Leading contract drilling company Noble Corporation (NE) has reported third quarter 2011 earnings of 49 cents per share (excluding one-time items), which missed the Zacks Consensus Estimate of 53 cents. However, quarterly earnings were much ahead of the adjusted year-earlier profit of 39 cents, fueled by solid demand for its wide range of rigs and vessels.
Total revenue in the quarter climbed more than 20% to $737.9 million from $612.6 million in the comparable quarter last year. Contract Drilling Services contributed $704.9 million to the total revenue.
Operating Highlights
Total operating income in the quarter shot up almost 51% year over year to $163.6 million. Operating income from the Contract Drilling segment experienced a 46.3% annualized growth.
Total rig utilization was 76% compared with 79% in the year-ago quarter. Overall average dayrate was $151,782 versus $126,581 in the year-ago quarter.
Average dayrate for semisubmersible rigs registered an approximately 82.4% year-over-year improvement to $315,034. Average capacity utilization was 84% versus 90% in the year-ago period. Drillships experienced an average dayrate of $225,669 versus $229,963 in the year-ago quarter, while average capacity utilization was 60% versus 100% in the comparable quarter of last year.
Average dayrate for the company's jackups was $89,352 compared with $90,791 in the year-ago quarter. Average capacity utilization increased to 82% from the year-ago level of 77%.
Financials
At the end of the third quarter, the company had a cash balance of $197.0 million and long-term debt of $3,811.9 million with debt-to-capitalization ratio of 34.2% (versus 32.8% in the preceding quarter). During the quarter, Noble invested $559 million in capital projects.
Our Take
We reiterate our long-term Neutral rating on Noble Corporation, a leading offshore drilling contractor and provider of diversified services for the oil and gas industry. It also provides labor contract drilling, engineering and consulting, and project management services through a fleet of 79 mobile offshore drilling units.
The company is experiencing strong demand for its jackup and floating rigs for drilling operations in 2012 and beyond with improved utilization and dayrates in Mexico, North Sea, Middle East and Asia. Again, Brazil, Africa and the Gulf of Mexico (GoM) are showing more interest in Noble’s ultra-deepwater rigs.
We believe Noble will 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 increased tendering activity in the GoM will aid the company’s growth ahead.
Moreover, 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 September 30, 2011, stood at $12.8 billion.
However, tough competition from its larger peers such as Transocean Ltd. (RIG) and Diamond Offshore Drilling Inc. (DO) is 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.
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