Noble 4Q Misses on Higher Downtime

Leading contract drilling company, Noble Corporation ( NE - Analyst Report ) reported fourth quarter 2012 earnings of 50 cents per share. The results failed to meet the Zacks Consensus Estimate of 62 cents and were flat year over year. The underperformance stemmed mainly from the extended downtime in the deepwater rigs.

However, total revenue in the quarter jumped almost 29% to $966.4 million from $751.0 million in the comparable quarter last year, and surpassed the Zacks Consensus Estimate of $963.0 million. Contract Drilling Services contributed $921.6 million to the total revenue, reflecting a year-over-year increase of 28.1% mainly on the back of improved operating days and higher average dayrates.

Full-year 2012 earnings registered a 40.4% jump from the year-earlier level to $2.05 per share. Total revenue increased 31.6% year over year to reach $3,547.0 million in 2012.

Fourth Quarter Operating Highlights

Total operating income in the quarter shot up 34.1% to $216.7 million from the year-ago level of $161.6 million. Operating income from the Contract Drilling segment experienced a 35.8% annualized growth and recorded $212.3 million in the quarter versus $156.3 million in the year-earlier quarter.

Total rig utilization in the quarter improved to 83% from the year-earlier quarter level of 79%. The overall average dayrate surged 16.0% to $174,065 from $150,027 in the year-ago quarter.

The average dayrate for semisubmersible rigs registered about 13.3% year-over-year improvement to $360,226. Average capacity utilization was 85% versus 88% in the year-ago period. Drillships experienced an average dayrate of $255,667 versus $207,769 in the year-ago quarter, while average capacity utilization was 82% versus 50% in the comparable quarter of last year.

The average dayrate for the company's jackups was $100,356 compared with $89,049 in the year-ago quarter. Average capacity utilization increased to 89% from the year-ago level of 86%. The company has 74% of all rig days committed for this year, including 81% of floating rig days and 75% of jackup rig days. For 2014, 50% of the rig days are booked, comprising 71% of the floater time.

Financials

At the end of the fourth quarter, the company had a cash balance of $282.1 million and long-term debt of $4,634.4 million, with debt-to-capitalization ratio of 35.3% (versus 35.6% in the preceding quarter). At year-end 2012, Noble invested $1.7 billion in capital projects.

Our Take

Noble Corporation is a leading offshore drilling contractor and provider of diversified services for the oil and gas industry.

The company’s initial operations on five high-end drilling ships were lower than expected due to some critical mechanism. The five rigs accounted for 33% of the company's downtime during the fourth quarter. Among these five units, three state-of-the-art, ultra-deepwater units were added in 2012 and two went for major maintenance work before being put back into service.

Although the company's fourth quarter results were adversely affected by a number of operational issues and delays in returning rigs to work, its fundamentals remain strong. The company remains committed to the fleet modernization program, accompanied with improved revenue efficiency through lower fleet downtime. Noble also remains enthusiastic about increasing its geographic diversity, and is spreading out to areas like Southeast Asia.

The owner of the world's third-largest offshore drilling fleet also foresees continued successes for its offshore drilling business.

We see long-term earnings and cash flow visibility in Noble's impressive backlog position, which will be enhanced by the recent agreement for newbuilds. The company's backlog, as of Dec 31, 2012, stood at $14.3 billion, representing a 4.4% increase from $13.7 billion at Dec 31, 2011.

Noble retains a Zacks Rank #3, which is equivalent to a short-term Hold rating. Other companies in the industry which are expected to perform well in the coming one to three months include Seadrill Partners LLC ( SDLP - Snapshot Report ) with a Zacks Rank #1 (Strong Buy), Hercules Offshore, Inc. ( HERO - Snapshot Report ) and Vantage Drilling Company ( VTG - Snapshot Report ) . Both these stocks carry a Zacks Rank #2 (Buy).