Noble Inks $79M Rig Sale Deals

Noble Corporation ( NE - Analyst Report ) inked a pair of agreements for the sale of jackup rigs. The total consideration of the transactions is around $79 million. Both the deals are expected to close by early next year, subject to necessary closing conditions.

Under the first deal, Noble intends to sell jackup Noble Lewis Dugger to an affiliate of Mexico's Goimar SA de CV for $61 million. The rig is capable of performing operations at a water depth of 300 feet. The unit is presently under contract with PEMEX and hence the deal will get closed as the PEMEX contract expires.

The second agreement calls for the sale of a rig capable of drilling at 150-foot water depth to Nigeria's Axxis Petroconsultants Ltd. for $18 million. This unit has been idle in Cameroon since the last three years.

Switzerland-based Noble is a provider of diversified services for the oil and gas industry. The company has made continuous endeavors to upgrade its fleet through acquisitions or divestitures as well as through newbuild projects.

We remain optimistic on Noble given its long-term growth strategy, geographically diversified fleet, potential acquisitions and newbuilding. We see long-term earnings and cash flow visibility with the company’s solid backlog position, which was further enhanced by its agreements for newbuilds. We remain upbeat on the company due to strong oil prices and growing jackup rig demand in the core markets of the Arabian Gulf, North Sea, Mexico, the Middle East and Southeast Asia.

Although the company’s third quarter results were adversely affected by a number of operational issues and delays in returning rigs to work, the fundamentals remain strong and Noble remains busy in securing contracts for both floating and jackup rigs at significantly higher dayrates. The owner of the world's third-largest offshore drilling fleet foresees continued successes for its offshore drilling business.

However, we are cautious as offshore drillers face a number of headwinds, including the lack of pricing power and geopolitical risks associated with international operations and operational challenges. Again, 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.