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Noble Misses but Utilization Grows

NE RIG DO

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Leading contract drilling company, Noble Corporation (NE - Analyst Report) reported fourth quarter 2011 earnings of 50 cents per share, missing the Zacks Consensus Estimate by a penny. However, reported earnings comprehensively beat the adjusted year-earlier profit of 39 cents per share, on the back of solid demand for its wide range of rigs and vessels.

For full-year 2011, Noble reported earnings of $1.46 per share compared with $3.02 per share in 2010. However, the full-year earnings beat the Zacks Consensus Estimate of $1.34.

Total revenue in the quarter climbed more than 16% to $751.0 million from $643.8 million in the comparable quarter last year. Contract Drilling Services contributed $719.7 million to the total revenue.

For 2011, total revenue stood at $2.7 billion compared with $2.8 billion in 2010.

Operating Highlights

Total operating income in the quarter shot up 39.1% year over year to $161.6 million. Operating income from the Contract Drilling segment experienced a 34.5% annualized growth.

Total rig utilization was 79% in the quarter compared with 73% in the year-ago quarter. Overall average dayrate was $150,027 versus $140,554 in the year-ago quarter.

Average dayrate for semisubmersible rigs registered 31.7% year-over-year improvement to $318,013. Average capacity utilization was 88% versus 69% in the year-ago period. Drillships experienced an average dayrate of $207,769 versus $302,753 in the year-ago quarter, while average capacity utilization was 50% versus 90% in the comparable quarter of last year.

Average dayrate for the company's jackups was $89,049 compared with $83,023 in the year-ago quarter. Average capacity utilization increased to 86% from the year-ago level of 76%.

Financials

At the end of the fourth quarter, the company had a cash balance of $239.2 million and long-term debt of $4,072.0 million with debt-to-capitalization ratio of 35.5% (versus 34.2% in the preceding quarter). During the quarter, Noble invested $652 million in capital projects.

Our Take

We reiterate our long-term Neutral recommendation 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 witnessing strong demand for its jackups and floating rigs for drilling operations in 2012 and beyond with improved utilization and dayrates in Mexico, North Sea, Middle East and India. Again, Brazil, Africa and the Gulf of Mexico (GoM) are showing more interest in Noble’s ultra-deepwater rigs.

We believe that 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 going forward.

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 December 31, 2011, stood at $13.7 billion.

However, tough competition from its larger peers such as Transocean Ltd. (RIG - Analyst Report) and Diamond Offshore Drilling Inc. (DO - Analyst Report) is a concern.

Over the longer term, we expect the stock to perform in line with the broader market. The company retains a Zacks #3 Rank, which is equivalent to a short-term Hold rating.

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