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Executives

Lee Ahlstrom – VP, IR and Planning

David Williams – President, Chairman and CEO

Tom Mitchell – CFO

Roger Hunt – SVP, Marketing and Contracts

Analysts

Joe Hill – Tudor Pickering

Kurt Hallead – RBC Capital

Ian McPherson – Simmons

Mike Urban – Deutsche Bank

Dave Wilson – Howard Weil

Dan Boyd – Goldman Sachs

Geoff Kieburtz – Weeden

Scott Grouper – Sanford Bernstein

Doug Becker – Merrill Lynch

Arun Jayaram – Credit Suisse

Robin Shoemaker – Citi

Noble Corporation (NE) Q4 2010 Earnings Conference Call January 27, 2011 9:00 AM ET

Operator

Good morning. My name is Sylvia and I will be your conference operator today. At this time, I would like to welcome everyone to the Noble Drilling fourth quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ prepared remarks, there will be a question-and-answer period. (Operators Instructions)

As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, January 27, 2011. Thank you. I would now like to introduce Mr. Lee Ahlstrom, Vice President of Investor Relations and Planning. Mr. Ahlstrom, you may begin your conference.

Lee Ahlstrom

Thank you, Sylvia, and welcome to Noble Corp’s fourth quarter and full year 2010 earnings call. Before we begin, I’d like to remind everyone that any statements we make today about our plans, expectations, estimates, predictions or similar expressions for the future, including those concerning the drilling business, financial performance, operating results, tax rates, spending guidance, backlog, day rates, contract tenders, and extensions or commencements, letters of intent, the outlook for the U.S. Gulf of Mexico and other regions, new bill delivery costs and dates, plans and objectives of management for future operations, and the outcome of any litigation, dispute or investigation are forward-looking statements and are subject to risks and uncertainties.

Our filings with the U.S. Securities and Exchange Commission, which are posted on our website, discuss the risks and uncertainties in our business and industry, and the various factors that could keep outcomes of any forward-looking statements from being realized. Our actual results could differ materially from these forward-looking statements.

We have included summary balance sheets and income and cash flow statements with our earnings news release. Also note that we may use non-GAAP financial measures in the call today. If we do, you will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation on our website.

Now, I’ll turn the call over to David Williams, our President, Chairman, and Chief Executive Officer.

David Williams

Thanks, Lee. Hello, everyone, and thanks for joining us today. With me in Geneva are Tom Mitchell, our CFO, and Roger Hunt, our Senior Vice President of Marketing and Contracts.

I’d like to start off today by thanking our employees for turning in another year of impressive results. Advancing the safety culture and maintaining a focus on operational integrity are not always the easiest things to do especially when you’re already in a leadership position. However, our worldwide efforts in these areas continue to increase awareness and drive results to the point that we turned in our second-best ever safety performance in our 90-year history, coming in right behind 2009’s record-breaking results.

Furthermore, I’m pleased to see that our overall potential severity rate continues to follow a downward trend. And while four of our seven operating divisions have extended their record-breaking results last year, more work lies ahead of us in 2011 and beyond as we journey towards creating a truly accident-free environment.

With respect to 2010, the best thing I can say is we’re glad it’s over. We had some wins last year, including our acquisition with Frontier, our agreements with Shell, and the announcements about our newbuild jackups. But we certainly faced our share of challenges, including the fallout from Macondo, both in the U.S. and abroad, continuing uncertainty in Mexico and some construction challenges.

I’d like to talk about some of these issues today. Going into 2010, about 30% of our budget’s revenue was projected to come out of the U.S. Gulf of Mexico. So when the Macondo event occurred, we were exposed. When the government imposed a moratorium, a tragic situation was compounded by economic uncertainty.

In the wake of what was believed to be a six-month moratorium and because of where we were on the Frontier deal, we moved quickly to try and preserve our backlog, sustain our workforce, and protect our future earnings. We sincerely appreciate those customers who worked with us and who continue to work with us.

While these events have had a significant overall impact on our company, our two biggest disappointments coming out of this, other than the now three-month-old permatorium, have been the cancelation of the Noble Jim Day contract and the controversy that arose on the Noble Homer Ferrington. In both cases, the dialogue at the time led us to believe that the situations would be resolved satisfactorily in due course. So perhaps we’re guilty of being too optimistic for too long.

I will tell you that our relationship with Exxon Mobil remains strong and I believe we will ultimately prevail in our claim for payment on the Ferrington. With regard to Marathon, we’re considering our options and I can’t predict how that dispute will ultimately work out.

I will tell you that the Noble Jim Day is one of the finest rigs I’ve ever seen and it befits its namesake. Furthermore, the rig is completely ready to go to work, having received its certificate of compliance from the Coast Guard, a COC on the BOP system, and a positive third-party fitness report all before January the 1st.

In the wake of all of these events, we’ve reevaluated the way Noble has historically viewed political risk in the U.S. and the likelihood of force majeure claims and we’ve reconsidered our long-standing approach to our contract philosophy in these particular areas, and I believe we’ll be in a stronger position moving forward.

Moving on, in Mexico, there has been a broad concern for more than a year that Pemex was moving to replace older rigs with new rods. To date, they haven’t been very successful in finding contractors willing to import rigs under their terms; however, we expect this effort to continue. Nevertheless, we have consistently reported to you what Pemex has said to us and that is that they want our rigs to stay in Mexico.

We still believe this to be the case, but delays continue. No one is more frustrated over this than we are, so we’ve elected to move some rigs out in order to more efficiently and cost-effectively stack the rigs while we wait, and in some case, we were actually paid demobilization fees to do so.

Today, tenders for seven rigs without restrictions are out and we understand there are more coming shortly, but there’s no doubt that we’re in the mercy of Pemex’s schedule. We continue to believe that our future in Mexico is bright and that we’ll put most, if not all, of our rigs back to work by April or May. But that could slip again, and until they run the process, we’ll have some idle time. I can tell you that we’re doing everything we can to cut costs, and we’re marketing some of the rigs in other areas.

Next, I think it’s worth taking a look back at the Frontier and Shell deals. We are very pleased to have completed these transactions over the summer, and in spite of some of the units now being idle and some construction delays (inaudible) we’re still happy with these agreements that doubled our backlog and provided a good long-term base of earnings.

In our economics, we anticipated we might see time on both the Duchess and the Seillean (inaudible) payroll, so this is really not a surprise. We’re bidding those units for work, and if successful, we’ll improve our original expectations. But we didn’t do these deals for those units and we don’t really consider them to be long-term core assets.

I’ve told some of you that we think these agreements will never be worse than good and we continue to believe this has a lot potential upside that could make them great.

Shell, post deal, has continued to work with us in the spirit of our far-reaching agreement and we could not be happier with this relationship.

On the Bullys, there has been some market noise about these rigs and we would like to clarify exactly where we are. It’s true that prior to our acquisition of the rigs, the project teams failed to fully account for the effects of excess weight or how much stuff you add to the ships, particularly up high. In order to restore the vessels to their desired operating capability, we need to fix this. We’ve worked with naval architects to design spansets to attach to each hole of each vessel to ensure that we can meet the operational requirements and maintain proper motion characteristics.

The spansets have been engineered and weight testing on the models had gone very well. These modifications being made with the full support of Shell had caused us to slip the shipyard date on the Bully 1 by about eight weeks. However, we don’t currently anticipate any impact on the Bully 2 schedule, as the sponsors are not in the critical path for that vessel’s delivery.

Completion on Bully 1 is around 46% complete including the (inaudible) equipment and is proceeding very well. We can answer more questions in Q&A, if you want, but two points I want to make are, one, Shell continues to be fully involved with these rigs and maintains a 50% ownership position and they are as anxious as we are to get them delivered and on the payroll. And two, the weight issue on the Bullys does not have any impact at all on the Globetrotters. Those ships are of completely different design and we have very good quality control on those yards. Globetrotter 1 is right on schedule and due to leave Holland later this quarter – I’m sorry, due to leave for Holland later this quarter.

Moving on to some more positive notes, we made quite a few announcements this last month. The jackup newbuilds, rigswaps and deepwater newbuilds and we’d like to talk a little about our rationale. I believe we’ve been clear over the past several years about our top priority for capital allocation. The management team and board believe the best use of capital is to add units to the fleet. At good returns, they will deliver long-term earnings growth. Beyond that, we evaluate how best to return capital to shareholders in the form of buybacks and dividends.

There are essentially three ways to add rigs. The first has been to buy older units or (inaudible) and upgrade them either moderately or significantly. Historically, the vast majority of our growth offshore has been executed in this way and it served us all very well over many years. But to a large extent and in the current environment, we think this strategy has run its course.

The second way is to buy iron. We work hard trying to acquire speculative newbuilds, and as you know, we’ve looked at lots of them. We had hoped for some time that we would have opportunities at the right price, but for a variety of reasons, it hadn’t worked out.

Major M&A activity appears to be challenged right now just because evaluations are out of whack. So the final path has been to build new, and as you know, we recently initiated an additional phase of new construction.

I think some of the challenges we’ve faced with significant upgrades over the past several years have detracted from what we’ve actually done to reshape this fleet.

In 2005, this company had only 12 floaters and 40 jackups. Only four of those floaters were dynamically positioned. We hadn’t built a rig from the keel up in many, many years. Today, we’re significantly different with the Frontier transaction, and last week’s announcement of two ultra-deepwater drill ships from Hyundai, we’ll have 26 floaters. We have fixed price options for two more; 14 of the 26 are DP and 12 are ultra-deepwater, capable of operating at water depths greater than 7500 feet.

The revenue makes us go from 60% jackups to more than 60% deepwater. The rigs we’re building from the keel up, including the Globetrotters, are all with known shipyards and contracted in a way to incentivize on-time delivery. A newbuild has much more certain outcome than a significant upgrade.

We’ve been very happy with what we’ve built with the Noble Dave Beard, the Noble Danny Adkins, and the Noble Jim Day. But the Globetrotters, the Hyundai ships, and the new jackups are all much more predictable projects. So our confidence in projected construction time is much, much greater.

Some of you raised concerns about our older units, including the Mod semis and the drillships in Brazil. We continue to believe that most of our units are viable in today’s environment, and can deliver good cash flow returns. But some of them may not be considered as core going forward. And we believe the agreement we just announced to swap the Phoenix for the Muravlenko and securing the five and a half year commitment on one of the ships is an innovative way to meet the customers’ needs for two important customers and to help modernize the fleet.

This is an example of what a great relationship with good customers can do. We undertook to do reliability upgrades on our older ships because they needed it. Downtime has been too high, and although our bonus revenue in Brazil is up year on year, we haven’t been able to capture as much of the bonus as we would have liked.

Because of timing constraints, the Muravlenko was not going to be actually upgraded until 2013, and the contract only ran until 2015. Furthermore, Petrobras’ view of the world seems to have changed somewhat since we originally made the deal three years ago, so it was likely that the 16-3/4-inch BOP on the Muravlenko would have to be changed before further extension beyond the 2015 contract termination on the current contract could have been re-negotiated.

The Muravlenko is the only rig in our fleet which still has a 16-3/4 BOP. And it happened that Petrobras voiced concern about the reliability of the Muravlenko and only the Muravlenko in advance of its upgrade. I say only the Muravlenko because I attended the meeting in Brazil when this discussion took place and they fully supported our plans on the other two ships. About the same time, Shell said it might be interested in a break on the Phoenix contract.

Collectively, we saw Petrobras’ internal concerns about performance and will deliver an (inaudible) greatly enhanced rig which will improve their uptime, our revenue performance, and our bonus potential. Shell needs some break, Petrobras’ needs are met and we get a new rig.

While we did give up about 500 million in backlog on the Phoenix, and we’ll see an impact in 2011 and 2012 earnings, we added about 900 million of backlog on the newbuild, added an asset that will be around for 30 years or more, and avoided at least $150 million of CapEx remaining on the current Muravlenko upgrade, plus an additional feature upgrade and CapEx for BOP upgrade.

In general, we’re headed down the road reshaping the floater fleet and that’s a path that can’t be accomplished overnight, but we’re well on our way toward moving the fleet toward higher technology or keeping our focus on returns. Likewise, we started work on reshaping the jackup fleet.

We delivered three high-specification units in the last cycle and we’ve been asked to construct two very high-end units with options for four more. At the same time, we’re considering opportunities to divest of some of our older units to the extent there’s buyers out there.

We continue to like the jackup business particularly the higher end of the business where units like our two newbuilds with 2.5 million pounds of hook load and 30% more (inaudible) load than some of the competition can earn a premium.

The two JU-2000 N units will be among only a dozen rigs who will have greater than two million pounds of hook load capacity.

As I said, 2010 was a tough year and it looks like at least the first half of 2011 could be challenging as well. We don’t know exactly when the Gulf is going to get back to normal, so we’ve made a deal to move at least one of our semis out and there could be more. Roger will touch on this in his discussion. But right now, it feels more like we’re headed out of the storm and into it, and if you’ve got the luxury to look past 2011 this company has found, there are some good things happening.

We have three drill ships coming out of the yard this year and going on payroll. We have multiple opportunities for the Jim Day. We should put some of the rigs back to work in Mexico, and even with the dispute, the Ferrington should be back on the payroll by the beginning of the second quarter.

The upgrade on Leo Segerius will commence shortly and deliver a rig with greatly improved reliability for Petrobras and much improved revenue performance for us. Also I believe we’ll see some units go back to work in the Gulf.

Our backlog is at 12.7 billion, we’re strong and our operations are focused. Some of you have been critical and perhaps we’ve earned some of the criticism this year, but we’re focused now and we believe we can deliver.

With that, I’ll turn the call over to Tom to review the numbers.

Tom Mitchell

Thank you, David. Today, we’ll run a bit of time going through our fourth quarter and full year results, and then I’ll review the guidance for 2011.

Last night, we reported fourth quarter net income of 99 million or $0.39 per fully diluted share on total revenues of 644 million. For the 12 months ending December 31, 2010, our net income was 773 million or $3.02 per fully diluted share on total revenues of 2.8 billion.

Our acquisition of Frontier in July makes direct quarter-on-quarter and year-on-year comparison difficult, but to give you a frame of reference, fourth quarter of 2009 earnings per share were $1.72 and the full year 2009 earnings were 6.42.

As you can see from the numbers in the Macondo incident, the second quarter of 2010 has had a tremendous negative impact on operations and profitability throughout the remainder of the year.

Contract drilling services revenues increased quarter on quarter by 5% to 614 million. Average daily revenues for the fourth quarter of about a 141,000 were up 11% from the previous quarter. Relative to the third quarter, the revenue increase was primarily driven by demobilization fees that was on the Duchess, Seillean (inaudible) and also in Mexico, as David mentioned.

Fewer days in the shipyard, the Noble Therald Martin rolling from a day rate of 114 to 270,000 and revenues on the Amos Runner, which was working in the U.S. Gulf of Mexico (inaudible). Offsetting these increases were rigs rolling to lower rates in the North Sea, in the Middle East and an increase in the number of stack days primarily in Mexico and in the North Sea.

Our contract drilling services cost for the fourth quarter were 332 million, up 5% from the third quarter 2010. On a per-operating-day basis, fourth quarter 2010 cost were about 76,000, an increase of around 11% over third quarter cost, primarily driven by fewer operating days and the addition of floater rigs to the fleet; that includes the Noble Jim Day.

The main drivers of the increased absolute cost were raises in Brazil and in West Africa. Importation fees in Brazil, inspections on equipment in the U.S. Gulf of Mexico and a full quarter of cost on the Frontier assets.

Our contract drilling margins were 46% for the fourth quarter, flat with the third quarter, and 56% for the full year; that compares to 71% for 2009.

Depreciation for the fourth quarter came in at 154 million, up from the third quarter of 143 million. Four-year depreciation was 540 million, which is at the bottom of the guidance. The increase in depreciation quarter on quarter was primarily due to a full quarter from the Frontier rigs.

At 21 million SG&A expenses in the fourth quarter, we’re down about 19% from 25 million the previous quarter. For the full year, they were 92 million which is within the range that we provided. Our fourth quarter tax rate was 14.2%, a little bit lower than anticipated, which brought our full year rate to 15.6, which is in line with the guidance of 16% that we gave last call.

Capital spending for the fourth quarter came in at 537 million, bringing the total for 2010 to 1.4 billion. These figures include 80 million in the fourth quarter for the down payment on a two new JU-3000 N jackups we announced just before Christmas, and a second milestone payment of about 79 million on the Globetrotter 2.

It also includes the fully consolidated spending for the two Bully joint ventures. Capitalized interest for the year was about 83 million. During the fourth quarter, we did not repurchase any share, so our full year sharing purchases remained at 6.1 million, at an average price per share of $35.96. That’s a total for the year of $219 million.

The number of shares remaining on our current board-approved repurchase authorization is 6.8 million shares.

Now, I would like to direct your attention forward with the review of the various components of our 2011 guidance. As a reminder, our budget will be formally discussed with our board next week, so this is preliminary.

We issued a fleet status report on January 18th which gave you an idea of planned shipyard and some known off-contract days for 2011. All in, we identified about 1,649 days, including actual downtime as of the 18th.

Before turning to the details of 2011 guidance, let me give you a few reminders about how a fleet status report works. First, timing and the length of planned shipyards days are subject to, among other things, changes in our schedule as well as our customer’s schedules. Second, we do not forecast stack days. We’ll let you know if a rig is cold stacked or warm or temporarily stacked, and we assume you will make your own judgments in your modeling about if or when these units would return to work.

And finally, we do not forecast unplanned downtime, though we do tell you our actual idle shipyard and operational downtime days for a given quarter as of the date of the fleet status report.

So in addition to planned shipyard time and any potential idle or stack time you model, you should assume an average of about 3% operational downtime across the fleet. A little bit lower on the jackups and a bit higher on the floaters, particularly in Brazil. Ensuring that these kinds of figures are in your models will help avoid the prices later in the year as we come out with the actuals. These kinds of estimate should also be built into your 2012 beyond expectations.

Now, let’s focus in on the components of our guidance. For the full year, 2011, our contract drilling service costs are expected to come in just below 1.3 billion. That’s an increase of around 100 million over 2010.

While our costs are up on an absolute basis, we’re not seeing very much in the way of general inflation yet, perhaps a couple of percent. Rather, our increases mainly reflect the following: new rigs entering the fleet including the Noble Jim Day and Bully 1, start-up costs on Globetrotter 1 and both Bullys, and a full year of Frontier rigs as well as the Noble Dave Beard.

For the first quarter contract, billing costs are expected to be in the range of 290 million to 300 million. We expect the demand to move upward by about 20 million each successive quarter. However, we have a number of rigs idle right now, and if we’re able to put the rigs back to work earlier than we budgeted, you can see higher costs along with higher revenues.

Depreciation will be up this year both in account for a full year of Frontier and as a result of the newbuilds entering service. For the full year, we estimate something in the range of 615 million to 635 million. We expect that in the first quarter, we’ll run in the range of 150 million to 160 million, with the second and third quarters in the same range, and the fourth quarter moving a little bit beyond the top of that range.

SG&A is expected to be flat in 2011, falling in a range of 90 million to 100 million with costs spread evenly across the quarters. Interest expense, and again this is net of capitalized interest, will be about 50 to 60 million for the year.

We’re currently forecasting our effective tax rate for the year to be around 22%. Any increase in utilization, particularly in the Gulf of Mexico and Mexico, would drive that rate down.

Finally our capital expenditures are expected to be around 2.1 billion in 2011. The breakout is as follows: we anticipate spending about 1.1 billion on our newbuild program, including about 230 million on Globetrotter 1, 110 million on Globetrotter 2, about 325 million gross total on the Bullys, about 90 million on the two jackups, and around 325 million on the new drillships.

Remaining CapEx in 2012 and beyond for the newbuild program totals right around 1.5 billion. And that’s weighted more towards 2013 as the rigs are finished and comes delivery.

We intend to spend about 540 million on major projects, BOP remediation work, riser, inventory, contract-specific work and other projects. We’ll spend 225 million or so on sustaining capital and the next piece is about 120 million on the reliability upgrades for the Eason and the Segerius drillships in Brazil.

Finally, capitalized interest should run right around 120 million for the year.

Capital spending throughout the year is expected to be front-end loaded, with the first and second quarters coming in around 1.3 billion, and the latter two quarters coming in right around 800 million.

That concludes my remarks and I’ll turn it over to Roger to talk about the market.

Roger Hunt

Thank you, Tom, and good morning to everybody. Let me begin by updating you on the backlog specifics. At December 31, the value of the backlog was approximately 12.7 billion, which breaks down to 11.4 billion for floating units and 1.3 for our jackups. About 53% of our days for 2011 are already booked and 31% are booked for 2012.

As David mentioned, 2010 was a difficult year. And two of Noble’s major market areas, the U.S. Gulf and Mexico, we experienced significant disruptions that are carrying out to 2011. In the Gulf, despite the absence of an official moratorium and a resumption of work to two of our rigs, we simply cannot predict when a return to normal might occur or what the new normal might look like.

We expect to see additional units leave the Gulf region, which may at some point impact the broader deepwater market. However, the global deepwater segment has so far continued to be relatively stable. There are a number of opportunities across all water depths in various other regions of the world and rates to mid, deep, and also deepwater are generally flat.

On the jackup front, activity and rates have been pretty consistent with what we saw over in the third quarter of 2010, with the obvious exception of Mexico, where a number of our units have rolled up contract, and in the North Sea, where we’re seeing the usual winter slowdown.

Let’s talk about some specific details of different regions, starting in the U.S. Gulf. The first hurdle is operator’s compliance with NTL-06 and 10. NTL-10 seems to be the bigger holdup with questions around what both surface and subsea containment devices need to look like to win approval from BOEM.

However, despite recent negative press reports, we do believe our customers are working diligently to comply, and perhaps we might see a few rigs back to work drilling new oil mid to late in the year.

The Jim Day is currently idle. However, with the 1,250-ton hook load and 12,000 feet water depth grading, it is one of the most capable semis in the industry. The rig is generating a lot of customer interest both in the Gulf and other regions, and we’re confident this rig will be contracted before too long.

With respect to our other Gulf of Mexico floaters, we’re looking forward to putting the Jim Thompson, which has received its certificate of compliance back to work. The driller is still undergoing upgrade and we’re looking for opportunities, mainly outside the Gulf, for the Paul Romano. The Lorris Bouzigard is cold stacked.

In the meantime, there is life after the Gulf of Mexico and that would be in Brazil. We are pleased to report that we have an LOI with Shell to move the Noble Clyde Boudreaux there for one year primary term at a rate of 290,000 and a mobilization fee of 6 million. We’re expecting units to leave the Gulf shortly and be in a position to commence operations in Brazil by mid-April.

Also, as previously announced, the Phoenix will be mobilizing to Brazil for Petrobras later this year where we expect it to remain through 2015.

In Mexico, David has already mentioned seven outstanding tenders for units without age restrictions. We’re expecting about seven more opportunities to be published shortly. The bidding environment in Mexico (inaudible) the least challenging, and with the addition of some new contract clauses such as five-day cancellation options as day rate cap has become even more so. We have seven of our 12 units idle, and we could see 10 more units idle before the new work is scheduled to begin.

Having said that, we believe the fundamentals are still sound. Mexico desperately needs rigs, and with Noble delivering more than 98% uptime over the past few years, we are Pemex’s most efficient driller. We believe we will return rigs to Pemex and expect our situation to be clear by the end of the first quarter.

In the North Sea, we have continued to enjoy high utilization as commodity prices have encouraged the operators to maintain activity level. Although the winter will be oversupplied, we believe we will see an uptake in utilization and possibly a modest increase in rates for the spring and summer. The rate increase will depend, of course, on how competitors behave with respect to currently stacked rigs as well as rigs operating in lower utilization areas that could return to the North Sea.

In the Mediterranean, the Homer Ferrington is returning to work and we expect to begin a (inaudible) for Repsol at the end of the first quarter.

In Nigeria, there is no meaningful update. The Duchess is warm stacked and we are working to export the unit from Nigeria.

Several of our jackups require new temporary import permits and the timing of those is always a bit uncertain. We do see pent-up demand, however, for both shallow and deepwater work in Nigeria, but much is on hold due to political uncertainty.

We also see a number of tenders in Angola, the Ivory Coast, and even some opportunities in Eastern Africa.

Business in the Middle East and India is picking up. In the Middle East, we see interest from a number of operators, including Aramco, Total, Rak Gas, and DPE. We’re in the final stages of preparing a Roger Lewis to go to work in Saudi Arabia. Scott Marks is on a heavy lift from the North Sea bringing into the Middle East where it will join the Lewis, also in Saudi Arabia. There are still 16 or so jackups stacked in the Middle East, so that may keep day rates from rising quickly.

In India, ONGC continues to actively look for jackups but at low rates. Some of the recent active sales in that market may prevent day rates from increasing in the near term, but we could see utilization improve.

Finally, in the Far East, we have responded to a number of recent inquiries in Malaysia, Thailand, Indonesia, and Australia for jackups and floaters, and we continue to watch the region closely for opportunities to expand our presence.

Let me switch to some comments on newbuild. First, it’s clear to us that we’ve entered the next newbuild cycle. In the short period between today’s call and our last calls, there have been announcement of 12 new floaters and 20 new jackups, along with options for approximately the same number of rigs, many of which are likely to be exercised.

Much of these orders have been from conventional drilling contractors but not all. It is our view that if the shipyard (inaudible) is available in 2013 and 2014, it is likely to going to be taken.

Second, we’ve talked on previous calls about operator showing a preference for newer units, even though the capabilities of the older units may match the drilling program. We expect this trend will continue.

As David has noted, Noble is participating in this newbuild cycle, recently announced projects of building very high-spec floaters and jackups. On the floater side, our outlook for long-term demand is robust enough to feel very comfortable with our order for two new drill ships from Hyundai. The design of these rigs makes them two of the most capable exploration and development tools in the industry, a view that has been reinforced by the award of an LOI from Shell for a long-term contract on the first unit.

We’ve also elected to build two new jackups. These rigs represent a significant enhancement to our proven design by responding to our customer’s long-term need and assigning the project’s execution to a proven designer and shipyard. The result is the JU-3000 N and we are confident this class of jackups will yield good return for our shareholders in the years to come.

With everything that’s going on, both at Noble and in the industry, we look forward to an exciting market but one which may not be much moving in day rates during 2011, absence in strengthening of the global economy and sustained commodity prices.

And with that, I’ll turn the call back to Lee.

Lee Ahlstrom

Thank you, Roger. Sylvia, we’re ready to go ahead and take questions. I would like to remind everybody that we do have the one question with one follow-up rule and since our prepared remarks went a little bit longer than usual this morning, it will be as important as ever to follow that rule so we can make sure we get through as many questions as possible.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Joe Hill from Tudor Pickering.

Joe Hill – Tudor Pickering

Good morning, guys.

David Williams

Good morning, Joe.

Joe Hill – Tudor Pickering

Dave, I was wondering if you could give us some insight as to what you’re thinking about your options exercise potential given the multiple factors you have to consider with regards to your operating cash flow, your balance sheet, et cetera, and whether or not you’d be willing to pull the trigger on all six in a fairly short period of time or whether that’s not really realistic.

David Williams

Well, Joe, it depends on what we see in the marketplace. I will tell you that we’re sitting on $12.5 billion of firm backlog that goes out a long time, but we think it’s very secure. We clearly have a great relationship with Shell. Our relationship with Petrobras is very good and so we think the strength of our backlog is very, very good.

With all of the ship we have under construction, the two Bullys, the two Globetrotters, and now the two Hyundai ships, for us, they’re all under contract, so we only have one spec newbuild, so clearly I think that from a cash flow perspective or balance sheet perspective, we could handle it. The question is going to be what we see in the marketplace as we go through the next few months and see what the opportunities look like and see how confident we are and the one we’ve got that’s available, and we will see the marketplace. But we like the prices, we like the fact that the last newbuild cycle and some of the current speculative builds that might be developed for sale or $800 million or better, these are very high-quality units.

There’s some innovations on there that we like and these are very well laid out. We like the design and we like the price. We undertook Globetrotters because of the pricing scenario and the timing. The prices of these ships have come down and so we’re very comfortable with the price and we like where we are. So I can’t answer if we will or if we won’t. We like the price and we like the long-term view, the macroview of this business.

Joe Hill – Tudor Pickering

Okay. And just to follow up, the rate on the Boudreaux is 290 a day which was a bit lower than I would’ve thought an asset in that class would get today. Can you comment on that and whether or not that’s indicative of what similar assets are probably going for?

Roger Hunt

Yes, Joe. We might wish for a higher day rate also but the market is – with all the disruption the Gulf of Mexico, the market is what it is. I think if you look around, then you’ll see moored semis at around to 300 and there has been another fixtures in Brazil at around that level. But we’re pleased with the opportunity to relocate it and move on.

Joe Hill – Tudor Pickering

Okay. Fair enough. Thanks, guys.

David Williams

Clearly, we wanted it out of the Gulf of Mexico.

Operator

Your next question comes from Kurt Hallead from RBC Capital.

Kurt Hallead – RBC Capital

Hey, good morning, Tom. David, I was just wanting to get an update from you with respect to your embarking on this newbuild program and asset upgrade process, can you remind us what your return targets are for your newbuilds both in terms of floaters and jackups, and is there a significant differential in the return expectations for those two asset classes?

David Williams

Kurt, we’ve never really published what our hurdle rate is for investment, but the fact that we’ve done so many of them against firm contracts, I think you can do the math. We’ve seen a number of analysts have computed what they think the returns look like on the newbuild that we announced and others. I don’t think our view of the world has changed, and like I just said on the previous question, we like the price of these rigs and we like what the deepwater business looks like going forward. So I think you can take what we’ve done and use that as a proxy for the future. Our view of the world hasn’t changed. We like where we are right now.

Kurt Hallead – RBC Capital

Okay. And then my follow-up question would be as, once again, you embark on a newbuild program and it’s pretty clear there is a demand poll taking place for these new assets, are you undertaking this process with some contractual discussions taking place behind the scenes or are these being done truly on a speculative-type basis?

David Williams

These are on-spec. We certainly have a dialogue going on with a lot of customers. There is a lot of interest already. We’ve had some interest in the jackups and we’ve had some discussions about the ships. But these, we undertook to do these on-spec.

Kurt Hallead – RBC Capital

Okay.

David Williams

The one ship with Shell, that contract was in place. But the rest of them were on-spec.

Kurt Hallead – RBC Capital

Okay. Thank you.

David Williams

Thank you.

Operator

Your next question comes from Ian McPherson from Simmons.

Ian McPherson – Simmons

Hey, thanks. Roger, I was wondering if you could update us on what you’re hearing with regard to Petrobras and their appetite for rigs out of the existing market for prompt deliverability this year. It’s been a while since we had an update on that process, so any thoughts there?

Roger Hunt

Petrobras is in the market and I really think, Ian, they’re going to continue to be in the market. I think they’ve got one or two tenders being processed right now. They’re for 1500 (inaudible) program. I suspect that the strategy is to attempt to pull in much more capable units. So that’s in play. It’s hard to judge.

I guess our view is ultimately Petrobras will facilitate construction locally, whether it’s the full 28 or some lesser numbers, who knows. But it’s going to take a long time to bring those to market. I’ve seen interviews that somewhere between 10 to 20 additional units will be required over the next couple of years to fill the void placed on their published programs. So, in short, I think we’re going to see Petrobras as a very active customer for ultra-deepwater rigs for the foreseeable future.

Ian McPherson – Simmons

Okay. A separate unrelated follow-up, David, I think you alluded in your remarks about the possibility of using some of your older rigs as a source of cash if the prices are amenable. Would you hazard any guess as to which second-hand market might be more appealing to you for selling between floaters and jackups in 2011?

David Williams

No, I mean, we have some rigs that would not be (inaudible) to report and we have some floaters and some jackups. We have entertained discussions with a number of people about a round of various rigs over time but haven’t come to a conclusion on a deal that we thought was satisfactory, but I’m hopeful that we may be able to in the future. So we have some (inaudible)

Ian McPherson – Simmons

Okay. Alright, thank you.

Operator

Your next question comes from Mike Urban from Deutsche Bank.

Mike Urban – Deutsche Bank

Thanks. Good morning. I just have one quick question. I’m thinking of the answer I wanted to hear from you, guys. As you wait for Mexico to come back into the market, and I know you said you anticipate those rigs going back, is there any thought at all of attempting to work those rigs in the U.S.?

David Williams

You know, Mike, I think it’s a question of timing. Everything we see right now is – we’ve heard this before – that the Petrobras is really trying to fast-track a seven-rig (inaudible) that appears to be targeted towards (inaudible). And that’s for April’s data issued. So the quick answer is, if all that happens and we’re successful, the rigs go back to work, so there’s really enough time to be serious about looking at alternatives (inaudible).

Mike Urban – Deutsche Bank

I apologize. I was actually talking about the jackups.

David Williams

You said Petrobras, but you mean –

Mike Urban – Deutsche Bank

I’m sorry. Pemex. I apologize.

David Williams

You’re talking about Pemex?

Mike Urban – Deutsche Bank

Yes, yes.

David Williams

Yes, it’s alright, Mike. I looked it up and everybody’s waving at me.

Mike Urban – Deutsche Bank

It happens to me all the time.

David Williams

Does it make sense now?

Mike Urban – Deutsche Bank

Yes, yes. The same question on that, I guess on the jackups, if Mexico, Pemex, doesn’t move as quickly, is there any thought to working with jackups and the Gulf? I guess that would be a no, but I just wanted to hear.

David Williams

The challenge is you take a 60-day job in the Gulf and it turns into 80 days and you miss a delivery date with Pemex, you miss your tenure date. So they have arranged a delivery, so it’s just hard to do both.

Mike Urban – Deutsche Bank

Alright. That’s all for me, thank you.

Operator

You next question comes from Dave Wilson from Howard Weil.

Dave Wilson – Howard Weil

Good afternoon and good morning, gentlemen. A real quick question on the newbuild drillships. Just kind of go through the reason or the reasons you didn’t go with another buoy design or the Globetrotter design on those rigs?

David Williams

We entertained about five different yards. We looked at five or six different yards. We looked at STX as one of those. We looked at all of the known yards and evaluated the different designs. We put together about a 10-person team from all over the world, did a full evaluation of all the designs, specifications, the yard capability, the yard’s history, the prices. We did a full-blown clean sheet of paper analysis on that one.

Dave Wilson – Howard Weil

Okay. But as far as the design itself, nothing that you saw there versus the other two designs that you like better?

David Williams

Well, we like both. We like the Hyundai ship. It’s a big ship. But like I said, we didn’t exclude anybody. We ran a full-blown process on a bunch of yards, and with the features and the price and the delivery that we could get, this was the best alternative. If you’re getting to are we scared of the Bullys or the Globetrotters, no. It’s four of those things to be commissioned in a row with (inaudible). We sort of took that into account. But the prices on the other competitive ships were $700, $800 million.

A couple of years ago, while we’re trying to figure out how to keep the prices down, we squeezed Globetrotter 2 down about as low as you can get it, and these prices got very competitive with that. So we did a clean sheet of paper analysis on features, capability, size, operability, everything. We didn’t exclude anybody, and this was the design that the team came up with as the best bet. That’s how we did it.

Dave Wilson – Howard Weil

Okay, great. Thanks, Dave.

Operator

Your next question comes from Dan Boyd from Goldman Sachs.

Dan Boyd – Goldman Sachs

Hey, good morning, guys.

David Williams

Hey, Dan.

Dan Boyd – Goldman Sachs

Dave, I’d like to better understand what was going on here with the substitution with Shell. I know you, guys, have a great relationship with them, so they allowed you to take the Phoenix down to Brazil. But was that at all related then to the contract, the LOI that you have with the Clyde Boudreaux?

David Williams

No. No, it wasn’t. The Phoenix deal has been in the works for a while. The Boudreaux are more recent commitment. No, they weren’t interconnected at all. This was really was and when the Phoenix was up and running, Shell, they’re big buoys, they said they could use a gap or they’d deploy it someplace else, and they looked at other places to deploy it. They had opportunities for it in other places, I think. But when we attended the meeting with Petrobras, they voiced concerns.

The issue on the Muravlenko was just you don’t want a rig in the shipyard in Brazil over Christmas and Carnival. And so you got to be able to sequentially do the upgrades so that you don’t fall over the end of the year ‘cause nothing happens. And so this rig is not going to make it in the shipyard till 2013 and there was almost no time left on the contract, post upgrade, and then with the 16-3/4 BOP and Petrobras’ now desire to high grade the whole fleet in anticipation of this result, we were faced with another upgrade, another major upgrade on the rig that was going to get very little benefit of this very expensive upgrade.

So when Shell said, "Gee, if we could find a home, we might be interested," the light goes on and Roger and his guys jumped on it very quickly, and we were able to facilitate a swap. As it turns out it’s a perfect solution.

Dan Boyd – Goldman Sachs

Okay. Great. And then maybe you could give us a little more confidence in why the other two drillships in Brazil will continue on their contracts, the upgraded. Is the reliability and utilization of those rigs much better than the Muravlenko, and how do the upgrades compare?

David Williams

The upgrades are very similar but the Segerius – the module was built. It’s about to sail very quickly. That’s the last we’ve seen it. They’ll get a lot of years of benefit from that upgrade and the Eason is right behind it. The uptime on both of those rigs has been fine, and when we went down there and talked to them, we talked specifically about, "Are you talking about the program or are you talking about the rig?" And this was a very focused conversation on the Muravlenko.

So there aren’t really concerns about the other two in Petrobras’ mind or ours. Those upgrades are all headed down the road. I want to say that the module for the Segerius was shipped here very quickly and Petrobras is satisfied that what we’re doing is appropriate and that they’ll get the reliability they want. So there’s never really been a real issue on the other two.

Dan Boyd – Goldman Sachs

Okay. Thank you for the clarification.

Roger Hunt

Dan, I think it’s worthwhile noting that the bonus potential that we’ve received on the Segerius and the Eason we’re both up 2010 over 2009.

Operator

The next question comes from Geoff Kieburtz from Weeden.

Geoff Kieburtz – Weeden

Thanks very much. Roger, I wondered if you could elaborate a little bit on your comment about customers’ preference for new builds. You seem to suggest that it was not exclusively based on technical capabilities. Can you elaborate a little bit on that?

Roger Hunt

I think we’re making the point that a customer has a choice even though the program does not require – bigger (inaudible) bigger living quarters – if those features are reliable to them and the marginal price is in their economics, then they’re going to choose the newer rig. I think that’s what we’re referring to.

Geoff Kieburtz – Weeden

Is that a change?

Roger Hunt

No, I don’t think it’s a change, it’s just an evolution. You’re seeing that now that the utilization rates on the new jackup fleets, for example, are probably closer to 90%, whereas the global utilization rate on the whole fleet is around 70%. There’s been a lot of talk about this (inaudible) in softer markets. You’ll see it in stronger markets than the gap between what an older asset could earn and a newer asset is going to close.

Question forward is I guess is what is the future going to hold relative to those two sets of equipment.

Geoff Kieburtz – Weeden

Is it any more pronounced in the floaters versus the jackups?

Roger Hunt

No. I think it’s more a level of absolute specification. There’s a real gap between the capabilities of the dynamically positioned ultra-deepwater fleet and for the mid-water deepwater fleet.

Geoff Kieburtz – Weeden

And could you maybe just reconcile that last comment with the earlier comment about being fairly confident about the prospects for Noble’s mid water and moored semi assets?

Roger Hunt

A lot of that story is around the EVA class and they do represent a niche in the market. They’re capable of working in water depths up to 8,000 feet and beyond. When they came to be, they were very efficient assets in terms capital sufficiency and that over time has translated in for our customers. We believe that they’re going to have access to a deepwater tool and the pricing of that will arguably be less than what they might have to pay for an ultra-deepwater proof.

Geoff Kieburtz – Weeden

Got it. Thank you very much.

Roger Hunt

Thank you.

Operator

Your next question comes from Scott Grouper from Bernstein.

Scott Grouper – Sanford Bernstein

Good morning, gentlemen. Turning back to the construction options, David, you touched on your general thoughts for the options, but would you be willing to exercise the drillships options specifically on a speculative basis if it required utilizing your balance sheet?

David Williams

Well, we certainly have the balance sheet capacity, but I don’t know that that really will play into the decision of whether or not we exercise that option or not. We got plenty of room on the balance sheet, if we want to do it. So the decision of whether or not we build more or don’t is not going to be regulated on whether or not we go to the balance sheet or not. It’s really what we see in the marketplace and what we think the benefits of that asset would be to the fleet long term.

Scott Grouper – Sanford Bernstein

Okay. Got it. And in a non-related follow-up, your four jackups are now working as accommodation units in the Middle East, what are the prospects for a few of those units back to work in a drilling mode?

David Williams

For 2011 in the near time, I think Big Driver (ph) and Admark (ph) is going to be Aramco’s level of intake. They’re in the process of bidding about 10 jobs right now. A little bit difficult to tell whether more than one of those is actually a marginal increase in their recount. It has happened before. Aramco uses its bid process sometimes to increase their intakes. I think what you’re going to see is Aramco, when they get through, you may see a little bit of increase in demand and we are – long story, but we are participating in the active process right now. So, yes, there is an opportunity for some of the rigs to switch from hotel work to drilling work.

Scott Grouper – Sanford Bernstein

And do you have any idea in terms of when that bidding process would be concluded?

David Williams

Predicting when Aramco wraps up the bidding process is (inaudible), but, oh, sometime in the next 90 days.

Scott Grouper – Sanford Bernstein

Okay. Thanks you.

Operator

Your next question is from Doug Becker from Merrill Lynch.

Doug Becker – Merrill Lynch

Thanks. David, Roger, you both mentioned a lot of interest for the Jim Day which is very understandable given the specs. What’s the range of start dates for the potential work that you’re seeing?

Roger Hunt

If it’s the Gulf of Mexico project, you know the answer to that. It’s all dependent upon the customer getting (inaudible). If it’s overseas, and some of these opportunities are, it’s kind of as soon as possible which really translates into a mid-year Q3-type start-up. So the Gulf of Mexico, I’d say, as soon as everything normalizes. Overseas, it’s probably middle of the year.

Doug Becker – Merrill Lynch

Okay. And then there were no share of purchases in the fourth quarter?

Roger Hunt

The balance sheets’ strength has been highlighted a number of times.

Doug Becker – Merrill Lynch

Are share of purchases off the table while the newbuilds and options are outstanding or could we see both going forward?

David Williams

We have an active buyback program and we haven’t stopped it. We buy shares the full quarter, but we have so much stuff going on. So there’s no reason to think that we’re out of the buyback business forever.

Doug Becker – Merrill Lynch

Okay, thanks.

Operator

Your next question comes from Arun Jayaram from Credit Suisse.

Arun Jayaram – Credit Suisse

Good morning. I just have a quick one. Tom, can you elaborate a little bit on the tax rate, the guidance at 22%, versus, I think, just under 16% this year?

Tom Mitchell

Yes, Arun. I would use 22 right now as a target for you, guys, and I’m going to have to adjust. This is extremely volatile right now with the drop in the revenue, in particular, in the Gulf and Mexico. It has a huge impact on it for the reasons that I described last quarter. There’s a component of our partnership which is basically a fixed tax cost. And so as your revenues move up and down, it’s extremely volatile.

So, I can’t really give you much more other than to tell you it’s likely to be a little bit off of that as the best guess I can give you right now. You’ve seen the volatility in the last couple of quarters, it’s not going to go away until the rigs go back to work in the Gulf and so we go back to work in Mexico. So I would just look at that as our best target for right now and we will try to keep you fresh, either through the fleet status process or next quarter when we talk to you.

Arun Jayaram – Credit Suisse

All right, fair enough. Roger, on the Pemex tenders, (inaudible) outstanding today, can you just highlight when the bids are due for those and when do you expect the additional five tenders to be issued by Pemex?

Roger Hunt

I’m looking. The bid is due – I think I might have to get back to you, Arun. It’s all over the board. The five (inaudible) ones I talked to you about, I think we’re going to find 10 of them around here in a couple of weeks because (inaudible) see us, but the ones that are already in play to date is ranging from April 6 to May 22.

Arun Jayaram – Credit Suisse

Okay, thank you very much.

David Williams

We’ll be around to take one last question here.

Operator

Your final question comes from Robin Shoemaker from Citi.

Robin Shoemaker – Citi

One question, Roger, you mentioned shipyard capacity is getting pretty tight, especially for 2013 but also 2014 delivery. Do you anticipate that the cost of these vessels –deep-water rigs—are going to start to escalate as we get into later in this year from the very attractive pricing levels you see now or has something happened in the interim between the last cycle where the shipyards had become much more efficient and are able earn their desired margins with much lower prices?

Roger Hunt

Boy, I think we’d really like to support the case in the latter but so much of this requires equipment which comes from the major equipment manufacturers, (inaudible) Maritime, etcetera. So, when we think of what the price – the major cost component size, you’ve got shipyard and the equipment. I think a reasonable guess or expectation would be rather that the next round of orders are probably going to be at a higher profit.

Robin Shoemaker

Okay. And just similarly on these payment terms which seem to have so heavily back-end or delivery date waited, do you think that’s also a transitory kind of opportunity for you guys?

Roger Hunt

Yes, I’d yes. It’s probably the pricing inflation.

Robin Shoemaker

Yes. Alright, thank you.

Roger Hunt

I want to make a clarification. You know I was looking at the wrong column. I was looking at the stat, date of the job, (inaudible) to the due date, hence, probably (inaudible) when I get an update. The bid date is late February and 23 March.

Lee Ahlstrom

Alright. Well, thank you, Sylvia, for your help today and thank you all for joining us. As you know, Brooke and I will be available the rest of the day to answer any questions you might have, and we will see you back here for the First Quarter 2011 in April. Thank you very much.

Roger Hunt

Thank you.

Operator

Ladies and gentlemen, this concludes the Fourth Quarter Earnings Call. Thank you for participating. You may now disconnect.

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