-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G2HTce7VPtnpqVQvL1Ap2FnBecwLiwTe9K6/cHcf+akIRw/btUjZ9G9PJvyVfzQa 1Z8OK4WsxjqM0MsOwioOyg== 0000950129-99-000817.txt : 19990308 0000950129-99-000817.hdr.sgml : 19990308 ACCESSION NUMBER: 0000950129-99-000817 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOBLE DRILLING CORP CENTRAL INDEX KEY: 0000777201 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 730374541 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11669 FILM NUMBER: 99558128 BUSINESS ADDRESS: STREET 1: 10370 RICHMOND AVE STE 400 CITY: HOUSTON STATE: TX ZIP: 77042 BUSINESS PHONE: 7139743131 MAIL ADDRESS: STREET 1: 10370 RICHMOND AVE STREET 2: STE 400 CITY: HOUSTON STATE: TX ZIP: 77042 10-K 1 NOBLE DRILLING CORPORATION - DATED 12/31/98 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM ___________ TO _____________ COMMISSION FILE NUMBER: 0-13857 NOBLE DRILLING CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 73-0374541 - ------------------------ --------------------------------------- (State of incorporation) (I.R.S. employer identification number) 10370 RICHMOND AVENUE, SUITE 400, HOUSTON, TEXAS 77042 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 974-3131 ------------------------------------------------------------------ Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK, PAR VALUE $.10 PER SHARE NEW YORK STOCK EXCHANGE 9 1/8% SENIOR NOTES DUE 2006 NEW YORK STOCK EXCHANGE PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE - -------------------------------------- ----------------------------------------- Title of each class Name of each exchange on which registered Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of Common Stock held by nonaffiliates as of March 3, 1999: $1,672,000,000 Number of shares of Common Stock outstanding as of March 3, 1999: 131,142,998 DOCUMENTS INCORPORATED BY REFERENCE Listed below are documents parts of which are incorporated herein by reference and the part of this report into which the document is incorporated: (1) Proxy statement for the 1999 annual meeting of stockholders - Part III 2 TABLE OF CONTENTS
PAGE =============================================================================================================== PART ITEM 1. BUSINESS........................................................................ 1 I General............................................................................. 1 Business Strategy................................................................... 1 Development of Business During 1998................................................. 2 Deepwater Conversions........................................................ 2 Drilling Contracts.................................................................. 2 Offshore Drilling Operations........................................................ 3 International Contract Drilling.............................................. 3 Domestic Contract Drilling................................................... 3 Labor Contracts.............................................................. 3 Turnkey Drilling and Engineering Services........................................... 4 Competition and Risks............................................................... 4 Governmental Regulation and Environmental Matters................................... 5 Employees........................................................................... 6 Financial Information about Foreign and Domestic Operations......................... 6 ITEM 2. PROPERTIES...................................................................... 6 Drilling Fleet...................................................................... 6 Semisubmersibles............................................................. 6 Dynamically Positioned Drillships............................................ 6 Jackup Rigs.................................................................. 6 Submersibles................................................................. 7 Facilities.......................................................................... 9 ITEM 3. LEGAL PROCEEDINGS............................................................... 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................. 9 EXECUTIVE OFFICERS OF THE REGISTRANT........................................................ 9 =============================================================================================================== PART ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........... 10 II ITEM 6. SELECTED FINANCIAL DATA......................................................... 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................................... 12 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................................................... 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................... 22 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...................................................................... 47 =============================================================================================================== PART ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................. 47 III ITEM 11 EXECUTIVE COMPENSATION.......................................................... 47 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................. 47 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................. 47 =============================================================================================================== PART ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................. 47 IV SIGNATURES.................................................................................. 49
3 FORM 10-K This report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Form 10-K, including, without limitation, statements contained in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations", regarding our financial position, business strategy, plans and objectives of management for future operations, industry conditions, and indebtedness covenant compliance, are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, volatility in crude oil and natural gas prices, potential further deterioration in the demand for our drilling services and resulting declining dayrates, the cancellation by our customers of drilling contracts or letters of intent for drilling contracts or their exercise of early termination provisions generally found in our drilling contracts, risks associated with our turnkey drilling operations, intense competition in the drilling industry, heavy demand for the equipment and services that we need in order to finish our major shipyard refurbishment and conversion projects on schedule and on budget, political and economic conditions in international markets where we operate, adverse weather (such as hurricanes) and seas, operational risks (such as blowouts, fires and loss of production), limitations on our insurance coverage, and requirements and potential liability imposed by governmental regulation of the drilling industry (including environmental regulation). PART I ITEM 1. BUSINESS GENERAL The Company is a leading provider of diversified services for the oil and gas industry. Contract drilling services are performed with the Company's fleet of 47 offshore drilling units located in key markets worldwide. Our fleet of floating deepwater units consists of nine semisubmersibles and three dynamically positioned drillships, seven of which are designed to operate in water depths greater than 5,000 feet. The Company's fleet of 32 jackup rigs includes 19 premium units that operate in water depths of 300 feet and greater, four of which operate in water depths of 360 feet and greater. In addition, our fleet includes three submersible drilling units. Ten of our drilling units are capable of operating in harsh environments. Over 60 percent of the fleet is currently deployed in international markets, principally including the North Sea, Africa, Brazil, the Middle East and Mexico. The Company also provides engineering and production management services and turnkey drilling services. Noble Drilling Corporation ("Noble Drilling") was organized as a Delaware corporation in 1939. Noble Drilling and its predecessors have been engaged in the contract drilling of oil and gas wells for others domestically since 1921 and internationally during various periods since 1939. As used herein, unless otherwise required by the context, the term "Noble Drilling" refers to Noble Drilling Corporation and the term "Company" refers to Noble Drilling and its consolidated subsidiaries. The use herein of such terms as group, organization, we, us, our and its, or references to specific entities, is not intended to be a precise description of corporate relationships. BUSINESS STRATEGY In recent years we have focused on increasing the number of rigs in our fleet capable of deepwater offshore drilling. We have incorporated this focus into our broader, long-standing business strategy to actively expand our international and offshore deepwater capabilities through acquisitions, rig upgrades and modifications, and to redeploy assets in important geological areas. The offshore contract drilling industry has, in recent years, experienced a series of asset sales and consolidations among drilling contractors, and we expect this trend to continue as drilling contractors position themselves strategically in the market. From time to time, we have discussions with third parties regarding asset acquisitions or business combinations, and we intend to continue to consider business opportunities that we believe promote our business strategy. 1 4 DEVELOPMENT OF BUSINESS DURING 1998 DEEPWATER CONVERSIONS A principal component of our deepwater strategy is our EVA-4000(TM) semisubmersible conversion program. The EVA-4000(TM)is the Company's proprietary design that we believe allows us to convert certain of our three-column submersible drilling rigs into ultra-deepwater semisubmersibles at a lower cost and on an accelerated delivery schedule versus a new construction project. We delivered our first EVA-4000(TM) semisubmersible conversion, the Noble Paul Romano, in the fourth quarter of 1998 and our second EVA-4000(TM) conversion, the Noble Paul Wolff, is under tow to Brazil for a scheduled delivery in the first quarter of 1999. Four other semisubmersible conversions are in progress, including three EVA-4000(TM) conversions, and are expected to be available for service in 1999 or early 2000. The Noble Paul Romano, which is capable of drilling in 6,000 feet of water, is contracted to Shell Deepwater Development Inc. ("Shell Deepwater"), an affiliate of Shell Oil Company, for a five year contract in the U.S. Gulf of Mexico. The Noble Paul Wolff, a dynamically positioned unit capable of drilling in 8,900 feet of water, is contracted to Petroleo Brasiliero S.A. ("Petrobras") for six years in Brazil. The Noble Jim Thompson, which will be capable of drilling in 6,000 feet of water, is contracted to Shell Deepwater for an initial term of three years, with options to extend by Shell Deepwater, in the U.S. Gulf of Mexico. Delivery is anticipated in the second quarter of 1999. The Noble Amos Runner, which will be capable of drilling in 6,600 feet of water, is contracted to a rig-sharing consortium of operators for a five year term in the U.S. Gulf of Mexico. The rig is expected to be delivered in the third quarter of 1999. The Noble Max Smith, which is currently subject to a letter of intent, will be capable of drilling in 6,000 feet of water. We are in the process of finalizing a five year drilling contract with Amerada Hess Corporation and Union Pacific Resources Corporation to work the unit in the U.S. Gulf of Mexico. The rig is expected to be delivered in late 1999. The Noble Homer Ferrington is subject to a letter of intent with Samedan Oil Corporation and Mariner Energy, Inc. for a five year drilling contract in the U.S. Gulf of Mexico. We continue to meet with these two operators to work toward the finalization of the drilling contract and related rig sharing agreement. Shipyard work on the rig, which will be capable of drilling in 6,000 feet of water, is progressing on a schedule for delivery of the rig in the first quarter of 2000. These projects are subject to the risks of delay or cost overruns inherent in large construction and refurbishment projects, including shipyard availability, shortages of materials or skilled labor, unforeseen engineering problems, work stoppages, weather interference, unanticipated cost increases, nonavailability of necessary equipment and inability to obtain any of the requisite permits or approvals. Significant delays would hurt our marketing plans for such rigs and could jeopardize our long term drilling contracts or letters of intent for drilling contracts for such rigs. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" for a discussion of capital expenditures. DRILLING CONTRACTS We typically employ each drilling unit under an individual contract. Although the final terms of such contracts are the result of negotiations between the Company and its customers, many contracts are awarded based upon competitive bidding. Our drilling contracts generally contain the following terms: o a term extending over a specific period of time or the period necessary to drill one or more wells (in general, we seek to have a reasonable balance of short- and long-term contracts to minimize the downside impact of a decline in the market, while obtaining the benefit of increasing market prices in a rising market); o early termination by the customer without cause and extension options to drill additional wells, in each case, generally exercisable by the customer upon specified advance notice to us; early termination by the customer if the unit is lost or destroyed, if operations are suspended for a specified period of time due to breakdown of major equipment or if operations are suspended for a specified period of time due to "force majeure" events beyond our control and the control of the customer; 2 5 o payment of compensation to the Company (generally in U.S. dollars) on a "daywork" basis, under which we receive a fixed amount per day that the drilling unit is operating under contract, with lower rates or no compensation payable during periods of equipment breakdown and repair or adverse weather or in the event operations are interrupted by other conditions, some of which may be beyond our control; and o payment by the Company of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies. In reaction to depressed market conditions, our customers may seek to avoid or reduce their obligations under term drilling contracts or letters of intent for drilling contracts. A customer may no longer need a rig, due to a reduction in its exploration, development or production program, or it may seek to obtain a comparable rig at a lower dayrate. We anticipate that the primary terms of the current contracts on 23 of 38 of our rigs will expire at varying times in 1999, subject to options to extend in the case of six contracts. Of the contracts expiring in 1999, the contract for our semisubmersible unit operating in the North Sea and the contracts for 10 of our jackup rigs and submersibles (five of which are well-to-well contracts) are scheduled to expire under the terms of the contracts before the 15th of April, subject to extensions to complete work in progress. Assuming continuation of the current weak demand for offshore drilling services, we expect that the dayrate under any new or renewal contract that we enter generally will be a lower dayrate than under the expiring contract. Many contracts allow us to recover our mobilization and demobilization costs associated with moving a drilling unit from one location to another. When market conditions require us to bear these costs, our operating margins are accordingly reduced. Market conditions prevailing in 1998 and year to date in 1999 have permitted us to recover our mobilization and demobilization costs to move a unit long distances between operating areas; however, we cannot predict our ability to recover these costs in the future. For shorter moves such as "field moves", our customers have generally agreed to bear the costs of moving the unit by paying us a reduced dayrate or "move rate" while the unit is being moved. Through Triton Engineering Services Company and its subsidiaries, we also participate in "turnkey" contracts (see "Item 1. Business - Turnkey Drilling and Engineering Services"). The risk of loss to us is generally higher with respect to our turnkey drilling operations than it is for daywork contract drilling operations. OFFSHORE DRILLING OPERATIONS Our offshore contract drilling operations, which accounted for approximately 76 percent and 66 percent of operating revenues for the years ended December 31, 1998 and 1997, respectively, are conducted worldwide. Our offshore drilling fleet consists of 47 units. See "Item 2. Properties - Drilling Fleet." Our principal regions of offshore contract drilling operations include the North Sea, the Gulf of Mexico, Africa, South America, the Middle East and India. In 1998, one customer accounted for approximately 12 percent of our total operating revenues, and no other single customer accounted for more than 10 percent of our total operating revenues. INTERNATIONAL CONTRACT DRILLING Offshore contract drilling services from international sources accounted for approximately 80 percent and 74 percent of our total offshore contract drilling services revenues for 1998 and 1997, respectively. In 1998, approximately 39 percent of our international offshore contract drilling services revenues was derived from contracts with major oil and gas companies, 37 percent from contracts with government-owned companies and the balance from contracts with independent operators. DOMESTIC CONTRACT DRILLING Offshore contract drilling services from domestic sources accounted for approximately 20 percent and 26 percent of our total offshore contract drilling services revenues for 1998 and 1997, respectively. In 1998, approximately 86 percent of our domestic offshore contract drilling revenues was derived from contracts with independent operators and the remaining 14 percent was derived from contracts with major oil and gas companies. LABOR CONTRACTS Our offshore operations also include labor contracts for drilling and workover activities covering 12 rigs operating in the U.K. North Sea and two rigs under a labor contract off the East Coast of Canada. These rigs are not owned or leased by us. Under our labor contracts, we provide the personnel necessary to manage and perform the drilling operations from drilling platforms owned by the operator. The contracts are generally renewable no more frequently than on an annual basis. After drilling operations are completed, workover operations usually become an important element of each platform's activity. Drilling contractor crews will, therefore, typically remain on the platform until a field is depleted by production. 3 6 TURNKEY DRILLING AND ENGINEERING SERVICES Through our wholly owned subsidiary, Triton Engineering Services Company ("Triton"), we provide turnkey drilling, drilling project management, drilling and completion planning and design, and contract engineering and consulting manpower. Turnkey drilling, Triton's major service, involves the coordination of all equipment, materials, services and management to drill a well to a specified depth, for a fixed price. Under turnkey drilling contracts, Triton bears the financial risk of delays in the completion of the well. In providing its services, Triton can use drilling rigs owned either by the Company or by a third party, depending on availability. The drilling of a turnkey well is generally completed within 30 to 50 days. Triton completed 14 wells in 1998 compared to 34 wells in 1997. Revenues from turnkey drilling services represented 14 percent and 25 percent of consolidated operating revenues for 1998 and 1997, respectively. We provide engineering services relating primarily to the design of drilling equipment for offshore development and production services and to the recertification of oilfield equipment. We work on a contract basis with operators and prime construction contractors of drilling and production platforms in the design of drilling equipment configurations aimed at optimizing the operational efficiency of developmental drilling by maximizing platform space utilization and load capability. COMPETITION AND RISKS The contract drilling industry is a highly competitive and cyclical business characterized by high capital and maintenance costs. We believe that competition for drilling contracts will continue to be intense for the foreseeable future. Certain competitors may have access to greater financial resources than we do. Competition in contract drilling involves numerous factors, including price, rig availability and suitability, the experience of the workforce, efficiency, condition of equipment, operating integrity, reputation, industry standing and customer relations. Although price is a major consideration in most markets, especially with respect to domestic drilling, the limited supply of deepwater units has made rig availability and suitability a principal consideration in recent periods. We believe that we compete favorably with respect to all these factors. Competition is primarily on a regional basis and may vary significantly by region at a particular time. Demand for offshore drilling equipment is also dependent on the exploration and development programs of oil and gas producers, which are in turn influenced by the financial condition of such producers, by general economic conditions and prices of oil and gas, and, from time to time, by political considerations and policies. We follow a policy of keeping our equipment well maintained and technologically competitive. However, our equipment could be made obsolete by the development of new techniques and equipment. In addition, industry-wide shortages of supplies, services, skilled personnel and equipment necessary to conduct our business, such as blowout preventers and drill pipe, occur from time to time. There can be no assurance that any such shortages experienced in the past would not occur again or that any such shortages, to the extent currently existing, will not continue or worsen in the future. Our results of operations depend on the levels of activity in offshore oil and gas exploration, development and production in markets worldwide. Both short-term and long-term trends in oil and gas affect that activity. During the second quarter of 1998, demand for offshore drilling rigs in the U.S. Gulf of Mexico began to soften, and, as a result, rig utilization and dayrates began declining in mid-1998. Later in 1998, international demand for offshore drilling rigs weakened and rig utilization and dayrates began declining in those markets. We believe this decreased demand is largely attributable to depressed oil prices that began declining in 1997 and have remained at low levels as compared to average prices in recent years. Oil and gas prices and market expectations of potential changes in these prices significantly affect the level of activity in oil and gas exploration, development and production. These market prices are extremely volatile. Demand for drilling services depends on a variety of economic and political factors, including worldwide demand for oil and gas, the ability of the Organization of Petroleum Exporting Countries ("OPEC") to set and maintain production levels and pricing, the level of production of non-OPEC countries and the policies of the various governments regarding exploration and development of their oil and gas reserves. 4 7 We believe that any decrease from current oil and gas prices, or extended periods at current price levels, will further depress the level of exploration and production activity and result in a corresponding decline in demand for our services. Furthermore, the continued consolidation of the oil and gas industry, as evidenced by the announcement and completion of several recent transactions, has resulted in, and is likely to continue to result in, a reduction in the amount of capital spent on exploration and production activities. These reductions adversely affect the demand for our services. For these reasons, we cannot predict the future level of demand for our drilling services or future conditions in the offshore contract drilling industry. Our operations are subject to the many hazards inherent in the drilling business, including blowouts, cratering, fires, and collisions or groundings of offshore equipment. In addition, our operations are subject to damage or loss from adverse weather and seas. These hazards could cause personal injury and loss of life, suspend drilling operations or seriously damage or destroy the property and equipment involved and, in addition to causing environmental damage, could cause substantial damage to producing formations and surrounding areas. Although we maintain insurance against many of these hazards, such insurance may be subject to substantial deductibles and provides for premium adjustments based on claims. It also excludes certain matters from coverage, such as loss of earnings on certain rigs. Also, while we generally obtain indemnification from our customers for environmental damage with respect to offshore drilling, such indemnification is generally only in excess of a specified amount, which typically ranges from $100,000 to $250,000. In the case of turnkey drilling operations, we maintain insurance against pollution and environmental damage in amounts ranging from $5,000,000 to $50,000,000 depending on location, subject to self-insured retentions of $25,000 to $1,000,000. Under turnkey drilling contracts, Triton generally assumes the risk of pollution and environmental damage, but on occasion receives indemnification from the customer for environmental and pollution liabilities in excess of Triton's pollution insurance coverage. Further, Triton is not insured against certain drilling risks that could result in delays or nonperformance of a turnkey drilling contract, although it generally maintains insurance against delays related to loss of well control. Triton typically obtains contractual indemnification from the drilling contractors that provide the rigs for Triton's turnkey drilling operations for pollution arising from certain acts of such contractors. Our international operations are also subject to certain political, economic and other uncertainties including, among others, risks of war and civil disturbances, expropriation, nationalization, renegotiation or modification of existing contracts, taxation policies, foreign exchange restrictions, international monetary fluctuations and other hazards arising out of foreign governmental sovereignty over certain areas in which we conduct operations. We have sought to obtain, where economic, insurance against certain political risks. However, there can be no assurance that such insurance would be available to us or, if available, would cover all losses that we may incur in respect of foreign operations. GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS Many aspects of our operations are affected by domestic and foreign political developments and are subject to numerous governmental regulations that may relate directly or indirectly to the contract drilling industry. The regulations applicable to our operations include certain provisions that regulate the discharge of materials into the environment or require remediation of contamination, under certain circumstances. Usually these environmental laws and regulations impose "strict liability", rendering a person liable without regard to negligence or fault on the part of such person. Such environmental laws and regulations may expose us to liability for the conduct of, or conditions caused by, others, or for any of our acts, even if they were in compliance with all applicable laws at the time such acts were performed. The U.S. Oil Pollution Act of 1990 ("OPA `90") and regulations thereunder impose certain additional operational requirements on our domestic offshore rigs and govern liability for leaks, spills and blowouts involving pollutants. Regulations under OPA `90 require owners and operators of rigs in United States waters to maintain certain levels of financial responsibility. We monitor these regulations and do not believe that they are likely to have a material adverse effect on our financial condition or results of operations. We have made and will continue to make expenditures to comply with environmental requirements. We have not to date expended material amounts in connection with such activities and do not believe that compliance with such requirements will have a material adverse effect upon our results of operations or competitive position or materially increase our capital expenditures. Although such requirements do have a substantial impact upon the energy and energy services industries, generally 5 8 they do not appear to affect us any differently or to any greater or lesser extent than other companies in the energy services industry. The modification of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or developmental drilling for oil and gas for economic, environmental or other reasons could materially and adversely affect our operations by limiting drilling opportunities. EMPLOYEES At December 31, 1998, we had approximately 3,250 employees, of which 70 percent were engaged in international operations and 30 percent were engaged in domestic operations. We are not a party to any collective bargaining agreements that are material. We consider our employee relations to be satisfactory. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Information regarding operating revenues, operating income and loss, and identifiable assets attributable to each of our geographic areas of operations for the last three fiscal years is presented in Note 15 of Notes to Consolidated Financial Statements included elsewhere herein. ITEM 2. PROPERTIES DRILLING FLEET Our offshore drilling rig fleet consists of 47 units comprising nine semisubmersibles (including five submersibles that have been or are being converted to EVA-4000(TM) semisubmersibles), three drillships, 32 jackup rigs and three submersibles. The rig count includes one drillship and one semisubmersible unit in which we have partial ownership interests through joint venture arrangements and one jackup rig operated pursuant to a long-term bareboat charter agreement with the owner. Each type of rig is described further below. There are several factors that determine the type of rig most suitable for a particular job, the more significant of which include the water depth and bottom conditions at the proposed drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. SEMISUBMERSIBLES Our semisubmersible fleet consists of nine units. Among the nine are three units being converted to EVA-4000(TM) semisubmersibles and three Friede & Goldman 9500 Enhanced Pacesetter semisubmersibles, including one in which we own a 50 percent interest (with the option to increase to 70 percent) through a joint venture arrangement. We intend to convert the three Pacesetter semisubmersibles to deepwater drilling units. Semisubmersibles are floating platforms which, by means of a water ballasting system, can be submerged to a predetermined depth so that a substantial portion of the hull is below the water surface during drilling operations. These units maintain their position over the well through the use of either a fixed mooring system or a dynamic positioning system and are designed to work in water depths of up to 8,900 feet and can drill in many areas where jackup rigs can also drill. However, semisubmersibles normally require water depth of at least 200 feet in order to conduct operations. Three of these units are designed to operate in harsh environments. Semisubmersibles are typically more expensive to construct and operate than jackup rigs. DYNAMICALLY POSITIONED DRILLSHIPS We have three dynamically positioned drillships in the fleet, one of which we partially own through a joint venture arrangement. Drillships are ships that are equipped for drilling and are typically self-propelled and move from one location to another under their own power. Drillships are positioned over the well through use of either an anchoring system or a computer controlled dynamic positioning system. Our two wholly owned drillships, the Noble Leo Segerius and Noble Roger Eason, are capable of drilling in water depths up to 4,900 feet and 6,000 feet, respectively. The Noble Muravlenko, which we operate and partially own through a joint venture arrangement, is capable of drilling in water depths up to 4,000 feet. JACKUP RIGS We have 32 jackup rigs in the fleet, including one jackup rig which we operate pursuant to a long-term bareboat charter agreement with the owner. Jackup rigs are mobile self-elevating drilling platforms equipped with legs which can be lowered to the ocean floor until a foundation is established to support the drilling platform. The rig hull includes the drilling rig, jacking system, crew quarters, loading and unloading facilities, storage areas for bulk and liquid materials, helicopter 6 9 landing deck and other related equipment. All of our jackup rigs are independent leg (i.e., the legs can be raised or lowered independently of each other) cantilevered rigs. A cantilevered jackup has a feature that permits the drilling platform to be extended out from the hull, allowing it to perform drilling or workover operations over pre-existing platforms or structures. Moving a rig to the drill site involves jacking up its legs until the hull is floating on the surface of the water. The hull is then towed to the drill site by tugs and the legs are jacked down to the ocean floor. The jacking operation continues until the hull is raised out of the water and drilling operations are conducted with the hull in its raised position. Our jackup rigs are capable of drilling to a maximum depth of 25,000 feet in water depths ranging between eight and 390 feet, depending on the jackup rig. Nineteen of our jackup rigs represent premium units that operate in water depths of 300 feet and greater, four of which operate in water depths of 360 feet and greater. Seven of our jackup rigs are capable of operating in harsh environments. SUBMERSIBLES We have three submersibles in the fleet. Submersibles are mobile drilling platforms which are towed to the drill site and submerged to drilling position by flooding the lower hull until it rests on the sea floor, with the upper deck above the water surface. Our submersibles are capable of drilling to a maximum depth of 25,000 feet in water depths ranging between 12 and 85 feet, depending on the submersible. The following table sets forth certain information concerning our drilling rig fleet at February 8, 1999. The table does not include 14 rigs owned by operators for which we had labor contracts as of February 8, 1999. We operate and, unless otherwise indicated, own all of the rigs included in the table. 7 10 Drilling Fleet
WATER DRILLING DEPTH DEPTH YEAR BUILT RATING CAPACITY NAME MAKE OR REBUILT(1) (FEET) (FEET) LOCATION STATUS (2) - ----------------------------------------------------------------------------------------------------------------------------------- SEMISUBMERSIBLES - 9 Noble Paul Wolff (T) Noble EVA-4000(TM) 1998 R 8,900 30,000 Brazil Active Noble Paul Romano (T) Noble EVA-4000(TM) 1998 R 6,000 30,000 U.S. Gulf of Mexico Active Noble Amos Runner (T) (3) Noble EVA-4000(TM) 1999 R 6,600 30,000 U.S. Gulf of Mexico Shipyard Noble Jim Thompson (T) (3) Noble EVA-4000(TM) 1999 R 6,000 30,000 U.S. Gulf of Mexico Shipyard Noble Max Smith (T) (4) Noble EVA-4000(TM) 1999 R 6,000 30,000 U.S. Gulf of Mexico Shipyard Noble Homer Ferrington (T) (4) Friede & Goldman 9500 2000 R 6,000 30,000 U.S. Gulf of Mexico Shipyard Enhanced Pacesetter Noble Ton van Langeveld (T) (5) Offshore Co. SCP III 1991 R 1,500 20,000 U.K. Active Noble Shelf 6 (5) Friede & Goldman 9500 1986 6,000 25,000 China Shipyard Enhanced Pacesetter Noble Ilion (5) (6) Friede & Goldman 9500 1987 6,000 25,000 U.S. Gulf of Mexico Shipyard Enhanced Pacesetter - ----------------------------------------------------------------------------------------------------------------------------------- DYNAMICALLY POSITIONED DRILLSHIPS - 3 Noble Roger Eason (T) Nedlloyd 1997 R 6,000 25,000 Brazil Active Noble Leo Segerius (T) Gusto Engineering 1996 R 4,900 20,000 Brazil Active Pelican Class Noble Muravlenko (T) (7) Gusto Engineering 1997 R 4,000 21,000 Brazil Active Pelican Class - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT LEG CANTILEVERED JACKUPS - 32 Noble Bill Jennings (T) MLT 84 - E.R.C. 1997 R 390 25,000 U.S. Gulf of Mexico Active Noble Eddie Paul (T) MLT 84 - E.R.C. 1995 R 390 25,000 U.S. Gulf of Mexico Active Noble Leonard Jones (T) MLT 53 - E.R.C. 1998 R 390 25,000 U.S. Gulf of Mexico Active Noble Al White (T) (5) CFEM T-2005C 1997 R 360 25,000 Norway Active Noble Byron Welliver (T) (5) CFEM T-2005C 1982 300 25,000 Denmark Active Noble Kolskaya (T) (5) (8) Gusto Engineering 1997 R 330 25,000 Denmark Active Noble Johnnie Hoffman (T) Baker Marine BMC 300 1993 R 300 25,000 U.S. Gulf of Mexico Active Noble Roy Butler (T) (9) F&G L-780 MOD II 1996 R 300 25,000 Nigeria Active Noble Tommy Craighead (T) F&G L-780 MOD II 1990 R 300 25,000 Nigeria Active Noble Kenneth Delaney (T) F&G L-780 MOD II 1998 R 300 25,000 Qatar Active Noble Percy Johns (T) F&G L-780 MOD II 1995 R 300 25,000 Nigeria Active Noble George McLeod (T) F&G L-780 MOD II 1995 R 300 25,000 Qatar Active Noble Jimmy Puckett (T)(3)(10) F&G L-780 MOD II 1999 R 300 25,000 UAE Shipyard Noble Gus Androes (T) Levingston 111-C 1996 R 300 25,000 Qatar Active Noble Lewis Dugger (T) Levingston 111-C 1997 R 300 20,000 Bay of Campeche Active Noble Ed Holt (T) (9) Levingston 111-C 1994 R 300 25,000 India Active Noble Sam Noble (T) Levingston 111-C 1982 300 25,000 U.S. Gulf of Mexico Available Noble Gene Rosser (T) Levingston 111-C 1996 R 300 20,000 Bay of Campeche Active Noble John Sandifer (T) Levingston 111-C 1995 R 300 20,000 Bay of Campeche Active Noble Charles Copeland (T) MLT Class 82-SD-C 1995 R 250 20,000 Venezuela Active Noble Earl Frederickson (T) MLT Class 82-SD-C 1979 250 20,000 U.S. Gulf of Mexico Available Noble Tom Jobe (T) MLT Class 82-SD-C 1982 250 25,000 U.S. Gulf of Mexico Active Noble Ed Noble (T) MLT Class 82-SD-C 1990 R 250 20,000 Nigeria Active Noble Lloyd Noble (T) MLT Class 82-SD-C 1990 R 250 20,000 Nigeria Available Noble Carl Norberg (T) MLT Class 82-C 1996 R 250 20,000 U.S. Gulf of Mexico Available Noble Chuck Syring (T) MLT Class 82-C 1996 R 250 20,000 Qatar Active Noble George Sauvageau (T) (5) (11) NAM Nedlloyd 1981 250 20,000 Denmark Active Noble Ronald Hoope (T) (5) (11) Marine Structure CJ-46 1982 205 25,000 The Netherlands Active Noble Lynda Bossler (T) (5) (11) Marine Structure CJ-46 1982 205 25,000 The Netherlands Active Noble Piet van Ede (T) (5) (11) Marine Structure CJ-46 1982 205 25,000 The Netherlands Active Noble Dick Favor Baker Marine BMC 150 1993 R 150 20,000 Venezuela Active Noble Don Walker (T) Baker Marine BMC 150 1992 R 150 20,000 Nigeria Active - ------------------------------------------------------------------------------------------------------------------------------------ SUBMERSIBLES - 3 Noble Joe Alford Pace Marine 85G 1997 R 85 25,000 U.S. Gulf of Mexico Active Noble Lester Pettus Pace Marine 85G 1997 R 85 25,000 U.S. Gulf of Mexico Active Noble Frl Rodli Transworld 1998 R 70 25,000 U.S. Gulf of Mexico Available
(T) Denotes Top Drive (1) Rigs designated with an "R" were modified, refurbished or otherwise upgraded in the year indicated by capital expenditures in an amount deemed material by management. (2) Rigs listed as "active" were operating under contract, and rigs listed as "available" were available for bidding as of February 8, 1999. Rigs listed as "shipyard" are in a shipyard for repair, refurbishment or upgrade. Shipyard work is scheduled to be completed during 1999 or early 2000, except for the Noble Shelf 6 and Noble Ilion which can be upgraded to a water depth rating of 6,000 feet when the Company receives a long-term contract with an operator. (3) Signed long-term contracts in place. (4) Under letter of intent for long-term contract. (5) Harsh environment capability. (6) We own a 50 percent interest in the unit through a joint venture arrangement. At our election, we can convert a loan we have made to the venture to an additional 20 percent in the venture. (7) We operate the unit and own a partial interest in the unit through a joint venture arrangement. (8) We have operating control of the unit pursuant to a long-term bareboat charter agreement with the owner. (9) Although designed for a water depth rating of 300 feet of water, the rig is currently equipped with legs adequate to drill in approximately 250 feet of water. The Company owns the additional legs required to extend the drilling depth capability to 300 feet of water. (10) Bareboat chartered to a third party under which the Company maintains operating control of the rig. (11) Water depth rating based on North Sea conditions year round. 8 11 FACILITIES The Company's principal executive offices are located in Houston, Texas, and are leased through June 2000. The Company also leases administrative and marketing offices, and sites used primarily for storage, maintenance and repairs for drilling rigs and equipment, in New Orleans and Lafitte, Louisiana; Leduc and St. Johns, Canada; Warri, Lagos and Port Harcourt, Nigeria; Aberdeen, Scotland; Maracaibo and Cuidad Ojeda, Venezuela; Doha, Qatar; Rotterdam and Beverwijk, The Netherlands; Macae, Brazil; and Esjberg, Denmark. The Company owns certain tracts of land, including office and administrative buildings and warehouse facilities in Lafayette and Bayou Black, Louisiana and Aberdeen, Scotland. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party or of which its property is the subject. The Company is involved in certain routine litigation incidental to the business of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information as of March 2, 1999 with respect to the executive officers of Noble Drilling.
NAME AGE POSITION ---- --- -------- James C. Day 55 Chairman and Chief Executive Officer and Director Robert D. Campbell 48 President and Director Byron L. Welliver 53 Senior Vice President - Finance, Treasurer and Controller Julie J. Robertson 43 Vice President - Administration and Corporate Secretary
James C. Day has served as Chairman of Noble Drilling since October 22, 1992 and as Chief Executive Officer since January 1, 1984, and he served as President from January 1, 1984 to January 1, 1999. From January 1983 until his election as President and Chief Executive Officer, Mr. Day served as Vice President of Noble Drilling. Prior to 1983, Mr. Day served as Vice President and Assistant Secretary of Noble Affiliates, Inc. He has been a director of Noble Drilling since 1984. Mr. Day is also a director of Global Industries, Ltd. and Noble Affiliates, Inc. Robert D. Campbell has served as President of Noble Drilling since January 1, 1999 and as a director since February 4, 1999. Prior to January 1, 1999, Mr. Campbell practiced corporate/securities law as a senior shareholder with the firm of Thompson & Knight, P.C. and served as general counsel to the Company for more than five years. Byron L. Welliver has served as Senior Vice President - Finance of Noble Drilling since April 1989, as Treasurer of Noble Drilling since July 1986, and as Controller of Noble Drilling since September 1994. Mr. Welliver had served as Controller from April 1989 to April 1991. From July 1986 to April 1989, he also served as Vice President - Finance for Noble Drilling. He joined Noble Drilling in October 1985, as Controller. Prior to joining Noble Drilling, Mr. Welliver served consecutively as Tax Manager, Controller and Treasurer of Noble Affiliates, Inc. beginning in March 1981. Julie J. Robertson has served as Vice President-Administration of Noble Drilling since April 1996 and as Corporate Secretary of Noble Drilling since December 1993. In September 1994, Ms. Robertson became Vice President-Administration of Noble Drilling Services Inc. From January 1989 to September 1994, Ms. Robertson served consecutively as Manager of Benefits and Director of Human Resources for Noble Drilling Services Inc. Prior to 1989, Ms. Robertson served consecutively in the positions of Risk and Benefits Manager and Marketing Services Coordinator for a predecessor subsidiary of the Company, beginning in 1979. 9 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Noble Drilling's Common Stock, par value $0.10 per share ("Common Stock"), is listed and traded on the New York Stock Exchange under the symbol "NE". The following table sets forth for the periods indicated the high and low sales prices of the Common Stock.
HIGH LOW --------------- ------------------ 1998 First quarter............................. $ 32 11/16 $ 21 9/16 Second quarter............................ 34 11/16 22 7/8 Third quarter............................. 25 11/16 10 3/4 Fourth quarter............................ 19 1/4 11 1997 First quarter............................. $ 24 1/2 $ 15 5/8 Second quarter............................ 23 3/8 15 1/2 Third quarter............................. 32 1/2 22 5/8 Fourth quarter............................ 38 3/16 25 9/16
The Company has not paid any cash dividends on the Common Stock since becoming a publicly held corporation in October 1985, and does not anticipate paying dividends on the Common Stock at any time in the foreseeable future. Certain provisions of the indenture governing the 9 1/8% Senior Notes due 2006 restrict the Company's ability to pay cash dividends on the Common Stock. At March 2, 1999, there were 2,430 record holders of Common Stock. 10 13 ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------------------------------------------------------------- (In thousands, except per share amounts) STATEMENT OF OPERATIONS DATA (1) Operating revenues............................... $ 788,241 $ 713,195 $ 514,253 $ 327,968 $ 351,988 Income before extraordinary charge and preferred stock dividends (2) ............................ $ 162,032 $ 263,882 $ 79,297 $ 1,594 $ 21,523 Net income (loss) applicable to common shares (2) (3) ....................................... $ 162,032 $ 257,197 $ 72,597 $ (5,605) $ 8,759 Per common share: (2) (4) Income before extraordinary charge: Basic........................................ $ 1.24 $ 2.00 $ 0.68 $ (0.08) $ 0.11 Diluted...................................... $ 1.23 $ 1.98 $ 0.67 $ (0.08) $ 0.11 Net income: (3) Basic........................................ $ 1.24 $ 1.95 $ 0.67 $ (0.08) $ 0.11 Diluted...................................... $ 1.23 $ 1.93 $ 0.66 $ (0.08) $ 0.11 BALANCE SHEET DATA (AT END OF PERIOD) (1) Property and equipment, net...................... $ 1,649,133 $ 1,182,927 $ 957,034 $ 542,978 $ 493,322 Total assets..................................... $ 2,178,632 $ 1,505,811 $ 1,367,173 $ 742,530 $ 739,889 Long-term debt................................... $ 460,842 $ 138,139 $ 239,272 $ 129,923 $ 126,546 Total debt (5)................................... $ 609,628 $ 147,837 $ 242,894 $ 142,133 $ 132,790 Shareholders' equity............................. $ 1,310,473 $ 1,149,054 $ 925,249 $ 523,493 $ 527,611 OTHER DATA (1) Cash dividends per common share.................. $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Capital expenditures............................. $ 540,571 $ 391,065 $ 216,887 $ 91,202 $ 55,834
- ------------------ (1) The selected financial data include the 1996 acquisition of Royal Nedlloyd N.V.'s offshore drilling division ("Neddrill") and the 1994 acquisition of Triton Engineering Services Company, both of which were accounted for under the purchase method. Certain reclassifications have been made in prior year selected financial data to conform to the classifications used in 1998. (2) Effective January 1, 1995, we revised our estimates of salvage values and remaining depreciable lives of certain rigs. The effect of this change in estimate was a decrease to depreciation and amortization of $6,160,000, or $0.07 per basic and diluted share, in 1995. The amounts include non-recurring gains on sales of property and equipment, net of impairments and income taxes of $128,489,000 ($0.97 per basic and $0.96 per diluted share), $19,856,000 ($0.18 per basic and diluted share), $829,000 ($0.01 per basic and diluted share) and $8,858,000 ($0.12 per basic and $0.11 per diluted share) in 1997, 1996, 1995 and 1994, respectively. (3) The amounts include net extraordinary charges of $6,685,000 ($0.05 per basic and diluted share) in 1997 and $660,000 ($0.01 per basic and diluted share) in 1996. (4) The 1995 amounts include the $0.02 per share effect of a preferred conversion payment in March 1995 related to the conversion into common stock of 923,862 shares of Noble Drilling's $2.25 Convertible Exchangeable Preferred Stock. The payment of $1,524,000 was accounted for as a reduction of net earnings applicable to common shares when calculating the net loss per share. (5) Consists of long-term debt ($460,842,000 in 1998), short-term debt ($101,227,000 in 1998) and current installments of long-term debt ($47,559,000 in 1998). The 1998 amount includes $112,250,000 principal amount of fixed rate senior secured notes issued by an indirect, wholly owned subsidiary of Noble Drilling, which notes are non-recourse except to the issuer thereof. 11 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to assist you in understanding the Company's financial position as of December 31, 1998 and 1997, and our results of operations for each of the three years in the period ended December 31, 1998. You should read the accompanying Consolidated Financial Statements and their Notes in conjunction with this discussion. BUSINESS ENVIRONMENT The Company is a leading provider of diversified services for the oil and gas industry. Contract drilling services are performed with the Company's fleet of 47 offshore drilling units located in key markets worldwide. Our fleet of floating deepwater units consists of nine semisubmersibles and three dynamically positioned drillships, seven of which are designed to operate in water depths greater than 5,000 feet. Our fleet of 32 jackup rigs includes 19 premium units that operate in water depths of 300 feet and greater, four of which operate in water depths of 360 feet and greater. In addition, our fleet includes three submersible drilling units. Ten of our drilling units are capable of operating in harsh environments. Over 60 percent of the fleet is currently deployed in international markets, principally including the North Sea, Africa, Brazil, the Middle East and Mexico. The Company also provides engineering and production management services and turnkey drilling services. Our results of operations depend on the levels of activity in offshore oil and gas exploration, development and production in markets worldwide. Both short-term and long-term trends in oil and gas affect that activity. During the second quarter of 1998, demand for offshore drilling rigs in the U.S. Gulf of Mexico began to soften, and, as a result, rig utilization and dayrates began declining in mid-1998. Later in 1998, international demand for offshore drilling rigs weakened and rig utilization and dayrates began declining in those markets. We believe this decreased demand is largely attributable to depressed oil prices that began declining in 1997 and have remained at low levels as compared to average prices in recent years. Oil and gas prices and market expectations of potential changes in these prices significantly affect the level of activity in oil and gas exploration, development and production. These market prices are extremely volatile. Demand for drilling services depends on a variety of economic and political factors, including worldwide demand for oil and gas, the ability of OPEC to set and maintain production levels and pricing, the level of production of non-OPEC countries and the policies of the various governments regarding exploration and development of their oil and gas reserves. We believe that any decrease from current oil and gas prices, or extended periods at current price levels, will further depress the level of exploration and production activity and result in a corresponding decline in demand for our services. Furthermore, the continued consolidation of the oil and gas industry, as evidenced by the announcement and completion of several recent transactions, has resulted in, and is likely to continue to result in, a reduction in the amount of capital spent on exploration and production activities. This reduction adversely affects the demand for our services. For these reasons, we cannot predict the future level of demand for our drilling services or future conditions in the offshore contract drilling industry. A principal component of our deepwater strategy is our EVA-4000(TM) semisubmersible conversion program. The EVA-4000(TM)is the Company's proprietary design that we believe allows us to convert our three-column submersible drilling rigs into ultra-deepwater semisubmersibles at a lower cost and on an accelerated delivery schedule versus a new construction project. We delivered our first EVA-4000(TM) semisubmersible conversion, the Noble Paul Romano, in the fourth quarter of 1998 and our second EVA-4000(TM) conversion, the Noble Paul Wolff, is under tow to Brazil for a scheduled delivery in the first quarter of 1999. Four other semisubmersible conversions are in progress, including three EVA-4000(TM) conversions, and are expected to be available for service in 1999 or early 2000. The Noble Paul Romano, which is capable of drilling in 6,000 feet of water, is contracted to Shell Deepwater for a five year contract in the U.S. Gulf of Mexico. The Noble Paul Wolff, a dynamically positioned unit capable of drilling in 8,900 feet of water, is contracted to Petrobras for six years in Brazil. The Noble Jim Thompson, which will be capable of drilling in 6,000 feet of water, is contracted to Shell Deepwater for an initial term of three years, with options to extend by Shell Deepwater, in the U.S. Gulf of Mexico. Delivery is anticipated in the second quarter of 1999. The Noble Amos Runner, which will be capable of drilling in 6,600 feet of water, is contracted to a rig-sharing consortium of operators for a five year term in the U.S. Gulf of Mexico. The rig is expected to be delivered in the third quarter of 1999. The Noble Max Smith, which is currently subject to a letter of intent, will be capable of drilling in 6,000 feet of water. We are in the process of finalizing a five year drilling contract with Amerada Hess Corporation and Union Pacific Resources Corporation to work the unit in the U.S. Gulf of Mexico. The rig is expected to be delivered in late 1999. The Noble Homer Ferrington is subject to a letter of intent with Samedan Oil Corporation and Mariner Energy, Inc. for a five year drilling contract in the U.S. Gulf of Mexico. We continue to meet with these two operators to work toward the finalization of the drilling contract and related rig sharing agreement. Shipyard work on the rig, which will be capable of drilling in 6,000 feet of water, is progressing on a schedule for delivery of the rig in the first quarter of 2000. These projects are subject to the risks of delay or cost overruns inherent in large construction and refurbishment projects, including shipyard availability, shortages of materials or skilled labor, unforeseen engineering problems, work stoppages, weather interference, unanticipated cost increases, nonavailability of necessary equipment and inability to obtain any of the requisite permits or approvals. Significant delays would hurt our marketing plans for such rigs and could jeopardize our long term drilling contracts or letters of intent for drilling contracts for such rigs. 12 15 RESULTS OF OPERATIONS 1998 COMPARED TO 1997 GENERAL Net income for 1998 was $162,032,000, or $1.23 per diluted share, on operating revenues of $788,241,000, compared to net income of $257,197,000, or $1.93 per diluted share, on operating revenues of $713,195,000 for 1997. Excluding the effects of non-recurring items, net income for 1998 increased 20 percent to $163,917,000, or $1.24 per diluted share, from net income of $136,896,000, or $1.03 per diluted share, for 1997. The results for 1997 included a gain of $128,489,000, net of taxes of $69,187,000, related to the sale of our mat-supported jackup rigs. The results for 1997 also included an extraordinary charge of $6,685,000, net of taxes of $3,600,000, related to the purchase of $110,885,000 principal amount of our outstanding 9 1/4% Senior Notes Due 2003 (the "9 1/4% Notes"). RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATE The following table sets forth the average rig utilization rates, operating days and average dayrate for our offshore rig fleet for 1998 and 1997:
AVERAGE RIG UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATE ------------------------ ----------------------- ----------------------- 1998 1997 1998 1997 1998 1997 --------- --------- --------- --------- --------- --------- Offshore International ....... 90% 95% 9,148 9,826 $52,348 $35,244 Domestic ............ 78% 98% 2,720 3,474 $44,795 $35,313
- --------- (1) Utilization rates reflect our policy of reporting on the basis of the number of actively marketed rigs owned in the fleet. Rates reflect the results of rigs only during the period in which they are owned by the Company. INTERNATIONAL OPERATIONS The following table sets forth the operating revenues and gross margin for our international operations for 1998 and 1997:
REVENUES GROSS MARGIN ------------------------- -------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (In thousands) Contract drilling services ............. $ 478,883 $ 346,304 $ 254,899 $ 178,781 Labor contract drilling services ....... 63,789 49,076 10,806 10,015 Turnkey drilling services .............. 27,699 52,765 (4,278) (766) Engineering and consulting services .... 1,870 2,548 (225) 698 Other revenue .......................... 8,443 8,289 5,479 6,008 ---------- ---------- ---------- ---------- Total ......................... $ 580,684 $ 458,982 $ 266,681 $ 194,736 ========== ========== ========== ==========
OPERATING REVENUES. International contract drilling services revenues increased $132,579,000 during 1998 as compared to 1997. The increase was primarily attributable to higher average dayrates from certain contract 13 16 renewals in West Africa, the North Sea, India and Qatar. The increase was partially offset by fewer operating days in Brazil and Venezuela in 1998 as compared to 1997. Labor contract drilling services revenues increased $14,713,000 in 1998 as compared to 1997 due primarily to revenues generated from the Hibernia project in Canada, which began operations in June 1997, and higher average dayrates on the North Sea platform contracts. International turnkey drilling services revenues decreased $25,066,000 in 1998 as compared to 1997 due to fewer well completions. Only one international turnkey well was completed in 1998 as compared to eight well completions in 1997. GROSS MARGIN. International contract drilling services gross margin increased $76,118,000 in 1998 as compared to 1997. The increase is attributable to higher average dayrates on certain contract renewals in all our international areas of operation. Labor contract drilling services gross margin increased $791,000 in 1998 as compared to 1997 due to the contribution of the Hibernia project in Canada and higher average dayrates experienced on the North Sea platform contracts. The negative results from international turnkey drilling services in 1998 are principally attributable to unexpected drilling delays experienced on a turnkey well completed offshore Mexico. DOMESTIC OPERATIONS The following table sets forth the operating revenues and gross margin for our domestic operations for 1998 and 1997:
REVENUES GROSS MARGIN ------------------------- -------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (In thousands) Contract drilling services .......... $ 121,843 $ 122,676 $ 78,153 $ 82,324 Turnkey drilling services ........... 84,902 128,098 (11,120) 5,943 Engineering and consulting services . -- 58 -- -- Other revenue ....................... 812 3,381 (1,954) (743) ---------- ---------- ---------- ---------- Total ...................... $ 207,557 $ 254,213 $ 65,079 $ 87,524 ========== ========== ========== ==========
OPERATING REVENUES. Domestic contract drilling services revenues decreased $833,000 in 1998 as compared to 1997 due primarily to lower utilization and the Noble Paul Wolff, Noble Jim Thompson and Noble Amos Runner being taken out of service in 1997 for conversion to EVA-4000TM semisubmersibles. Domestic contract drilling services revenues were significantly higher in the first half of 1998 due to the reactivations of the Noble Bill Jennings, Noble Leonard Jones, Noble Joe Alford, Noble Lester Pettus and Noble Fri Rodli. The demand for offshore drilling units, however, declined significantly over the last half of 1998 as oil prices remained at depressed levels. The resulting oversupply of units caused dayrates in the U.S. Gulf of Mexico to drop precipitously and our utilization levels decreased from 89 percent during the second quarter of 1998 to 61 percent during the fourth quarter of 1998. Domestic turnkey drilling services revenues were $43,196,000 lower in 1998 as compared to 1997 due to fewer turnkey well completions. Thirteen domestic turnkey wells were completed in 1998 as compared to 26 in 1997. GROSS MARGIN. Domestic contract drilling services gross margin decreased $4,171,000 in 1998 as compared to 1997 due primarily to lower utilization. The negative results from turnkey drilling services are primarily attributable to above market dayrates and lower utilization for certain drilling rigs which our turnkey subsidiary has under term contract from a third party. In addition to the turnkey losses sustained in 1998, we accrued $2,900,000 in 1998 for expected 1999 losses on these third party rig contracts. OTHER OPERATING ITEMS DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense decreased $2,354,000 in 1998 as compared to 1997 due primarily to certain submersible rigs being taken out of service for conversion to EVA-4000TM semisubmersibles. GAINS ON SALES OF PROPERTY AND EQUIPMENT, NET OF IMPAIRMENTS. In May 1997, we completed the sale of our mat-supported jackup rigs, resulting in a pre-tax gain of $197,676,000. 14 17 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SG&A") expenses increased $5,498,000 in 1998 as compared to 1997 due primarily to higher personnel costs incurred to support our overall growth and to increased recruiting and training activity. INTEREST EXPENSE. Interest expense decreased $7,713,000 in 1998 as compared to 1997 due primarily to the purchase of our outstanding 9 1/4% Notes in 1997. The Company capitalized $17,200,000 of interest costs related to construction in progress on qualifying upgrade projects during 1998 as compared to $4,218,000 in 1997. INTEREST INCOME. Interest income decreased $2,685,000 in 1998 as compared to 1997 due to lower average cash balances in 1998. INCOME TAX PROVISION. Income tax expense decreased $46,844,000 in 1998 as compared to 1997. Taxes of $69,187,000 related to the gain on the sale of the mat-supported rigs were included in 1997. Excluding non-recurring items, income tax expense increased $23,358,000 in 1998 as compared to 1997 due primarily to higher pre-tax earnings. EXTRAORDINARY CHARGE, NET OF TAX. Results for 1997 include an extraordinary charge of $6,685,000, net of taxes of $3,600,000, related to the purchase of $110,885,000 principal amount of our outstanding 9 1/4% Notes. 1997 COMPARED TO 1996 GENERAL Net income applicable to common shares for 1997 was $257,197,000, or $1.93 per diluted share, on operating revenues of $713,195,000, compared to net income applicable to common shares of $72,597,000, or $0.66 per diluted share, on operating revenues of $514,253,000 for 1996. Excluding the effects of non-recurring items, net income applicable to common shares for 1997 increased 89 percent over the 1996 period to $136,896,000, or $1.03 per diluted share. RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATE The following table sets forth the average rig utilization rates, operating days and average dayrate for our offshore rig fleet for 1997 and 1996:
AVERAGE RIG UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATE ---------------------- --------------------- --------------------- 1997 1996 (2) 1997 1996 (2) 1997 1996 (2) -------- -------- -------- -------- -------- -------- Offshore International .. 95% 95% 9,826 7,372 $ 35,244 $ 27,207 Domestic ....... 98% 96% 3,474 5,349 $ 35,313 $ 23,332
- ------------------ (1) Utilization rates reflect our policy of reporting on the basis of the number of actively marketed rigs owned in the fleet. Rates reflect the results of rigs only during the period in which they are owned by the Company. (2) Includes the results of Neddrill from July 1, 1996. 15 18 INTERNATIONAL OPERATIONS The following table sets forth the operating revenues and gross margin (excluding non-recurring items) for our international operations for 1997 and 1996:
REVENUES GROSS MARGIN --------------------------- -------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- (In thousands) Contract drilling services Offshore....................................... $ 346,304 $ 200,566 $ 178,781 $ 67,756(1) Land (2)....................................... - 10,037 - 3,178 ----------- ----------- ----------- ----------- Total contract drilling services................. 346,304 210,603 178,781 70,934 Labor contract drilling services................. 49,076 33,425 10,015 4,148(3) Turnkey drilling services........................ 52,765 - (766) - Engineering and consulting services.............. 2,548 2,509 698 611 Other revenue.................................... 8,289 5,675 6,008 4,060 ----------- ----------- ----------- ----------- Total................................... $ 458,982 $ 252,212 $ 194,736 $ 79,753 =========== =========== =========== ===========
- -------------------- (1) Excludes $13,624,000 of non-recurring inventory charges recorded for obsolescence. (2) We sold our land drilling assets in December 1996. (3) Excludes $1,184,000 of non-recurring inventory charges recorded for obsolescence. OPERATING REVENUES. International offshore contract drilling services revenues increased $145,738,000 during 1997 as compared to 1996. The increase is primarily attributable to the July 1996 acquisition of the Neddrill fleet, higher average international dayrates and the revenues attributable to the Noble Jimmy Puckett, Noble Kenneth Delaney, Noble Gus Androes and Noble Chuck Syring jackup rigs, which were added to the fleet in the latter part of 1996. We sold all our land assets in December 1996. Labor contract drilling services revenues increased $15,651,000 in 1997 as compared to 1996 due to higher average dayrates on the North Sea platform contracts and the startup of the Hibernia project in Canada. Turnkey drilling services revenues increased $52,765,000 as a result of five completions in West Africa, two in the North Sea and one in Mexico in 1997. We completed no international turnkey wells in 1996. GROSS MARGIN. International offshore contract drilling services gross margin increased $111,025,000 in 1997 as compared to 1996. The increase is primarily attributable to the contributions from the Neddrill fleet for all of 1997, higher average international dayrates and contributions from the Noble Jimmy Puckett, Noble Kenneth Delaney, Noble Gus Androes and Noble Chuck Syring. The increase in gross margin for labor contract drilling services in 1997, as compared to 1996, was attributable to higher average dayrates on the North Sea platform contracts and the start-up of the Hibernia project in Canada. The negative 1997 turnkey gross margin was due to unexpected drilling difficulty on a well completed in Mexico. 16 19 DOMESTIC OPERATIONS The following table sets forth the operating revenues and gross margin for our domestic operations for 1997 and 1996:
REVENUES GROSS MARGIN ------------------------- -------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- (In thousands) Contract drilling services Offshore ............................. $ 122,676 $ 124,805 $ 82,324 $ 52,729 Land (1) ............................. -- 14,600 -- 2,714 ---------- ---------- ---------- ---------- Total contract drilling services ....... 122,676 139,405 82,324 55,443 Turnkey drilling services .............. 128,098 114,948 5,943 26,601 Engineering and consulting services .... 58 2,445 -- 956 Other revenue .......................... 3,381 5,243 (743) 1,347 ---------- ---------- ---------- ---------- Total ......................... $ 254,213 $ 262,041 $ 87,524 $ 84,347 ========== ========== ========== ==========
- ------------------ (1) We sold our land drilling assets in December 1996. OPERATING REVENUES. Domestic offshore contract drilling services revenues decreased $2,129,000 in 1997 as compared to 1996. The decrease was due primarily to the sale of our mat-supported jackup fleet, which reduced the number of rig operating days in 1997 as compared to 1996. The decrease in rig operating days was partially offset by a significant increase in the average domestic contract drilling dayrate. We sold all our land drilling assets in December 1996. The increase in turnkey drilling services revenues is primarily attributable to a higher average revenue per well in 1997 as compared to 1996. GROSS MARGIN. Domestic offshore contract drilling services gross margin increased $29,595,000 in 1997 as compared to 1996. The increase is primarily attributable to higher average domestic dayrates, which was partially offset by the sale of our mat-supported jackup fleet. The decrease in turnkey drilling services gross margin is attributable to several wells that incurred losses during 1997 as a result of unexpected drilling difficulty. The negative gross margin for other revenue in 1997 is primarily attributable to non-recurring charges of approximately $2,313,000 associated with the disposition of certain non-core assets of our turnkey business. OTHER OPERATING ITEMS DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense increased $21,886,000 in 1997 as compared to 1996. Of this amount, $17,294,000 represents depreciation attributable to the Neddrill fleet, and approximately $7,618,000 relates to the Noble Jimmy Puckett, Noble Kenneth Delaney, Noble Gus Androes and Noble Chuck Syring, which were acquired in 1996 and placed into service in the latter part of 1996. These increases were partially offset by lower depreciation on the mat-supported jackup rigs, which were sold in May 1997. GAINS ON SALES OF PROPERTY AND EQUIPMENT, NET OF IMPAIRMENTS. In May 1997, we completed the sale of our mat-supported jackup rigs, resulting in a pre-tax gain of $197,676,000. In 1996, we sold two posted barge rigs and recognized pre-tax gains of $7,527,000, excluding an impairment charge of $7,600,000 that had been recorded to write the rigs down to their estimated net realizable values. Also during 1996, we sold our land drilling assets, resulting in a pre-tax gain of $45,414,000. In connection with an asset rationalization program, we recorded an impairment charge of $10,200,000 on a shallow water mat-supported jackup rig in 1996. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $3,675,000 in 1997 as compared to 1996. The increase is attributable to the Neddrill acquisition combined with other general increases resulting from higher activity levels and the costs of stock-based employee compensation plans, which costs are based solely on changes in the market price of our common stock. 17 20 INTEREST EXPENSE. Interest expense decreased $5,864,000 in 1997 as compared to 1996 due primarily to the repurchase of our outstanding 9 1/4% Notes and the capitalization of $4,218,000 of interest costs related to construction in progress on qualifying upgrade projects. INCOME TAX PROVISION. The effective income tax rate in 1997 increased to approximately 31 percent from approximately 22 percent in 1996. Income taxes of $69,187,000 were recorded in 1997 in connection with the gain on the sale of the mat-supported rigs. The recognition of deferred tax benefits related to the utilization in 1996 of net operating loss carryforwards favorably impacted 1996 results. EXTRAORDINARY CHARGE, NET OF TAX. Results for 1997 include an extraordinary charge of 6,685,000, net of taxes of $3,600,000, related to the purchase of $110,885,000 principal amount of our outstanding 9 1/4% Notes. Results for 1996 include an extraordinary charge of $660,000, net of taxes of $355,000, related to the purchase of $11,000,000 principal amount of our outstanding 9 1/4% Notes. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW At December 31, 1998, we had cash and cash equivalents of $211,012,000 and approximately $96,200,000 of funds available under our line of credit. We had working capital of $88,720,000 and $112,125,000 at December 31, 1998 and 1997, respectively. Long-term debt as a percentage of long-term debt plus shareholders' equity was 26 percent at December 31, 1998 compared to 11 percent at December 31, 1997. Capital expenditures totaled $540,571,000 and $391,065,000 for 1998 and 1997, respectively. Capital expenditures for 1999 are expected to aggregate approximately $481,000,000, of which the majority relates to conversions and upgrades of drilling units. This amount includes approximately $247,000,000 for the conversions of the Noble Jim Thompson, Noble Amos Runner and Noble Max Smith to EVA-4000(TM) semisubmersibles. Additionally, the Company expects to incur expenses of approximately $141,000,000 in 1999 to upgrade the equipment and water depth capability of the Noble Homer Ferrington. The conversion and upgrade of these rigs are scheduled to be completed in 1999 or early 2000. The total cost of these four semisubmersible conversions and upgrade projects is expected to be approximately $615,500,000. Backlogs for equipment and services required to complete our EVA-4000(TM) conversion projects and other shipyard projects could constrain our ability to complete the projects on a timely basis. We have entered into agreements with several vendors to purchase or construct equipment for the conversion and upgrade of units. These agreements generally require non-refundable payments as certain milestones are met. The cumulative amount of such payments totaled $192,831,000 through December 31, 1998. As of December 31, 1998, we also had $31,914,000 of purchase commitments with a remaining term in excess of one year related to rig conversion and upgrade projects. If we cancelled the purchase commitments, the amount ultimately refunded would be subject to negotiation. Certain projects currently under consideration could require, if they materialize, capital expenditures or other cash requirements not included in the 1999 budget. In addition, the Company will continue to evaluate acquisitions of drilling units from time to time. Factors that could cause actual capital expenditures to materially exceed the planned capital expenditures include delays and cost overruns in shipyards, shortages of equipment, latent damage or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions, and changes in design criteria or specifications during repair or construction. Required debt principal and interest payments for currently outstanding debt are estimated to be approximately $82,000,000 in 1999. We expect to fund these obligations out of cash and cash equivalents as well as cash expected to be provided by operations. We anticipate that our 1999 cash flows generated from operations will be sufficient to meet our required debt principal and interest payments and a significant portion of our expected discretionary capital expenditures, assuming no material decrease in demand for contract drilling and turnkey services. However, due to the anticipated capital expenditures in 1999 for the four semisubmersible conversion and upgrade projects of approximately $388,000,000, we plan to seek additional financing in 1999. In December 1998 18 21 and February 1999, we filed universal shelf registration statements with the Securities and Exchange Commission which provide for the issuance of securities in an aggregate amount of up to $400,000,000. In May 1997, the Board of Directors authorized the repurchase of up to 10,000,000 shares of our common stock, or approximately eight percent of the then outstanding common stock. As of December 31, 1998, we had repurchased 2,486,000 shares at a total cost of $56,494,000. Additional purchases, if any, would be made from time to time on the open market or in private transactions at prices determined by the Company. CREDIT FACILITIES AND LONG-TERM DEBT The term of our bank credit agreement extends through August 14, 2002. As of December 31, 1998, we had an outstanding balance of $100,000,000 under the credit agreement and $3,792,000 had been used to support outstanding letters of credit. Additionally, at December 31, 1998, $24,605,000 of outstanding letters of credit had been supported through a combination of unsecured letter of credit facilities and surety bonds. The interest rate on borrowings under the credit agreement was 5.98 percent per annum at December 31, 1998. As of December 31, 1998, we had the ability to borrow $96,208,000 under available bank facilities. As of March 2, 1999, we had an outstanding balance of $75,000,000 under the credit agreement. During 1998, total long-term borrowings increased to $508,401,000, including current installments of $47,559,000, due to project financings to fund certain EVA-4000TM semisubmersible conversion projects. During 1998, two subsidiaries of the Company issued an aggregate of $260,000,000 principal amount of various series of fixed rate senior secured notes which are guaranteed by Noble Drilling. In addition, $112,250,000 principal amount of various series of fixed rate senior secured notes were issued by an indirect, wholly owned special purpose subsidiary of Noble Drilling, which notes are non-recourse except to the issuer thereof. The senior secured notes bear interest rates ranging from 5.93 percent to 7.25 percent per annum and have maturity dates ranging from December 1, 2001 to January 1, 2009. See Notes 1 and 6 to our accompanying Consolidated Financial Statements. On February 19, 1999, we commenced a tender offer to purchase for cash any and all of our outstanding 9 1/8% Senior Notes due 2006 (the "9 1/8% Senior Notes"), being $125 million in principal amount. In connection with the tender offer, we also sought consents from holders of 9 1/8% Senior Notes to certain proposed amendments to the Indenture governing the 9 1/8% Senior Notes. The tender offer is conditioned upon, among other things, the receipt of requisite consents to approve such amendments and receipt by us of net proceeds of the sale of certain debt securities sufficient to finance the tender offer and consent solicitation. As of 5:00 p.m., New York City time, on March 4, 1999 (the withdrawal date), the holders of an aggregate of approximately $124.3 million in principal amount of the 9 1/8% Senior Notes (99.4 percent) had consented to the proposed amendments to the Indenture by tendering their 9 1/8% Senior Notes, which notes cannot be withdrawn nor consents revoked. The tender offer will expire at 12:00 midnight, New York City time, on March 18, 1999, unless extended. We plan to access the public debt markets in order to raise the proceeds required to finance the tender offer and consent solicitation. We believe that our cash and cash equivalents, cash generated from operations, borrowings under lines of credit, and access to other financing sources will be adequate to meet our anticipated short-term and long-term liquidity requirements, including scheduled debt repayments. YEAR 2000 We are working to resolve the potential impact of the year 2000 on the ability of our computerized systems to accurately process information that may be date-sensitive. Any of our programs that recognize a date using "00" as the year 1900 rather than the year 2000 could result in errors or system failures. We are managing our year 2000 compliance issues through a committee ("The Y2K Committee"), which was formed to develop our year 2000 initiatives. As of December 31, 1998, the Y2K Committee had taken steps to review our critical information technology ("IT") systems, such as computer hardware and software, and non-information technology ("Non-IT") systems, which include computer controlled equipment and electronic devices that are used to operate equipment on our drilling units. Telephone systems and other office-based electronic equipment systems are also being considered in the assessment of Non-IT systems. The Y2K Committee has completed the initial phase of the initiative through communication to all employees and research of year 2000 compliance issues. The Y2K Committee has also initiated and/or received communication from most of our customers, suppliers and service providers on year 2000 issues to determine the extent to which we may be exposed to the disruption of business activities in the event these third parties fail to correct their year 2000 system deficiencies. Although there is currently no indication that the various companies on which we primarily rely will not resolve their year 2000 compliance issues, there can be no guarantee that the systems of such companies will be corrected on a timely basis. Additionally, there can be no guarantee that we will not encounter an unexpected year 2000 problem. 19 22 The Y2K Committee began developing and initiating corrective measures based on the internal and external IT and Non-IT systems reviews, which were completed during the fourth quarter of 1998. However, if we or the third parties on which we principally rely are unable to address these issues in a timely manner, a material adverse impact to our results of operations and financial position could result. In the event we or the various companies on which we principally rely experience year 2000 compliance problems, adverse consequences could include the interruption of drilling services aboard our drilling units, delays in shipments of materials and supplies required to operate our drilling units, delays in transferring personnel to and from the drilling units, and delays in receiving funds from customers or in making payments to suppliers. The year 2000 remediation and testing phases for critical IT systems are expected to be substantially completed by September 30, 1999. We have not yet developed a contingency plan for year 2000 issues to address worst-case business interruptions. However, once all of the identification and reviews of system issues are completed, we will develop a contingency plan to mitigate the risk of business interruptions, if any. We expect to have a contingency plan completed by September 30, 1999. As of December 31, 1998, we had incurred costs of approximately $50,000 related to our year 2000 project. The estimated additional costs to complete the project are approximately $200,000, of which approximately $125,000 will be capitalized. A portion of these costs are not incremental, but rather reflect redeployment of internal resources from other activities. We do not separately track the internal costs incurred for the year 2000 project. Such internal costs principally relate to payroll costs of project personnel. All of the costs of the year 2000 project are being borne out of our operating cash flow. ACCOUNTING PRONOUNCEMENT In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that, upon adoption, all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value, and that changes in such fair values be recognized in earnings unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged items; effects of certain changes in fair value are recorded in Other Comprehensive Income pending recognition in earnings. SFAS 133 is effective for fiscal years beginning after June 15, 1999. The impact of SFAS 133 on our financial statements will depend on a variety of factors, including future interpretive guidance from the FASB, the future level of actual foreign currency transactions, the extent of our hedging activities, the types of hedging instruments used and the effectiveness of such instruments. However, we do not believe the effect of adoption will have a material effect on our results of operations, cash flows or financial position. 20 23 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company periodically enters into a variety of off-balance sheet derivative financial instruments to manage its exposure to fluctuations in interest rates and foreign currency exchange rates, including interest rate swaps and foreign currency exchange contracts. The Company does not use derivative financial instruments for trading purposes. At December 31, 1998, there were no open derivative financial instruments. For additional information on financial instruments see "Item 8. Financial Statements and Supplementary Data - Note 9." 21 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements are filed in this Item 8: Report of Independent Accountants Consolidated Balance Sheets at December 31, 1998 and 1997 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1998 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1998 Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 1998 Notes to Consolidated Financial Statements 22 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Noble Drilling Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows, of shareholders' equity and of comprehensive income present fairly, in all material respects, the financial position of Noble Drilling Corporation and its subsidiaries (the "Company") at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Houston, Texas February 4, 1999 23 26 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)
DECEMBER 31, ------------------------------ ASSETS 1998 1997 ------------ ------------ CURRENT ASSETS Cash and cash equivalents ................................ $ 211,012 $ 49,917 Restricted cash .......................................... 5,871 -- Investment in marketable debt securities ................. -- 16,471 Accounts receivable (net allowance of $610 and $1,380) ... 148,168 135,716 Costs of uncompleted contracts in excess billings ........ 907 941 Inventories .............................................. 5,133 4,559 Deferred income taxes .................................... -- 391 Prepaid expenses ......................................... 21,607 21,569 Other current assets ..................................... 45,511 35,451 ------------ ------------ Total current assets ....................................... 438,209 265,015 ------------ ------------ PROPERTY AND EQUIPMENT Drilling equipment and facilities ........................ 1,940,919 1,409,918 Other .................................................... 27,195 24,287 ------------ ------------ 1,968,114 1,434,205 Accumulated depreciation ................................. (318,981) (251,278) ------------ ------------ 1,649,133 1,182,927 ------------ ------------ INVESTMENTS IN AND ADVANCES TO JOINT VENTURES .............. 48,270 21,097 DEFERRED INCOME TAXES ...................................... 964 5,947 OTHER ASSETS ............................................... 42,056 30,825 ------------ ------------ $ 2,178,632 $ 1,505,811 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt and current installments of long-term debt .......................................... $ 148,786 $ 9,698 Accounts payable ......................................... 78,880 77,366 Accrued payroll and related costs ........................ 21,985 25,858 Taxes payable ............................................ 51,495 23,708 Interest payable ......................................... 6,191 6,088 Other current liabilities ................................ 42,152 10,172 ------------ ------------ Total current liabilities .................................. 349,489 152,890 LONG-TERM DEBT ............................................. 460,842 138,139 DEFERRED INCOME TAXES ...................................... 56,937 63,946 OTHER LIABILITIES .......................................... 891 1,782 ------------ ------------ 868,159 356,757 ------------ ------------ SHAREHOLDERS' EQUITY Common stock-par value $0.10; 200,000 shares authorized; 133,761 issued and 131,101 outstanding in 1998; 133,335 issued and 130,988 outstanding in 1997 ................ 13,376 13,334 Capital in excess of par value ........................... 943,122 934,383 Retained earnings ........................................ 418,024 255,992 Treasury stock, at cost .................................. (61,771) (53,544) Accumulated other comprehensive income ................... (2,278) (1,111) ------------ ------------ 1,310,473 1,149,054 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 13) .................... -- -- ------------ ------------ $ 2,178,632 $ 1,505,811 ============ ============
See accompanying notes to the consolidated financial statements. 24 27 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
YEAR ENDED DECEMBER 31, ------------------------------------------ 1998 1997 1996 ---------- ---------- ---------- OPERATING REVENUES Contract drilling services ................. $ 600,726 $ 468,980 $ 350,008 Labor contract drilling services ........... 63,789 49,076 33,425 Turnkey drilling services .................. 112,601 180,863 114,948 Engineering and consulting services ........ 1,870 2,606 4,954 Other revenue .............................. 9,255 11,670 10,918 ---------- ---------- ---------- 788,241 713,195 514,253 ---------- ---------- ---------- OPERATING COSTS AND EXPENSES Contract drilling services ................. 267,674 207,875 237,255 Labor contract drilling services ........... 52,983 39,061 30,461 Turnkey drilling services .................. 127,999 175,686 88,347 Engineering and consulting services ........ 2,095 1,908 3,387 Other expense .............................. 5,730 6,405 5,511 Depreciation and amortization .............. 71,691 74,045 52,159 Selling, general and administrative ........ 30,298 24,800 21,125 Minority interest .......................... -- (256) (428) Gains on sales of property and equipment, net of impairments ....................... -- (197,676) (36,115) ---------- ---------- ---------- 558,470 331,848 401,702 ---------- ---------- ---------- OPERATING INCOME ............................. 229,771 381,347 112,551 OTHER INCOME (EXPENSE) Interest expense ........................... (5,181) (12,894) (18,758) Interest income ............................ 6,671 9,356 6,409 Other, net ................................. (342) 1,804 1,757 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE ....................... 230,919 379,613 101,959 INCOME TAX PROVISION ......................... (68,887) (115,731) (22,662) ---------- ---------- ---------- INCOME BEFORE EXTRAORDINARY CHARGE ........... 162,032 263,882 79,297 EXTRAORDINARY CHARGE, NET OF TAX ............. -- (6,685) (660) ---------- ---------- ---------- NET INCOME ................................... 162,032 257,197 78,637 PREFERRED STOCK DIVIDENDS .................... -- -- (6,040) ---------- ---------- ---------- NET INCOME APPLICABLE TO COMMON SHARES .............................. $ 162,032 $ 257,197 $ 72,597 ========== ========== ========== NET INCOME APPLICABLE TO COMMON SHARES PER SHARE-BASIC: Income before extraordinary charge ......... $ 1.24 $ 2.00 $ 0.68 Extraordinary charge ....................... -- (0.05) (0.01) ---------- ---------- ---------- Net income applicable to common shares ..... $ 1.24 $ 1.95 $ 0.67 ========== ========== ========== NET INCOME APPLICABLE TO COMMON SHARES PER SHARE-DILUTED: Income before extraordinary charge ......... $ 1.23 $ 1.98 $ 0.67 Extraordinary charge ....................... -- (0.05) (0.01) ---------- ---------- ---------- Net income applicable to common shares ..... $ 1.23 $ 1.93 $ 0.66 ========== ========== ==========
See accompanying notes to the consolidated financial statements. 25 28 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEAR ENDED DECEMBER 31, ------------------------------------------ 1998 1997 1996 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ........................................................... $ 162,032 $ 257,197 $ 78,637 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...................................... 71,691 74,045 52,159 Deferred income tax (benefit) provision ............................ (1,128) 48,821 6,596 Equity in loss (earnings) of joint ventures ........................ 2,752 (78) Compensation expense from stock-based plans ........................ 835 7,036 937 Other .............................................................. (737) 595 (2,570) Gains on sales of property and equipment, net of impairments ....... -- (197,676) (36,115) Extraordinary charge, net of tax ................................... -- 6,685 660 Inventory charge ................................................... -- -- 14,808 Gain on foreign exchange ........................................... -- -- (310) Changes in current assets and liabilities: Accounts receivable .............................................. (15,637) (38,023) (18,752) Other assets ..................................................... (9,773) 36,468 (6,783) Accounts payable ................................................. 1,514 6,217 16,178 Other liabilities ................................................ 51,532 101 27,016 Proceeds from sale of marketable equity securities, net .......... -- 2,353 5,615 ---------- ---------- ---------- Net cash provided from operations ............................ 263,081 203,741 138,076 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ................................. (540,571) (391,065) (216,887) Proceeds from sale of property and equipment ....................... 3,799 271,764 103,500 Proceeds from sale of (investment in) marketable debt securities ... 16,461 2,870 (2,192) Investment in and advances to joint ventures ....................... (29,925) (11,831) (410) Acquisition of Neddrill, net of cash acquired ...................... -- -- (284,726) Proceeds from insurance settlement ................................. -- -- 14,142 ---------- ---------- ---------- Net cash used by investing activities ........................ (550,236) (128,262) (386,573) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt ....................................... 372,250 -- 121,470 Net borrowings on revolving credit facility ........................ 100,000 -- -- Payment of long-term debt .......................................... (15,650) (128,787) (26,130) Proceeds from issuance of common stock, net ........................ 1,834 5,774 271,312 Purchase of shares returned to treasury stock ...................... (4,313) (52,181) (2,250) Increase in restricted cash ........................................ (5,871) -- -- Preferred stock conversion costs ................................... -- -- (31) Dividends paid on preferred stock .................................. -- -- (7,549) ---------- ---------- ---------- Net cash provided (used) by financing activities ............. 448,250 (175,194) 356,822 ---------- ---------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................... 161,095 (99,715) 108,325 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........................... 49,917 149,632 41,307 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, END OF YEAR ................................. $ 211,012 $ 49,917 $ 149,632 ========== ========== ==========
See accompanying notes to the consolidated financial statements. 26 29 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
1998 1997 1996 ----------------------- ----------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT $1.50 PREFERRED STOCK Balance at beginning of year................. -- $ -- -- $ -- 4,025 $ 4,025 Conversion/redemption of preferred stock..... -- -- -- -- (4,025) (4,025) ---------- ---------- ---------- ---------- ---------- ---------- Balance at end of year....................... -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- COMMON STOCK Balance at beginning of year................. 133,335 13,334 132,189 13,219 94,548 9,455 Conversion/redemption of preferred stock..... -- -- -- -- 9,836 984 Sale of common stock......................... -- -- -- -- 21,850 2,185 Purchase of Neddrill......................... -- -- -- -- 5,000 500 Exercise stock options....................... 350 35 951 95 602 60 Issuance of restricted shares................ -- -- 59 6 -- -- Other........................................ 76 7 136 14 353 35 ---------- ---------- ---------- ---------- ---------- ---------- Balance at end of year ...................... 133,761 13,376 133,335 13,334 132,189 13,219 ---------- ---------- ---------- ---------- ---------- ---------- CAPITAL IN EXCESS OF PAR VALUE Balance at beginning of year................. 934,383 916,004 589,866 Conversion/redemption of preferred stock..... -- -- 3,012 Sale of common stock......................... -- -- -- -- 266,261 Purchase of Neddrill......................... -- -- -- -- 49,500 Exercise stock options....................... 2,713 5,679 2,806 Contribution of treasury stock to restricted stock plan................................. -- (793) (850) Issuance of restricted shares................ -- 826 -- Restricted shares returned to treasury....... 824 423 -- Other........................................ 5,202 12,244 5,409 ---------- ---------- ---------- Balance at end of year....................... 943,122 934,383 916,004 ---------- ---------- ---------- RETAINED EARNINGS (ACCUMULATED DEFICIT) Balance at beginning of year................. 255,992 (1,205) (73,802) Net income................................... 162,032 257,197 78,637 Dividends on preferred stock................. -- -- (6,040) ---------- ---------- ---------- Balance at end of year....................... 418,024 255,992 (1,205) ---------- ---------- ---------- TREASURY STOCK Balance at beginning of year................. (2,347) (53,544) (209) (1,852) (65) (452) Contribution to restricted stock plan........ -- -- 88 793 109 850 Restricted stock plans shares returned....... (112) (1,316) (44) (423) (253) (2,250) Repurchase common stock...................... (300) (4,313) (2,186) (52,181) -- -- Exercise stock options....................... (151) (5,302) -- -- -- -- Other........................................ 250 2,704 4 119 -- -- ---------- ---------- ---------- ---------- ---------- ---------- Balance at end of year....................... (2,660) (61,771) (2,347) (53,544) (209) (1,852) ---------- ---------- ---------- ---------- ---------- ---------- ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of year................. (1,111) (917) (5,599) Other comprehensive (loss) income............ (1,167) (194) 4,682 ---------- ---------- ---------- Balance at end of year....................... (2,278) (1,111) (917) ---------- ---------- ---------- TOTAL SHAREHOLDERS' EQUITY..................... 131,101 $1,310,473 130,988 $1,149,054 131,980 925,249 ========== ========== ========== ========== ========== ==========
See accompanying notes to the consolidated financial statements. 27 30 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands)
YEAR ENDED DECEMBER 31, 1998 NET INCOME ................................................................... $ 162,032 ------------ OTHER COMPREHENSIVE INCOME, NET OF TAX: Foreign currency translation adjustments ................................... 319 ------------ Unrealized gains on securities: Unrealized holding loss arising during period ............................ (10) Less: reclassification adjustment for gains realized in net income ....... (6) ------------ Net unrealized gains ..................................................... (16) ------------ Minimum pension liability adjustment (net of tax benefit of $792) .......... (1,470) ------------ Other comprehensive loss ................................................... (1,167) ------------ COMPREHENSIVE INCOME ......................................................... $ 160,865 ============
YEAR ENDED DECEMBER 31, 1997 NET INCOME ................................................................... $ 257,197 ------------ OTHER COMPREHENSIVE LOSS, NET OF TAX: Foreign currency translation adjustments ................................... (245) Unrealized holding gains arising during period ............................. 51 ------------ Other comprehensive loss ................................................... (194) ------------ COMPREHENSIVE INCOME ......................................................... $ 257,003 ============
YEAR ENDED DECEMBER 31, 1996 NET INCOME ................................................................... $ 78,637 ------------ OTHER COMPREHENSIVE INCOME, NET OF TAX: Foreign currency translation adjustments ................................... 1,199 Unrealized holding gains arising during period ............................. 80 Minimum pension liability adjustment ....................................... 3,403 ------------ Other comprehensive income ................................................. 4,682 ------------ COMPREHENSIVE INCOME ......................................................... $ 83,319 ============
See accompanying notes to the consolidated financial statements. 28 31 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS Noble Drilling Corporation ("Noble Drilling" or, together with its consolidated subsidiaries, unless the context requires otherwise, the "Company") is primarily engaged in domestic and international contract oil and gas drilling and workover operations. The Company's international operations are conducted in Canada, the North Sea, Mexico, Africa, South America, the Middle East and India. Noble Drilling (Paul Romano) Inc. was formed on April 3, 1998 for the purpose of owning the Noble Paul Romano and financing its conversion to an EVA-4000(TM) semisubmersible. Noble Drilling (Paul Romano) Inc. is an indirect, wholly owned subsidiary of Noble Drilling and is operated in a fashion that is intended to ensure that its assets and liabilities are distinct and separate from those of the Company and its affiliates and that the creditors of Noble Drilling (Paul Romano) Inc. would be entitled to satisfy their claims from the assets of Noble Drilling (Paul Romano) Inc. prior to any distribution to the Company or its affiliates. (See Note 6). CONSOLIDATION The consolidated financial statements include the accounts of Noble Drilling and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The equity method of accounting is used for investments in affiliates where the Company has a significant influence but not a controlling interest. (See Note 5). Certain reclassifications have been made in prior year consolidated financial statements to conform to the classifications used in the 1998 consolidated financial statements. These reclassifications have no impact on net income. FOREIGN CURRENCY TRANSLATION The Company follows a translation policy in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, Foreign Currency Translation ("SFAS 52"). In international locations where the U.S. Dollar has been designated as the functional currency as appropriate based on an evaluation of such factors as the markets in which the subsidiary operates, inflation, generation of cash flow, financing activities and intercompany arrangements, translation gains and losses are included in net income. In international locations where the local currency is the functional currency, assets and liabilities are translated at the rates of exchange on the balance sheet date, while income and expense items are translated at average rates of exchange. The resulting gains or losses arising from the translation of accounts from the functional currency to the U.S. Dollar are included in accumulated other comprehensive income. The Company did not recognize any material gains or losses on foreign currency transactions or translations during the years ended December 31, 1998, 1997 and 1996. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with original maturities of three months or less. The Company's cash, cash equivalents and short-term investments are subject to potential credit risk. The Company's cash management and investment policies restrict investments to low risk, highly liquid securities and we perform periodic evaluations of the relative credit standing of the financial institutions with which we conduct business. In accordance with SFAS No. 95, Statement of Cash Flows, cash flows from the Company's operations in the United Kingdom and Canada are calculated based on its functional currency. As a result, amounts related to assets and liabilities reported on the Consolidated Statements of Cash Flows will not necessarily agree with changes in the corresponding balances on the Consolidated Balance Sheets. The effect of exchange rate changes on cash balances held in foreign currencies was not material in 1998, 1997 or 1996. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 29 32 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DERIVATIVE INSTRUMENTS The Company periodically enters into off-balance sheet derivative financial instruments to manage its exposure to fluctuations in interest rates and foreign currency exchange rates, including interest rate swaps and foreign currency exchange contracts. The Company does not use derivative financial instruments for trading purposes. The Company designates and assigns the financial instruments as hedges of specific assets, liabilities or anticipated transactions. Cash flow from hedges are classified in the Consolidated Statements of Cash Flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions. (See Note 9). INVENTORIES Inventories consist of spare parts, material and supplies held for consumption and are stated principally at average cost. As a result of the Company's asset rationalization program and the July 1, 1996 acquisition of Neddrill (see Note 2), during the fourth quarter of 1996, the Company reviewed the status of its inventories. The Company determined certain adjustments were appropriate to properly reflect the estimated net realizable value of these assets. These adjustments consisted primarily of write-downs for inventory obsolescence totaling approximately $14,808,000 and reclassifications of approximately $16,555,000 to property and equipment to better reflect their economic lives and to be consistent with other assets owned by the Company. The inventory write-down is included in "Contract drilling services" expense in the Consolidated Statement of Operations for the year ended December 31, 1996. PROPERTY AND EQUIPMENT Property and equipment is stated at cost, reduced by provisions to recognize economic impairment in value when management determines that such impairment has occurred. At December 31, 1998 and 1997, there was $511,418,000 and $217,371,000, respectively, of construction in progress related primarily to EVA-4000(TM) semisubmersible conversion projects. Such amounts are included in "Drilling equipment and facilities" in the accompanying Consolidated Balance Sheets. Major replacements and improvements are capitalized. Included in costs of drilling equipment and facilities is an allocation of interest incurred during the period that rigs are under construction or refurbishment. Interest capitalized for the years ended December 31, 1998 and 1997 totaled $17,200,000 and $4,218,000, respectively. No interest was capitalized during 1996. When assets are sold, retired or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and the gain or loss is recognized. Scheduled maintenance of equipment and overhauls are performed on a basis of number of hours operated in accordance with our preventative maintenance program. Maintenance and repair costs are generally charged to expense as incurred; however, overhauls related to large-scale maintenance projects are deferred when incurred and amortized into contract drilling services expense over a 36-month period. The deferred portion of major overhauls is included in "Other assets" in the Consolidated Balance Sheets. Such amount totaled $21,474,000 and $17,988,000 at December 31, 1998 and 1997, respectively. Total maintenance and repair expenses for the years ended December 31, 1998, 1997 and 1996, were approximately $50,926,000, $44,100,000 and $41,759,000, respectively. Drilling equipment and facilities are depreciated using the straight-line method over estimated remaining useful lives as of the in-service date or date of major refurbishment. Estimated useful lives of the Company's drilling equipment and facilities range from two to twenty-five years. Other property and equipment is depreciated using the straight-line method over useful lives ranging from two to twenty years. LONG-LIVED ASSETS The Company evaluates the realizability of its long-lived assets, including property and equipment and goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment loss recognized represents the excess of the asset's carrying value as compared to its estimated fair value. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 30 33 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company recorded an impairment charge of $10,200,000 (excluding a $289,000 reduction for minority interest) in the fourth quarter of 1996 related to a shallow-water, mat-supported jackup unit. The amount is included in "Gains on sales of property and equipment, net of impairments" in the Consolidated Statement of Operations for the year ended December 31, 1996. The unit was sold on May 7, 1997. (See Note 2). OTHER ASSETS The excess of cost over the fair value of net tangible assets acquired in the acquisition of Triton Engineering Services Company ("Triton") is being amortized over nine years. Amortization expense for goodwill was $213,000 for each of the years ended December 31, 1998, 1997 and 1996. Accumulated amortization of goodwill was $709,000 and $496,000 at December 31, 1998 and 1997, respectively. Prepaid insurance is amortized over the terms of the insurance policies. Deferred debt issuance costs, which totaled $9,073,000 and $2,766,000 at December 31, 1998 and December 31, 1997, respectively, are being amortized over the life of the debt securities. Amortization related to debt issuance costs was $469,000, $493,000 and $526,000 for the years ended December 31, 1998, 1997 and 1996, respectively. REVENUE RECOGNITION Revenues generated from the Company's dayrate-basis drilling contracts are recognized as services are performed. The Company's turnkey drilling contracts are of a short-term, fixed fee nature, and accordingly, revenues and expenses are recognized using the completed contract method. The Company may receive lump-sum fees for the mobilization of equipment and personnel. The net of mobilization fees received and costs incurred to mobilize an offshore rig from one market to another is recognized over the term of the related drilling contract. Costs incurred to relocate drilling units to more promising geographic areas in which a contract has not been secured are expensed as incurred. Lump-sum payments received from customers relating to specific contracts are deferred and amortized to income over the term of the drilling contract. Provisions for future losses on turnkey contracts are recognized when it is probable that expenses to be incurred on a specific contract will exceed the revenue from the contract. CONCENTRATION OF CREDIT RISK The primary market for the Company's services is the offshore oil and gas industry, and the Company's customers consist primarily of major oil companies, independent oil and gas producers and government-owned oil companies. The Company performs ongoing credit evaluations of its customers and generally does not require material collateral. The Company maintains reserves for potential credit losses when necessary. Results of operations and financial condition of the Company should be considered in light of the fluctuations in demand experienced by drilling contractors as changes in oil and gas producers' expenditures and budgets occur. These fluctuations can impact the Company's results of operations and financial condition as supply and demand factors directly affect utilization and dayrates, which are the primary determinants of cash flow from the Company's operations. In 1998, one customer accounted for $68,892,000 of contract drilling services revenues and $27,694,000 of turnkey drilling services revenues, or a total of 12 percent of consolidated operating revenues. No other customer accounted for more than 10 percent of consolidated operating revenue in 1998. No customers accounted for more than 10 percent of consolidated operating revenues in 1997 and 1996. NET INCOME APPLICABLE TO COMMON SHARES PER SHARE The Company has adopted SFAS No. 128, Earnings Per Share ("SFAS 128"), which established new guidelines for computing and presenting earnings per share. All prior period earnings per share data have been restated to conform to the provisions of SFAS 128. Net income applicable to common shares per share has been computed on the basis of the weighted average number of common shares and, where dilutive, common share equivalents, outstanding during the indicated periods. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 31 34 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table reconciles the basic and diluted earnings per share computations for income before extraordinary charge for the years ended December 31, 1998, 1997 and 1996:
INCOME BEFORE EXTRAORDINARY BASIC BASIC DILUTED DILUTED CHARGE SHARES EPS SHARES EPS ------------------------------------------------------------------------ 1998 $ 162,032 131,203 $ 1.24 132,269 $ 1.23 1997 $ 263,882 131,791 $ 2.00 133,455 $ 1.98 1996 $ 79,297 108,290 $ 0.68 109,581 $ 0.67
Included in diluted shares are common stock equivalents relating primarily to outstanding stock options covering 1,066,000, 1,664,000 and 1,291,000 shares for the years ended December 31, 1998, 1997 and 1996, respectively. Options to purchase 5,335,886 shares of common stock were not included in the 1998 computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common stock. SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31, ------------------------------------- 1998 1997 1996 --------- --------- --------- Cash paid during the period for: Interest (net of amounts capitalized) .......... $ 5,078 $ 15,363 $ 13,061 Income taxes ................................... $ 42,228 $ 49,737 $ 6,471 Noncash investing and financing activities: Insurance financing agreement .................. $ 5,168 $ 26,120 $ 1,214 Neddrill acquisition with common stock ......... $ -- $ -- $ 50,000
CERTAIN SIGNIFICANT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that, upon adoption, all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value, and that changes in such fair values be recognized in earnings unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged items; effects of certain changes in fair value are recorded in Other Comprehensive Income pending recognition in earnings. SFAS 133 is effective for fiscal years beginning after June 15, 1999. The impact of SFAS 133 on our financial statements will depend on a variety of factors, including future interpretive guidance from the FASB, the future level of actual foreign currency transactions, the extent of our hedging activities, the types of hedging instruments used and the effectiveness of such instruments. However, we do not believe the effect of adoption will have a material effect on the Company's results of operations or financial position. (See Note 9). NOTE 2 -- ACQUISITIONS, MERGERS AND DISPOSITIONS On July 1, 1996, the Company completed the agreement with Royal Nedlloyd N.V. ("Nedlloyd") to acquire the assets utilized in the offshore contract drilling, accommodation and other oil and gas exploration and production (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 32 35 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS related service businesses of Nedlloyd's offshore drilling division ("Neddrill"), including the acquisition of $28,000,000 in net working capital, and the personnel employed by Neddrill. The purchase price was $300,000,000 in cash plus 5,000,000 shares of Noble Drilling common stock. The cash portion of the purchase price was financed by the issuance and sale of 21,850,000 shares of Noble Drilling common stock and $125,000,000 principal amount of 9 1/8% Senior Notes due 2006 (the "9 1/8% Senior Notes"). The net proceeds from the public offerings of securities in excess of the $300,000,000 cash portion of the purchase price were added to the Company's working capital. The Neddrill acquisition was accounted for using the purchase method of accounting and Neddrill's results of operations are included in the Consolidated Statements of Operations from the date of the acquisition. The respective assets and liabilities were recorded at their estimated fair values at the date of acquisition. The following table provides selected consolidated financial information for the Company on a pro forma basis assuming that the Neddrill acquisition, the issuance of 21,850,000 shares of common stock and $125,000,000 principal amount of the 9 1/8% Senior Notes and the application of the net proceeds therefrom had occurred on January 1, 1996. The unaudited pro forma information set forth below is not necessarily indicative of what the Company's results of operations would have been had the transactions been consummated as of January 1, 1996 nor is such information necessarily indicative of the Company's future results of operations.
YEAR ENDED DECEMBER 31, 1996 ----------------------- (Unaudited) Operating revenues................................................ $ 596,090 Net income applicable to common shares............................ $ 83,705 Net income applicable to common shares per share - Diluted........ $ 0.68
In July 1998, the Company purchased the Shelf 6, a Friede & Goldman 9500 Enhanced Pacesetter design semisubmersible, for $24,100,000 in cash. As of December 31, 1998, the Company had spent an additional $3,700,000 in preparation to upgrade the unit for work in deeper water depths if the Company is able to secure a long-term drilling contract. In June 1998, the Company and its joint venture partner formed a liability company, which purchased the Ilion. (See Note 5). On May 7, 1997, the Company completed the sale of its 12 mat-supported jackup rigs for $268,818,000 in cash. The Company recognized a pre-tax gain of $197,676,000 in connection with the sale, which has been included in "Gains on sales of property and equipment, net of impairments" in the accompanying Consolidated Statement of Operations for the year ended December 31, 1997. Revenues, gross margin and operating income generated from the sold rigs were $35,155,000, $18,585,000 and $15,231,000, respectively, for the period from January 1, 1997 through May 7, 1997. In December 1996, the Company completed the sale of its land drilling rigs and related assets for $60,000,000 in cash. The Company recognized a pre-tax gain of $45,414,000 in connection with the sale which has been included in "Gains on sales of property and equipment, net of impairments" in the Consolidated Statement of Operations for the year ended December 31, 1996. Revenues, gross margin and operating income generated from the sold rigs and assets were $24,637,000, $6,733,000 and $3,025,000, respectively, for the year ended December 31, 1996. The Company sold two of its posted barge rigs during the first quarter of 1996 for $19,000,000. The Company recorded pre-tax gains of $7,527,000 related to the sales of these posted barge rigs. Two other posted barge rigs were sold in August 1996 for $24,500,000 in cash and $7,500,000 in drill pipe credit. These two barges had been written down at March 31, 1996 to their estimated net realizable values based on then recent offers received for these assets from third parties, resulting in a pre-tax charge to earnings of $7,600,000. The gains on the sales of the four barge rigs net of the write-downs are included in "Gains on sales of property and equipment, net of impairments" in the Consolidated Statement of Operations for the year ended December 31, 1996. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 33 36 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 -- MARKETABLE DEBT SECURITIES The Company classifies all of its debt securities with original maturities of more than three months as available for sale. These investments are classified as marketable securities within current assets on the Consolidated Balance Sheets. At December 31, 1998, the Company did not own any marketable securities. At December 31, 1997, the Company owned $16,455,000 of U.S. Government Obligations with a fair value of $16,471,000. The net unrealized gain of $16,000 is included in "Accumulated other comprehensive income" on the Consolidated Balance Sheet at December 31, 1997. Total realized gains (losses) related to short-term investments were $6,000, ($6,000) and ($7,000) for the years ended December 31, 1998, 1997 and 1996, respectively. NOTE 4 -- COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 established standards for reporting and displaying comprehensive income and its components. Components of comprehensive income are net income and all changes in equity during a period except those resulting from transactions with owners. SFAS 130 requires enterprises to display comprehensive income and its components in its financial statements, to classify items of comprehensive income by their nature in the financial statements and display the accumulated balance of other comprehensive income in shareholders' equity separately from retained earnings and additional paid-in capital. Comparative financial statements provided for earlier periods have been reclassified to reflect the application of SFAS 130. The following table sets forth the components of accumulated other comprehensive income:
UNREALIZED ACCUMULATED FOREIGN (LOSSES) GAINS MINIMUM OTHER CURRENCY ON PENSION COMPREHENSIVE ITEMS SECURITIES LIABILITY INCOME --------- ---------- --------- ------------ Balance at January 1, 1997 ........ $ (882) $ (35) $ -- $ (917) 1997-period change ................ (245) 51 -- (194) --------- --------- --------- --------- Balance at December 31, 1997 ...... (1,127) 16 -- (1,111) 1998-period change ................ 319 (16) (1,470) (1,167) --------- --------- --------- --------- Balance at December 31, 1998 ...... $ (808) $ -- $ (1,470) $ (2,278) ========= ========= ========= =========
NOTE 5 -- INVESTMENTS IN AND ADVANCES TO JOINT VENTURES At December 31, 1998 the Company's investments in joint ventures consisted of a 41 percent interest in Arktik Drilling Limited, Inc. ("Arktik"), a 50 percent interest in the bareboat charter of the Noble Kolskaya which is operated by the Company under a term contract, and a 50 percent interest in Ilion LLC. The Company accounts for these investments using the equity method. Arktik is a Bahamian joint venture company that owns and operates the Noble Muravlenko and Ilion LLC is a domestic joint venture company that owns the Ilion. There were no distributions or dividends received during the years ended December 31, 1998 and 1997 from Arktik or Ilion LLC. Balances related to these joint ventures for 1998 and 1997 are reflected in the table below:
1998 1997 ----------- -------- Equity in (loss) earnings of joint ventures (1)........... $ (2,752) $ 78 Investment in joint ventures.............................. 10,761 688 Advances to joint ventures (2)............................ 37,509 20,409 Receivable from other joint venturer (3).................. 5,163 3,900
- ---------------- (1) Balance included in "Other, net" in the Consolidated Statements of Operations. There were no equity earnings in 1996. (2) Balance included in "Investments in and advances to joint ventures" in the Consolidated Balance Sheets. (3) Balance included in "Other current assets" in the Consolidated Balance Sheets. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 34 37 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Noble Muravlenko commenced operations in the fourth quarter of 1997 offshore Brazil for Petroleo Brasiliero S.A. ("Petrobras"). The contract with Petrobras is for five years with a one-year option to extend by Petrobras. The terms of the $12,000,000 note receivable from Arktik provide for repayment by Arktik over the term of Petrobras contract. The Noble Kolskaya continues operations under a three-year contract following its conversion from accommodation mode into drilling mode during the second quarter of 1997. The total cost of this conversion was approximately $16,100,000. In June 1998, the Company and its joint venture partner formed Ilion LLC, a limited liability company, which purchased the Ilion, a Friede & Goldman 9500 Enhanced Pacesetter design submersible. The Company acquired an initial 50 percent equity interest in Ilion LLC for an initial investment in the joint venture of $12,825,000. In addition, the Company has funded $17,100,000 to Ilion LLC in the form of a promissory note that is convertible at the election of the Company into an additional 20 percent equity interest. NOTE 6 -- DEBT The Company has outstanding $125,000,000 principal amount of 9 1/8% Senior Notes which mature on July 1, 2006. Interest is payable on each January 1 and July 1 and the 9 1/8% Senior Notes are redeemable by the Company, beginning July 1, 2001 at a specified declining premium plus accrued interest. The indenture governing the 9 1/8% Senior Notes contains certain restrictive covenants, including restrictions on dividends and certain investments and limitations on certain sale and lease-back transactions, transactions with affiliates, and mergers or consolidations. In 1997, the Company entered into financing agreements with Transamerica Insurance Finance Corporation related to the renewal of its Marine Package, Protection and Indemnity and General Liability insurance policies for periods of 33 months, nine months and 21 months, respectively. Over the course of 1997, the Company financed a total of $26,120,000 related to these insurance policies. The fixed annual interest rates on the debt related to the Marine Package, Protection and Indemnity and General Liability insurance policies are 5.94 percent, 4.85 percent and 5.68 percent, respectively. In 1998, the Company financed $3,639,000 with Cananwill, Inc. relating to a Protection and Indemnity policy for 12 months. The fixed annual interest rate on this debt is 4.95 percent. The total amount of insurance financing outstanding at December 31, 1998 includes $2,241,000, which is included in "Long-term debt", and $10,313,000, which is included in "Short-term debt and current installments of long-term debt", in the accompanying Consolidated Balance Sheet. In July 1998, Noble Drilling (Paul Wolff) Ltd., an indirect, wholly owned subsidiary of the Company and owner of the Noble Paul Wolff, issued $145,000,000 principal amount of its fixed rate senior secured notes (the "Wolff Notes") in three series. The Wolff Notes bear interest at rates of 6.43 percent to 6.55 percent per annum. One series of the Wolff Notes matures on December 1, 2001 ($40,000,000 principal amount) and the other two series mature on December 1, 2004. Principal and interest payments are payable quarterly on the first day of September, December, March and June except that the first two quarterly payments were (and the quarterly payments thereafter through September 1, 2001 in the case of one series are) interest only. The Wolff Notes are guaranteed by Noble Drilling and are secured by a first naval mortgage on the Noble Paul Wolff. The Wolff Notes can be prepaid, in whole or in part, at a premium at any time after June 1, 2001. In December 1998, Noble Drilling (Paul Romano) Inc., an indirect, wholly owned subsidiary of the Company and owner of the Noble Paul Romano, issued $112,250,000 principal amount of its fixed rate senior secured notes (the "Romano Notes") in two series (the "Series A Notes" and the "Series B Notes"). The Series A Notes bear interest at 6.33 percent per annum and the Series B Notes bear interest at 6.09 percent per annum. The Series A Notes require principal and interest payments over 60 months beginning on January 20, 1999. The Series B Notes are interest only for the first 59 months with a balloon principal payment in month 60. The Romano Notes are secured by a first naval mortgage on the Noble Paul Romano and are non-recourse except to the issuer thereof. The Romano Notes can be prepaid, in whole or in part, at a premium at any time. Pursuant to the trust indenture and security agreement under which the Romano Notes are issued, Noble Drilling (Paul Romano) Inc. is restricted from incurring any indebtedness other than the Romano Notes and the Noble Paul Romano may not be mortgaged to secure any debt other than the Romano Notes. Pursuant to the trust indenture, the Company was required to deposit (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 35 38 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS an amount into two separate accounts, subject to control of a third-party trustee, to prepay the first month's principal and interest payment and provide an additional debt reserve balance equal to two months of debt service. Such amount totaled $5,871,000 at December 31, 1998 and is included in "Restricted cash" in the Consolidated Balance Sheet. In December 1998, Noble Drilling (Jim Thompson) Inc., an indirect, wholly owned subsidiary of the Company and owner of the Noble Jim Thompson, issued $115,000,000 principal amount of its fixed rate senior secured notes (the "Thompson Notes") in four series. The Thompson Notes bear interest at rates of 5.93 percent to 7.25 percent per annum. Series A of the Thompson Notes matures on April 1, 2002 ($15,000,000 principal amount), Series B matures on October 1, 2004 ($40,000,000 principal amount), Series C matures on January 1, 2009 ($40,000,000 principal amount) and Series D matures on January 1, 2009 ($20,000,000 principal amount). Principal and interest payments are payable quarterly on the first day of April, July, October and January except that the first two quarterly payments are interest only for all the notes. The quarterly payments for each series of the Series B, C and D Notes are interest only until the repayment in full of the prior series. The Thompson Notes are guaranteed by Noble Drilling and are secured by a first naval mortgage on the Noble Jim Thompson and, until completion of its conversion to an EVA-4000(TM) semisubmersible, a first preferred mortgage on the Noble John Sandifer, and a first preferred fleet mortgage on the Noble Bill Jennings, Noble Tom Jobe and Noble Eddie Paul. The Thompson Notes can be prepaid, in whole or in part, at a premium at any time after January 1, 2001. The Company issued $125,000,000 principal amount of 9 1/4% Senior Notes Due 2003 (the "9 1/4% Notes") in 1993. The Company purchased $11,000,000 principal amount of the 9 1/4% Notes in 1996, resulting in an extraordinary charge of $660,000, net of taxes of $355,000. The Company purchased an additional $29,555,000 principal amount of the 9 1/4% Notes in 1997, resulting in an extraordinary charge of $1,704,000, net of taxes of $918,000. Thereafter in 1997 the Company made a tender offer pursuant to which it purchased an additional $81,330,000 principal amount of the 9 1/4% Notes. This resulted in an extraordinary charge of $4,981,000, net of taxes of $2,682,000. The Company redeemed the remaining $3,115,000 principal amount of 9 1/4% Notes in December 1998 and there was no extraordinary charge recognized as a result of the redemption. Annual maturities of long-term debt are $47,559,000 due in 1999, $47,146,000 due in 2000, $47,828,000 due in 2001, $55,431,000 due in 2002, $80,580,000 due in 2003 and $229,857,000 thereafter. The following table summarizes the Company's long-term debt:
DECEMBER 31, -------------------------------------- 1998 1997 -------------- -------------- 9 1/8% Senior Notes due 2006, net of unamortized discount of $175 in 1998 and $198 in 1997................................... $ 124,825 $ 124,802 Project Financings: Wolff Notes..................................................... 145,000 -- Romano Notes.................................................... 112,250 -- Thompson Notes.................................................. 115,000 -- Insurance financing............................................... 11,326 18,417 9 1/4% Senior Notes due 2003...................................... -- 3,115 -------------- -------------- 508,401 146,334 Current installments.............................................. (47,559) (8,195) -------------- -------------- $ 460,842 $ 138,139 ============== ==============
The fair value of the Company's long-term debt at December 31, 1998 was $522,801,000, based on the quoted market prices for similar issues or on the current rates offered to the Company for debt of similar remaining maturities. NOTE 7 -- CREDIT FACILITIES The Company has an unsecured revolving bank credit facility totaling $200,000,000 (the "Credit Agreement"), including a letter of credit facility totaling $40,000,000, through August 14, 2002. The Company is required to maintain various affirmative and negative covenants relating to interest coverage, fleet market value and net worth. The Credit Agreement contains restrictive covenants, including restrictions on incurring additional indebtedness, and restrictions on permitting additional liens, payment of dividends, transactions with affiliates, and mergers or consolidations. As of December 31, 1998, the Company had an outstanding balance of $100,000,000 under the Credit Agreement and $3,792,000 had been used to support outstanding letters of credit. As of December 31, 1998, $96,208,000 remained available under the Credit Agreement. Additionally, at December 31, 1998, $24,605,000 of outstanding letters of credit had been supported through a (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 36 39 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS combination of unsecured letter of credit facilities and surety bonds. The interest rate on borrowings under the credit agreement was 5.98 percent per annum at December 31, 1998. NOTE 8 -- SHAREHOLDERS' EQUITY The company issued and sold 21,850,000 shares of common stock in 1996 in an underwritten public offering which produced net proceeds of $272,033,000, after deducting the underwriting discount and other related costs. These proceeds and the net proceeds from the issuance and sale of the 9 1/8% Senior Notes were used to purchase Nedrill (see note 2) and for general corporate purposes. STOCKHOLDER RIGHTS PLAN The Company has adopted a stockholder rights plan designed to assure that the Company's stockholders receive fair and equal treatment in the event of any proposed takeover of the Company and to guard against partial tender offers and other abusive takeover tactics to gain control of the Company without paying all stockholders a fair price. The rights plan was not adopted in response to any specific takeover proposal. Under the rights plan, one right ("Right") is attached to each share of Noble Drilling common stock. Each Right will entitle the holder to purchase one one-hundredth of a share of a new Series A Junior Participating Preferred Stock, par value $1.00 per share, at an exercise price of $120.00. The Rights are not currently exercisable and will become exercisable only in the event a person or group acquires beneficial ownership of 15 percent or more of Noble Drilling common stock. The Rights expire on July 10, 2005. NOTE 9 -- FINANCIAL INSTRUMENTS The Company operates internationally which results in exposure to foreign currency risk. The Company denominates its contracts predominantly in U.S. Dollars to mitigate the exposure to fluctuations in foreign currencies. The Company periodically uses foreign exchange derivative instruments or spot purchases to hedge its known liabilities in foreign currencies to reduce the impact of foreign currency gains and losses in its financial results. It is the Company's policy not to enter into derivative transactions for speculative purposes. Gains and losses on foreign exchange derivative instruments, which qualify as accounting hedges, are deferred and recognized when the underlying foreign exchange exposure is realized. To qualify for hedge accounting, the contracts must meet defined correlation and effectiveness criteria, be designated as hedges and result in cash flows and financial statement effects that substantially offset those of the position being hedged. Gains and losses on foreign exchange derivative instruments that do not qualify as hedges for accounting purposes are recognized currently based on the change in the market value of the derivative instrument. During 1998, the Company entered into various foreign currency exchange contracts. These contracts expired monthly throughout 1998 and required the Company to exchange U.S. Dollars for Dutch Guilders and British Pounds Sterling totaling $33,800,000 and $24,700,000, respectively. There were no material gains or losses recognized in the year ended December 31, 1998. At December 31, 1998 there were no open foreign exchange derivative hedges. The Company did not utilize foreign exchange derivative instruments in 1997. In connection with 1998 project financings for the Noble Paul Wolff, Noble Paul Romano and Noble Jim Thompson EVA-4000TM semisubmersible conversions, the Company entered into interest rate swap contracts to minimize exposure to interest rate increases during the period prior to funding. Neither the Company nor the counterparties, which were prominent bank institutions, were required to collateralize their respective obligations under the interest rate swaps. A summary of the interest rate swap contracts is as follows:
NOTIONAL SETTLEMENT AMOUNT RECEIVED (PAID) PROJECT FINANCING AMOUNT DATE AT SETTLEMENT DATE - ----------------- ------ ---- ------------------ Noble Paul Wolff $ 145,000 June 8, 1998 $ 311 Noble Jim Thompson 137,750 November 3, 1998 (3,837) Noble Paul Romano 16,875 December 14, 1998 (741)
The amounts received or paid at settlement of the interest rate swap contracts have been deferred and are classified as "Other assets" in the accompanying Consolidated Balance Sheet at December 31, 1998. Such amounts will be (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 37 40 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS recognized over the term at the respective project financings as an adjustment to the underlying yield of the financial instrument. (See Note 6). NOTE 10 -- STOCK-BASED COMPENSATION PLANS The Company has several stock-based compensation plans, which are described below. Effective January 1, 1996, the Company adopted the provisions of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). As permitted by SFAS 123, the Company has chosen to continue using the intrinsic value method of accounting for stock-based compensation awards in accordance with APB Opinion 25. Accordingly, no compensation expense has been recognized for stock option awards. 1991 STOCK OPTION AND RESTRICTED STOCK PLAN The Company's 1991 Stock Option and Restricted Stock Plan, as amended (the "1991 Plan"), provides for the granting of options to purchase the Company's common stock, with or without stock appreciation rights ("SAR's"), and the awarding of shares of restricted stock to selected employees. At December 31, 1998, 1,740,286 shares were available for grant or award under the 1991 Plan. In general, all options granted under the 1991 Plan have a term of 10 years, an exercise price equal to the fair market value of the common stock on the date of grant and vest one-third annually, commencing one year after the grant date. 1992 NONQUALIFIED STOCK OPTION PLAN The Company's 1992 Nonqualified Stock Option Plan for Non-Employee Directors (the "1992 Plan") provides for the granting of nonqualified stock options to non-employee directors. The options are granted at fair market value on the grant date and are exercisable from time to time over a period commencing one year from the grant date and ending on the expiration of ten years from the grant date, unless terminated sooner as described in the 1992 Plan. A summary of the status of the Company's stock options under both the 1991 Plan and 1992 Plan as of December 31, 1998, 1997 and 1996 and the changes during the year ended on those dates is presented below (actual amounts):
1998 1997 1996 -------------------------- -------------------------- -------------------------- NUMBER OF WEIGHTED NUMBER OF WEIGHTED NUMBER OF WEIGHTED SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at beginning of the year . 4,309,696 $ 13.72 3,607,403 $ 7.14 2,904,747 $ 5.43 Granted .............................. 3,776,618 22.49 1,804,500 23.15 1,376,100 9.97 Exercised ............................ (348,880) 7.95 (858,213) 6.28 (515,281) 5.05 Forfeited ............................ (146,961) 22.10 (243,994) 11.97 (158,163) 7.36 ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at end of year ........... 7,590,473 $ 18.23 4,309,696 $ 13.72 3,607,403 $ 7.14 ========== ========== ========== ========== ========== ========== Exercisable at end of year ........... 2,430,715 $ 10.58 1,496,289 $ 6.52 1,537,250 $ 5.64 ========== ========== ========== ========== ========== ==========
The following table summarizes information about stock options outstanding at December 31, 1998 (actual amounts).
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------------- ------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ---------------------- -------------- ---------------- --------------- -------------- -------------- $ 1.72 to $ 5.00 265,950 3.21 $ 3.27 265,950 $ 3.28 $ 5.19 to $14.00 1,949,557 6.15 7.87 1,596,370 7.42 $ 14.25 to $28.31 5,337,466 9.02 22.55 568,395 22.90 $ 32.50 37,500 9.30 32.50 -- -- - ---------------------- -------------- ----------------- --------------- ----------- --------- $ 1.72 to $32.50 7,590,473 8.11 $ 18.23 2,430,715 $ 10.58 ============== ================= =============== =========== =========
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 38 41 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Additional disclosures required by SFAS 123 are as follows:
DECEMBER 31, ------------------------------------ 1998 1997 1996 -------- -------- -------- Weighted average fair value per option granted ... $ 12.01 $ 10.58 $ 4.39 Valuation assumptions: Expected option term (years) ................... 5 5 5 Expected volatility ............................ 38.06% 41.27% 40.85% Expected dividend yield ........................ 0% 0% 0% Risk-free interest rate ........................ 5.16% 6.20% 5.30%
The following table reflects pro forma net income and earnings per share had we elected to adopt the fair value approach of SFAS 123: YEAR ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ---------- ---------- Pro forma effects: Net income ........................................ $ 152,113 $ 253,077 $ 71,045 Earnings per share Basic ........................................... $ 1.16 $ 1.92 $ 0.66 Diluted ......................................... $ 1.15 $ 1.90 $ 0.65
OTHER STOCK BASED COMPENSATION In July 1996, a subsidiary of Noble Drilling granted SAR's covering 309,500 shares of Noble Drilling common stock. The SAR's, which are payable solely in cash, have a five year term, an exercise price of fair market value on the date of grant and vested fully in July 1997. In January 1998, we entered into a Deed of Trust with Guiness Flight Trustees SARL to act as trustee of the Company's Share Appreciation Rights Trust (the "Trust"). The Trust was established to fund our obligation to pay the employees upon the exercise of their SAR's. Pursuant to the Trust, 248,000 shares of the Company's common stock, representing the number of SAR's outstanding, were transferred to the Trust in January 1998. The Company recognized compensation expense of $0, $3,500,000 and $776,000 for the years ended December 31, 1998, 1997 and 1996, respectively, related to SAR's. In July 1996, the Company awarded 58,863 shares of restricted (i.e., nonvested) common stock pursuant to the 1991 Plan to selected employees. One-half of these shares vested on each of the first and second anniversaries of the award date. In January 1998, the Company awarded 22,000 shares of restricted stock to selected employees that vest 20 percent per year over a five year period commencing on the first anniversary date of the award. Additionally, the Company has awarded performance restricted shares pursuant to the 1991 Plan. In general, the performance restricted shares have a three-year performance period from the date of award. The actual number of shares awarded and available for vesting may vary depending on the degree of achievement of certain specified corporate performance criteria over the three-year performance period. The number of shares awarded as so determined then vests (subject only to future employment) at the rate of one-third thereof each year, on each succeeding March 31. Nonvested shares will be forfeited. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 39 42 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of the restricted share and performance restricted share awards and the amounts recognized as compensation expense for the years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996 ------------- ----------- ----------- Restricted shares: Shares awarded......................................................... 22,000 -- 58,863 Share price at award date.............................................. $ 28.25 -- $ 14.13 Performance Restricted Shares: Shares awarded......................................................... -- 90,500 105,250 Share price at award date.............................................. -- $ 21.00 $ 8.88 Compensation expense recognized.......................................... $ 835 $ 3,536 $ 161
NOTE 11 -- INCOME TAXES The components of and changes in the net deferred taxes were as follows:
DECEMBER 31, DECEMBER 31, 1998 1997 --------- ---------- Deferred tax assets: Domestic ............................................... $ -- $ -- International: Net operating loss carryforwards ....................... 3,130 4,580 Tax basis of assets in excess of book basis ............ 964 1,758 -------- -------- Deferred tax assets ........................................ $ 4,094 $ 6,338 ======== ======== Deferred tax liabilities: Domestic: Excess of net book basis over remaining tax basis ...... $(45,596) $(54,768) Other, net ............................................. -- (1,951) International: Excess of net book basis over remaining tax basis ...... (14,471) (7,512) -------- -------- Deferred tax liabilities ................................... $(60,067) $(64,231) ======== ========
Income before income taxes and extraordinary items consisted of the following:
YEAR ENDED DECEMBER 31, ---------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Domestic ..................... $ 106,552 $ 265,122 $ 94,096 International ................ 124,367 114,491 7,863 ---------- ---------- ---------- Total ........................ $ 230,919 $ 379,613 $ 101,959 ========== ========== ==========
The income tax provision consisted of the following:
YEAR ENDED DECEMBER 31, ------------------------------------------ 1998 1997 1996 ---------- ---------- ---------- Current - domestic ........... $ 49,506 $ 50,153 $ 2,322 Current - international ...... 20,509 16,757 13,744 Deferred - domestic .......... (10,331) 50,780 3,288 Deferred - international ..... 9,203 (1,959) 3,308 ---------- ---------- ---------- Total ........................ $ 68,887 $ 115,731 $ 22,662 ========== ========== ==========
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 40 43 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of Federal statutory and effective income tax rates is shown below:
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1998 1997 1996 ---------------- ------------- -------------- Statutory rate.................................................... 35% 35% 35% Effect of: International tax rates which are different than the U.S. rate.... (7.2) (6.2) 14.7 Other........................................................... 2.0 1.7 2.3 U.S. operating loss carryforward/carryback benefit.............. - - (29.1) Canadian operating loss carryforward benefit.................... - - (0.7) ----------- ---------- ---------- Total............................................................. 29.8% 30.5% 22.2% =========== =========== ==========
The Company had available at December 31, 1996, unused investment tax credits of $669,000, which were used to offset 1997 U.S. taxes payable. In addition, Noble Drilling had net operating loss carryforwards ("NOL's") for tax purposes of approximately $94,253,000 at December 31, 1996, which were fully utilized in 1997. Applicable U.S. income and foreign withholding taxes have not been provided on undistributed earnings of the Company's international subsidiaries. Management does not intend to repatriate such undistributed earnings for the foreseeable future except for distributions upon which incremental income taxes would not be material. At December 31, 1998, the estimated deferred tax liability associated with the undistributed earnings of the Company's international subsidiaries is approximately $6,000,000. NOTE 12 -- EMPLOYEE BENEFIT PLANS The Company has a noncontributory defined benefit plan which covers substantially all salaried employees and a noncontributory defined benefit pension plan which covers certain field employees. The benefits from these plans are based primarily on years of service and employees' compensation near retirement. The Company's funding policy is consistent with funding requirements of applicable laws and regulations. The assets of these plans consist of corporate equity securities, municipal and government bonds, and cash equivalents. The Company, when required, makes cash contributions to the domestic plan. As of September 30, 1998, the domestic plan assets included $1,669,000 of Noble Drilling's common stock valued at fair value at that date. The Company changed the measurement date of the plan to September 30 beginning in 1995. This change did not have a material impact to the financial results of the Company. Each of Noble Drilling (U.K.) Limited, Nedstaff Europe Ltd. and Noble Drilling (Nederland) B.V., wholly owned subsidiaries of Noble Drilling, maintains pension plans which cover all of their salaried, nonunion employees. Benefits are based on credited service and the average of the highest three years of qualified salary within the past ten years of participation. Pension cost includes the following components:
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------------------------- 1998 1997 1996 ----------------------------- ----------------------------- ----------------------------- INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC ------------- ------------ ------------- ------------ ------------- ------------ Service cost .................. $ 2,793 $ 1,965 $ 2,498 $ 1,520 $ 523 $ 1,589 Interest cost ................. 1,233 2,334 1,030 2,094 726 2,023 Return on plan assets ......... (1,587) (3,429) (1,264) (2,436) (928) (4,500) Amortization of prior service cost ........................ -- 65 -- (10) -- (10) Amortization of transition obligation (asset) .......... 151 (456) 93 (456) (55) (456) Recognized net actuarial loss ........................ 105 -- 6 183 -- 3,073 ------------ ------------ ------------ ------------ ------------ ------------ Net pension expense ........... $ 2,695 $ 479 $ 2,363 $ 895 $ 266 $ 1,719 ============ ============ ============ ============ ============ ============
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 41 44 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The funded status of the plans is as follows:
AS OF DECEMBER 31, ----------------------------------------------------------------- 1998 1997 ------------------------------ ------------------------------- INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC -------------- ------------- -------------- -------------- Funded status ............................... $ (7,062) $ (222) $ (773) $ 7,372 Unrecognized net gain (loss) ................ 4,798 2,821 (2,291) (3,051) Unrecognized prior service cost ............. -- 1,914 -- 801 Unrecognized transition obligation (asset) .. 2,256 (142) 2,364 (597) ------------- ------------- ------------- ------------- Net amount recognized ....................... $ (8) $ 4,371 $ (700) $ 4,525 ============= ============= ============= =============
Amounts recognized in the Consolidated Balance Sheet consist of:
AS OF DECEMBER 31, ---------------------------------------------------------------- 1998 1997 ------------------------------ ------------------------------ INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC ------------- ------------- ------------- ------------- Prepaid benefit cost ........................ $ 353 $ 4,353 $ -- $ 4,525 Accrued benefit liability ................... (3,039) (2,846) (1,655) (587) Intangible asset ............................ 1,279 2,001 955 587 Accumulated other comprehensive income ...... 1,399 863 -- -- ------------- ------------- ------------- ------------- Net amount recognized ....................... $ (8) $ 4,371 $ (700) $ 4,525 ============= ============= ============= =============
A reconciliation of the changes in projected benefit obligations is as follows:
AS OF DECEMBER 31, ---------------------------------------------------------------- 1998 1997 ------------------------------ ------------------------------ INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC ------------- ------------- ------------- ------------- Benefit obligation at beginning of year ..... $ 18,729 $ 31,010 $ 12,886 $ 27,126 Service cost ................................ 2,793 1,965 2,498 1,520 Interest cost ............................... 1,233 2,334 1,030 2,094 Actuarial losses ............................ 5,571 2,652 2,212 955 Benefits paid ............................... (398) (1,625) (329) (1,535) Contributions ............................... 496 -- 432 -- Other ....................................... -- 1,178 -- 850 ------------- ------------- ------------- ------------- Benefit obligation at end of year ........... $ 28,424 $ 37,514 $ 18,729 $ 31,010 ============= ============= ============= =============
A reconciliation of the changes in fair value of plan assets is as follows:
AS OF DECEMBER 31, ---------------------------------------------------------------- 1998 1997 ------------------------------ ------------------------------ INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC ------------- ------------- ------------- ------------- Fair value of plan assets at beginning of year $ 17,956 $ 38,382 $ 11,880 $ 26,656 Actual return on plan assets ................. (20) 109 3,585 12,890 Employer contribution ........................ 3,451 426 2,503 371 Plan participants' contribution .............. 496 -- 432 -- Benefits and expenses paid ................... (521) (1,625) (444) (1,535) ------------- ------------- ------------- ------------- Fair value of plan assets at end of year ..... $ 21,362 $ 37,292 $ 17,956 $ 38,382 ============= ============= ============= =============
The projected benefit obligations for the international and domestic plans were determined using an assumed discount rate of 5.25 percent and 6.50 percent, respectively, in 1998, 6.75 percent and 7.25 percent, respectively, in 1997 and 8.25 percent and 7.5 percent, respectively, in 1996. Assumed long-term rate of return on international plan assets was 6.0 percent, 7.5 percent and 9.0 percent for 1998, 1997 and 1996, respectively. Assumed long-term rate of return on domestic plan assets was 9.0 percent in each of the years presented. The projected benefit obligations for the international plan assume a compensation increase of 3.0 percent, 4.5 percent and 6.0 percent for 1998, 1997 and 1996, respectively, and 4.0 percent per annum for the domestic plan in 1998 and 6.0 percent in each of the years 1997 and 1996. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 42 45 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company presently sponsors a 401(k) savings plan, medical and other plans for the benefit of its employees. The cost of maintaining these plans aggregated $11,021,000, $11,868,000 and $8,912,000 in 1998, 1997 and 1996, respectively. The Company does not provide post-retirement benefits (other than pensions) or any post-employment benefits to its employees. NOTE 13 -- COMMITMENTS, CONTINGENCIES AND OBLIGATIONS The Company is a defendant in certain claims and litigation arising out of operations in the normal course of business. In the opinion of management, uninsured losses, if any, will not be material to the Company's financial position, results of operations or cash flows. The Company has entered into agreements with several vendors to purchase or construct equipment for the conversion of rigs. These agreements generally require non-refundable payments as certain milestones are met. The amount of such payments totaled $192,831,000 through December 31, 1998. As of December 31, 1998, the Company also had purchase commitments of $31,914,000 with a remaining term in excess of one year related to rig conversion projects. In the event the Company were to cancel the purchase commitments, the ultimate amounts refunded would be subject to negotiation. These expenditures will be funded from operating cash flows, existing cash balances, available lines of credit and project financing. At December 31, 1998, the Company had certain noncancellable long-term operating leases, principally for office space and facilities, with various expiration dates. Future minimum rentals under such leases aggregate $1,485,000 for 1999, $656,000 for 2000, $87,000 for 2001, $30,000 for 2002 and $2,207,000 thereafter. Rental expense for all operating leases was $2,729,000, $5,583,000 and $4,377,000 for the years ended December 31, 1998, 1997 and 1996, respectively. NOTE 14 -- UNAUDITED INTERIM FINANCIAL DATA Unaudited interim financial information for the years ended December 31, 1998 and 1997 is as follows:
QUARTER ENDED --------------------------------------------------------- 1998 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ------------ ------------ ------------ ------------ Operating revenues ............................... $ 189,036 $ 216,228 $ 195,049 $ 187,928 Operating income ................................. $ 66,315 $ 70,305 $ 48,401 $ 44,750 Net income ....................................... $ 46,229 $ 50,404 $ 32,616 $ 32,783 Net income per share: Basic .......................................... $ 0.35 $ 0.38 $ 0.25 $ 0.25 Diluted ........................................ $ 0.35 $ 0.38 $ 0.25 $ 0.25
QUARTER ENDED --------------------------------------------------------- 1997 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ------------ ------------ ------------ ------------ Operating revenues ............................... $ 168,715 $ 184,992 $ 171,636 $ 187,852 Operating income (1) ............................. $ 35,062 $ 242,877 $ 43,647 $ 59,761 Income before extraordinary charge ............... $ 23,648 $ 161,700 $ 33,481 $ 45,053 Earnings per common share: Income before extraordinary charge: (1) Basic .......................................... $ 0.18 $ 1.22 $ 0.25 $ 0.34 Diluted ........................................ $ 0.17 $ 1.21 $ 0.25 $ 0.34
(1) Included in the quarter ended June 30, 1997 is a non-recurring gain of $197,676,000, or $128,489,000 net of tax ($0.97 per basic and $0.96 per diluted share), relating to the sale of the Company's 12 mat-supported jackup rigs. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 43 46 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 -- SEGMENT AND RELATED INFORMATION The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information ("SFAS 131"), in 1998 which changes the way the Company reports information about its operating segments. The Company is a provider of diversified services for the oil and gas industry. The Company's reportable segments consist of the primary services provided by the Company. These services include offshore contract drilling, turnkey drilling and labor contract services. Although each of these services is generally influenced by the same economic factors, they each represent a distinct service to the oil and gas industry. Offshore contract drilling services is then separated into international and domestic contract drilling segments since there are certain economic risks associated with each of these geographic markets and the Company's management makes decisions based on these markets accordingly. The international contract drilling segment conducts contract drilling services in the North Sea, Africa, South America, Mexico, the Middle East and India, whereas domestic contract drilling is conducted in the U.S. Gulf of Mexico. Turnkey drilling operations consist of the coordination of all equipment, materials, services and management to drill a well to a specified depth for a fixed price. Turnkey drilling operations are conducted primarily in the U.S. Gulf of Mexico. Under its labor contracts, the Company provides the personnel necessary to manage and perform drilling operations from drilling platforms owned by the operator. The Company currently has labor contract agreements in the U.K. North Sea and off the east coast of Canada. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (see Note 1). All intersegment sales pricing is based on current market conditions. The Company evaluates the performance of its operating segments based on operating revenues and earnings. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 44 47 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summarized financial information of the Company's reportable segments for the year ended December 31, 1998, 1997 and 1996 is shown in the following table. The "Other" column includes results of domestic land drilling operations for 1996 only, results of other insignificant operations and corporate related items.
INTERNATIONAL DOMESTIC CONTRACT CONTRACT LABOR TURNKEY DRILLING DRILLING CONTRACT DRILLING SERVICES SERVICES SERVICES SERVICES OTHER TOTAL ----------- ----------- ----------- ----------- ----------- ----------- 1998: Revenues from external customers .... $ 483,086 $ 122,027 $ 70,242 $ 113,171 $ (285) $ 788,241 Intersegment revenues ............... -- 1,683 -- 391 -- 2,074 Depreciation and amortization ....... 53,905 13,144 1,843 171 2,628 71,691 Interest expense .................... 11,205 2,805 61 -- (8,890) 5,181 Equity in (loss) of unconsolidated subsidiaries ..... (2,752) -- -- -- -- (2,752) Segment profit (loss) ............... 144,460 33,184 8,767 (11,676) (12,595) 162,140 Total assets (4)..................... 1,152,515 923,461 35,453 7,848 59,355 2,178,632 Capital expenditures ................ 87,171 444,349 28 -- 9,023 540,571 1997: Revenues from external customers .... $ 349,256 $ 123,497 $ 55,902 $ 184,540 $ -- $ 713,195 Intersegment revenues ............... 10,826 13,253 -- -- -- 24,079 Depreciation and amortization ....... 57,835 9,763 1,194 927 4,326 74,045 Interest expense .................... 10,273 3,333 358 32 (1,102) 12,894 Equity in earnings of unconsolidated subsidiaries ..... 78 -- -- -- -- 78 Gain on sale of mat rigs ............ 2,177 109,177 -- -- 86,322 197,676 Segment profit (1) .................. 88,949 109,849 7,463 1,108 50,103 257,472 Total assets (4)..................... 947,086 420,598 33,531 39,170 65,426 1,505,811 Capital expenditures ................ 97,064 286,031 4,435 443 3,092 391,065 1996: Revenues from external customers .... $ 203,597 $ 125,793 $ 38,392 $ 121,612 $ 24,859 $ 514,253 Intersegment revenues ............... 116 20,179 -- 1,339 -- 21,634 Depreciation and amortization ....... 30,685 15,198 690 912 4,674 52,159 Interest expense .................... 9,730 4,183 67 112 4,666 18,758 Gain on sale of land assets ......... -- -- -- -- 45,414 45,414 Segment profit (loss) (2) ........... (23,530) 40,317 3,921 15,489 37,127 73,324 Total assets (3) (4)................. 804,535 270,450 22,169 35,776 234,243 1,367,173 Capital expenditures ................ 158,059 51,593 923 1,069 5,243 216,887
(1) Segment profit (loss) for 1997 includes the effect of a gain on the sale of mat-supported rigs. The gain, net of taxes, is included in International Contract Drilling Services profit, Domestic Contract Drilling Services profit and Other profit for $2,177,000, $70,965,000 and $55,347,000, respectively. (2) Other profit for 1996 includes the effect of a gain on the sale of land assets of $29,155,000, net of taxes. (3) Other total assets for 1996 include cash and cash equivalents and marketable securities of $144,714,000. (4) Total assets for the International Contract Drilling Services segment includes $10,761,000, $688,000 and $410,000 of investments in joint ventures at December 31, 1998, 1997 and 1996, respectively. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 45 48 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table is a reconciliation of reportable segment profit or loss to the Company's consolidated totals.
1998 1997 1996 --------- --------- --------- PROFIT OR LOSS Total profit for reportable segments ........... $ 162,140 $ 257,472 $ 73,324 Elimination of intersegment (losses) profits ... (108) (275) (727) --------- --------- --------- Total consolidated net income ............... $ 162,032 $ 257,197 $ 72,597 ========= ========= =========
The following tables present revenue and identifiable assets by country based on the location of the service provided.
REVENUES IDENTIFIABLE ASSETS ------------------------------------ ------------------------------------ 1998 1997 1996 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- United States ........... $ 206,838 $ 254,213 $ 262,041 $ 953,935 $ 519,079 $ 515,576 Brazil .................. 29,261 33,312 8,722 325,176 146,613 57,833 Canada .................. 15,381 8,153 10,107 10,476 12,489 8,077 Denmark ................. 33,196 23,513 11,414 70,823 81,543 43,375 India ................... 22,150 14,413 5,443 96,716 85,037 81,749 Mexico .................. 96,967 44,373 9,807 100,041 78,849 30,817 Nigeria ................. 99,526 82,067 57,158 133,600 103,217 110,357 Norway .................. 31,389 -- -- 52,973 -- -- Qatar ................... 61,870 34,951 15,825 117,295 80,780 85,358 The Netherlands ......... 45,608 57,179 29,350 158,966 198,298 153,479 United Kingdom .......... 108,964 71,120 52,297 75,998 70,613 70,565 Venezuela ............... 34,778 77,427 36,427 50,865 93,337 85,988 Zaire ................... 2,313 12,474 8,692 112 22,542 25,571 Other ................... -- -- 6,970 31,656 13,414 98,428 ---------- ---------- ---------- ---------- ---------- ---------- Total ....... $ 788,241 $ 713,195 $ 514,253 $2,178,632 $1,505,811 $1,367,173 ========== ========== ========== ========== ========== ==========
(Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 46 49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" appearing in our proxy statement for the annual meeting of stockholders to be held on April 22, 1999 (the "1999 Proxy Statement"), set forth certain information with respect to the directors of Noble Drilling and with respect to reporting under Section 16(a) of the Securities Exchange Act of 1934, and are incorporated herein by reference. Certain information with respect to the executive officers of Noble Drilling is set forth under the caption "Executive Officers of the Registrant" in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" appearing in the 1999 Proxy Statement sets forth certain information with respect to the compensation of management of Noble Drilling, and, except for the report of the compensation committee of the board of directors of Noble Drilling on executive compensation and the information therein under "Performance Graph," is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The sections entitled "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" appearing in the 1999 Proxy Statement set forth certain information with respect to the ownership of voting securities and equity securities of Noble Drilling, and are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) A list of the financial statements filed as a part of this report is set forth in Item 8 on page 22 and is incorporated herein by reference. (2) Financial Statement Schedules: All schedules are omitted because they are either not applicable or the required information is shown in the financial statements or notes thereto. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 47 50 (3) Exhibits: The information required by this Item 14(a)(3) is set forth in the Index to Exhibits accompanying this Annual Report on Form 10-K and is incorporated herein by reference. (4) Financial Statements required by Form 11-K for the fiscal year ended December 31, 1998, with respect to the Noble Drilling Corporation Thrift Plan (to be filed by amendment). (b) No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1998. (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) 48 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NOBLE DRILLING CORPORATION Date: March 5, 1999 By: /s/ JAMES C. DAY -------------------------------------------------- James C. Day, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following individuals on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE --------- ------------------------ ---- /s/ JAMES C. DAY Chairman and Chief Executive Officer March 5, 1999 - ------------------------------------- and Director James C. Day (Principal Executive Officer) /s/ ROBERT D. CAMPBELL President and Director March 5, 1999 - ------------------------------------- Robert D. Campbell /s/ BYRON L. WELLIVER Senior Vice President - Finance, March 5, 1999 - ------------------------------------- Treasurer and Controller Byron L. Welliver (Principal Financial and Accounting Officer) /s/ MICHAEL A. CAWLEY Director March 5, 1999 - ------------------------------------- Michael A. Cawley /s/ LAWRENCE J. CHAZEN Director March 5, 1999 - ------------------------------------- Lawrence J. Chazen /s/ TOMMY C. CRAIGHEAD Director March 5, 1999 - ------------------------------------- Tommy C. Craighead /s/ WILLIAM J. DORE Director March 5, 1999 - ------------------------------------- William J. Dore /s/ JAMES L. FISHEL Director March 5, 1999 - ------------------------------------- James L. Fishel /s/ MARC E. LELAND Director March 5, 1999 - ------------------------------------- Marc E. Leland /s/ WILLIAM A. SEARS Director March 5, 1999 - ------------------------------------- William A. Sears
49 52 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ---------------- ------------------------------------------------------------------------------------------------ 2.1 - Agreement of Sale and Purchase dated as of April 25, 1996 between the Registrant and Royal Nedlloyd N.V. and Neddrill Holding B.V. (filed as Exhibit 2.1 to the Registrant's Registration Statement on Form S-3 (No. 333-2927) and incorporated herein by reference). 2.2 - Asset Purchase Agreement dated November 15, 1996 by and between the Registrant, Noble Properties, Inc. and Noble Drilling (Canada) Ltd. and Nabors Industries, Inc. (filed as Exhibit 2.1 to the Registrant's Form 8-K dated December 27, 1996 (date of event: December 13, 1996) and incorporated herein by reference). 2.3 - Agreement dated December 13, 1996 by and among the Registrant, Noble Properties, Inc., Noble Drilling (Canada) Ltd., Noble Drilling (U.S.) Inc., and Noble Drilling Land Limited and Nabors Industries, Inc., Nabors Drilling USA, Inc. and Nabors Drilling Limited (filed as Exhibit 2.2 to the Registrant's Form 8-K dated December 27, 1996 (date of event: December 13, 1996) and incorporated herein by reference). 2.4 - Asset Purchase Agreement dated as of February 19, 1997 between the Registrant, Noble Drilling (U.S.) Inc., Noble Offshore Corporation, Noble Drilling (Mexico) Inc. and NN-1 Limited Partnership and Pride Petroleum Services, Inc. (filed as Exhibit 2.10 in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.) 2.5 - Agreement dated April 10, 1997 by and between Noble Drilling Corporation, Noble Drilling (U.S.) Inc., Noble Offshore Corporation, Noble Drilling (Mexico) Inc. and NN-1 Limited Partnership, and Pride Petroleum Services, Inc. (filed as Exhibit 2.2 to the Registrant's Form 8-K dated May 21, 1997 (date of event: May 7, 1997) and incorporated herein by reference). 2.6 - First Amendment to Asset Purchase Agreement dated as of May 7, 1997 by and between Noble Drilling Corporation, Noble Drilling (U.S.) Inc., Noble Offshore Corporation, Noble Drilling (Mexico) Inc., NN-1 Limited Partnership and Mexico Drilling Partners Inc., and Pride Petroleum Services, Inc., Pride Offshore, Inc. and Forasol S.A. (filed as Exhibit 2.3 to the Registrant's Form 8-K dated May 21, 1997 (date of event: May 7, 1997) and incorporated herein by reference). 3.1 - Restated Certificate of Incorporation of the Registrant dated August 29, 1985 (filed as Exhibit 3.7 to the Registrant's Registration Statement on Form 10 (No. 0-13857) and incorporated herein by reference). 3.2 - Certificate of Amendment of Restated Certificate of Incorporation of the Registrant dated May 5, 1987 (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-3 (No. 33-67130) and incorporated herein by reference). 3.3 - Certificate of Amendment of Certificate of Incorporation of the Registrant dated July 31, 1991 (filed as Exhibit 3.16 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference). 3.4 - Certificate of Amendment of Certificate of Incorporation of the Registrant dated September 15, 1994 (filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended March 31, 1995 and incorporated herein by reference). 3.5 - Certificate of Designations of Series A Junior Participating Preferred Stock, par value $1.00 per share, of the Registrant dated as of June 29, 1995 (filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended June 30, 1995 and incorporated herein by reference). 3.6 - Certificate of Amendment of Certificate of Designations of Series A Junior Participating Preferred Stock of Registrant dated September 5, 1997 (filed as Exhibit 3.6 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 3.7 - Composite copy of the Bylaws of the Registrant as currently in effect (filed as Exhibit 3.7 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 3.8 - Amendment of Articles IV and VI of the Bylaws of the Registrant adopted January 29, 1998 (filed as Exhibit 3.8 to the Registrant's Form 10-K/A (Amendment No. 1) and incorporated herein by reference).
50 53
EXHIBIT NUMBER EXHIBIT - ---------------- ------------------------------------------------------------------------------------------------ 4.1 - Form of Senior Indenture (filed as Exhibit 4.9 to the Registrant's Registration Statement on Form S-3 (No. 333-68507) and incorporated herein by reference). 4.2 - Form of Subordinated Indenture (filed as Exhibit 4.10 to the Registrant's Registration Statement on Form S-3 (No. 333-68507) and incorporated herein by reference). 4.3 - Indenture dated as of July 1, 1996 governing the 9-1/8% Senior Notes due 2006 (including form of Note) (filed as Exhibit 4.1 to the Registrant's Form 8-K dated July 16, 1996 (date of event: July 1, 1996) and incorporated herein by reference). 4.4 - Credit Agreement, dated as of August 14, 1997, among Noble Drilling Corporation, the lending institutions listed from time to time on Annex I thereto, Credit Lyonnais New York Branch, as Documentation Agent and Christiania Bank Og Kreditkasse ASA, New York Branch, as Arranger and Administrative Agent (filed as Exhibit 4.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 4.5 - Rights Agreement dated as of June 28, 1995 between the Registrant and Liberty Bank and Trust Company of Oklahoma City, N.A. (filed as Exhibit 4 to the Registrant's Form 8-K dated June 29, 1995 (date of event: June 28, 1995) and incorporated herein by reference). 4.6 - Amendment No. 1 to Rights Agreement, dated September 3, 1997, between Noble Drilling Corporation and Liberty Bank and Trust Company of Oklahoma City, N.A. (filed as Exhibit 4.2 to the Registrant's Form 8-A/A (Amendment No. 1) dated September 3, 1997 and incorporated herein by reference). 4.7 - Summary of Rights to Purchase Preferred Shares, as amended as of September 3, 1997 to conform with Amendment No. 1 to Rights Agreement, dated September 3, 1997 (filed as Exhibit 4.3 to the Registrant's Form 8-K dated September 3, 1997 (date of event: September 3, 1997) and incorporated herein by reference). 4.8 - Note Purchase Agreement dated as of September 24, 1998, by and among Noble Drilling (Paul Romano) Inc. and each of the note purchasers thereunder. Each note purchaser has entered into a separate Note Purchase Agreement, which agreements are substantially identical in all material respects, except for the principal amount of notes to be purchased. A schedule identifying each of the note purchasers that entered into a Note Purchase Agreement with Noble Drilling (Paul Romano) Inc. and the principal amount of notes to be purchased by each such note purchaser is included as Schedule A to the Note Purchase Agreement (filed as Exhibit 4.1 to the Registrant's Form 10-Q for the three-month period ended September 30, 1998 and incorporated herein by reference). 4.9 - Trust Indenture and Security Agreement dated as of November 24, 1998, between Noble Drilling (Paul Romano) Inc. and Chase Bank of Texas, National Association, as Trustee (filed as Exhibit 4.18 to the Registrant's Form S-3 dated (No. 33-72059) and incorporated herein by reference). 4.10 - First Naval Mortgage covering the Noble Paul Romano dated as of November 24, 1998, made by Noble Drilling (Paul Romano) Inc. in favor of Chase Bank of Texas, National Association, as Indenture Trustee (filed as Exhibit 4.19 to the Registrant's Form S-3 (No. 333-72059) and incorporated herein by reference). 4.11 - Note Purchase Agreement dated as of July 1, 1998, by and among Noble Drilling (Paul Wolff) Ltd., Chase Bank of Texas, National Association, as Trustee, and each of the note purchasers thereunder. Each note purchaser has entered into a separate Note Purchase Agreement, which agreements are substantially identical in all material respects, except for the principal amount of notes purchased. A schedule identifying each of the note purchasers that entered into a Note Purchase Agreement with Noble Drilling (Paul Wolff) Ltd. and the principal amount of notes purchased by each such note purchaser is included in Annex I to the Note Purchase Agreement (filed as Exhibit 4.4 to the Registrant's Form 10-Q for the three-month period ended September 30, 1998 and incorporated herein by reference). 4.12 - Indenture of First Naval Mortgage, dated as of July 1, 1998, made by Noble Drilling (Paul Wolff) Ltd. in favor of Chase Bank of Texas, National Association, as Trustee (filed as Exhibit 4.5 to the Registrant's Form 10-Q for the three-month period ended September 30, 1998 and incorporated herein). 4.13 - Parent Guaranty, dated as of July 1, 1998, by Noble Drilling Corporation in favor of Chase
51 54
EXHIBIT NUMBER EXHIBIT - ---------------- ------------------------------------------------------------------------------------------------ Bank of Texas, National Association, as Trustee (filed as Exhibit 4.6 to the Registrant's Form 10-Q for the three-month period ended September 30, 1998 and incorporated herein by reference). 4.14 - Second Amendment, dated September 10, 1998, to Credit Agreement, dated as of August 14, 1997, among Noble Drilling Corporation, the lending institutions listed from time to time on Annex I thereto, Credit Lyonnais, New York Branch, as Documentation Agent, and Christiana Bank Og Kreditkasse ASA, New York Branch, as Administrative Agent (filed as Exhibit 4.7 to the Registrant's Form 10-Q for the three-month period ended September 30, 1998 and incorporated herein by reference). 4.15 - Note Purchase Agreement dated as of December 21, 1998, by and among Noble Drilling (Jim Thompson) Inc., Chase Bank of Texas, National Association, as Trustee, and each of the note purchasers thereunder. Each note purchaser has entered into a separate Note Purchase Agreement, which agreements are substantially identical in all material respects, except for the principal amount of notes purchased. A schedule identifying each of the note purchasers that entered into a Note Purchase Agreement with Noble Drilling (Jim Thompson) Inc. and the principal amount of notes purchased by each such note purchaser is included as Annex I to the Note Purchase Agreement (filed as Exhibit 4.24 to the Registrant's Form S-3 (No. 333-72059) and incorporated herein by reference). 4.16 - Indenture of First Naval Mortgage, dated as of December 21, 1998, made by Noble Drilling (Jim Thompson) Inc. in favor of Chase Bank of Texas, National Association, as Trustee (filed as Exhibit 4.25 to the Registrant's Form S-3 dated (No. 333-72059) and incorporated herein by reference). 4.17 - Parent Guaranty, dated as of December 21, 1998, by Noble Drilling Corporation in favor of Chase Bank of Texas, National Association, as Trustee, filed as Exhibit 4.26 to the Registrant's Form S-3 dated (No. 333-72059) and incorporated herein by reference). 4.18 - Third Amendment, dated February 25, 1999, to Credit Agreement, dated as of August 14, 1997, among Noble Drilling Corporation, the lending institutions listed from time to time on Annex I thereto, Credit Lyonnais, New York Branch, as Documentation Agent, and Christiana Bank Og Kreditkasse ASA, New York Branch, as Administrative Agent. 10.1 - Assets Purchase Agreement dated as of August 20, 1993 (the "Portal Assets Purchase Agreement"), between the Registrant and Portal Rig Corporation (filed as Exhibit 2.3 to the Registrant's Registration Statement on Form S-3 (No. 33-67130) and incorporated herein by reference). 10.2 - Agreement dated as of October 25, 1993, among the Registrant, Noble (Gulf of Mexico) Inc. and Portal Rig Corporation, amending the Portal Assets Purchase Agreement (filed as Exhibit 2.5 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 10.3 - Amended and Restated Letter of Credit Agreement, dated as of October 25, 1993, among Portal Rig Corporation, Noble (Gulf of Mexico) Inc., NationsBank of Texas, N.A., as agent and as one of the "Banks" thereunder, and Marine Midland Bank, N.A., Bank of America National Trust and Savings Association, and Norwest Bank Minnesota, National Association (collectively, the "Banks") (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 10.4 - Assignment, Assumption and Amended and Restated Preferred Ship Mortgage, dated October 25, 1993, by Noble (Gulf of Mexico) Inc. to the Banks (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 10.5 - Security Agreement and Assignment, dated October 25, 1993, by Noble (Gulf of Mexico) Inc. to the Banks (filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 10.6 - Noble Support Agreement, dated October 25, 1993, among the Registrant and the Banks (filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 10.7* - Noble Drilling Corporation 1991 Stock Option and Restricted Stock Plan (as amended and restated on January 30, 1997 (filed as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). 10.8* - Noble Drilling Corporation 1992 Nonqualified Stock Option Plan for Non-Employee Directors (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (No. 33-62394)
52 55
EXHIBIT NUMBER EXHIBIT - ---------------- ------------------------------------------------------------------------------------------------ and incorporated herein by reference). 10.9* - Amendment No. 1 to the Noble Drilling Corporation 1992 Nonqualified Stock Option Plan for Non-Employee Directors dated as of July 28, 1994 (filed as Exhibit 10.44 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 10.10* - Noble Drilling Corporation Equity Compensation Plan for Non-Employee Directors (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1996 and incorporated herein by reference). 10.11* - Noble Drilling Corporation Short-Term Incentive Plan (revised April 1998) (filed as Exhibit 10 to the Registrants's Quarterly Report on Form 10-Q for the three-month period ended June 30, 1998 and incorporated herein by reference). 10.12* - Noble Drilling Corporation Amended and Restated Thrift Restoration Plan (filed as Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 10.13* - Amendment No. 1 to the Noble Drilling Corporation Amended and Restated Thrift Restoration Plan dated January 29, 1998 (filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.14* - Noble Drilling Corporation Retirement Restoration Plan dated April 27, 1995 (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended March 31, 1995 and incorporated herein by reference). 10.15* - Amendment No. 1 to the Noble Drilling Corporation Retirement Restoration Plan dated January 29, 1998 (filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.16* - Form of Indemnity Agreement entered into between the Registrant and each of the Registrant's directors and bylaw officers (filed as Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 10.17 - Guarantee dated August 26, 1994 between the Registrant and Hibernia Management and Development Company Ltd. (filed as Exhibit 10.45 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 10.18 - Registration Rights Agreement dated as of July 1, 1996 between the Registrant and Royal Nedlloyd N.V. (filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). 10.19* - Employment Agreement, dated as of October 22, 1998, by and between Noble Drilling Corporation and James C. Day (filed as Exhibit 10.1 to the Registrant's Quarterly Report filed on Form 10-Q for the three-month period ended September 30, 1998 and incorporated herein by reference). 10.20* - Employment Agreement, dated as of October 22, 1998, by and between the Company and Byron L. Welliver (filed as Exhibit 10.2 to the Registrant's Quarterly Report filed on Form 10-Q for the three-month period ended September 30, 1998 and incorporated herein by reference). 10.21 - Employment Agreement dated as of October 22, 1998, by and between the Company and Julie J. Robertson (filed as Exhibit 10.3 to the Registrant's Quarterly Report filed on Form 10-Q for the three-month period ended September 30, 1998 and incorporated herein by reference). 10.22* Employment Agreement dated as of January 1, 1999 by and between Noble Drilling Corporation and Robert D. Campbell. 10.23* - Amendments to the Noble Drilling Corporation 1991 Stock Option and Restricted Stock Plan, dated July 24, 1997. 12.1 - Statement re Computation of Ratio of Earnings to Fixed Charges. 21.1 - Subsidiaries of the Registrant. 23.1 - Consent of PricewaterhouseCoopers LLP. 27.1 - Financial Data Schedule.
- ------------------ * Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. 53 EX-4.18 2 THIRD AMENDMENT TO CREDIT AGREEMENT - 2/25/99 1 EXHIBIT 4.18 THIRD AMENDMENT THIRD AMENDMENT (this "Amendment"), dated as of February 25, 1999, among NOBLE DRILLING CORPORATION, a Delaware corporation (the "Borrower"), various lending institutions party to the Credit Agreement referred to below (the "Banks"), CREDIT LYONNAIS NEW YORK BRANCH, as Documentation Agent and CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK BRANCH, as Administrative Agent (the "Administrative Agent"). All capitalized terms used herein and not otherwise defined shall have the meanings assigned such terms in the Credit Agreement referred to below. W I T N E S E T H : WHEREAS, the Borrower, the Banks and the Administrative Agent are parties to a Credit Agreement, dated as of August 14, 1997 (as amended, modified or supplemented to the date hereof, the "Credit Agreement"); WHEREAS, subject to the terms and conditions set forth herein, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: 1. Section 8.03 of the Credit Agreement is hereby amended by (i) replacing the reference to "$200,000,000" appearing in clause (h) thereof with a reference to "$125,000,000, (ii) deleting the word "and" appearing at the end of clause (h) thereof, (iii) redesignating clause (i) thereof as clause (j) and (iv) inserting the following new clause (i) immediately following clause (h) thereof: (i) unsecured Indebtedness of the Borrower which shall have a final maturity not earlier than seven years after the issuance thereof and shall require no principal payments prior to the final maturity thereof, which Indebtedness shall be incurred pursuant to a public issuance of debt securities, in an aggregate principal amount not to exceed $400,000,000, provided that the proceeds thereof shall, upon receipt thereof, be used to fund (to the extent of such obligations): first, a tender offer (which tender offer shall be effected not later than March 31, 1999) to purchase 100% of the outstanding $125,000,000 principal amount of 9-1/8% Senior Notes and second, to repay outstanding Loans; provided further that the amount of Indebtedness permitted pursuant to this clause (i) shall be reduced by 100% of the amount by which the 9-1/8% Senior Notes tendered and repurchased pursuant to such tender offer is less than $115,000,000; and 2. Section 8.11 of the Credit Agreement is hereby amended by replacing the reference therein to "2.5" with a reference to "2.0". 2 3. Section 8.04(h) of the Credit Agreement is hereby amended by (i) replacing the reference therein to "$400,000,000" with a reference to "(x) at any time prior to the completion of the Jim Thompson, $175,000,000 and (y) at any time thereafter, $125,000,000" and (ii) inserting the parenthetical "(other than the Noble Max Smith and Noble Amos Runner (each as such rig was named on the Third Amendment Effective Date))" immediately following the reference to "Fleet Rigs" in clause (ii) of said section. 4. Section 8.05(a) of the Credit Agreement is hereby amended by deleting said Section in its entirety and inserting the following new clause (a) in lieu thereof: (a) So long as no Default or Event of Default exists or would result therefrom, the Borrower and its Subsidiaries may pay Dividends in an amount not to exceed in the aggregate the Cumulative Net Income Amount then in effect. 5. Section 10 of the Credit Agreement is hereby amended by deleting the definitions of "Applicable Commitment Commission Percentage" and "Applicable Eurodollar Margin" appearing therein and inserting the following new definition in lieu thereof: "Applicable Commitment Commission Percentage" shall be equal to (i) at all times during which the Borrower's Credit Rating falls in category 1,2 or 3, the percentage per annum set forth below opposite the Borrower's applicable Credit Rating:
Credit Rating Applicable Commitment Commission Percentage ------------- ------------------------------------------- Category 1 0.150% per annum Category 2 0.175% per annum Category 3 0.200% per annum
and (ii) at all times during which the Borrower's Credit Rating falls in category 4, the percentage per annum set forth below opposite the Borrower's then applicable Pricing Ratio:
Pricing Ratio Applicable Commitment Commission Percentage ------------- ------------------------------------------- Less than 1.00:1.00 0.250% per annum Greater than or equal to 1.00:1.00 and less than 1.75:1.00 0.300% per annum Greater than or equal to 1.75:1.00 0.350% per annum
-2- 3 "Applicable Eurodollar Margin" shall be equal to (i) at all times during which the Borrower's Credit Rating falls in category 1,2 or 3, the percentage per annum set forth below opposite the Borrower's applicable Credit Rating:
Credit Rating Applicable Eurodollar Margin ------------- ---------------------------- Category 1 0.50% per annum Category 2 0.70% per annum Category 3 0.90% per annum
and (ii) at all times during which the Borrower's Credit Rating falls in category 4, the percentage per annum set forth below opposite the Borrower's then applicable Pricing Ratio:
Pricing Ratio Applicable Eurodollar Margin ------------- ---------------------------- Less than 1.00:1.00 1.10% per annum Greater than or equal to 1.00:1.00 and less than 1.75:1.00 1.30% per annum Greater than or equal to 1.75:1.00 1.50% per annum
6. Section 10 of the Credit Agreement is hereby further amended by inserting the following new proviso immediately before the period at the end of the definition of "Consolidated Indebtedness" appearing therein: ; provided that, for purposes of calculating the Leverage Ratio, "Consolidated Indebtedness" shall not include any Indebtedness which is non-recourse to the Borrower or any Subsidiary Guarantor. 7. In order to induce the Banks to enter into this Amendment, the Borrower (i) agrees to pay to each Bank which executes a copy of this amendment on or before 5:00 P.M. New York time on Friday, February 26, 1999 an amendment fee (the "Amendment Fee") equal to .075% of such Bank's Commitment immediately prior to giving effect to this Amendment, which fee shall be earned by and payable to each such Bank concurrently with the occurrence of the Third Amendment Effective Date and (ii) (x) represents and warrants that no Default or Event of Default exists on the Third Amendment Effective Date (as hereinafter defined) both before and after giving effect to this Amendment, and (y) makes each of the representations, warranties and agreements contained in the Credit Agreement and the other Credit Documents on and as of the Third Amendment Effective Date both before and after giving effect to this Amendment (it being understood that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects as of such date). -3- 4 8. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 9. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent. 10. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 11. This Amendment shall become effective on the first date (the "Third Amendment Effective Date") on which (i) each of the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of telecopier) the same to the Administrative Agent at its Notice Office and (ii) the Borrower shall have paid the Amendment Fee to each Bank entitled thereto. 12. At all times on and after the Third Amendment Effective Date, all references in the Credit Agreement and each of the Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as Amended hereby. * * * -4- 5 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. NOBLE DRILLING CORPORATION By /s/ BYRON L. WELLIVER ----------------------------------- Title: Senior Vice President CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK BRANCH, Individually and as Administrative Agent By /s/ MARTIN LUNDER ----------------------------------- Title: Senior Vice President By /s/ A. DOGANCAY ----------------------------------- Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH, Individually and as Documentation Agent By /s/ PHILIPPE SOUSTRA ----------------------------------- Title: Senior Vice President BANK OF TOKYO-MITSUBISHI, LTD., HOUSTON AGENCY By /s/ JOHN W. MCGHEE ----------------------------------- Title: Vice President & Manager 6 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By /s/ DUNCAN M. ROBERTSON ----------------------------------- Title: Vice President THE BANK OF NOVA SCOTIA By /s/ F.C.H. ASHBY ----------------------------------- Title: Senior Manager Loan Operations SKANDINAVISKA ENSKILDA BANKEN AB (Publ.) By /s/ JAN SJOLIE ----------------------------------- Title: Senior Client Executive THE SANWA BANK, LIMITED By /s/ TAKURO OJIMA ----------------------------------- Title: Vice President FIRST NATIONAL BANK OF COMMERCE By ----------------------------------- Title: THE FUJI BANK LIMITED By /s/ RAYMOND VENTURA ----------------------------------- Title: Vice President & Manager KBC BANK N.V. By /s/ MICHAEL V. CURRAN ----------------------------------- Title: Vice President By /s/ RAYMOND F. MURRAY ----------------------------------- Title: First Vice President MEESPIERSON CAPITAL CORPORATION By /s/ SVEIN ENGH ----------------------------------- Title: Managing Director By /s/ C. TURTON ----------------------------------- Title: Managing Director ROYAL BANK OF CANADA By /s/ LINDA M. STEPHENS ----------------------------------- Title: Senior Manager WELLS FARGO BANK (TEXAS) NATIONAL ASSOCIATION By /s/ BRET C. WEST ----------------------------------- Title: Vice President 7 DG BANK, Deutsche Genossenschaftsbank AG By /s/ MARK K. CONNELLY ----------------------------------- Title: Vice President By /s/ LYNNE MCCARTHY ----------------------------------- Title: Asst. Vice President BANK ONE, LOUISIANA, NA By /s/ KENNETH J. FATUR ----------------------------------- Title: Vice President EX-10.22 3 EMPLOYMENT AGREEMENT - ROBERT D. CAMPBELL 1 EXHIBIT 10.22 EMPLOYMENT AGREEMENT BY AND BETWEEN NOBLE DRILLING CORPORATION AND ROBERT D. CAMPBELL January 1, 1999 2 EMPLOYMENT AGREEMENT TABLE OF CONTENTS
Page ---- 1. Employment..................................................................................1 2. Employment Term.............................................................................1 (a) Term............................................................................1 (b) Relationship Prior to Effective Date............................................1 3. Positions and Duties........................................................................2 4. Compensation and Related Matters............................................................3 (a) Base Salary.....................................................................3 (b) Annual Bonus....................................................................3 (c) Employee Benefits...............................................................4 (i) Incentive, Savings, and Retirement Plans..........................4 (ii) Welfare Benefit Plans.............................................4 (d) Expenses........................................................................4 (e) Fringe Benefits.................................................................4 (f) Vacation........................................................................5 5. Termination of Employment...................................................................5 (a) Death...........................................................................5 (b) Disability......................................................................5 (c) Termination by Company..........................................................5 (d) Termination by Executive........................................................6 (e) Notice of Termination...........................................................7 (f) Date of Termination.............................................................7 6. Obligations of the Company Upon Termination.................................................8 (a) Good Reason or During the Window Period; Other Than for Cause, Death, or Disability.....................................................8 (b) Death..........................................................................10 (c) Disability.....................................................................11 (d) Cause; Other Than for Good Reason or During the Window Period.........................................................................11 7. Certain Additional Payments by the Company.................................................12 8. Representations and Warranties.............................................................14 9. Confidential Information...................................................................14
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Page ---- 10. Certain Definitions........................................................................15 (a) Effective Date.................................................................15 (b) Change of Control Period.......................................................15 (c) Change of Control..............................................................15 11. Full Settlement............................................................................17 12. No Effect on Other Contractual Rights......................................................18 13. Indemnification; Directors and Officers Insurance..........................................18 14. Injunctive Relief..........................................................................18 15. Governing Law..............................................................................18 16. Notices....................................................................................18 17. Binding Effect; Assignment; No Third Party Benefit.........................................19 18. Miscellaneous..............................................................................19 (a) Amendment......................................................................19 (b) Waiver.........................................................................20 (c) Withholding Taxes..............................................................20 (d) Nonalienation of Benefits......................................................20 (e) Severability...................................................................20 (f) Entire Agreement...............................................................20 (g) Captions.......................................................................20 (h) References.....................................................................20
ii 4 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 1999, by and between NOBLE DRILLING CORPORATION, a Delaware corporation (the "Company"), and ROBERT D. CAMPBELL (the "Executive"); W I T N E S S E T H: WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat, or occurrence of a Change of Control (as defined in Paragraph 10(c)) of the Company; and WHEREAS, the Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any pending or threatened Change of Control, and to provide the Executive with compensation and benefits upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations; and WHEREAS, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Company and the Executive hereby agree as follows: 1. Employment. The Company agrees that the Company or an affiliated company (as hereafter defined) will continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company or an affiliated company, for the period set forth in Paragraph 2(a), in the positions and with the duties and responsibilities set forth in Paragraph 3, and upon the other terms and conditions herein provided. As used in this Agreement, the term "affiliated company" shall include any company controlled by, controlling, or under common control with the Company. 2. Employment Term. (1) Term. The employment of the Executive by the Company as provided in Paragraph 1 shall be for the period commencing on the Effective Date (as defined in Paragraph 10 (a)) through and ending on the third anniversary of such date (the "Employment Term"). (2) Relationship Prior to Effective Date. The Executive and the Company acknowledge that, except as may otherwise be provided under any written agreement between the Executive and the Company other than this Agreement, the employment of the Executive by the Company is "at will" and, prior to the Effective Date, may be terminated by either the Executive or 1 5 the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the Company terminates, then the Executive shall have no further rights under this Agreement. For purposes of this Paragraph 2(b) only, the term Company shall mean and include the company that employs Executive, whether Noble Drilling Corporation or an affiliated company of Noble Drilling Corporation. 3. Positions and Duties. (1) During the Employment Term, the Executive's position (including status, offices, titles, and reporting requirements), duties, functions, responsibilities, and authority shall be at least commensurate in all material respects with the most significant of those held or exercised by or assigned to the Executive in respect of the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date. (2) During the Employment Term, the Executive shall devote the Executive's full time, skill, and attention and the Executive's reasonable best efforts during normal business hours to the business and affairs of the Company, and in furtherance of the business and affairs of its affiliated companies, to the extent necessary to discharge faithfully and efficiently the duties and responsibilities delegated and assigned to the Executive herein or pursuant hereto, except for usual, ordinary, and customary periods of vacation and absence due to illness or other disability; provided, however, that the Executive may (i) serve on industry-related, civic or charitable boards or committees, (ii) with the approval of the Board, serve on corporate boards or committees, (iii) deliver lectures, fulfill speaking engagements, or teach at educational institutions, and (iv) manage the Executive's personal investments, so long as such activities do not significantly interfere with the performance and fulfillment of the Executive's duties and responsibilities as an employee of the Company or an affiliated company in accordance with this Agreement and, in the case of the activities described in clause (ii) of this proviso, will not, in the good faith judgment of the Board, constitute an actual or potential conflict of interest with the business of the Company or an affiliated company. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive during the term of the Executive's employment by the Company or its affiliated companies prior to the Effective Date consistent with the provisions of this Paragraph 3(b), the continued conduct of such activities (or of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance and fulfillment of the Executive's duties and responsibilities to the Company. (3) In connection with the Executive's employment hereunder, the Executive shall be based at the location where the Executive was regularly employed immediately prior to the Effective Date or any office which is the headquarters of the Company and is less than 50 miles from such location, subject, however, to required travel on the business of the Company to an extent substantially consistent with the Executive's business travel obligations during the three-year period immediately preceding the Effective Date. (4) All services that the Executive may render to the Company or any of its affiliated companies in any capacity during the Employment Term shall be deemed to be services required by this Agreement and consideration for the compensation provided for herein. 2 6 4. Compensation and Related Matters. (1) Base Salary. During the Employment Term, the Executive shall receive an annual base salary ("Base Salary") at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. The Base Salary shall be payable in installments in accordance with the general payroll practices of the Company in effect at the time such payment is made, but in no event less frequently than monthly, or as otherwise mutually agreed upon. During the Employment Term, the Executive's Base Salary shall be subject to such increases (but not decreases) as may be determined from time to time by the Board in its sole discretion; provided, however, that the Executive's Base Salary (i) shall be reviewed by the Board no later than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually, with a view to making such upward adjustment, if any, as the Board deems appropriate, and (ii) shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to the Executive's peer executives of the Company or any of its affiliated companies. Base Salary shall not be reduced after any such increase. The term Base Salary as used in this Agreement shall refer to the Base Salary as so increased. Payments of Base Salary to the Executive shall not be deemed exclusive and shall not prevent the Executive from participating in any employee benefit plans, programs, or arrangements of the Company and its affiliated companies in which the Executive is entitled to participate. Payments of Base Salary to the Executive shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit, or payment to the Executive hereunder shall in any way limit or reduce the obligation of the Company regarding the Executive's Base Salary hereunder. (2) Annual Bonus. In addition to Base Salary, the Executive shall be awarded, in respect of each fiscal year of the Company ending during the Employment Term, an annual bonus (the "Annual Bonus") in cash in an amount at least equal to the Executive's highest aggregate bonus under all Company bonus plans, programs, arrangements, and awards (including the Company's Short-Term Incentive Plan and any successor plan), in respect of any fiscal year in the three full fiscal year period ended immediately prior to the Effective Date (annualized for any fiscal year consisting of less than 12 full months or with respect to which the Executive has been employed by the Company for less than 12 full months) (such highest amount is hereinafter referred to as the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year in respect of which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. 3 7 (3) Employee Benefits. (1) Incentive, Savings, and Retirement Plans. During the Employment Term, the Executive shall be entitled to participate in all incentive, savings, and retirement plans, programs, and arrangements applicable generally to the Executive's peer executives of the Company and its affiliated companies, but in no event shall such plans, programs, and arrangements provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities, and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, programs, and arrangements as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to the Executive's peer executives of the Company and its affiliated companies. (2) Welfare Benefit Plans. During the Employment Term, the Executive and/or the Executive's family, as the case may be, shall be eligible to participate in and shall receive all benefits under all welfare benefit plans, programs, and arrangements provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death, and travel accident insurance plans, programs, and arrangements) to the extent applicable generally to the Executive's peer executives of the Company and its affiliated companies, but in no event shall such plans, programs, and arrangements provide the Executive with welfare benefits that are less favorable, in the aggregate, than the most favorable of such plans, programs, and arrangements as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to the Executive's peer executives of the Company and its affiliated companies. (4) Expenses. During the Employment Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in performing the Executive's duties and responsibilities hereunder, in accordance with the most favorable policies, practices, and procedures of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to the Executive's peer executives of the Company and its affiliated companies. (5) Fringe Benefits. During the Employment Term, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable policies, practices, and procedures of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time after the Effective Date with respect to the Executive's peer executives of the Company and its affiliated companies. 4 8 (6) Vacation. During the Employment Term, the Executive shall be entitled to paid vacation and such other paid absences, whether for holidays, illness, personal time, or any similar purposes, in accordance with the most favorable policies, practices, and procedures of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time after the Effective Date with respect to the Executive's peer executives of the Company and its affiliated companies. 5. Termination of Employment. (1) Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Term. (2) Disability. If the Company determines in good faith that the Disability (as defined below) of the Executive has occurred during the Employment Term, the Company may give the Executive notice of its intention to terminate the Executive's employment. In such event, the Executive's employment hereunder shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30-day period after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties hereunder on a full-time basis for an aggregate of 180 days within any given period of 270 consecutive days (in addition to any statutorily required leave of absence and any leave of absence approved by the Company), as a result of incapacity of the Executive, despite any reasonable accommodation required by law, due to bodily injury or disease or any other mental or physical illness, which will, in the opinion of a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative, be permanent and continuous during the remainder of the Executive's life. (3) Termination by Company. The Company may terminate the Executive's employment hereunder for Cause (as defined below). For purposes of this Agreement, "Cause" shall mean: (1) the willful and continued failure of the Executive to perform substantially the Executive's duties hereunder (other than any such failure resulting from bodily injury or disease or any other incapacity due to mental or physical illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes the Executive has not substantially performed the Executive's duties; or (2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably detrimental to the Company, monetarily or otherwise. 5 9 For purposes of this provision, no act, or failure to act, on the part of the Executive shall be considered "willful" unless done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or another senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (4) Termination by Executive. The Executive may terminate the Executive's employment hereunder (i) at any time during the Employment Term for Good Reason (as defined below) or (ii) during the Window Period (as defined below) without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Effective Date, and "Good Reason" shall mean any of the following (without the Executive's express written consent): (1) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles, and reporting requirements), duties, functions, responsibilities, or authority as contemplated by Paragraph 3(a) of this Agreement, or any other action by the Company that results in a diminution in such position, duties, functions, responsibilities, or authority, excluding for this purpose an isolated, insubstantial, and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (2) any failure by the Company to comply with any of the provisions of Paragraph 4 of this Agreement, other than an isolated, insubstantial, and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (3) the Company's requiring the Executive to be based at any office or location other than as provided in Paragraph 3(c) of this Agreement or the Company's requiring the Executive to travel on Company business to a substantially greater extent than during the three-year period immediately preceding the Effective Date; (4) any failure by the Company to comply with and satisfy Paragraph 17(c) of this Agreement; or 6 10 (5) any purported termination by the Company of the Executive's employment hereunder otherwise than as expressly permitted by this Agreement, and for purposes of this Agreement, no such purported termination shall be effective. For purposes of this Paragraph 5(d), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (5) Notice of Termination. Any termination of the Executive's employment hereunder by the Company or by the Executive (other than a termination pursuant to Paragraph 5(a)) shall be communicated by a Notice of Termination (as defined below) to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) in the case of a termination for Disability, Cause, or Good Reason, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) specifies the Date of Termination (as defined in Paragraph 5(f) below); provided, however, that, notwithstanding any provision in this Agreement to the contrary, a Notice of Termination given in connection with a termination for Good Reason shall be given by the Executive within a reasonable period of time, not to exceed 120 days, following the occurrence of the event giving rise to such right of termination. The failure by the Company or the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Disability, Cause, or Good Reason shall not waive any right of the Company or the Executive hereunder or preclude the Company or the Executive from asserting such fact or circumstance in enforcing the Company's or the Executive's rights hereunder. (6) Date of Termination. For purposes of this Agreement, the "Date of Termination" shall mean the effective date of termination of the Executive's employment hereunder, which date shall be (i) if the Executive's employment is terminated by the Executive's death, the date of the Executive's death, (ii) if the Executive's employment is terminated because of the Executive's Disability, the Disability Effective Date, (iii) if the Executive's employment is terminated by the Company for Cause or by the Executive for Good Reason, the date on which the Notice of Termination is given, (iv) if the Executive's employment is terminated pursuant to Paragraph 2(a), the date on which the Employment Term ends pursuant to Paragraph 2(a) due to a party's delivery of a Notice of Termination thereunder, and (v) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination, which date shall in no event be earlier than the date such notice is given; provided, however, that if within 30 days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties or by a final judgment, order, or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 7 11 6. Obligations of the Company Upon Termination. (1) Good Reason or During the Window Period; Other Than for Cause, Death, or Disability. If, during the Employment Term, the Company shall terminate the Executive's employment hereunder other than for Cause or Disability or the Executive shall terminate the Executive's employment either for Good Reason or without any reason during the Window Period: (1) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (1) the Executive's Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the greater of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including by reason of any deferral, to the Executive (and annualized for any fiscal year consisting of less than 12 full months or for which the Executive has been employed by the Company for less than 12 full months) in respect of the most recently completed fiscal year of the Company during the Employment Term, if any (such greater amount hereinafter referred to as the "Highest Annual Bonus"), and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) are hereinafter referred to as the "Accrued Obligations"); and (2) an amount (such amount is hereinafter referred to as the "Severance Amount") equal to the product of (1) three and (2) the sum of (x) the Executive's Base Salary and (y) the Highest Annual Bonus; and (3) a separate lump-sum supplemental retirement benefit (the amount of such benefit hereinafter referred to as the "Supplemental Retirement Amount") equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the qualified defined benefit retirement plan of the Company and its affiliated companies in which the Executive is eligible to participate (or any successor plan thereto) (the "Retirement Plan") during the 120-day period immediately preceding the Effective Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Paragraphs 4(a) and 4(b)(i) for the remainder of the Employment Term, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 120-day period immediately preceding the Effective Date, and 8 12 (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 120-day period immediately preceding the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP; and (2) for three years after the Executives's Date of Termination, or such longer period as any plan, program, or arrangement may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those that would have been provided to them in accordance with the plans, programs, and arrangements described in Paragraph 4(c)(ii) if the Executive's employment had not been terminated, in accordance with the most favorable plans, programs, and arrangements of the Company as in effect and applicable generally to the Executive's peer executives of the Company and its affiliated companies and their families during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to the Executive's peer executives of the Company and its affiliated companies and their families; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (such continuation of such benefits for the applicable period herein set forth is hereinafter referred to as "Welfare Benefit Continuation") (for purpose of determining eligibility of the Executive for retiree benefits pursuant to such plans, programs, and arrangements, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period); and (3) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive's sole discretion; and (4) with respect to all options to purchase Common Stock held by the Executive pursuant to a Company stock option plan on or prior to the Date of Termination, irrespective of whether such options are then exercisable, the Executive shall have the right, during the 60-day period after the Date of Termination, to elect to surrender all or part of such options in exchange for a cash payment by the Company to the Executive in an amount equal to the number of shares of Common Stock subject to the Executive's option multiplied by the excess of (x) over (y), where (x) equals the highest reported sale price of a share of Common Stock in any transaction reported on the New York Stock Exchange during the 60-day period prior to and including the Executive's Date of Termination and (y) equals the purchase price per share covered by the option. Such cash payments shall be made within 30 days after the date of the Executive's election; provided, however, that if the Executive's Date of Termination is within six months after the date of grant of a particular option held by the Executive and the Executive is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any cash payments related thereto shall be made on the date which is six months and one day after the date of grant of such option to the extent necessary to prevent the imposition of the disgorgement provisions under Section 16(b). 9 13 Notwithstanding the foregoing, if any right granted pursuant to the foregoing would make any change of control transaction ineligible for pooling of interests accounting treatment under APB No. 16 that but for this Section 6(a)(iv) would otherwise be eligible for such accounting treatment, the Executive shall receive shares of Common Stock with a fair market value equal to the cash that would otherwise be payable hereunder in substitution for the cash, provided that any such shares of Common Stock so delivered to the Executive shall be registered under the Securities Act of 1933, as amended; any options outstanding as of the Date of Termination and not then exercisable shall become fully exercisable as of the Executive's Date of Termination, and to the extent the Executive does not elect to surrender same for a cash payment (or the equivalent number of shares of Common Stock) as provided above, such options shall remain exercisable after the Executive's Date of Termination in accordance with the terms thereof; and restrictions applicable to any shares of Common Stock awarded to the Executive by the Company shall lapse, as of the date of the Executive's Date of Termination; and (5) all club memberships and other memberships that the Company was providing for the Executive's use at the time Notice of Termination is given shall, to the extent possible, be transferred and assigned to the Executive at no cost to the Executive (other than income taxes owed), the cost of transfer, if any, to be borne by the Company; and (6) all benefits under the Noble Drilling Corporation 1991 Stock Option and Restricted Stock Plan and any other similar plans, including any stock options or restricted stock held by the Executive, not already vested shall be 100% vested, to the extent such vesting is permitted under the Code; and (7) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, or arrangement or contract or agreement of the Company and its affiliated companies (such other amounts and benefits hereinafter referred to as the "Other Benefits"). (2) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Term, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits and (ii) payment to the Executive's estate or beneficiaries, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount. With respect to the provision of Other Benefits, the term Other Benefits as used in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices, and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day 10 14 period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (3) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Term, this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits and (ii) payment to the Executive in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount. With respect to the provision of Other Benefits, the term Other Benefits as used in this Section 6(c) shall include, without limitation, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices, and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (4) Cause; Other Than for Good Reason or During the Window Period. If the Executive's employment is terminated for Cause during the Employment Term, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates the Executive's employment during the Employment Term, excluding a termination either for Good Reason or without any reason during the Window Period, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of the Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination subject to applicable laws and regulations. 11 15 7. Certain Additional Payments by the Company. (1) Notwithstanding any provision in this Agreement to the contrary and except as set forth below, if it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required pursuant to this Paragraph 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Paragraph 7(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to the Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (2) Subject to the provisions of Paragraph 7(c), all determinations required to be made under this Paragraph 7, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by PricewaterhouseCoopers (the "Accounting Firm") or, as provided below, such other certified public accounting firm as may be designated by the Executive, which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days after the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. If the Accounting Firm is serving as accountant or auditor for the individual, entity, or group effecting the Change of Control, the Executive shall have the option, in the Executive's sole discretion, to appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Paragraph 7, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. If the Company exhausts its 12 16 remedies pursuant to Paragraph 7(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (3) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment (or an additional amount of Gross-Up Payment) in the event the Internal Revenue Service seeks higher payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (1) give the Company any information reasonably requested by the Company relating to such claim; (2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including the acceptance of legal representation with respect to such claim by an attorney reasonably selected by the Company; (3) cooperate with the Company in good faith in order effectively to contest such claim; and (4) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Paragraph 7(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings, and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction, and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such 13 17 advance or with respect to any imputed income with respect to such advance; and provided further that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Paragraph 7(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Paragraph 7(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Paragraph 7(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 8. Representations and Warranties. (1) The Company represents and warrants to the Executive that the execution, delivery, and performance by the Company of this Agreement have been duly authorized by all necessary corporate action of the Company and do not and will not conflict with or result in a violation of any provision of, or constitute a default under, any contract, agreement, instrument, or obligation to which the Company is a party or by which it is bound. (2) The Executive represents and warrants to the Company that the execution, delivery, and performance by the Executive of this Agreement do not and will not conflict with or result in a violation of any provision of, or constitute a default under, any contract, agreement, instrument, or obligation to which the Executive is a party or by which the Executive is bound. 9. Confidential Information. The Executive recognizes and acknowledges that the Company's trade secrets and other confidential or proprietary information, as they may exist from time to time, are valuable, special, and unique assets of the Company's business, access to and knowledge of which are essential to the performance of the Executive's duties hereunder. The Executive confirms that all such trade secrets and other information constitute the exclusive property of the Company. During the Employment Term and thereafter without limitation of time, the Executive shall hold in strict confidence and shall not, directly or indirectly, disclose or reveal to any person, or use for the Executive's own personal benefit or for the benefit of anyone else, any trade secrets, confidential dealings, or other confidential or proprietary information of any kind, nature, or description (whether or not acquired, learned, obtained, or developed by the Executive alone or in conjunction with others) belonging to or concerning the Company or any of its affiliated companies, except (i) with the prior written consent of the Company duly authorized by its Board, (ii) in the course of the proper performance of the Executive's duties hereunder, (iii) for information 14 18 (x) that becomes generally available to the public other than as a result of unauthorized disclosure by the Executive or the Executive's affiliates or (y) that becomes available to the Executive on a nonconfidential basis from a source other than the Company or its affiliated companies who is not bound by a duty of confidentiality, or other contractual, legal, or fiduciary obligation, to the Company, or (iv) as required by applicable law or legal process. The provisions of this Paragraph 9 shall continue in effect notwithstanding termination of the Executive's employment hereunder for any reason. 10. Certain Definitions. (1) Effective Date. The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Paragraph 10(b)) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (2) Change of Control Period. The "Change of Control Period" shall mean the period commencing on the date of this Agreement and ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof herein referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate three years after such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. (3) Change of Control. For purposes of this Agreement, a "Change of Control" shall mean: (1) the acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subparagraph (c)(i) the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (z) any acquisition by any corporation pursuant to a reorganization, merger, or consolidation, if, following such reorganization, 15 19 merger, or consolidation, the conditions described in clauses (A), (B), and (C) of subparagraph (iii) of this Paragraph 10 (c) are satisfied; or (2) individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (3) consummation of a reorganization, merger, or consolidation of the Company, with or without approval by the stockholders of the Company, in each case, unless, following such reorganization, merger, or consolidation, (A) more than 50% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger, or consolidation, and any Person beneficially owning, immediately prior to such reorganization, merger, or consolidation, directly or indirectly, 15% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 15% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (C) a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, or consolidation; or (4) consummation of a sale or other disposition of all or substantially all the assets of the Company, with or without approval by the stockholders of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the 16 20 beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation, and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 15% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 15% or more of, respectively, the then outstanding shares of common stock of such corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (C) a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company; or (5) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 11. Full Settlement. (1) There shall be no right of set off or counterclaim against, or delay in, any payments to the Executive, or to the Executive's heirs or legal representatives, provided for in this Agreement, in respect of any claim against or debt or other obligation of the Executive or others, whether arising hereunder or otherwise. (2) In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. (3) The Company agrees to pay as incurred, to the full extent permitted by law, all costs and expenses (including attorneys' fees) that the Executive, or the Executive's heirs or legal representatives, may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive, or others of the validity or enforceability of, or liability under, any provision of this Agreement, or any guarantee of performance thereof (including as a result of any contest by the Executive, or the Executive's heirs or legal representatives, about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2) of the Code. 12. No Effect on Other Contractual Rights. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable to the Executive, or in any way diminish the Executive's rights as an employee of the Company, whether existing on the date of this Agreement or hereafter, under any employee benefit plan, program, or arrangement or other contract or agreement of the Company providing benefits to the Executive. 17 21 13. Indemnification; Directors and Officers Insurance. The Company shall (a) during the Employment Term and thereafter without limitation of time, indemnify and advance expenses to the Executive to the fullest extent permitted by the laws of the State of Delaware from time to time in effect and (b) during the Employment Term, acquire and maintain directors and officers liability insurance covering the Executive (and to the extent the Company desires, other directors and officers of the Company and its affiliated companies) to the extent it is available at commercially reasonable rates as determined by the Board; provided, however, that in no event shall the Executive be entitled to indemnification or advancement of expenses under this Paragraph 13 with respect to any proceeding, or matter therein, brought or made by the Executive against the Company other than one initiated by the Executive to enforce the Executive's rights under this Paragraph 13. The rights of indemnification and to receive advancement of expenses as provided in this Paragraph 13 shall not be deemed exclusive of any other rights to which the Executive may at any time be entitled under applicable law, the certificate of incorporation or bylaws of the Company, any agreement, a vote of stockholders, a resolution of the Board, or otherwise. The provisions of this Paragraph 13 shall continue in effect notwithstanding termination of the Executive's employment hereunder for any reason. 14. Injunctive Relief. In recognition of the fact that a breach by the Executive of any of the provisions of Paragraph 9 will cause irreparable damage to the Company for which monetary damages alone will not constitute an adequate remedy, the Company shall be entitled as a matter of right (without being required to prove damages or furnish any bond or other security) to obtain a restraining order, an injunction, an order of specific performance, or other equitable or extraordinary relief from any court of competent jurisdiction restraining any further violation of such provisions by the Executive or requiring the Executive to perform the Executive's obligations hereunder. Such right to equitable or extraordinary relief shall not be exclusive but shall be in addition to all other rights and remedies to which the Company may be entitled at law or in equity, including without limitation the right to recover monetary damages for the breach by the Executive of any of the provisions of this Agreement. 15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without regard to the principles of conflicts of laws thereof. 16. Notices. All notices, requests, demands, and other communications required or permitted to be given or made hereunder by either party hereto shall be in writing and shall be deemed to have been duly given or made (i) when delivered personally, (ii) when sent by telefacsimile transmission, or (iii) five days after being deposited in the United States mail, first class registered or certified mail, postage prepaid, return receipt requested, to the party for which intended at the following addresses (or at such other addresses as shall be specified by the parties by like notice, except that notices of change of address shall be effective only upon receipt): If to the Company, at: Noble Drilling Corporation 10370 Richmond Avenue, Suite 400 Houston, Texas 77042 Fax No.: 713-974-3181 Attention: Chief Executive Officer 18 22 If to the Executive, at: Robert D. Campbell 10370 Richmond Avenue, Suite 400 Houston, Texas 77042 Fax No.: 713-953-1126 17. Binding Effect; Assignment; No Third Party Benefit. (1) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and shall be enforceable by the Executive's legal representatives. (2) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (3) The Company shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of the Company, by agreement in writing in form and substance reasonably satisfactory to the Executive, expressly, absolutely, and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. As used in this Agreement, the "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Paragraph 17(c) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (4) Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties hereto, and their respective heirs, legal representatives, successors, and permitted assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement. 18. Miscellaneous. (1) Amendment. This Agreement may not be modified or amended in any respect except by an instrument in writing signed by the party against whom such modification or amendment is sought to be enforced. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Company to agree to modify, amend, or waive any provision of this Agreement or anything in reference thereto. (2) Waiver. Any term or condition of this Agreement may be waived at any time by the party hereto which is entitled to have the benefit thereof, but such waiver shall only be effective if evidenced by a writing signed by such party, and a waiver on one occasion shall not be deemed to be a waiver of the same or any other type of breach on a future occasion. No failure or delay by a 19 23 party hereto in exercising any right or power hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right or power. (3) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such federal, state, local, or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (4) Nonalienation of Benefits. The Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any payments or other benefits provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution. (5) Severability. If any provision of this Agreement is held to be invalid or unenforceable, (a) this Agreement shall be considered divisible, (b) such provision shall be deemed inoperative to the extent it is deemed invalid or unenforceable, and (c) in all other respects this Agreement shall remain in full force and effect; provided, however, that if any such provision may be made valid or enforceable by limitation thereof, then such provision shall be deemed to be so limited and shall be valid and/or enforceable to the maximum extent permitted by applicable law. (6) Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto concerning the subject matter hereof, and from and after the date of this Agreement, this Agreement shall supersede any other prior agreement or understanding, both written and oral, between the parties with respect to such subject matter. (7) Captions. The captions herein are inserted for convenience of reference only, do not constitute a part of this Agreement, and shall not affect in any manner the meaning or interpretation of this Agreement. (8) References. All references in this Agreement to Paragraphs, subparagraphs, and other subdivisions refer to the Paragraphs, subparagraphs, and other subdivisions of this Agreement unless expressly provided otherwise. The words "this Agreement", "herein", "hereof", "hereby", "hereunder", and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Whenever the words "include", "includes", and "including" are used in this Agreement, such words shall be deemed to be followed by the words "without limitation". Words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. 20 24 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Executive has executed this Agreement, as of the date first above set forth. NOBLE DRILLING CORPORATION By: /s/ JAMES C. DAY ----------------------------------------------- Name: James C. Day Title: Chairman and Chief Executive Officer "COMPANY" /s/ ROBERT D. CAMPBELL --------------------------------------------- Robert D. Campbell "EXECUTIVE" 21 EX-10.23 4 AMEND. TO 1991 STOCK OPTION&RESTRICTED STOCK PLAN 1 EXHIBIT 10.23 AMENDMENTS TO THE NOBLE DRILLING CORPORATION 1991 STOCK OPTION AND RESTRICTED STOCK PLAN Pursuant to the provisions of Section 15 thereof, the Noble Drilling Corporation 1991 Stock Option and Restricted Stock Plan, as amended and restated effective as of January 30, 1997, is hereby amended as follows: 1. The second sentence of Section 8 is hereby amended by restating it in its entirety to read as follows: "The option price for each Share covered by a Nonqualified Option shall not be less than the greater of (a) the par value of such Share or (b) 100 percent of the Fair Market Value of such Share at the time the Option is granted, except that the minimum option price may be equal to or greater than 85 percent of the Fair Market Value of such Share at the time the Option is granted if and to the extent the discount from Fair Market Value is expressly granted in lieu of a reasonable amount of salary or cash bonus." 2. Section 15 is hereby amended by (i) deleting the word "or" before the words "(b) reduce the option price" and (ii) adding the clause "or (c) permit the "repricing" of Options and any SARs that relate to such new Options in contravention of Section 18 of the Plan" after the words "in Section 8 of the Plan" and before the semicolon. 3. Section 18 is hereby amended by restating it in its entirety to read as follows: "Subject to the terms and conditions of and within the limitations of the Plan, the Committee may modify, extend or renew outstanding Options and any SARs that relate to such Options granted under the Plan. The Committee shall not have authority to accept the surrender or cancellation of any Options and any SARs that relate to such Options outstanding hereunder (to the extent not theretofore exercised) and grant new Options and any SARs that relate to such new Options hereunder in substitution therefor (to the extent not theretofore exercised) at an Option Price that is less than the Option Price of the Options surrendered or cancelled. Notwithstanding the foregoing provisions of this Section 18, no modification of an outstanding Option and any SARs that relate to such Option granted hereunder shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option and any SARs that relate to such Option theretofore granted hereunder to such Optionee, except as may be necessary, with respect to Incentive Options, to satisfy the requirements of Section 422(b) of the Code." 2 4. The first sentence of Section 20(b) of the Plan is hereby amended by adding the following to the end thereof: "; provided, however, that the minimum restriction period shall be three years from the date of award (one year in the case of Shares of Restricted Stock awarded with performance-based conditions); and provided further, that up to 50 percent of the Shares of Restricted Stock awarded under an Agreement that have not previously vested may be made subject to vesting annually commencing with the first anniversary of the award." IN WITNESS WHEREOF, these Amendments have been executed this 24th day of July, 1997. NOBLE DRILLING CORPORATION By /s/ JAMES C. DAY -------------------------------------- Name: James C. Day Title: Chairman, President and Chief Executive Officer 2 EX-12.1 5 STATEMENT RE COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12.1 NOBLE DRILLING CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollar Amounts in Thousands)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1998 1997 1996 1995 1994 ----------------- -------- -------- -------- -------- Earnings: Income before income taxes and extraordinary charge....................(1) $230,919 $379,613 $101,959 $ 4,866 $ 27,195 Add: Interest on indebtedness and amortization of debt expense and discount.......................... 5,181 12,894 18,758 12,156 12,351 Interest component of rent expense...... 1,314 2,128 1,668 731 457 Equity in losses of joint ventures...... 4,216 528 -- -- -- Minority interest....................... -- 256 428 214 169 -------- -------- -------- -------- -------- Earnings as adjusted.............. $241,630 $395,419 $122,813 $ 17,967 $ 40,172 ======== ======== ======== ======== ======== Fixed Charges: Interest on indebtedness and amortization of debt expense and discount.......................... $ 5,181 $ 12,894 $ 18,758 $ 12,156 $ 12,351 Capitalized interest.................... 17,200 4,218 -- -- -- Interest component of rent expense...... 1,314 2,128 1,668 731 457 -------- -------- -------- -------- -------- Fixed charges ........ $ 23,695 $ 19,240 $ 20,426 $ 12,887 $ 12,808 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges......(2) 10.2 20.6 6.0 1.4 3.1 ======== ======== ======== ======== ========
(1) Included in the 1997 amount is a non-recurring gain of $197,676,000 related to the sale of the Company's mat-supported jackup rigs. (2) Excluding a non-recurring gain of $197,676,000 related to the sale of the Company's mat-supported jackup rigs, the ratio of earnings to fixed charges for 1997 was 10.3. EX-21.1 6 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES The following table sets forth the subsidiaries of Noble Drilling Corporation as of March 3, 1999 excluding certain subsidiaries that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary (as defined in Rule 1-02 (W) of Regulation S-X as of December 31, 1998):
SUBSIDIARY NAME INCORPORATED OR ORGANIZED IN: - --------------- ----------------------------- Noble Drilling Asset Holding Corporation (1) Delaware Noble Drilling International Inc. (1) Delaware Noble Drilling Services Inc. (1) Delaware Noble Drilling (U.S.) Inc. (1) Delaware Noble Engineering & Development Limited (1) Cayman Islands Noble Properties, Inc. (1) Oklahoma Triton Engineering Services Company (1) Delaware Noble Drilling International (Cayman) Ltd. (2) Cayman Islands Noble Drilling (Canada) Ltd. (2) Alberta Mexico Drilling Partners Inc. (3) Nevada Noble Drilling (Jim Thompson) Inc. (3) Delaware Noble Drilling (Mexico) Inc. (3) Delaware Noble Drilling (Paul Romano) Inc. (3) Delaware Noble (Gulf of Mexico) Inc. (3) Delaware Triton Engineering Services Company, S.A. (4) Venezuela Triton International, Inc. (4) Delaware Triton Tool & Supply, Inc. (4) Texas Triton USA, Inc. (4) Delaware International Directional Services Ltd. (5) Bermuda Noble do Brasil S/C Ltda. (5) Brazil Nedstaff Ltd. (5) Hong Kong Noble Asset Company Limited (5) Cayman Islands Noble Asset (U.K.) Limited (5) Cayman Islands Noble Contracting GmbH (5) Switzerland Noble Drilling (Nederland) B.V. (5) The Netherlands Noble Drilling (Nigeria) Ltd. (5) Nigeria Noble Drilling (Paul Wolff) Ltd. (5) Cayman Islands Noble Drilling (TVL) Ltd. (5) Cayman Islands Noble Drilling (U.K.) Ltd. (5) U.K. Noble Drilling (West Africa) Ltd. (5) Cayman Islands Noble Drilling de Venezuela C.A. (5) Venezuela Noble Enterprises Limited (5) Cayman Islands Noble International Finance Company (5) Cayman Islands Noble International Limited (5) Cayman Islands Noble Mexico Limited (5) Cayman Islands Noble-Neddrill International Limited (5) Cayman Islands 372733 Alberta Inc. (6) Alberta Bawden Drilling Inc. (6) Delaware Bawden Drilling International Ltd. (6) Bermuda Drilhawk Service & Supply Ltd. (6) Alberta Noble International Services Ltd. (6) Bermuda Triton Drilling (Nigeria) Ltd. (7) Nigeria Triton International (Europe) Ltd. (7) U.K. Triton International de Mexico, S.A. de C.V. (7) Mexico
2 TSIA International (Antilles) N.V. (8) Antilles Arktik Drilling Limited, Inc. (9) Bahamas Nedstaff Europe Limited (10) U.K. Noble Drilling (Europe) Ltd. (10) Bermuda Noble Land Support Limited (10) U.K. Rigquip Ltd. (10) U.K. Noble Drilling International Ltd. (11) Bermuda Noble Drilling International Services Pte. Ltd. (11) Singapore Noble Drilling (Malaysia) Sdn. Bhd. (11) Malaysia Noble Drilling Arabia Limited (12) Saudi Arabia Resolute Insurance Group Ltd. (13) Bermuda Ilion, LLC (14) Delaware (1) 100% owned by Noble Drilling Corporation (2) 100% owned by Noble Drilling International Inc. (3) 100% owned by Noble Drilling (U.S.) Inc. (4) 100% owned by Triton Engineering Services Company (5) 100% owned by Noble Drilling International (Cayman) Ltd. (6) 100% owned by Noble Drilling (Canada) Ltd. (7) 100% owned by Triton International, Inc. (8) 100% owned by Noble Asset Company Limited (9) Joint venture (owned 41% by Noble Asset Company Limited) (10) 100% owned by Noble Drilling (U.K.) Ltd. (11) 100% owned by Noble Enterprises Limited (70% in the case of Noble Drilling (Malaysia) Sdn. Bhd.) (12) 100% owned by Noble International Limited (13) 100% owned by Bawden Drilling International Ltd. (14) Joint Venture (owned 50% by Noble Drilling (U.S.) Inc.)
EX-23.1 7 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-3289), Form S-8 (No. 33-15269), Form S-8 (No. 33-18966), Form S-8 (No. 33-46724), Form S-8 (No. 33-50270), Form S-8 (No. 33-50272), Form S-8 (No. 33-62394), Form S-8 (No. 33-57675), Form S-8 (No. 333-17407), Form S-8 (No. 333-25857), Form S-3 (No. 333-68507) and Form S-3 (No. 333-72059) of Noble Drilling Corporation of our report dated February 4, 1999 appearing on page 23 of this Form 10-K. PRICEWATERHOUSECOOPERS LLP Houston, Texas March 5, 1999 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 DEC-31-1998 211,012 0 148,778 610 5,133 438,209 1,968,114 318,981 2,178,632 349,489 460,842 0 0 13,376 1,297,097 2,178,632 0 788,241 0 456,481 101,989 0 5,181 230,919 68,887 0 0 0 0 162,032 1.24 1.23
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