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Noble Orders Fourth Drillship

NE RIG DO

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A contract drilling service provider, Noble Corporation (NE - Analyst Report) has exercised an option with Hyundai Heavy Industries Co. Ltd. ("HHI"), a South Korean ship builder, for the construction of the fourth ultra-deepwater drillship this year.

Noble will incur a cost of $630 million for the new rig, including the turnkey construction contract, company-furnished equipment, project management and spares. However, the costs exclude capitalized interest.

With the addition of the latest drilling rig, Noble will possess one of the most flexible as well as technologically advanced floater fleets in the industry with a total of 28 units, 16 of which will be dynamically positioned.

The unit is scheduled to come online in the second half of 2014 and will be constructed at HHI's shipyard in Ulsan, Korea on a fixed price basis. Upon delivery, the rig will go under a mobilization and acceptance period of 90–120 days before the commencement of any contract.

The Hyundai Gusto P10000 hull designed unit (to be named later) will operate in up to 12,000 feet under water, but will be delivered fully equipped to operate in up to 10,000 feet of water. It will also be well prepared to handle two complete blowout preventer systems with a heave-compensated construction crane and accommodations for 210 people.

Earlier this year, Noble signed a $1.2 billion contract with Hyundai for two ultra-deepwater drillships with the option for two more. The company is experiencing improved deepwater market conditions with an uptrend in oil prices and better bidding activity.

This outlook will be strengthened by geologic successes not only in the traditional regions offshore U.S. Gulf of Mexico (GoM) and Brazil, but also by emerging regions offshore West Africa, Indonesia, the Black Sea, India and eastern Africa.

Within the drilling space, we like Noble for its long-term growth strategy, geographically diversified fleet, potential acquisition and newbuilding. However, we remain cautious due to a number of headwinds that all offshore drillers face, including a lack of pricing power and the widespread effects of the GoM drill ban and related U.S. policies.

Tough competition from its larger peers such as Transocean Ltd. (RIG - Analyst Report) and Diamond Offshore Drilling Inc. (DO - Analyst Report) is also a concern. Our long-term Neutral recommendation for the stock remains unchanged and the company holds a Zacks #3 Rank (short-term Hold rating).

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