We continue to remain Neutral on Noble Corp. (NE) – a provider of diversified services for the oil and gas industry – for the long term.
Noble 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 the upturn in the international jackup market along with increased tendering activity in the GoM will aid the company’s growth ahead.
Noble has made continuous endeavors to upgrade its fleet through acquisitions and newbuild projects. Currently, the company’s expansion includes 8 drillships and 6 newbuilds under construction, with deliveries expected over the next three years. These are expected to be accretive to earnings as Noble looks to lock these in term contracts at higher dayrates.
The company received three favorable extensions for its jackups – the Noble Bill Jennings, the Noble Eddie Paul and the Noble Leonard Jones from Mexico’s state oil monopoly – Pemex. The jackups will remain committed to Pemex from late 2014 through late 2015. Noble has contracted these jackups at increased rates.
However, we believe that on the arrival of newbuild rigs into the market, many of the company’s older rigs, floaters as well as scores of jackups, will face the threat of departure, resulting in a risk of earnings dilution from the retirement of older spec rigs. Hence, Noble’s old and less efficient fleet in a cut throat environment could prove detrimental.
Considering the scheduled downtime of Noble in the last reported quarter and the huge capex requirement to fund its aggressive fleet upgrade, the company’s operations face considerable threats.
Further, we believe that the introduction of new and more stringent regulations due to the oil spill will likely make deepwater drilling activity prohibitively expensive for exploration and production companies, making many projects marginal. This could reduce the demand for deepwater drilling and adversely affect companies like Noble.
Noble faces competition from Diamond Offshore Drilling Inc. (DO). The company holds a Zacks #3 Rank which is equivalent to a Hold rating for a period of one to three months.
DIAMOND OFFSHOR (DO): Free Stock Analysis Report
NOBLE CORP (NE): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment