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Leading contract drilling company, Noble Corporation (NE - Analyst Report), reported second-quarter 2013 adjusted earnings of 63 cents per share. With a decrease in downtime along with dayrates improvement, the results surpassed both the Zacks Consensus Estimate of 56 cents and the year-ago adjusted figure of 59 cents.

The total revenue in the quarter rose 13.2% to almost $1,017.4 million from $898.9 million in the comparable quarter last year. The top line also beat the Zacks Consensus Estimate of $1,015.0 million. Contract Drilling Services contributed $975.5 million to the total revenue, reflecting a year-over-year increase of 15.0% mainly on improved fleet utilization and higher average dayrates.

First Quarter Operating Highlights

The total operating income increased 3.9% to $253.9 million from the year-ago level of $244.5 million. Operating income from the Contract Drilling segment rose 3.0% year over year to $253.6 million from $246.2 million.

Total rig utilization improved to 83% from the year-earlier level of 76%. The overall average dayrate surged 3.2% to $187,537 from $181,663 in the year-ago quarter.

The average dayrate for semisubmersible rigs registered about a 6.0% year-over-year rise to $370,117. Average capacity utilization was 76% versus 88% in the year-ago period.

The average dayrate for Drillships fell about 5.5% year-over-year to $311,490. Average capacity utilization was 78% versus 65% in the year-ago period.

The average dayrate for Noble’s jackups was $116,266 compared with $97,612 in the year-ago quarter. Average capacity utilization increased to 92% from the year-ago level of 79%.

Noble has 78% of all rig days committed for this year, including 82% of floating rig days and 82% of jackup rig days. For 2014, 60% of the rig days are booked, comprising 80% of the floater time and 52% of the jackup rig days. Overall total backlog at the end of the second quarter was approximately $16.0 billion versus $14.0 billion as of Jun 30, 2013.

Financials

At the end of the second quarter, the company had a cash balance of $166.2 million and long-term debt of $5,276.3 million, with a debt-to-capitalization ratio of 38.1% (versus 36.0% in first -quarter 2013). In the reported quarter, Noble invested $872.0 million in capital projects.

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 ($16.0 billion), its earnings and cash flow visibility will be more promising in the near- to-medium term. Noble’s backlog is expected to grow further on the recent agreement for newbuilds.

However, Noble remains highly leveraged to the North Sea, where tax regime changes could have a significant impact on the future demand. Moreover, its high dependence on a select 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 Atwood Oceanics Inc. (ATW - Snapshot Report), Ocean Rig UDW Inc. (ORIG - Snapshot Report) and Parker Drilling Co. (PKD - Snapshot Report). All three firms sport a Zacks Rank #2 (Buy).

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