It’s hard to conceive of a set of circumstances that could present themselves with such stealth and under such conditions so as to accelerate the decline of what we once referred to as a “Super Cycle.” The calamity that has befallen our world economic condition is so vast and deep that it has affected virtually every stone in the foundation of what is the global marketplace. As an international offshore drilling contractor with employees, operations and shareholders in every corner of the world, we have clearly suffered along with the rest and the loss of value reflected in our share price is a stark reminder that we are not immune from the effects of global economies.

However, as a participant in one of the world’s most volatile industries, managing the downside is a significant part of what we do. Knowing that every up-cycle leads to an inevitable and corresponding decline allows for time to anticipate and, therefore, in spite of the current economic environment, Noble is in outstanding financial condition. Understanding our markets and embracing the cyclicality that is inherent in our business is one of the key tenets of successfully managing a business that ebbs and flows as a result of conditions far outside our control. The recognition of this fact of life is clearly reflected in the strength of our performance, balance sheet, liquidity, workforce and customer base.

As we enter this period of uncertainty and navigate through the uncharted economic waters that lay ahead, the question we must all ask is whether we abandon the strategy that got us here, or do we stay the course? The fact is, the months ahead may highlight our strengths far better than the most recent period of industry growth and prosperity, and therefore, I believe the answer is clear. While the world is adjusting to a new economic order, we can go forward with the confidence that comes from the understanding that this turn of the cycle, while well disguised, was inevitable, and our Company is prepared for the changes and exhilarated about the possibilities that await us.

Our course remains certain and centers on continuous improvement in our safety performance, managing our costs, strengthening our customer relationships and searching out and capitalizing on emerging opportunities that further our goals. While we anticipate 2009 will be a challenging year, our key performance indicators from 2008 show we are up to the task.

Above all other achievements in 2008, our most important accomplishment is a 30 percent year-over-year improvement in safety, as measured by the Total Recordable Incident Rate (TRIR). Our colleagues offshore should be extremely pleased about this dramatic improvement in performance and I congratulate all who committed themselves to this effort. Furthermore, we delivered our highest revenue and strongest profit performance ever, with revenues from contract drilling services during 2008 of $3.3 billion, up 22 percent from 2007. This led to margin expansion and, at 70 percent for 2008, Noble’s margins remained among the highest in our peer group. We achieved this by continuing to aggressively manage our costs, strive for efficiencies and drive performance throughout the fleet. Solid increases in net income drove strong EPS growth, with 2008 diluted earnings per share up 31 percent from 2007.

Noble consistently generates strong cash flow and 2008 was no exception, coming in at $1.9 billion, an increase of 34 percent from the previous year. Being focused on the future, we invested much of this in expanding and upgrading our fleet, including the three newbuild semis and one newbuild jackup scheduled to be delivered this year. We also funded the early phases of construction of our Globetrotter drillship, a revolutionary addition to our fleet to be delivered in 2011.

In total, we invested more than $1.2 billion in capital expenditures during 2008 and returned a record $558 million to you in 2008: $314 million through share repurchases and $244 million through special and quarterly cash dividends, a higher percentage of net earnings than in any year in our history.

Being able to focus in a world of countless distractions and execute through change is one of the things that sets companies apart. At Noble, we have the strategy, the will and the strength to continue to drive performance through the global turmoil that surrounds us. We enter 2009 with great momentum and a strong foundation in the form of our $11.5 billion of contract backlog at year-end. This backlog, backed up by some of the most active national oil companies and some of the strongest major and independent oil companies, provides us with the flexibility and strength to not only weather this period of uncertainty, but also to prosper and grow. As Noble has done before, we again have the potential to use our strength to the advantage of our shareholders by considering the possibilities that may become available in the future to grow our fleet and expand our footprint.

With assets in many of the world’s major oil producing regions, we have stability derived from a broad and diverse customer base. This is not to say that our customers are immune to the headwinds presented by a cooling global economy - no company is. While no one can predict with certainty where dayrates will settle, we have the flexibility needed to deal with changes in the near-term market and position ourselves to take advantage of the next inevitable turn in the cycle.

Looking ahead, it is a market reality that lower near-term commodity pricing can impact activity, particularly in shallow and midwater prospects, and we expect this to be the case in 2009. In deepwater, the portion of the market where we are continuing to grow our fleet, operators traditionally take a more long-term view. In 2008, for example, we drilled and completed a well on acreage acquired by the operator in 1996, setting a new world water-depth completion record in about 9,400 feet of water. Such projects are not based on short term pricing, but rather reflect the true timeline governing deepwater drilling.

Access to credit may constrain some operators, and to a greater extent, some speculative newbuild players. We do not see this obstacle as a particular limitation for Noble. With the $250 million raised late last year, we had over $1 billion of liquidity available at year end, including our $600 million credit facility. Our strong financial condition could provide the necessary capital to add additional assets to the fleet under terms that probably wouldn’t be available if not for the financial crisis in the world today. Whether or not these opportunities avail themselves remains to be seen, but if they do, and if they provide sufficient benefit to shareholders, we have the strength to act.

Staying the course does not mean that we are resistant to change, but rather holding fast to the ideas and values that transcend cycles. As a result, our team continues to strive for operational excellence, making changes when and where needed. Uppermost on this list is safety, where the personal goal and responsibility of every team member is to make Noble’s workplace incident-free. Developing and training our employees is critical and we are making improvements in the way we deliver these services. Improving on our past success in cost containment through more cohesive purchasing management is a company-wide objective. We are also committed to delivering top-flight shipyard project execution in order to meet our customers’ expectations. We will not allow the distractions of the current economy to divert our attention from these core determinants of success.

With your overwhelming support, we recently changed the place of incorporation of the publicly traded parent of the Noble group from the Cayman Islands to Switzerland. The global reputation of Switzerland for financial and political stability better suits the Company’s increasingly global profile and this complements our other strengths and helps preserve our competitive position within the international offshore drilling industry.

Predictions in this environment are risky at best, but I have confidence in the cycles and believe exciting and rewarding days for Noble are ahead. Our 88 year history of growth illustrates our will to act opportunistically, when it makes sense. This is the way Noble was built, and we will stay true to that course. We’ll continue our efforts in safety, keep our costs under control, work hard to protect our margins and be disciplined in our valuation of opportunities. We are excited by the possibilities we see ahead in 2009 and you have our promise to continue to make this remarkable enterprise a leader in the offshore industry.

David W. Williams
Chairman, President and
Chief Executive Officer