Leading contract drilling company, Noble Corporation (NE) reported third-quarter 2013 adjusted earnings of 85 cents per share. With a decrease in downtime and early start-up of two new rigs, the results comfortably surpassed the Zacks Consensus Estimate of 70 cents and improved the year-ago adjusted figure of 45 cents.
The total revenue in the quarter rose 22.0% to approximately $1,078.9 million from $884.0 million in the comparable quarter last year and almost matched our expectation of $1,078.0 million. Contract Drilling Services contributed $1,041.1 million to the total revenue, reflecting a year-over-year increase of 25.0% mainly on the start-up of two ultra-deepwater rigs and lower downtime.
Third Quarter Operating Highlights
Noble's total operating income shot up 111.5% to $378.4 million from the year-ago level of $178.9 million. Operating income from the Contract Drilling segment soared 120.7% year over year to $382.5 million from $173.3 million.
Total rig utilization improved to 85% from the year-earlier level of 78%. The overall average dayrate increased 15.4% to $194,645 from $168,608 in the year-ago quarter.
The average dayrate for semisubmersible rigs registered about a 14.5% year-over-year rise to $380,048. Average capacity utilization was 79% versus 83% in the year-ago period.
The average dayrate for Drillships increased about 32.2% year over year to $353,278. Average capacity utilization was 79% versus 73% in the year-ago period.
The average dayrate for Noble’s jackups was $112,414 compared with $97,857 in the year-ago quarter. Average capacity utilization increased to 94% from the year-ago level of 83%.
Noble has 80% of all rig days committed for the remainder of the year, including 84% of floating rig days and 83% of jackup rig days. For 2014, 71% of the rig days are booked, comprising 76% of the floater time and 72% of the jackup rig days.
Overall total backlog at the end of the third quarter was approximately $16.2 billion versus $16.0 billion at Jun 30, 2013. The increase reflects new contracts awarded to several jackups in the North Sea, West Africa and in the Middle East.
Financials
At the end of the third quarter, the company had a cash balance of approximately $178.4 million and long-term debt of $5,307.8 million, with a debt-to-capitalization ratio of 37.5% (versus 38.1% in second-quarter 2013). In the reported quarter, Noble invested $480.0 million in capital projects. For the entire year, the company expects total capex of $2.6 billion.
Zacks Rating
Noble currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
We expect the deepwater market segment to deliver strong growth in the foreseeable future. With Noble’s strong backlog position ($16.2 billion), its earnings and cash flow visibility will likely increase in the near-to-medium term.
However, Noble remains highly leveraged to the North Sea, where tax regime changes could have a significant impact on future demand. Moreover, its high dependence on few customers may also pose a risk.
Meanwhile, there are other oil and gas drilling firms that offer value and are worth considering. These include Ocean Rig UDW Inc. (ORIG) and Pioneer Energy Services Corp. (PES) which sport a Zacks Rank #1 (Strong Buy) or Seadrill Partners LLC (SDLP) which currently holds a Zacks Rank #2 (Buy).
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