Contract drilling company Noble Corporation (NE) has reported second quarter 2011 earnings of 17 cents per share (excluding one-time items), failing to meet the Zacks Consensus Estimate of 27 cents and falling steeply from the adjusted year-earlier profit of 93 cents. Disruption of services at five rigs during the quarter was the chief reason for this underperformance.
Total revenue in the quarter plunged more than 11% to $628 million from $709.9 million in the comparable quarter last year. Contract Drilling Services revenue was $589.6 million, down approximately 14% on an annualized basis.
Operating Highlights
Total operating income in the quarter plummeted more than 70% year over year to $79.0 million. Operating income from the Contract Drilling segment also plunged 71.3%.
Total rig utilization was 70% compared with 80% in the year-ago quarter. Overall average dayrate was $140,296 versus $156,683 in the year-ago quarter.
Average dayrate for semisubmersible rigs registered an approximately 18% year-over-year decrease to $269,798. Average capacity utilization was 85% versus 94% in the year-ago period. Drillships experienced an average dayrate of $220,953 versus $242,045 in the year-ago quarter, while average capacity utilization was 58% versus 67% in the comparable quarter last year.
Average dayrate for the company’s jackups was $80,742 compared with $96,677 in the year-ago quarter. Average capacity utilization decreased to 71% from the year-ago level of 81%.
Financials
At the end of the second quarter, the company had a cash balance of $230.9 million and long-term debt of $3,521.8 million with debt-to-capitalization ratio of 32.8%. During the quarter, Noble invested $815 million in capital projects.
Our Take
Following the suspension of the moratorium in the U.S. GoM, companies in the offshore oil industry are trying to enhance their deepwater assignments. Additionally, offshore drillers are experiencing improved market conditions with an uptrend in oil prices and better bidding activity.
Likewise, as a contract drilling company, Noble is also making constant efforts to make the most of the scenario by expanding and upgrading its ultra-deepwater rig fleet. One of the deepwater rigs has also started receiving its full daily rate this month.
Moreover, the Switzerland-based company is trying hard to upgrade its fleet, by building seven deepwater rigs and four shallow-water jackups. This will in turn transform Noble into one of the industry’s most modern and capable offshore drilling contractors.
Again, Noble is also expected to benefit from improvements in international jackup markets, such as Mexico and the Middle East. Hence, we believe the upturn in the international jackup market along with permission in the GoM will aid the company’s growth ahead.
We see long-term earnings and cash flow visibility in the company’s solid backlog position, which will be enhanced by the recent agreement for newbuilds. The company’s backlog as of June 30, 2011, stood at $13 billion.
However, we remain apprehensive about the ripple effects of the Gulf of Mexico drill ban as well as the scheduled downtime during the reported quarter. Tough competition from its larger peers such as Transocean Ltd. (RIG) and Diamond Offshore Drilling Inc. (DO – Analyst Report) is also a concern.
Over the longer term, we expect the stock to perform in line with the broader market and maintain our Neutral recommendation. The company also holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
(We are reissuing this article to correct a mistake. The original article, issued July 21, should no longer be relied upon.)
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