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Noble's 2Q Profit Gallops

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Leading contract drilling company, Noble Corporation (NE - Free Report) reported adjusted second quarter 2012 earnings of 59 cents per share, outpacing the Zacks Consensus Estimate of 57 cents. The reported earnings also surged almost threefold from the year-earlier profit of 21 cents per share on the back of enduring strength in the offshore drilling business.

Total revenue in the quarter jumped approximately 43% to $898.9 million from $628.0 million in the comparable quarter last year. However, the quarterly figure missed the Zacks Consensus Estimate of $901.0 million. Contract Drilling Services contributed $848.2 million (up nearly 44.0% 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.

Operating Highlights

Total operating income in the quarter shot up significantly to $244.5 million from the year-ago level of $79.0 million. Operating income from the Contract Drilling segment experienced a solid annualized growth and recorded $246.2 million in the quarter versus $77.3 million in the year-earlier quarter.

Total rig utilization was 76% in the quarter compared with 70% a year ago. Overall average dayrate was $181,663 versus $140,296 in the year-ago quarter.

Average dayrate for semisubmersible rigs registered about 29% year-over-year improvement to $349,163. Average capacity utilization was 88% versus 85% in the year-ago period. Drillships experienced an average dayrate of $321,761 versus $220,953 in the year-ago quarter, while average capacity utilization was 65% versus 58% in the comparable quarter of last year.

Average dayrate for the company's jackups was $97,612 compared with $80,742 in the year-ago quarter. Average capacity utilization increased to 79% from the year-ago level of 71%.


At the end of the first quarter, the company had a cash balance of $275.3 million and long-term debt of $4.4 billion with debt-to-capitalization ratio of 35.0% (versus 35.1% in the preceding quarter). During the six-month period ending June 30, 2012, Noble invested $665.0 million in capital projects. Over the year, Noble expects to spend $1.9 billion in total, including approximately $618 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.

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. Its second quarter profits almost threefold, as costly downtime eased and revenue grew with the introduction of new rigs in Brazil and GoM.

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 June 30, 2012, stood at $14.4 billion, excluding the recent contract award for the newbuild drillship Noble Bob Douglas.

The owner of the world's third-largest offshore drilling fleet foresees continued successes for its offshore drilling business, particularly in the deepwater operations in the U.S. GoM, Africa, Brazil and throughout Asia Pacific.

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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