total
Cash flows from operating activities
Net cash from operating activities	$	(33,190	)	$	(89,407	)	$	132,085		$	(120,048	)	$	(16,759	)	$	1,208,454		$	—		$	1,081,135

Cash flows from investing activities
New construction and capital expenditures		—			—			(860,876	)		—			—			(367,207	)		—			(1,228,083	)
Notes receivable from affiliates		—			—			—			273,744			—			—			(273,744	)		—

Net cash from investing activities		—			—			(860,876	)		273,744			—			(367,207	)		(273,744	)		(1,228,083	)

Cash flows from financing activities
Net change in borrowings outstanding on bank credit facilities		707,472			—			—			—			—			—			—			707,472
Repayment of long-term debt		—			—			—			(250,000	)		—			—			—			(250,000	)
Dividends paid to noncontrolling interests		—			—			—			—			—			(41,910	)		—			(41,910	)
Financing costs on credit facilities		(386	)		—			—			—			—			—			—			(386	)
Distributions to parent company, net		(240,900	)		—			—			—			—			—			—			(240,900	)
Advances (to) from affiliates		(159,248	)		89,407			729,719			96,300			16,759			(772,937	)		—			—
Notes payable to affiliates		(273,744	)		—			—			—			—			—			273,744			—

Net cash from financing activities		33,194			89,407			729,719			(153,700	)		16,759			(814,847	)		273,744			174,276

Net change in cash and cash equivalents		4			—			928			(4	)		—			26,400			—			27,328
Cash and cash equivalents, beginning of period		1			—			402			4			—			109,975			—			110,382

Cash and cash equivalents, end of period	$	5		$	—		$	1,330		$	—		$	—		$	136,375		$	—		$	137,710

NOBLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2013

(in thousands)


																Other
																Non-guarantor
	Noble-															Subsidiaries			Consolidating
	Cayman			NHC			NDH			NHIL			NDS6			of Noble			Adjustments		Total
Cash flows from operating activities
Net cash from operating activities	$	(60,083	)	$	(47,456	)	$	71,577		$	(48,774	)	$	(10,663	)	$	771,207		$	—	$	675,808

Cash flows from investing activities
New construction and capital expenditures		—			—			(804,500	)		—			—			(478,786	)		—		(1,283,286	)

Net cash from investing activities		—			—			(804,500	)		—			—			(478,786	)		—		(1,283,286	)

Cash flows from financing activities
Net change in borrowings outstanding on bank credit facilities		941,653			—			—			—			—			—			—		941,653
Repayment of long-term debt		(300,000	)		—			—			—			—			—			—		(300,000	)
Dividends paid to noncontrolling interest		—			—			—			—			—			(46,649	)		—		(46,649	)
Financing costs on credit facilities		(1,912	)		—			—			—			—			—			—		(1,912	)
Distributions to parent company, net		(100,960	)		—			—			—			—			—			—		(100,960	)
Advances (to) from affiliates		(479,696	)		47,456			732,263			48,774			10,663			(359,460	)		—		—

Net cash from financing activities		59,085			47,456			732,263			48,774			10,663			(406,109	)		—		492,132

Net change in cash and cash equivalents		(998	)		—			(660	)		—			—			(113,688	)		—		(115,346	)
Cash and cash equivalents, beginning of period		1,003			—			904			2			—			275,466			—		277,375

Cash and cash equivalents, end of period	$	5		$	—		$	244		$	2		$	—		$	161,778		$	—	$	162,029

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

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.

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

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