Fitch Ratings has affirmed the Issuer Default Rating (IDR) and senior unsecured ratings for Noble Corp. (Noble; NYSE: NE) at 'A-'. In addition, Fitch has assigned an 'A-' rating to Noble's senior unsecured notes being offered today. The Rating Outlook is revised to Negative from Stable.

Today's announced debt offering follows a number of other recent announcements by the company regarding additional newbuilds and contract changes to address weak market conditions and operational issues. Despite high oil prices, offshore market conditions remain weak as a result of continued delays in the U.S. Gulf of Mexico (GoM) despite the official ending to the drilling moratorium in late 2010. Delays in issuing drilling permits combined with continued regulatory uncertainty are causing offshore drilling contractors to seek work outside the U.S. GoM which is driving higher downtime due to rig relocations and pressuring dayrates in other international deepwater basins. Noble is further impacted by continued uncertainty in Mexico and the resulting weak market conditions that persist in that market.

Proceeds from the debt offering are expected to be used to repay outstanding Bully joint venture (JV) debt (approximately $690 million of consolidated debt of which Noble was responsible for 50%) and to fund free cash flow (FCF) shortfalls in 2011. As a result of the current debt offering and other recent announcements by Noble, the company is expected to see further deterioration to its credit profile in 2011. Noble is expected to generate sizable negative FCF during 2011 due to expanded newbuild capital expenditures combined with weaker than anticipated operating cash flows. Operating cash flows and EBITDA will be depressed as a result of rig relocations, contract cancellations, and lower dayrates and increased downtime across the fleet. Credit metrics are expected to be weaker than levels consistent with the current rating category in 2011, with significant deterioration during the first half of the year followed by expectations of a general improvement during the second half of the year.

Improved activity levels in the U.S. GoM and the Mexican GoM, combined with delivery of newbuilds and reduced rig relocations in 2012 should support further improvements in the company's credit profile with credit metrics returning to levels more consistent with the rating category (debt/EBITDA below 2.0 times [x]).

An inability to reduce leverage below 2.0x would be a key catalyst for a downgrade from current rating levels. This could result from continued uncertainty/weak market conditions in the U.S. GoM, continued weak market conditions in Mexico or from additional operational issues across the Noble fleet. Other catalysts for a downgrade could stem from additional contract cancellations/renegotiations which pressure EBITDA and cash flows, the potential for additional newbuild announcements and from a leveraging corporate M&A transaction. Noble's Board of Directors has authorized share repurchases for which 6.8 million shares ($243 million) remain available for repurchase; however, Fitch would expect management to fund repurchases out of excess cash flows and therefore not result in additional balance sheet debt.

Fitch would also note the potential for future borrowings if Noble should look to acquire Shell's 50% equity stake in the Bully JV at some point in the future. The ultimate timing, amount and form of consideration given for the stake will determine rating implications from the potential transaction. It is important to note that a portion of the proceeds from today's announced bond offering are expected to be targeted at repayment of the Bully JV debt. The JV debt ranked senior to Noble's senior unsecured debt relative to cash flows from the Bully rigs.

Noble's credit profile continues to benefit from a high-grading of the company's fleet and expanding presence in the deepwater market. Improvements in the company's fleet profile stem from delivery of previously announced newbuilds, the company's 2010 acquisition of FDR Holdings Limited (Frontier) and as a result of four additional newbuild announcements. The Noble fleet continues to benefit from operational and geographical diversification, high margin levels, management's strong cost control focus, a robust $12.7 billion contract revenue backlog and the company's strong safety record.

Longer-term risks to Noble's credit profile stem primarily from weaker industry conditions (particularly as a result of the increase in supply of speculative newbuild rigs associated with the most recent newbuild cycle underway), and the potential for additional debt to fund acquisitions, asset purchases or shareholder friendly activities. Additionally, share repurchase activity would be expected to remain low until 2012 when the company begins generating positive FCF levels due to the increased capital expenditures for newbuilds and the presumed completion of the de-facto drilling moratorium.

It is important to note that a key risk for the sector remains falling oil prices. Oil prices have rallied from the early 2009 lows and currently trade above Fitch's long-term expectations for the commodity ($60/barrel). Based on the current global economic environment and the resulting supply/demand fundamentals, Fitch believes prices have room to pull back from current levels which could result in reduced oil drilling activity and further pressure the outlook for the drilling and service sector. Additionally, natural gas prices remain low and are not expected to increase dramatically in 2011 and 2012. Fitch will continue to monitor both individual company performance and industry conditions for rating implications should either oil or natural gas prices fall significantly below Fitch's long-term price expectations.

Noble maintains liquidity from cash and equivalents ($337.9 million at Dec. 31, 2010), its $600 million credit facility ($560 million available at Dec. 31, 2010) and operating cash flows ($1.7 billion for the year ending Dec. 31, 2010). Noble has no debt maturities until the June 2013 maturity of the company's 5.875% senior notes. The company's senior unsecured credit facility matures in March 2013. The company's only financial covenant is a 60% limit on maximum debt-to-total tangible capitalization which is in its senior unsecured credit facility (note that the current transaction is expected to result in debt-to-capitalization remaining under 30%). Limitations on additional liens are restricted to a maximum of 10% of consolidated tangible net worth. None of the company's senior unsecured notes contain financial covenants.

On Jan. 26, 2011, Noble reported its full-year 2010 financial results. In 2010, Noble generated EBITDA of $1.46 billion, a decrease of more than 40% over 2009, while debt balances increased by over $2.02 billion to end the year at $2.77 billion following the company's acquisition of Frontier during the year. Credit metrics weaken as a result and Noble finished the year with debt-to-EBITDA of 1.9x and interest coverage of 15.8x. FCF remained positive despite significantly higher levels of capital expenditures during the year ($148.8 million in FCF) and resulted in Noble ending the year with $337.9 million in cash despite continued share repurchases and higher dividends. Capital expenditures are expected to be approximately $2.1 billion in 2011, which includes $1.2 billion for the company's newbuild program. Because of the high level of capital expenditures planned for 2011, combined with weaker expected operating cash flows, Noble is expected to generate significant negative FCF for the year.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' dated Aug. 13, 2010;

--'Liquidity Considerations for Corporate Issuers' dated June 12, 2007;

--'Evaluating Corporate Governance' dated Dec. 16, 2010.

Applicable Criteria and Related Research:

Evaluating Corporate Governance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=581405

Liquidity Considerations for Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

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