The following discussion is intended to assist you in understanding our financial position at September 30, 2008, and our results of operations for the three and nine months ended September 30, 2008 and 2007. The following discussion should be read in conjunction with the consolidated financial statements and related notes contained in this report on Form 10-Q and the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007.
Beginning in the fourth quarter of 2007, we report our international and domestic contract drilling operations as a single reportable segment: Contract Drilling Services. The consolidation into one reportable segment reflects how we manage our business, and the fact that all of our drilling fleet is dependent upon the worldwide oil industry. The mobile offshore drilling units comprising our offshore rig fleet operate in a single, global market for contract drilling services and are often redeployed globally due to changing demands of our customers, which consist largely of major international and government owned/controlled oil and gas companies throughout the world. The "Other" category in our segment-based discussions includes the results of labor contract drilling services, engineering and consulting services, other insignificant operations and corporate related items. All prior year information has been reclassified to conform to the current year presentation of segments. See Note 11 of our Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and
Section 21E of the U.S. Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, backlog, plans and objectives of management for future operations, foreign currency requirements, industry conditions, and indebtedness covenant compliance are forward-looking statements. When used in this report, the words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "project," "should" and similar expressions are intended to be among the statements that identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. These forward-looking statements speak only as of the date of this report on Form 10-Q and we undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law. We have identified factors that could cause actual plans or results to differ materially from those included in any forward-looking statements. These factors include those referenced or described in "Item 1A. Risk Factors" of Part II included herein, and in our other filings with the U.S. Securities and Exchange Commission ("SEC"). We cannot control such risk factors and other uncertainties, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. You should consider these risks and uncertainties when you are evaluating us.
EXECUTIVE OVERVIEW
We are a leading offshore drilling contractor for the oil and gas industry. We perform contract drilling services with our fleet of 63 offshore drilling units located worldwide, including the Middle East, India, the U.S. Gulf of Mexico, Mexico, the North Sea, Brazil, and West Africa. Our fleet count includes five rigs currently under construction.
Economic Outlook
The global financial crisis created an environment of uncertainty during the third quarter of 2008 that has continued in the fourth quarter of 2008, and it has raised concerns that the worldwide economy may enter into a prolonged recessionary period. Deterioration in the worldwide economy could result in reduced demand for crude oil and natural gas, exploration and production activity and demand for offshore drilling services. The financial crisis has created significant reductions in available capital and liquidity from banks and other providers of credit, which may limit our access to capital used to fund operations and capital expenditures in the future and may adversely affect our customers' and lenders' ability to fulfill their obligations to us. Other possible negative impacts include a decline in dayrates for new contracts and a slowing in the pace of new contract activity.

Demand for our drilling services generally 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 various governments regarding exploration and development of their oil and gas reserves. Demand for our services is also a function of the worldwide supply of mobile offshore drilling units. Industry sources report that 19 newbuild jackup rigs and five new deepwater newbuilds entered service during the first nine months of 2008, and a total of 52 newbuild jackups and 35 deepwater newbuilds are reportedly scheduled to enter service worldwide during the remainder of 2008 and 2009. Many of these rigs are being built by market speculators, and while a majority of the deepwater rigs have secured commitments, more than half of the newbuild jackups are currently not contracted. The introduction of non-contracted rigs into the marketplace could have an adverse affect on the level of demand for our services or the dayrates we are able to achieve.
Our results of operations depend on the levels of activity in offshore oil and gas exploration, development and production in markets worldwide. Historically, oil and gas prices and market expectations of potential changes in these prices have significantly affected that level of activity. Generally, higher oil and natural gas prices or our customers' expectations of higher prices result in a greater demand for our services. These prices are extremely volatile. We cannot predict the future level of demand for our drilling services or future conditions in the offshore contract drilling industry. Decreases in the level of demand for our drilling services or increases in the supply of drilling rigs into the market could have an adverse effect on our results of operations. Results and Strategy
In the third quarter of 2008, we recognized net income of $383 million, or $1.43 per diluted share, on total revenues of $862 million. The average dayrate across our worldwide fleet increased to $177,683 from $167,002 in the second quarter of 2008. Fleetwide average utilization was 90 percent in the third quarter of 2008 and 90 percent in the prior quarter. Daily contract drilling services costs decreased to $53,979 for the third quarter of 2008 from $54,674 for the second quarter. As a result, our contract drilling services margin increased to 70 percent from 67 percent in the second quarter of 2008.
Our long-standing business strategy continues to be the active expansion of our worldwide offshore drilling and deepwater capabilities through acquisitions, upgrades and modifications, and the deployment of our drilling assets in important geological areas. We have also actively expanded our offshore drilling and deepwater capabilities in recent years through the construction of new rigs. During the third quarter of 2008, we continued our active expansion strategy as indicated by the following activities:
• we continued construction on three newbuild ultra-deepwater semisubmersibles, the Noble Dave Beard, Noble Danny Adkins and Noble Jim Day, which are scheduled for delivery in the first quarter of 2009, the second quarter of 2009 and the fourth quarter of 2009, respectively;

• we completed construction and took delivery of the F&G JU-200E enhanced premium independent leg cantilevered jackup, the Noble Hans Deul;

• we continued construction on the F&G JU-2000E enhanced premium independent leg cantilevered jackup, Noble Scott Marks, which is scheduled for delivery in the second quarter of 2009; and

• we entered into agreements for the construction of a new, dynamically positioned, ultra-deepwater, harsh environment Globetrotter-class drillship capable of working in up to 10,000 feet of water, which is scheduled to be delivered in the second half of 2011.

Newbuild capital expenditures during the three and nine months ended September 30, 2008 totaled $252 million and $563 million, respectively.

CONTRACT DRILLING SERVICES BACKLOG
We maintain a backlog (as defined below) of commitments for contract drilling
services. The following table sets forth as of September 30, 2008 the amount of
our contract drilling services backlog and the percent of available operating
days committed for the periods indicated:

                                                                              Year Ending December 31,
                                     Total           2008(1)          2009             2010             2011           2012-2016
                                                                          (In thousands)
Contract Drilling Services
Backlog
Semisubmersibles/Drillships(2)    $  9,182,000      $ 384,000      $ 1,760,000      $ 2,005,000      $ 1,676,000      $ 3,357,000
Jackups/Submersibles(3)              2,923,000        523,000        1,767,000          505,000          128,000                -

Total(4)                          $ 12,105,000      $ 907,000      $ 3,527,000      $ 2,510,000      $ 1,804,000      $ 3,357,000


Percent of Available Operating
Days Committed (5)                                         92 %             74 %             39 %             23 %              8 %

(1) Represents a three-month period beginning October 1, 2008.

(2) Our drilling contracts with Petroleo Brasileiro S.A. ("Petrobras") provide an opportunity for us to earn performance bonuses based on absence of downtime experienced for our rigs operating offshore Brazil. With respect to our semisubmersibles operating offshore Brazil, we have included in our backlog an amount equal to 75 percent of potential performance bonuses for such semisubmersibles, which amount is based on and consistent with our historical earnings of performance bonuses for these rigs. With respect to our drillships operating offshore Brazil, we (a) have not included in our backlog amounts any performance bonuses for periods prior to the commencement of certain upgrade projects planned for 2010 and 2011, which projects are designed to enhance the reliability and operational performance of our drillships, and (b) have included in our backlog amounts an amount equal to 75 percent of potential performance bonuses for periods after the estimated completion of such upgrade projects. Our backlog amount for semisubmersibles/drillships includes approximately $346 million attributable to these performance bonuses.

(3) Our drilling contracts with Pemex Exploracion y Produccion ("Pemex") for certain jackups operating offshore in Mexico are subject to price review and adjustment of the rig dayrate. Presently, contracts for five jackups have dayrates indexed to the world average of the highest dayrates published by ODS-Petrodata. After an initial firm dayrate period, the dayrates are generally adjusted quarterly based on formulas calculated from the index. Our contract drilling services backlog has been calculated using the September 30, 2008 index-based dayrates for periods subsequent to the initial firm dayrate period.

(4) Pemex has the ability to cancel early its drilling contracts with us on 30 days or less notice without Pemex making an early termination payment. We currently have 12 rigs contracted to Pemex in Mexico, and our backlog includes approximately $1.6 billion related to such contracts at September 30, 2008.

(5) Percentages take into account additional capacity from the estimated dates of deployment of our newbuild rigs that are scheduled to commence operations during the balance of 2008 and 2009.

Our contract drilling services backlog consists of commitments we believe to be firm. Our contract drilling services backlog reported above reflects estimated future revenues attributable to both signed drilling contracts and letters of intent. A letter of intent is generally subject to customary conditions, including the execution of a definitive drilling contract. If worldwide economic conditions continue to deteriorate, it is possible that some customers that have entered into letters of intent will not enter into signed drilling contracts. We calculate backlog for any given unit and period by multiplying the full contractual operating dayrate for such unit by the number of days remaining in the period. The reported contract drilling services backlog does not include amounts representing revenues for mobilization, demobilization and contract preparation, which are not expected to be significant to our contract drilling services revenues, amounts constituting reimbursables from customers or amounts attributable to uncommitted option periods under drilling contracts or letters of intent.
The amount of actual revenues earned and the actual periods during which revenues are earned may be different than the backlog amounts and backlog periods set forth in the table above due to various factors, including, but not limited to, shipyard and maintenance projects, unplanned downtime, weather conditions and other factors that result in applicable dayrates lower than the full contractual operating dayrate. In addition, amounts included in the backlog may change because drilling contracts may be varied or modified by mutual consent or customers may exercise early termination rights contained in some of our drilling contracts or decline to enter into a drilling contract after executing a letter of intent. As a result, our backlog as of any particular date may not be indicative of our actual operating results for the subsequent periods for which the backlog is calculated.

INTERNAL INVESTIGATION
In June 2007, we announced that we were conducting an internal investigation of our Nigerian operations, focusing on the legality under the U.S. Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"), and local laws of our Nigerian affiliate's reimbursement of certain expenses incurred by our customs agents in connection with obtaining and renewing permits for the temporary importation of drilling units and related equipment into Nigerian waters, including permits that are necessary for our drilling units to operate in Nigerian waters. We also announced that the audit committee of Noble's Board of Directors had engaged a leading law firm with significant experience in investigating and advising on FCPA matters to lead the investigation as independent outside counsel. The scope of the investigation also includes our dealings with customs agents and customs authorities in certain parts of the world other than Nigeria in which we conduct our operations, as well as dealings with other types of local agents in Nigeria and such other parts of the world. There can be no assurance that evidence of additional potential FCPA violations may not be uncovered through the investigation.
The audit committee commissioned the internal investigation after our management brought to the attention of the audit committee a news release issued by another company. The news release disclosed the other company was conducting an internal investigation into the FCPA implications of certain actions by a customs agent in Nigeria in connection with the temporary importation of that company's vessels into Nigeria. Our drilling units that conduct operations in Nigeria do so under temporary import permits, and management considered it prudent to review our own practices in this regard.
We voluntarily contacted the SEC and the U.S. Department of Justice ("DOJ") to advise them that an independent investigation was underway. We have been cooperating, and intend to continue to cooperate, fully with both agencies. If the SEC or the DOJ determines that violations of the FCPA have occurred, they could seek civil and criminal sanctions, including monetary penalties, against us and/or certain of our employees, as well as additional changes to our business practices and compliance programs, any of which could have a material adverse effect on our business or financial condition. In addition, such actions, whether actual or alleged, could damage our reputation and ability to do business, to attract and retain employees, and to access capital markets. Further, detecting, investigating, and resolving such actions is expensive and consumes significant time and attention of our senior management.
The independent outside counsel appointed by the audit committee to perform the internal investigation recently made a presentation of the results of its investigation to the DOJ and the SEC. The SEC and the DOJ have begun to review these results and information gathered by the independent outside counsel in the course of the investigation. Neither the SEC nor the DOJ has indicated what action it may take, if any, against us or any individual, or whether it may request that the audit committee's independent outside counsel conduct further investigation. Therefore, we consider the internal investigation to be ongoing and cannot predict when it will conclude. Furthermore, we cannot predict whether either the SEC or the DOJ will open its own proceeding to investigate this matter, or if a proceeding is opened, what potential remedies these agencies may seek. We could also face fines or sanctions in relevant foreign jurisdictions. Based on information obtained to date in our internal investigation, we have not determined that any potential liability that may result is probable or remote or can be reasonably estimated. As a result, we have not made any accrual in our consolidated financial statements at September 30, 2008.
We are currently operating four jackup rigs offshore Nigeria under extensions of temporary import permits that allow the rigs to remain in Nigeria through November 28, 2008. We continue to seek to avoid material disruption to our Nigerian operations; however, there can be no assurance that we will be able to obtain new permits or further extensions of permits necessary to continue the operation of our rigs in Nigeria after expiration of the current terms of the temporary import permits. If we cannot obtain a new permit or an extension necessary to continue operations of any rig, we may need to cease operations under the drilling contract for such rig and relocate such rig from Nigerian waters. We cannot predict what impact this may have on any such contract or our business in Nigeria. Furthermore, we cannot predict what changes, if any, relating to temporary import permit policies and procedures may be established or implemented in Nigeria in the future, or how any such changes may impact our business there.
Notwithstanding that the internal investigation is ongoing, we have concluded that certain changes to our FCPA compliance program would provide us greater assurance that our assets are not used, directly or indirectly, to make improper payments, including customs payments, and that we are in compliance with the FCPA's record-keeping requirements. Although we have had a long-standing published policy requiring compliance with the FCPA and broadly prohibiting any improper payments by us to foreign or domestic officials, we have adopted additional measures intended to enhance FCPA compliance procedures. Further measures may be required once the investigation concludes.

RESULTS OF OPERATIONS
For the Three Months Ended September 30, 2008 and 2007 General
Net income for the three months ended September 30, 2008 (the "Current Quarter") was $383 million, on operating revenues of $862 million, compared to net income for the three months ended September 30, 2007 (the "Comparable Quarter") of $318 million, on operating revenues of $791 million. Rig Utilization, Operating Days and Average Dayrates Operating revenues and operating costs and expenses for our contract drilling services segment are dependent on three primary metrics - rig utilization, operating days and dayrates. The following table sets forth the average rig utilization, operating days and average dayrates for our rig fleet for the three months ended September 30, 2008 and 2007:

                         Average Rig
                       Utilization(1)                 Operating Days(2)                       Average Dayrates
                     Three Months Ended               Three Months Ended                     Three Months Ended
                        September 30,                   September 30,                          September 30,
                                                                          %                                        %
                      2008           2007       2008        2007        Change        2008          2007         Change
Jackups                     91 %        95 %     3,444       3,532           -2 %   $ 150,350     $ 126,342           19 %
Semisubmersibles
>6,000'(3)                  95 %        99 %       613         636           -4 %     329,586       282,807           17 %
Semisubmersibles
<6,000'(4)                 100 %       100 %       276         276            - %     237,674       178,403           33 %
Drillships                  67 %        87 %       184         241          -24 %     214,758       130,019           65 %
Submersibles                67 %        68 %       184         188           -2 %      55,117        63,812          -14 %

Total                       90 %        94 %     4,701       4,873           -4 %   $ 177,683     $ 147,501           20 %

(1) Information reflects our policy of reporting on the basis of the number of actively marketed rigs in our fleet excluding newbuild rigs under construction.

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

(3) These units have water depth ratings of 6,000 feet or greater.

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

Contract Drilling Services
The following table sets forth the operating revenues and the operating costs
and expenses for our contract drilling services segment for the three months
ended September 30, 2008 and 2007:

                                            Three Months Ended
                                               September 30,                 Change
                                            2008          2007            $           %

   Operating Revenues:
   Contract drilling services             $ 835,198     $ 718,756     $ 116,442         16 %
   Reimbursables (1)                         17,227        24,234        (7,007 )      -29 %
   Other                                         94           401          (307 )      -77 %

                                          $ 852,519     $ 743,391     $ 109,128         15 %


   Operating Costs and Expenses:
   Contract drilling services             $ 253,729     $ 227,276     $  26,453         12 %
   Reimbursables (1)                         15,604        20,820        (5,216 )      -25 %
   Other                                          -             7            (7 )     -100 %
   Depreciation and amortization             90,923        75,627        15,296         20 %
   Selling, general and administrative       15,886        24,112        (8,226 )      -34 %
   Hurricane losses and recoveries, net      10,000         1,600         8,400        525 %

                                            386,142       349,442        36,700         11 %

   Operating Income                       $ 466,377     $ 393,949     $  72,428         18 %

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

Operating Revenues. Contract drilling services revenue increases for the Current Quarter as compared to the Comparable Quarter were primarily driven by increases in average dayrates. Average dayrates increased revenues approximately $147 million, while fewer operating days reduced revenues approximately $31 million.
Average dayrates increased 20 percent in the Current Quarter as compared to the Comparable Quarter. Higher average dayrates were received across all rig categories, except for our submersible rigs, which were impacted by weakening demand in the shallow waters of the U.S. Gulf of Mexico. The decrease in operating days in the Current Quarter as compared to the Comparable Quarter was primarily due to downtime of certain rigs in the Current Quarter. Unpaid shipyard days increased 32 days in the Current Quarter as compared to the Comparable Quarter, as the Noble Roy Butler, Noble Max Smith and Noble George McLeod each spent time in the shipyard during the Current Quarter for rig modifications and regulatory inspections, and the Noble Roger Eason is completing repairs for fire damage suffered in November 2007. Additionally, the Noble Fri Rodli, Noble Don Walker, Noble Roy Butler and Noble Carl Norberg spent an aggregate of 267 days stacked during the Current Quarter. The aggregate number of stacked days in the Comparable Quarter was 63 days. These decreases in operating days were partially offset by increased operating days of 64 days for the enhanced premium jackup Noble Roger Lewis, which was added to the fleet in September 2007.
Operating Costs and Expenses. Contract drilling services operating costs and expenses increased 12 percent for the Current Quarter over the Comparable Quarter. Newbuild rigs, including the recently completed Noble Roger Lewis, added $4 million of operating costs in the Current Quarter. Excluding the effect of these rigs, our labor costs increased $14 million in the Current Quarter over the Comparable Quarter due to higher compensation, including retention programs designed to retain key rig and operations personnel. The remaining $8 million of the operating cost increase in the Current Quarter over the Comparable Quarter was primarily due to increases in costs of daily rig operations, including a $5 million increase in maintenance expenses and a $2 million increase in crew rotation costs.
The increase in depreciation and amortization in the Current Quarter over the Comparable Quarter was primarily due to depreciation on newbuilds added to the fleet and additional depreciation related to other capital expenditures on our fleet since the Comparable Quarter.

Selling, general and administrative expenses decreased $8 million in the Current Quarter as compared to the Comparable Quarter. The decrease between periods was primarily driven by a $3 million reduction in costs incurred in the internal . . .