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Noble Beats Bottom Line, Misses Rev

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Leading contract drilling company, Noble Corporation (NE - Free Report) reported first quarter 2012 earnings of 47 cents per share, outpacing the Zacks Consensus Estimate of 41 cents. The reported earnings also improved significantly from the year-earlier profit of 21 cents per share on the back of solid demand for its wide range of rigs and vessels.

Total revenue in the quarter jumped nearly 38% to $797.7 million from $578.9 million in the comparable quarter last year. However, the quarterly figure missed the Zacks Consensus Estimate of $802.0 million. Contract Drilling Services contributed $746.3 million (up 37.5% year over year) to the total revenue, mainly due to reduced downtime, especially among the company's floating rigs in offshore U.S. Gulf of Mexico (GoM) and Brazil, accompanied by improved dayrates, mobilization fees and incentive bonuses.

Operating Highlights

Total operating income in the quarter shot up 66.5% year over year to $143.6 million. Operating income from the Contract Drilling segment experienced an impressive 65.6% annualized growth.

Total rig utilization was 74% in the quarter compared with 61% a year ago. Overall average dayrate was $167,124 versus $150,294 in the year-ago quarter.

Average dayrate for semisubmersible rigs registered nearly 28% year-over-year improvement to $355,098. Average capacity utilization was 86% versus 69% in the year-ago period. Drillships experienced an average dayrate of $278,693 versus $301,647 in the year-ago quarter, while average capacity utilization was 51% versus 70% in the comparable quarter of last year.

Average dayrate for the company's jackups was $90,382 compared with $80,866 in the year-ago quarter. Average capacity utilization increased to 79% from the year-ago level of 62%.


At the end of the first quarter, the company had a cash balance of $208.8 million and long-term debt of $4.4 billion with debt-to-capitalization ratio of 35.1% (versus 35.5% in the preceding quarter). During the quarter, Noble invested $368 million in capital projects. Over the year, Noble expects to spend $1.9 billion in total, including approximately $650 million for newbuild construction programs.

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 the GoM, Brazil and North Sea. The completion of 14 projects will position Noble among the industry’s premium fleets given its solid industry fundamentals and demand, particularly in the ultra-deepwater regime.

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 March 31, 2012, stood at $14.5 billion.

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